Posts Tagged ‘Obama’

Obama, Republicans Plan Last-Minute Talks on Sequestration

Thursday, February 28th, 2013

Originally posted to reuters.com – February 28, 2013

Positions hardened on Wednesday between U.S. President Barack Obama and Republican congressional leaders over the budget crisis even as they arranged to hold last-ditch talks to prevent harsh automatic spending cuts beginning this week.

Looking resigned to the $85 billion in “sequestration” cuts starting on Friday, government agencies began reducing costs and spelling out to employees how furloughs will work.

Expectations were low that a White House meeting on Friday between Obama and congressional leaders, including Republican foes, would produce any deal to avoid the cuts.

Speaking to a business group, Obama said the cuts could shave 0.6 percentage points or more from already anemic growth and urged executives to pressure Congress into compromising on a broad deficit reduction package.

“Whether that can be done in the next two days – I haven’t seen things done in two days in Washington in quite some time,” Obama told the Business Council, which is composed of chief executives of major U.S. corporations. “The good news is that the public is beginning to pay attention to this.”

Public services across the country – from air traffic control to food safety inspections and education – might be disrupted if the cuts go ahead.

Put into law in 2011 as part of an earlier fiscal crisis, sequestration is unloved by both parties because of the economic pain it will cause, but the politicians cannot agree how to stop it.

A deal in Congress on less drastic spending cuts, perhaps with tax increases too, is needed by Friday to halt the sequestration reductions, which are split between social programs cherished by Democrats and defense spending championed by Republicans.

Obama stuck by his demand that Republicans accept tax increases in the form of eliminating tax loopholes enjoyed mostly by the wealthy as part of a balanced approach to avoiding sequestration.

“There is no alternative in the president’s mind to balance,” White House spokesman Jay Carney told reporters.

Obama wants to end tax breaks for oil and gas companies and the lower “carried interest” tax rate enjoyed by hedge funds.

But Republicans who reluctantly agreed to raise income tax rates on the rich to avert the “fiscal cliff” crisis in December are in no mood for that.

“One thing Americans simply will not accept is another tax increase to replace spending reductions we already agreed to,” said Senate Republican leader Mitch McConnell.

In one of the first concrete effects of the cuts, the administration took the unusual step of freeing several hundred detained illegal immigrants because of the cost of holding them.

Republicans described that move by Immigration and Customs Enforcement (ICE) as a political stunt aimed at scaring them into agreeing to end the sequestration on Obama’s terms.

The issue looked like it might become more controversial on Wednesday when the Associated Press reported that the Homeland Security Department official in charge of immigration enforcement and removal had announced his resignation on Tuesday just after news of the immigrants’ releases came out.

But ICE said the report was “misleading.” The official, Gary Mead, told ICE weeks ago of his retirement in April after 40 years of federal service, a spokeswoman said. Earlier, Carney denied the White House had ordered the immigrants’ release.

Friday’s White House meeting will include McConnell and the other key congressional leaders: Senate Democratic leader Harry Reid, House of Representatives Democratic leader Nancy Pelosi, and House Speaker John Boehner, the top U.S. Republican.

‘BELATED FARCE’?

The chances of success were not high.

One congressional Republican aide criticized the White House for calling the meeting for the day the cuts were coming into effect. “Either someone needs to buy the White House a calendar, or this is just a – belated – farce. They ought to at least pretend to try.”

Unlike during other fiscal fights in Congress, the stock market is taking the sequestration impasse calmly.

U.S. stocks rose, with major indexes posting their best daily gains since early January, as Federal Reserve Chairman Ben Bernanke remained steadfast in supporting the Fed’s stimulus policy and data pointed to economic improvement.

On Thursday, the Senate is expected to vote on competing Democratic and Republican ideas for replacing the sequestration. Both measures are expected to be defeated.

The Republican plan unveiled late on Wednesday would let the sequestration go into effect on Friday, but require Obama to submit an alternative $85 billion spending reduction plan to Congress by March 15, thus allowing more flexibility on how the cuts would be carried out.

Congress would have until March 22 to reject the proposal, in which case the original sequestration would remain in place. Democrats were still studying it. But on Tuesday, Senate Majority Leader Harry Reid said new revenues needed to be part of any substitute plan.

The Democratic proposal would replace the across-the-board cuts mainly with tax increases on the rich coupled with spending cuts. Some of those would be achieved by eliminating crop subsidies for large agricultural companies. More savings would be through minor defense cuts in later years.

Republicans have vowed to block any tax increases for deficit reduction.

Bernanke said sequestration was too drastic an approach for reducing the budget deficit.

“What I am advising is a more gradual approach. I’m not saying we should ignore the deficit. I am not saying we shouldn’t deal with long-term fiscal issues, but I think that from the perspective of our recovery, a more gradual approach would be constructive,” he told a House Financial Services Committee hearing.

Among many warnings from the Obama administration of possible damage to public services, the Air Force said its Thunderbirds exhibition flying team is expected to be grounded if sequestration happens.

The Pentagon will put most of its 800,000 civilian employees on unpaid leave for 22 days, slash ship and aircraft maintenance and curtail training.

But the full weight of sequestration will take place over seven months, allowing Obama and the Republicans time to work out a deal after the cuts begin this week.

