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Daily News Briefing: Monday, July 23, 2012

Published by: Clark Barrow

Clark Barrow

DAILY BRIEFING - SUMMARY

  • POVERTY – Experts predict that the official poverty rate will rise from 15.1 percent in 2010, climbing as high as 15.7 percent. Several predicted a more modest gain, but even a 0.1 percentage point increase would put poverty at the highest level since 1965.
  • RICH GETTING POORER - A recent report from the U.S. Congressional Budget Office found that the fortunes for the one percent are falling, but they are paying more in taxes.
  • TAX CODE - Business executives, particularly at small and medium-size companies, complain that many federal tax deductions are either too cumbersome or too confusing. In some cases, the cost of obtaining the tax benefit is greater than the benefit itself.
  • CONGRESS - The U.S. House is expected to vote on Tuesday on a bill that would allow for a congressional audit of Federal Reserve monetary policy decisions.
  • WHITE HOUSE - President Obama on Sunday traveled to Colorado and offered hope and comfort to victims of the gunman who killed 12 people and wounded 58 in a Denver-area movie theater.
  • ISRAEL - Israeli Prime Minister Benjamin Netanyahu said Sunday that his government has gathered "unquestionable" intelligence showing that the Lebanese militant group Hezbollah, backed by Iran, was behind a suicide bombing in Bulgaria last week that killed five Israeli nationals.
  • SYRIA - The Obama administration has for now abandoned efforts for a diplomatic settlement to the conflict in Syria, and instead it is increasing aid to the rebels and redoubling efforts to rally a coalition of like-minded countries to forcibly bring down the government of President Bashar al-Assad, American officials say.

WHAT WE KNOW

ECONOMIC NEWS

  • POVERTY - A survey of more than a dozen economists, think tanks and academics, both nonpartisan and those with known liberal or conservative leanings, found a broad consensus:
    • The official poverty rate will rise from 15.1 percent in 2010, climbing as high as 15.7 percent. Several predicted a more modest gain, but even a 0.1 percentage point increase would put poverty at the highest level since 1965.
    • The official U.S. Census figures for 2011 will be released this fall in the critical weeks ahead of the November elections.
    • The analysts' estimates suggest that some 47 million people in the U.S., or 1 in 6, were poor last year. An increase of one-tenth of a percentage point to 15.2 percent would tie the 1983 rate, the highest since 1965. The highest level on record was 22.4 percent in 1959, when the government began calculating poverty figures
 .
    • In 2010, welfare spending consumed more than 12 percent of the federal budget, consisting of roughly $900 billion. The poverty rate in 2010 was 15.1 percent (46.2 million people)
    • In 1964, welfare programs took up 1.2 percent of the federal budget in 1964, consisting of $54.6 billion in 2008 dollars. The poverty rate in 1964, the year of the beginning of the Great Society program, was 19 percent (36 million people).
  • RICH GETTING POORER - A recent report from the U.S. Congressional Budget Office found that the fortunes for the one percent are falling, but they are paying more in taxes.
 

    • Between 2007 and 2009, after-tax earnings by Americans in the top one percent for income fell 37 percent. On a pre-tax basis they fell 36 percent in the same period.
    • The result of this big drop at the top was that their share of the country's total income also fell. In 2007, the top one percent earned 16.7 percent of all after-tax income. In 2009, that portion fell to 11.5 percent.
    • The top one percent paid an average effective tax rate of 28.9 percent on their income — far more than any other group, and more than twice the average effective rate of the middle class, who paid 11 percent on average. So the rich lost more income and paid more of their money in taxes than the rest of the population.
  • TAX CODE - Business executives, particularly at small and medium-size companies, complain that many federal tax deductions are either too cumbersome or too confusing. In some cases, the cost of obtaining the tax benefit is greater than the benefit itself—a wrinkle that has helped spawn a cottage industry of tax-credit consultants. Also problematic is the threat of pushback from the Internal Revenue Service.
 

    • The result: many companies are saying "no, thanks" and are likely paying more taxes than legally required. And corporate breaks that Washington hopes will boost the economy often prove ineffective.
    • Compliance costs for U.S. businesses and individuals have been rising, and now reach at least 1% of GDP, or about $150 billion last year, and possibly much more, according to congressional researchers.
    • Tax consultants estimate that eligible businesses obtain as little as 5% of the main domestic tax breaks that they are entitled to claim. That means firms are leaving tens of billions of dollars on the table every year. Out of 1.78 million corporate tax returns in the U.S., only about 20,000 claimed any of the three dozen main business tax credits in the code, according to IRS estimates.
  • Monday morning futures on the Dow Jones Industrial Average fell 138 points, or 1.1%, to 12,635.
  • Monday morning futures on the S&P 500 index dropped 14.1 points to 1,344.10.
  • Monday morning futures on the Nasdaq-100 lost 31.25 points to 2,581.75.

