Senate Passes Small Business Tax Credits Bill
On Thursday, the Senate passed a long-stalled small business tax credit measure, 61-38, with all fifty-nine Democrats and two Republicans, George Voinovich (Ohio) and George LeMieux (Fla.), voting for the bill. The bill will extend a number of tax provisions, including liberalized and expanded expensing for 2010 and 2011, revived bonus depreciation for 2010, a five-year carryback of unused general business credits for eligible small businesses, removal of cell phones from the listed property category, and liberalized Code Sec. 6707A penalty rules. The bill now heads back to the House where it is expected to pass and then be signed into law by the President.
Warren Appointed as Special Adviser to the Bureau of Consumer Financial Protection
On Friday, President Barack Obama formally appointed Elizabeth Warren as a “Special Adviser” to temporarily lead the new Bureau of Consumer Financial Protection. In her interim post, which will eventually be filled by a permanent chief, Warren will oversee all aspects of the Bureau’s creation, including staff recruitment and immediate decisions about the Agency. While many Congressional Democrats praised the appointment, Senator Chris Dodd (D-CT), who sponsored the financial reform bill which created the Bureau, said that Warren was too liberal to win Senate approval for the job on a permanent basis and therefore only the interim post was possible.
Basel Committee Passes New Global Bank Capital Standards
As expected, last Sunday the Basel Committee passed new rules ordering banks to raise their minimum core tier one capital from 2 percent to 7 percent of their risk weighted assets by 2019 or face restrictions on pay and bonuses. This new protocol more than tripled the old requirement of 2 percent to force banks to hold more top quality capital against potential losses. Banks will also be required to subtract items such as goodwill, some tax credits and minority investments from equity and retained earnings.
Geithner Testifies on Chinese Currency Policy
On Thursday, Treasury Secretary Timothy Geithner testified before the Senate Banking Committee and the House Ways and Means Committee on China’s trade and currency policies. During his testimony, lawmakers demanded a crackdown on Beijing’s policies, and Geithner vowed to push China on trade and currency reforms. Geithner said the United States would use a Group of 20 Summit in November to mobilize trading partners to pressure Beijing to allow the Yuan to rise. Lawmakers are weighing new legislation to punish China for practices they say keep the Yuan artificially low. The consensus in Congress seems stronger than ever for new rules targeting China, but the tight legislative calendar leaves little time to pass a bill in the coming weeks. Geithner said the Obama administration has not endorsed the current House bill that would slap duties on goods from countries with “fundamentally misaligned” currencies.
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Matt Jessee
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Goolsbee to Chair White House Council of Economic Advisors
On Friday, President Obama named a longtime adviser, Austan Goolsbee, to be the chairman of the White House Council of Economic Advisers. Goolsbee is a former University of Chicago economics professor and one of three economists currently serving on the council. He previously was confirmed by the Senate and will not need to be reconfirmed. Goolsbee, 41, replaces Christina Romer, who has returned to her teaching position at the University of California, Berkeley.
Clash Over Tax Cuts Extension
With the Bush tax cuts set to expire at the end of 2010, President Obama, speaking at a White House news conference on Friday, proposed extending tax cuts for families earning less than $250,000 a year while allowing taxes to rise for those with higher incomes. However, the President stopped short of promising a veto should Congress send him legislation extending, perhaps temporarily, tax cuts for everyone. Republicans have proposed extending the tax cuts for all income brackets. The cost to the Treasury of extending the top two income tax bracket rates, which the Bush tax cuts lowered from 39.6% to 35% and 36% to 33%, would be $700 billion over 10 years.
Stimulus Round Two
During a speech Wednesday, President Obama unveiled his new proposal to allow companies to expense 100 percent of their investments in new plants and equipment through the end of next year in effort to spur job creation. The President also announced a plan to invest $50 billion in new roads and railways, as well as permanently extend a tax credit, valued at close to $100 billion over 10 years, for businesses that conduct new research and development.
GDP Rose 2.4% in Second Quarter
On Friday, the Commerce Department reported that U.S. gross domestic product rose at an annualized seasonally adjusted rate of 2.4% for the second quarter, indicating that the recovery has been weaker than previously expected. However, the report also indicated that business spending increased by 21.9% in the second quarter, compared with a 20.4% rise in the first three months. The figures highlight the contrast in the economy between company profits and the slower jobs market. The underlying inflation rate increased by 1.1% in the April-to-June period over the previous quarter. The consumer price index rose by only 0.1% in the second quarter, slowing sharply from a 2.1% gain in the first quarter. Gross domestic purchase prices rose 0.1%, after a 2.1% increase in the first quarter. The chain-weighted GDP price index increased by 1.8%, compared to 1.0% in the first three months. In a revised assessment of 2009, the Commerce Department’s report indicated the U.S. economy contracted by 2.6%, compared to the previously estimated 2.4% decline.
New York Attorney General Announces Probe of Insurers
On Thursday, New York Attorney General Andrew Cuomo announced that he had opened a fraud investigation into how life insurers pay out benefits after policyholders die. Cuomo said his office served subpoenas on Prudential Financial, Inc. and MetLife, Inc. as part of the probe, seeking information on the companies’ life insurance policies.
Bullard Warns of Deflation
On Thursday, James Bullard, president of the Federal Reserve Bank of St. Louis, warned that the Fed’s policies were putting the economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.” Bullard went on to say that the best way for the Fed to avoid falling into a deflationary trap is to shift away from insisting that interest rates remain low, and instead focusing on “quantitative easing” measures by buying Treasuries, funneling money into the economy and boosting inflation expectations. On Friday he reiterated those remarks, but noted that while deflation is a risk, it is not the most likely economic scenario. Bullard has voiced worries about the “extended-period” language since early March, but he has not voted against policy action. He said Thursday his comments were intended to spark debate.