White House spokesman Carney said sequestration would officially start just before midnight on Friday night if no deal were reached.

Government agencies began to tell employees how sequestration will force them to take furloughs. The Environmental Protection Agency acting head, Bob Perciasepe, told employees in an email that the agency did not know how much of its budget will be cut but it was working on an estimate of 5 percent.

“What might that mean for our employees? If the sequester order requires a 5.0% cut, the impact could be up to 13 furlough days,” he said. That would likely mean four furlough days by June 1, he said.

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‘Fiscal cliff’ Talks at a Stalemate Over Tax Hikes

Thursday, December 13th, 2012

originally published in the Washington Post

As the White House and Republican leaders enter the final month of negotiations to avoid a year-end “fiscal cliff,” both sides struck an uncompromising tone Sunday, as warnings mounted that they will be unable to forge an agreement to stop an automatic series of deep spending cuts and large tax hikes that could push the economy into recession.

Following private meetings last week, the senior negotiators for the White House and the Republicans took to the airwaves Sunday to accuse the other side of intransigence and to demand that the opposition concede on the central question of how much to raise taxes on the wealthy.

“Right now, I would say we’re nowhere, period. We’re nowhere,” House Speaker John A. Boehner (R-Ohio) said on “Fox News Sunday.” Boehner added that the Republicans have offered a way to break the stalemate — by compromising on an overhaul of the tax code that would limit deductions that disproportionately benefit the rich.

But Treasury Secretary Timothy F. Geithner rejected that proposal Sunday, insisting that the wealthy pay higher tax rates and that Republicans come forward with a plan that meets that requirement. “There’s no path to an agreement that does not involve Republicans acknowledging that rates have to go up on the wealthiest Americans,” he said on NBC’s “Meet the Press.”

While it had always seemed likely that the two sides would reach a stalemate before finally coming to agreement — as has been the pattern over the past two years — lawmakers and congressional aides tracking the back-and-forth said there’s a growing probability that no deal will be reached in time to avoid the fiscal cliff.

“I think we’re going over the cliff,” Sen. Lindsey O. Graham (R-S.C.) said on CBS’s “Face the Nation.”

Geithner appeared on five Sunday morning news shows — and Boehner on one — amid an intensifying public-relations blitz related to the fiscal cliff. President Obama took his first domestic trip since winning reelection to the Philadelphia suburbs on Friday to press Republicans, which was followed by a Boehner news conference.

This week, Obama will gather with governors and make a speech to the Business Roundtable, a lobby group representing big business, to urge lawmakers to embrace his tax proposals. Boehner will meet with governors and rally with small-business owners against tax increases.

The debate over how to raise taxes on the wealthy is part of the broader discussion over how to reduce federal borrowing over the next decade. At the end of the year, tax rates are scheduled to increase on nearly all Americans, raising hundreds of billions of dollars of new tax revenue but costing the average family about $2,000 a year in take-home pay.

Obama wants to freeze tax rates for most Americans while allowing them to rise as high as 39.6 percent for the wealthiest people — defined as earning over $250,000 per year. That will reduce federal borrowing by about $1 trillion over a decade.

“There’s just no reason why 98 percent of Americans have to see their taxes go up because some members of Congress on the Republican side want to block tax rate increases for 2 percent of the wealthiest Americans,” Geithner said Sunday.

Then next year, Obama wants to overhaul the tax code to clean out deductions and loopholes that benefit the rich and some sectors such as the financial industry. That, the administration estimates, would generate about $600 billion in savings over a decade.Republicans, meanwhile, do not want to raise taxes on anyone. But in the wake of their electoral defeat last month, they have acknowledged that the wealthy will have to pay more. They want to raise about $800 billion in new revenue over the decade through an overhaul of the tax code that limits deductions. Higher rates, they say, will dissuade work and investment and hurt small businesses, and thus be a drag on economic growth.

Both sides agree that as a principle, keeping tax rates low while eliminating deductions is better than increasing tax rates. But Democrats say it’s not possible to preserve enough spending on government programs without raising well over $1 trillion in new tax revenues during the next decade — and they don’t believe it’s possible to do that without raising rates on the wealthy, raising taxes on the middle class, or dramatically scaling back worthwhile deductions such as the one for charitable giving.

Last week, in a private meeting with Boehner, Geithner made the Obama administration’s opening bid in the fiscal cliff talks — largely a reprisal of policies the administration has already advocated. In addition to $1.6 trillion in new tax revenue, the proposal called for $600 billion in spending cuts, a majority of it from Medicare and Medicaid, as well as a new policy to allow the president to raise the statutory limit on federal borrowing without a majority of Congress approving.

That would come on top of $1 trillion in spending cuts that were agreed to in 2011 and $800 billion in savings from the end of the wars in Afghanistan and Iraq.

Republicans dismissed the proposal as laughable. “I was flabbergasted. I looked at him and said, ‘You can’t be serious,’ ” Boehner said Sunday. “I’ve just never seen anything like it. You know, we’ve got seven weeks between Election Day and the end of the year, and three of those weeks have been wasted with this nonsense.”