COMMODITIES

  • The U.S. national average for a gallon of regular gasoline is $3.47.

    • When President Obama was inaugurated, in January 2009, the U.S. national average for a gallon of regular gasoline was $1.85. Average gasoline prices are currently 87 percent higher than they were when Mr. Obama became president.
  • Oil for August delivery fell $2.66 to $89.19 a barrel on the New York Mercantile Exchange.
  • Gold for August delivery fell $11.00 to $1,571.00 an ounce on the Comex division of the New York Mercantile Exchange.

NEWS TO WATCH

  • PROTESTORS – The Occupy Wall Street protests continue around the world, now in their 306th day.
  • CONGRESS - The U.S. House is expected to vote on Tuesday on a bill that would allow for a congressional audit of Federal Reserve monetary policy decisions, a senior House aide said on Friday.
 

    • The legislation proposed by Republican Representative Ron Paul, a long-time critic of the U.S. central bank and author of the book "End the Fed," has already gathered 274 co-sponsors, virtually guaranteeing passage.
    • The U.S. House will consider the bill under a fast-track procedure that requires a two-thirds majority, but nearly two-thirds of the House has already signed onto the bill.
  • WHITE HOUSE - President Obama on Sunday traveled to Colorado and offered hope and comfort to victims of the gunman who killed 12 people and wounded 58 in a Denver-area movie theater.
    • The shooting spree early on Friday shocked the nation and dominated the news. Obama met privately with the families of victims and said he had listened to stories about those who were killed and those who risked their lives to help others.
    • Obama said in a televised address after meeting the families that he told them that the nation was watching and shared their grief. After justice was done, memory would focus on the victims, not the killer, he said.
    • Meanwhile, White House press secretary Jay Carney on Sunday said President Obama was committed to preventing gun crimes by relying on “existing law,” two days after a mass shooting in Colorado sparked renewed debate about gun control.

PRESIDENT’S SCHEDULE

  • In the morning, President Obama will depart San Francisco, California and travel to Reno, Nevada.
  • In the afternoon, the president will deliver remarks at the 113th National Convention of the Veterans of Foreign Wars of the U.S. in Reno, Nevada.
  • Later in the afternoon, the president will depart Reno, Nevada and travel to Oakland, California.
  • In the evening, the president will attend a fundraising reception in Oakland, California.
  • The president will remain overnight in San Francisco, California.

HAPPENING IN THE U.S. CONGRESS

U.S. SENATE

  • The U.S. Senate is in session today.

U.S. HOUSE OF REPRESENTATIVES

  • The U.S. House is in session today.

TOPICS OF INTEREST

FEDERAL GOVERNMENT

  • DEATH TAX - According to research by the Tax Policy Center, the 2001 tax relief bill (EGTRRA), drastically reduced the impact of the death tax over the course of a decade, so that it was eliminated entirely for one year in 2010 — a good year to die, joked a number of pundits. The bill lowered marginal rates and increased the applicable exclusion amount, but it also included a provision allowing individuals to carry over exclusion dollars that were unused by their spouse at the time of his or her death. This “portability” measure effectively increased the applicable exclusion for many households, in some instances putting millions of dollars beyond the reach of the federal government.

    • The death tax rose from the grave at the end of 2010, with a Bush-era top rate of 35% and an applicable exclusion amount of $5 million ($5.12 million in 2012).
    • In 2013, the death tax will revert to its antiquated, pre-2001 form. The applicable exclusion amount will plummet to $1,000,000, and the top marginal rate will leap twenty points to 55%. A 5% surtax will also return, to be levied on estates between $10 million and $17 million. This raises the top effective rate of the death tax to 60%.
    • According to research by the Tax Policy Center, if the current death tax expires, then the resulting, stricter exemption threshold will force 114,600 estates to file for the tax in 2013 — this represents a 13-fold increase from the previous year’s 8,800 estates, and countless wasted hours filling out tax paperwork.

FOREIGN POLICY

MIDDLE EAST

  • ISRAEL - Israeli Prime Minister Benjamin Netanyahu said Sunday that his government has gathered "unquestionable" intelligence showing that the Lebanese militant group Hezbollah, backed by Iran, was behind a suicide bombing in Bulgaria last week that killed five Israeli nationals.
 