The White House also has opened the door to a compromise that would increase rates on upper-income earners by less than the full amount they are scheduled to rise next year, when the top brackets rise from 33 to 35 percent and 35 to 39.6 percent. But Republicans have not agreed.

“It’s welcome that they’re recognizing that revenues are going to have to go up, but they haven’t told us anything about how far rates should go up, how far revenues should go up,” Geithner said.

Beyond openness to new revenues through an overhaul of the tax code, Republicans insist on significant savings from the nation’s health-care entitlements, as well as Social Security.

In talks with Boehner in the summer of 2011 over a deal to slow borrowing, Obama was willing to adopt a stingier formula for making cost-of-living adjustments to Social Security. But in this round of talks, the White House says it won’t make any changes to the program.

“We are prepared to, in a separate process, look at how to strengthen Social Security, but not as part of a process to reduce the other deficits the country faces,” Geithner said.

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Berkshire Tax Return Could be One for the Record Books

Monday, February 27th, 2012

From – AccountingToday.com

Berkshire Hathaway chairman Warren Buffett hinted in his annual letter to shareholders that the holding company’s nearly 18,000-page tax return may merit the attention of the Guinness Book of World Records.

Referring to the people who work with the operating managers, he noted, “Equally important, however, are the 23 men and women who work with me at our corporate office (all on one floor, which is the way we intend to keep it!). This group efficiently deals with a multitude of SEC and other regulatory requirements and files a 17,839-page Federal income tax return—hello, Guinness!—as well as state and foreign returns.”

Even at that length, though, Berkshire’s tax return would be dwarfed by General Electric’s, which reportedly runs about 57,000 pages, so it probably won’t end up in the record books, for this year at least.

Buffett’s tax policies have generated considerable attention in the past year after he wrote a New York Times editorial calling for changes in the Tax Code to tax the “super-rich” at a higher rate to ensure they don’t pay a lower tax rate than their secretaries (see Buffett Says Tax Code is ‘Coddling the Super-Rich’). The editorial led to the “so-called” Buffett Rule, which President Obama cited in his State of the Union address and included in his 2013 budget plan. However, Buffett has also been criticized for the disputes that his company has gotten into with the Internal Revenue Service over the back taxes that the IRS says it owes.

“Investing is often described as the process of laying out money now in the expectation of receiving more money in the future,” Buffett wrote in his shareholder letter Saturday. “At Berkshire we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power—after taxes have been paid on nominal gains—in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.” For more information please see Berkshire Tax Return Could be One for the Record Books on AccountingToday.com.

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‘Taxmageddon’ looms at end of payroll tax holiday

Monday, February 20th, 2012

From – Washingtonpost.com

With Congress voting last week to extend the payroll tax holiday, 160 million workers will be spared an immediate tax hike. But the move leaves them facing an even bigger hit in January, when the holiday ends and the payroll tax joins a long list of levies already set to sharply and abruptly go up.

On Dec. 31, the George W. Bush-era tax cuts are scheduled to expire, raising rates on investment income, estates and gifts, and earnings at all levels. Overnight, the marriage penalty for joint filers will spring back to life, the value of the child credit will drop from $1,000 to $500, and the rate everyone pays on the first $8,700 of wages will jump from 10 percent to 15 percent.

The Social Security payroll tax will pop back up to 6.2 percent from 4.2 percent under the deal approved Friday by Congress. And new Medicare taxes enacted as part of President Obama’s health-care initiative will for the first time strike high-income households.

The potential shock to the nation’s pocketbook is so enormous, congressional aides have dubbed it “Taxmageddon.” Some economists say it could push the fragile U.S. economy back into recession, particularly if automatic cuts to federal agencies, also set for January, are permitted to take effect.

Obama and congressional Republicans say they hope to avert the coming blow, which stands to suck roughly $500 billion out of the economy in 2013. But both sides are bracing for another epic showdown in the weeks after the November election, as Democrats prepare to use Taxmageddon to break the partisan impasse over taxes that has blocked action on an array of issues, from modernizing the nation’s infrastructure to taming the national debt.

“I see the framework of a big agreement in the lame-duck [congressional session] to finally put this divisiveness behind us,” said Rep. Richard E. Neal (D-Mass.), a senior member of the tax-writing House Ways and Means Committee. “Obama’s going to have great leverage to get something done.”

Since they took control of the House last year, congressional Republicans have needed nothing from Obama. They were the holdouts, demanding big cuts in federal spending in exchange for helping Obama keep the government open and raise the legal limit on government borrowing, known as the debt ceiling.

But in December, deadlock will cut the other way. Republicans need Obama if they want to prevent one of the biggest tax increases in U.S. history — nearly $5 trillion over the next decade, by official estimates — and block deep cuts to the Pentagon that could be triggered as part of last summer’s debt-ceiling accord.

The tax shock is set to occur after the Nov. 6 election but before the new Congress — and potentially a new president — take office two months later. While the outcome of the contest is likely to color the tax debate, Obama will either be freshly reelected or on his way out and, therefore, free to play hardball with Congress.

White House officials say Obama will not sign another full extension of the Bush tax cuts, as he did in December 2010. Obama is demanding a partial extension that would preserve the cuts for middle-class taxpayers but permit rates to rise on household income over $250,000.

“The president has made clear that he will veto any bill that extends the Bush-era tax rates for the wealthiest 2 percent of individuals,” White House spokeswoman Amy Brundage said. “We will continue to fight for tax relief for the middle class and those trying to get in it, while insisting on a policy that asks the wealthiest individuals to pay their fair share.”

Many Republicans and outside analysts say they doubt Obama would make good on his veto threat. Allowing all of the Bush tax cuts to expire would harm middle-class taxpayers, along with the wealthy, and carry grave risks for the economy.

“My forecast is that tax rates are not going to rise for everyone on January 1, 2013,” said Mark Zandi, chief economist for Moody’s Analytics, who predicted that Taxmageddon, combined with the cuts from the debt-ceiling deal, would slash economic growth by nearly three percentage points next year. “That would be pretty difficult for the economy to overcome.”

Still, Democratic spines may be stiffened by polls showing broad support for their latest tax strategy, which emphasizes higher taxes for millionaires rather than the merely well-off. A recent Washington Post-ABC News poll found that 72 percent of Americans support raising taxes on people with incomes over $1 million a year, in line with Obama’s call for a “Buffett Rule” that would require those families to pay an effective tax rate of at least 30 percent.

“The tax issue, for the first time in decades, has flipped so Democrats actually have the high ground,” said Sen. Charles E. Schumer (N.Y.), the No. 3 Senate Democrat and the man who came up with the idea of raising the income threshold. “Most Americans share our belief that, while the middle class should not pay an increase in taxes, the wealthiest among us should.”

He said Senate Democrats plan to press that advantage in the coming months, staging numerous votes on issues of tax “fairness.” Republican reluctance to target the rich is their “Achilles’ heel” politically, he said.

Schumer predicted that before November, Republicans would drop their opposition to tax increases for millionaires. “Politically, it’s going to be very harmful to say, ‘I’m not for something like the Buffett Rule, when even 60 percent of Republicans are for it,” he said.

Many Republicans maintain that they would never raise taxes on a group the GOP views as small-business owners and “job creators.” Besides, Republican strategists said, they are likely to have bargaining chips of their own in December.

For instance, without congressional action, nearly 30 million families will have to pay the alternative minimum tax, which adds thousands of dollars to the average tax bill, in April 2013. Congress typically protects those people through annual adjustments, and the latest “AMT patch” expired in December.

Another potential GOP tactical advantage: the debt ceiling. Treasury Secretary Timothy F. Geithner acknowledged in congressional testimony last week that Obama may need Congress to raise the legal limit on borrowing, now set at $16.4 trillion, before the end of the year.

“This idea that they hold all the cards? They don’t,” said a senior Republican Senate aide. “We’ve got more leverage than these crowing Democrats like to think.”

Then there’s the matter of the election itself. With control of both chambers of Congress and the White House all potentially in play Nov. 6, the voters could upend Democrats’ best-laid plans. If Republicans claim the White House and the Senate after an election waged in part over tax policy, demoralized Democrats might agree to extend all the Bush cuts without a fight.

“It depends on who’s president,” said Sen. Orrin G. Hatch (Utah), the senior Republican on the Senate Finance Committee. If Obama is reelected and Democrats hold the Senate, he said, “it makes it much more difficult” for Republicans to press for a full extension.

While some Republicans are ready to man the tax barricades, among others the GOP’s anti-tax orthodoxy is starting to crack. Forty Republicans in the House and 32 in the Senate have endorsed the concept of a grand bargain to tackle the national debt, which would require Republicans to raise taxes and Democrats to accept cuts in federal health and retirement benefits. With Obama continuing to call for a grand bargain, that group is working with Democrats behind the scenes to draft a plan able to win bipartisan support.

Meanwhile, House Armed Services Committee Chairman Howard “Buck” McKeon (R-Calif.) has said he would take higher taxes over defense cuts. And during unsuccessful debt-reduction talks last year, Sen. Patrick J. Toomey (R-Pa.), one of the Senate’s most ardent conservatives, drafted a plan that would have included $300 billion in new revenue over a decade.

“I think one of the reasons that you saw Pat Toomey offer what he did is a realization that we’re going to have a $5 trillion tax increase at the end of the year,” said Sen. Bob Corker (R-Tenn.). “Hopefully, this year we’ll actually do something constructive and work out something that’s sensible over the long haul.”

For more information please see Taxageddon looms at end of payroll tax holiday at the Washingtonpost.com

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Jobless rate at 3-year low as payrolls surge

Friday, February 3rd, 2012

From – Reuters

The United States created jobs at the fastest pace in nine months in January and the unemployment rate unexpectedly dropped to a near three-year low, giving a boost to President Barack Obama.

Nonfarm payrolls jumped 243,000, the Labor Department said on Friday, as factory jobs grew by the most in a year. The jobless rate fell to 8.3 percent – the lowest since February 2009 – from 8.5 percent in December.

The gain in employment was the largest since April and it far outstripped the 150,000 predicted in a Reuters poll of economists. It hinted at underlying economic strength and lessened chances of further stimulus from the Federal Reserve.