    • The Israeli leader said Mossad and other Israeli intelligence services have acquired other information linking Hezbollah and Tehran to the Wednesday attack. He said the two have cooperated in plotting attacks against Israel and other Western targets in 24 countries over the past two years.
    • The Obama administration hasn't publicly blamed Iran or Hezbollah for carrying out the attack in Bulgaria. But U.S. officials privately said the tactics used in the attack, particularly that of a suicide bomber targeting Israeli civilians abroad, bear a resemblance to past operations jointly carried out by Tehran and Hezbollah.
  • SYRIA - The Obama administration has for now abandoned efforts for a diplomatic settlement to the conflict in Syria, and instead it is increasing aid to the rebels and redoubling efforts to rally a coalition of like-minded countries to forcibly bring down the government of President Bashar al-Assad, American officials say.

    • Administration officials have been in talks with officials in Turkey and Israel over how to manage a Syrian government collapse. Defense Secretary Leon E. Panetta is headed to Israel in the next several days to meet with Israeli defense counterparts, following up on a visit last week by President Obama’s national security adviser Thomas E. Donilon, in part to discuss the Syrian crisis.
    • The White House is now holding daily high-level meetings to discuss a broad range of contingency plans — including safeguarding Syria’s vast chemical weapons arsenal and sending explicit warnings to both warring sides to avert mass atrocities — in a sign of the escalating seriousness of the Syrian crisis following a week of intensified fighting in Damascus, the capital, and the killing of Mr. Assad’s key security aides in a bombing attack.
  • SYRIA - The U.S. Central Intelligence Agency is scrambling to get a handle on the locations of the country’s chemical and biological weapons, while assessing the composition, loyalties, and background of the rebel groups poised to take power in the event President Bashar al-Assad falls.

    • The CIA has sent officers to the region to assess Syria’s weapons program. One major task for the CIA right now is to work with military defectors to find out as much information on Syria’s weapons of mass destruction. Another focus will be to sort through reams of intercepted phone calls and emails, satellite images, and other collected intelligence to find the exact locations of the Syrian weapons.
    • This task has become more urgent in recent days. Last week, reports indicated that the Syrian military was moving its chemical weapons out of storage. On July 17, Nawaf Fares, Syria’s ex-ambassador to Iraq, said the regime would not hesitate to use chemical weapons against the rebel fighters. On Wednesday, a bomb killed the Syrian defense minister and the brother-in-law of President al-Assad in Damascus. The blow to the al-Assad cabinet raised the prospect that the Syrian regime may be on its last legs.
    • Meanwhile, Syria's Muslim Brotherhood, a key opponent of President Bashar Assad's regime, announced plans Friday to launch an Islamist political party in Syria, saying it was ready for the post-Assad era.
  • IRAN - Iran has sent a new batch of enriched uranium to fuel a medical research reactor in its capital, the country's nuclear chief said on Sunday, an indication Tehran is digging in as its standoff with world powers over the enrichment continues.
    • Fereydoon Abbasi-Davani, the head of Iran's Atomic Energy Organization, said a fourth batch of 20-percent enriched fuel produced inside Iran has now arrived at the Tehran Medical Research Reactor, according to the Mehr news agency.
    • Iran says the reactor produces medical isotopes used to treat cancer patients. Western powers believe Iran is stockpiling enriched uranium as potential fuel for nuclear weapons.

ASIA

  • NORTH KOREA - Impoverished North Korea is gearing up to experiment with agricultural and economic reforms after young leader Kim Jong-un and his powerful uncle purged the country's top general for opposing change.
    • Sources added that the cabinet had created a special bureau to take control of the decaying economy from the military, one of the world's largest, which under Kim's father was given pride of place in running the country.
    • The changes could herald the most significant reforms by the North in decades. Previous attempts at a more market driven economy have floundered, most recently a drastic currency revaluation in late 2009 which triggered outrage and is widely believed to have resulted in the execution of its chief proponent.

EUROPE

  • GREECE - Greece is in a "Great Depression" similar to the American one in the 1930s, the country's Prime Minister Antonis Samaras told former U.S. President Bill Clinton on Sunday.

    • Samaras was speaking two days before a team of Greece's international lenders arrive in Athens to push for further cuts needed for the debt-laden country to qualify for further rescue payments and avoid a chaotic default.
    • Athens wants to soften the terms of a 130-billion euro bailout agreed last March with the European Union and the International Monetary Fund, to soften their impact on an economy going through its worst post-war recession.