“More pistons in the economic engine have begun to fire, pointing to accelerating economic growth. One of the happiest persons reading this job report is President Obama,” said Sung Won Sohn, an economics professor at California State University Channel Islands.

The payroll gains were widespread – from retail to temporary help, and from construction to manufacturing – an indication the recovery was becoming more durable.

A survey of households showed the unemployment rate declined even as new job seekers flooded into the labor force. Economists had expected the jobless rate, which has now fallen 0.8 percentage point since August, to hold steady.

“I think this is a sign that maybe the economy is reaching that holy grail of a self-sustaining economic expansion,” Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh, told Reuters Insider.

The outlook was further brightened by a separate report showing service sector activity quickened last month to a near one-year high. A gauge of service sector employment touched a six-year high.

The fairly upbeat data buoyed stocks on Wall Street, with the tech-heavy Nasdaq Composite index hitting an 11-year high. The Dow Jones industrial average rose to a near four year high, while the Standard & Poor’s index extended its 2012 advance to about 7 percent.

U.S. Treasury debt prices tumbled as investors dialed back expectations on Fed easing. The dollar was little changed against a basket of currencies after rising earlier in the session.

The employment report contrasted with a fairly glum assessment of the economy offered by the Fed last week.

Officials at the central bank have been debating whether to buy more bonds – a program dubbed QE3 – to drive interest rates lower. It also raised doubts about the Fed’s expectation that it could hold interest rates near zero at least through late 2014.

“At the very least this scales back QE3 (quantitative easing) odds. The surprisingly persistent decline in the unemployment rate also calls into question how firmly wedded the Fed is to the late-2014 rate guidance,” said Michael Feroli, an economist at JPMorgan in New York.

Interest rate futures indicated that at least some traders were beginning to lay bets the Fed could move interest rates up in early 2014.

Fed fund futures were pricing in a 38 percent chance of a January 2014 rate hike, up from 29 percent before the report, and the first better than even chance of a rate hike was in April 2014, according to CME Group, where the contracts are traded.

However, economists at most leading Wall Street firms still believe the Fed will undertake another bond-buying program, according to a Reuters poll.

DON’T MUCK IT UP

Obama welcomed the strong jobs report and urged Congress to extend a payroll tax cut and benefits for long-term unemployed, which expire at the end of this month.

“Now is not is not the time for self-inflicted wounds to our economy. I want to send a clear message for Congress. Do not slow down the recovery that we are on, don’t muck it up,” he said at a firehouse in Arlington, Virginia.

Republicans acknowledged the improvement in the labor market, but said the jobless rate was still too high.

“Our economy still isn’t creating jobs the way it should be and that’s why we need a new approach,” said House Speaker John Boehner.

While employment growth has quickened there are no jobs for three out of every four unemployed people and 23.8 million Americans are either out of work or underemployed. The level of employment is still 5.57 million from its pre-recession level.

But steady progress is being made. The economy added 60,000 more jobs in November and December than previously reported.

In addition, average hourly earnings rose four cents, which should help to support spending. The report suggested that expectations of a slowdown in U.S. economic growth in the first quarter were not yet impacting on companies’ hiring decisions.

Employment in the private sector surged 257,000 – the largest gain since April. Government payrolls fell 14,000, the least since September.

U.S. economic growth accelerated to a 2.8 percent annual rate in the final three months of 2011, but it was widely expected to slow as businesses ease back on efforts to rebuild inventories and exports slip amid a likely recession in Europe.

Some economists cautioned that January’s jobs figures could overstate the pulse of the recovery, citing still lackluster consumer confidence, income and spending growth.

While some said the jobless rate could drop below 8 percent by year end, others warned it would likely move up in the near-term as people who had given up the search for a job re-enter the workforce.

“For this to mark an upturn in the labor market, then businesses will have to continue to hire on this scale throughout the winter,” said Kathy Bostjancic, director of macroeconomic analysis at the Conference Board in New York.

CAUTIOUS OPTIMISM

The unemployment rate has now declined for five straight months, although part of the drop reflects discouraged Americans giving up the hunt for work.

A broad measure of unemployment, which includes people who want to work but have stopped looking and those working only part time but who want more work, slipped to a near three-year low of 15.1 percent in January from 15.2 percent in December.

Revisions to the payrolls figures showed 180,000 more jobs were created last year than previously believed.

Mild winter weather boosted employment last month in construction, which added 21,000 jobs after a 31,000 increase in December. Manufacturing payrolls surged 50,000, the largest gain in a year, after rising 32,000 the prior month.

Overall, the goods-producing sector added 81,000 jobs last month, the most since January 2006.

Transportation and warehousing employment increased 13,100 and courier jobs only fell 1,500. Last month, the Labor Department reported a large increase in courier jobs in December, but revisions showed they actually declined.

Retail employment rose 10,500 after gaining 6,200 in December. Temporary help services jumped 20,100 after rising 8,300, a potentially good sign for future permanent hiring. For more information please see Jobless rate at 3-year as payrolls surge on Reuters.

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FHFA report: Mortgage principal reductions would cost $100 billion

Tuesday, January 24th, 2012

From – The Hill


Reducing mortgage principal on government-owned mortgages would cost $100 billion, making it an unlikely option, a federal housing regulator said Monday.

In response to a request from lawmakers, Federal Housing Finance Agency (FHFA) acting director Edward DeMarco released an analysis by his agency saying that the costs would come on top of continued losses of mortgage giants Freddie Mac and Fannie Mae, according to three separate staff analyses prepared over the past year.

“Given that any money spent on this endeavor would ultimately come from taxpayers and given that our analysis does not indicate a preservation of assets for Fannie Mae and Freddie Mac substantial enough to offset costs, an expenditure of this nature at this time would, in my judgment, require congressional action,” DeMarco said in the letter sent to House Democrats.

Reps. Elijah Cummings, ranking member of the House Oversight and Government Reform Committee, and panel member John Tierney (Mass.) spearheaded a letter sent Wednesday to Chairman Darrell Issa (R-Calif.) asking him to issue a subpoena for the FHFA analysis on the viability of principal reductions.

The FHFA analysis showed that Fannie and Freddie, as of June 30, had nearly 3 million mortgages with outstanding balances estimated to be greater than the value of the home, and that principal forgiveness for all the loans would require funding of almost $100 billion.

“FHFA remains committed to assisting homeowners to stay in their homes and will continue to update and improve our analysis,” DeMarco wrote.

“FHFA would reconsider its conclusions if other funds become available and if the availability of other funds is at a level that would change the analysis to indicate potential savings to the taxpayers.”

Another factor to consider is that nearly 80 percent of those underwater borrowers were current on their mortgages as of that time and those with upward of market loan-to-value ratios above 115 percent, 74 percent are current.

As of June 2011, only 9.9 percent have negative equity in their homes while about 35.5 percent of private-label mortgages were underwater, according to the report.

Overall, forebearance offers greater cash flows to the investor than forgiveness, while achieving marginally lower losses for the taxpayer than forgiveness, “although both forgiveness and forbearance reduce the borrower’s payment to the same affordable level,” the report showed.

Fannie and Freddie recently announced they would offer up to 12 months of forbearance to unemployed homeowners.

On the eve of President Obama’s third State of the Union address, lawmakers expect the president to discuss the housing crisis and possibly suggest additional initiatives to help struggling homeowners, although they weren’t aware of specifics.

Rep. Dennis Cardoza (D-Calif.), a harsh critic of the Obama administration’s housing policy, called on the White House on Monday to include in this year’s agenda his mortgage refinancing proposal.

“Simply put, none of the current housing programs that President Obama has instituted have succeeded in stemming the tide of foreclosures still dragging down our country,” Cardoza said.

“People continue to suffer as their communities are devastated by the housing crisis, with no relief in sight,” he said.

“We need bold leadership from the president on this crisis.”

DeMarco said the agency would continue to focus on improving loss mitigation and foreclosure alternatives. Borrowers who remain current on their loan payments can look into the Home Affordable Refinance Program (HARP), which allows all underwater borrowers to refinance into lower interest rate mortgages.

Additionally, there would be associated costs to upgrade technology, provide guidance and training to servicers and change accounting and tracking systems in order to implement a principal forgiveness program, the analysis showed.

“Unless there is an expectation that principal forgiveness will reduce losses, we cannot just the expense of investing in major systems upgrades,” DeMarco said.

For more information please see FHFA report: Mortgage principal reductions would cost $100 billion at The Hill.

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Congress Passes Temporary Payroll Tax Cut Extension

Tuesday, December 27th, 2011

From – Journal of Accountancy

The reduced 4.2% Social Security tax rate will remain in effect at least through February.

The Senate and the House of Representatives on Friday both agreed by unanimous consent to extend the reduced rate, and President Barack Obama signed the bill—the Temporary Payroll Tax Cut Continuation Act of 2011 (H.R. 3765)—the same day. The reduced rate had been scheduled to end after Dec. 31.

In the new year, a conference committee of representatives and senators will be appointed to discuss extending the reduced rate for the rest of 2012.

The employee portion of the Social Security tax was reduced from 6.2% of the first $106,800 of wages to  4.2% for 2011 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312. The employer portion remained at 6.2%. Under the law enacted Friday, the 4.2% rate is extended through Feb. 29, 2012.

The act provides special rules for 2012 so that taxpayers with self-employment income and income from employment in excess of $18,350 (one-sixth of the 2012 Social Security wage base of $110,100) do not receive an extra benefit. If a full-year extension of the payroll tax cut is not enacted, taxpayers with income from employment for January and February that exceeds $18,350 will be required to recapture the excess benefit they receive. The recapture provision was included instead of a cap on the amount of employment income because of the compliance difficulties that would cause employers.

Because the extension affects withholding and was enacted only a little over a week before the higher payroll tax was scheduled to go into effect, it is not clear how well employers and payroll companies will be able to handle that change. The IRS on Friday notified employers that they should implement the lower payroll tax rate as soon as possible in 2012, but not later than Jan. 31 (IR-2011-124). The IRS also said that if an employer overwithholds during January, it should make an offsetting adjustment in workers’ pay as soon as possible, but not later than March 31, 2012. The IRS also said that it will issue more guidance on implementing the provisions of the two-month extension, including revised employment tax forms and information for employees who may be subject to the recapture provision.

The act also extends certain unemployment benefits and blocks a cut in Medicare payments to doctors.

Congress’ use of unanimous consent to approve the extension allowed it to send the bill to the president without requiring lawmakers who had left the capital to return to Washington. For more information please visit Congress passes temporary payroll tax cut extension on Journal of Accountancy.

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Obama Calls for Tax Credits for Hiring in Jobs Bill

Wednesday, September 14th, 2011

From – www.accountingtoday.com

President Obama addressed a joint session of Congress on Thursday evening to present a jobs bill containing an expansion of the payroll tax cut, tax breaks for new hires and salary raises, and other tax reform measures.

The $447 billion bill, known as the American Jobs Act, contains provisions for creating new jobs to build and repair infrastructure such as highway and roads, along with school construction and an extension of unemployment benefits. In addition, Obama outlined a series of measures, including tax breaks to encourage companies to hire the long-term unemployed, along with veterans. He also called for an extension of the payroll tax cut for employees and an expansion of the tax cut to small business employers. Obama repeatedly emphasized that the bill contained many tax proposals that had originated with Republicans.

“It will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business,” he said.

Obama is battling persistent unemployment that his administration has admitted is likely to remain above 9 percent through next year. He called on lawmakers to put aside partisan politics and work to fix the economy before the next election.

“You should pass this jobs plan right away,” he repeatedly urged. “Everyone here knows that small businesses are where most new jobs begin. And you know that while corporate profits have come roaring back, smaller companies haven’t. So for everyone who speaks so passionately about making life easier for ‘job creators,’ this plan is for you. Pass this jobs bill, and starting tomorrow, small businesses will get a tax cut if they hire new workers or if they raise workers’ wages. Pass this jobs bill, and all small business owners will also see their payroll taxes cut in half next year. If you have 50 employees making an average salary, that’s an $80,000 tax cut. And all businesses will be able to continue writing off the investments they make in 2012. It’s not just Democrats who have supported this kind of proposal. Fifty House Republicans have proposed the same payroll tax cut that’s in this plan. You should pass it right away.”

Obama said the bill would provide funds to repair decaying roads and bridges across the country, and repair and modernize at least 35,000 schools. He promised to cut the red tape that has prevented some of the projects from getting started in the past. He also pledged to set up an independent fund to attract funds from the private sector and issue loans based on how badly a construction project is needed and how much good it would do for the economy.

Funds would also be used to prevent teacher layoffs and rehire teachers who had lost their jobs due to budget cuts, and provide summer jobs to disadvantaged young people.

Obama also said the bill would provide tax credits to hire veterans. “We ask these men and women to leave their careers, leave their families, risk their lives to fight for our country,” he said, drawing applause from both sides of the aisle. “The last thing they should have to do is fight for a job when they come home.”

The bill would also provide companies with a $4,000 tax credit if they hire anyone who has spent more than six months looking for a job. “We have to do more to help the long-term unemployed in their search for work,” said Obama. “This jobs plan builds on a program in Georgia that several Republican leaders have highlighted, where people who collect unemployment insurance participate in temporary work as a way to build their skills while they look for a permanent job.”

The plan would also extend unemployment insurance for another year. “If the millions of unemployed Americans stopped getting this insurance, and stopped using that money for basic necessities, it would be a devastating blow to this economy,” said Obama. “Democrats and Republicans in this chamber have supported unemployment insurance plenty of times in the past. And in this time of prolonged hardship, you should pass it again—right away.”

Obama also called for extending the payroll tax cut in last December’s tax legislation, which reduced Social Security taxes from 6.2 percent to 4.2 percent this year. In urging the extension, Obama referred to the pledge not to raise taxes that many Republican lawmakers signed at the behest of Grover Norquist’s group, Americans for Tax Reform. However, the 6.2 percent rate would be cut to 3.1 percent under the new bill, according to Vice President Joe Biden in an interview Friday on the Today Show.

“Pass this jobs bill, and the typical working family will get a $1,500 tax cut next year,” said Obama. “Fifteen hundred dollars that would have been taken out of your pocket will go into your pocket. This expands on the tax cut that Democrats and Republicans already passed for this year. If we allow that tax cut to expire—if we refuse to act—middle-class families will get hit with a tax increase at the worst possible time. We can’t let that happen. I know that some of you have sworn oaths to never raise any taxes on anyone for as long as you live. Now is not the time to carve out an exception and raise middle-class taxes, which is why you should pass this bill right away.”

Obama said the cost of the bill would be paid for with a new, more ambitious deficit reduction plan he plans to release a week from Monday. In addition to spending cuts, the deficit reduction plan would make what he called “modest adjustments” to Medicare and Medicaid, and reform the Tax Code to encourage “the wealthiest Americans and biggest corporations to pay their fair share.”

“I’m also well aware that there are many Republicans who don’t believe we should raise taxes on those who are most fortunate and can best afford it,” said Obama. “But here is what every American knows: While most people in this country struggle to make ends meet, a few of the most affluent citizens and most profitable corporations enjoy tax breaks and loopholes that nobody else gets. Right now, Warren Buffett pays a lower tax rate than his secretary—an outrage he has asked us to fix. We need a tax code where everyone gets a fair shake and where everybody pays their fair share. And by the way, I believe the vast majority of wealthy Americans and CEOs are willing to do just that if it helps the economy grow and gets our fiscal house in order.”

Obama also said he would work on corporate tax reform as well, calling the corporate tax code “a monument to special interest influence in Washington.”
“By eliminating pages of loopholes and deductions, we can lower one of the highest corporate tax rates in the world,” he added. “Our tax code should not give an advantage to companies that can afford the best-connected lobbyists. It should give an advantage to companies that invest and create jobs right here in the United States of America.”

Obama contrasted tax breaks for large oil companies with those for small businesses.
“Should we keep tax loopholes for oil companies?” he asked. “Or should we use that money to give small business owners a tax credit when they hire new workers? Because we can’t afford to do both. Should we keep tax breaks for millionaires and billionaires? Or should we put teachers back to work so our kids can graduate ready for college and good jobs? Right now, we can’t afford to do both. This isn’t political grandstanding. This isn’t class warfare. This is simple math. These are real choices that we’ve got to make. And I’m pretty sure I know what most Americans would choose. It’s not even close. And it’s time for us to do what’s right for our future.”

In response to the speech, House Speaker John Boehner, R-Ohio, indicated that he was ready to work on a jobs package with Obama, but he also asked for consideration of the Republican alternative.

“American families and small businesses are hurting, and they are looking for the White House and Congress to seek common ground and work together to help get our economy back on track,” Boehner said in a statement. “Republicans have laid out a blueprint for economic growth and job creation—our Plan for America’s Job Creators—that focuses on one thing: removing government barriers to private-sector job growth. The proposals the President outlined tonight merit consideration. We hope he gives serious consideration to our ideas as well. It’s my hope that we can work together to end the uncertainty facing families and small businesses, and create a better environment for long-term economic growth and private-sector job creation.”

Ahead of the jobs speech, Senate Minority Leader Mitch McConnell, R-Ken., struck a more confrontational tone in remarks on the Senate floor Thursday. “This isn’t a jobs plan,” he said. “It’s a re-election plan. That’s why Republicans will continue to press for policies that empower job creators, not Washington.” For details, visit Obama Calls for Tax Credits for Hiring in Jobs Bill on the Accounting Today website, www.accountingtoday.com.

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Obama Proposes Extending Small Business Tax Cuts Permanently

Monday, February 7th, 2011

The Obama administration proposed permanently eliminating capital gains taxes on some types of small business investments held for over five years.

The White House announced the tax cut extension Monday as part of a group of proposals aimed at encouraging small business entrepreneurship. The capital gains exemption extends a provision of last year’s Small Business Jobs Act that is set to expire this December.

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 provides a 100-percent exclusion from tax for capital gains realized on the sale of certain small business stock held for more than five years. The amount of gain eligible for the exclusion is limited to the greater of $10 million or ten times the taxpayer’s basis in the stock. This provision applies to qualified small business stock issued after Dec. 31, 2010, and before Jan. 1, 2012. The administration’s fiscal year 2012 budget proposal would make this provision permanent, increasing private sector investment in small businesses.

“Entrepreneurs embody the promise of America: the belief that if you have a good idea and are willing to work hard and see it through, you can succeed in this country,” said Obama. “And in fulfilling this promise, entrepreneurs also play a critical role in expanding our economy and creating jobs. That’s why we’re launching Startup America, a national campaign to help win the future by knocking down barriers in the path of men and women in every corner of this country hoping to take a chance, follow a dream, and start a business.”

Other proposals from the administration as part of its budget plan include an expansion of the New Markets Tax Credit, which aims to encourage more small businesses and entrepreneurs in disadvantaged communities. The Treasury Department plans to simplify the rules for small businesses to access up to $5 billion in tax credits for private investment in lower-income communities.

The Treasury Department will host a March 2011 conference to explore access to capital for small businesses. A broad range of options to help small businesses access the capital they need to expand and grow will be discussed at the conference, according to the White House, and more details on the conference will be released in the coming weeks.

The administration also highlighted a new Startup America initiative led by America Online co-founder Steve Case. Intel and IBM also announced new investments in small businesses, while Facebook will be hosting Startup Days events at cities across the U.S.

The Network for Teaching Entrepreneurship, a nonprofit that provides a first-class entrepreneurship education for at-risk high school students from low-income communities, is launching new programs supporting young entrepreneurs and their teachers. Ernst & Young LLP will honor NFTE youth entrepreneurs at regional Ernst & Young Entrepreneur of the Year Award galas across the country to bring attention to the next generation of young entrepreneurs.

The Small Business Administration will also direct $2 billion in existing guarantee authority over the next five years to match private sector investment funding for startups and small firms in underserved communities, as well as seed and early-stage investing in firms with high growth potential, through its Small Business Investment Company program.

Together, the SBA and the Department of Energy will boost their mentorship for cleantech startups, while the Veterans Administration is launching new training programs for Veterans who want to start new businesses.

The Department of Commerce will expand the i6 Challenge to help foster the commercialization of clean technologies. The Commerce Department is also finalizing a plan to allow entrepreneurs to request faster review of their patents, an initiative that should lower patent pendency times overall and speed the deployment of new ideas to the marketplace.

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