President Obama on Tuesday continued to beat the drum for the Buffett Rule, his campaign-ready tax proposal aimed at millionaires and billionaires.
A central message of Obama’s re-election campaign is his argument that the very rich should pay more in taxes.
Quiz: What the rich really pay in taxes
"When it comes to paying down the deficit and investing in our future, should we ask middle-class Americans to pay even more at a time when their budgets are already stretched to the breaking point? Or should we ask some of the wealthiest Americans to pay their fair share?" Obama said recently.
Obama’s not alone in pushing the Buffett Rule. Next week, Senate Democrats hope to vote on legislation modeled on Obama’s proposal.
The legislation is not expected to advance very far, if at all. But you’ll be hearing a lot about the Buffett Rule in coming months.
And like most campaign planks, the Buffett Rule doesn’t necessarily make for the best policy, at least from the perspective of many tax experts.
What is the Buffett Rule exactly? The general principle behind the proposal is that millionaires and billionaires like investor Warren Buffett shouldn’t pay a lower percentage of their income in federal taxes than middle-class households.
Obama has even set a threshold for how much they should pay: At least 30% of their income.
The president proposed the rule last year as a guiding principle for tax reform, and he later touted it as a replacement for the Alternative Minimum Tax.
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On Capitol Hill, the Senate will hold a procedural vote on one version that would apply to today’s tax code and serve as an "interim step" to tax reform.
The "Paying a Fair Share Act," introduced by Rhode Island Democrat Sheldon Whitehouse, would apply to anyone whose adjustable gross income exceeds $1 million. Those who itemize their deductions would get a credit equal to the value of their charitable contribution deductions, so as not to discourage charitable giving.
To measure whether a millionaire is paying at least 30% of his income in taxes, the bill would take into account what the individual paid in federal income and payroll taxes plus the new 3.8% Medicare surtax set to take effect in 2013.
The minimum effective tax rate would be phased in for those with incomes between $1 million and $2 million electronic check payday advance.
The independent Tax Policy Center estimates that 35% of the richest would pay higher taxes under the bill than they do today.
How much revenue would it raise? The Joint Committee on Taxation, which analyzes tax legislation, has estimated that the "Paying a Fair Share Act" would raise $47 billion over 10 years, or an average of less than $5 billion a year, assuming the Bush tax cuts expire.
That wouldn’t do much to help reduce federal deficits. In recent years, annual deficits have ranged from several hundred billion dollars to more than $1 trillion.
And if the rule were to serve as a replacement for the AMT, as Obama has proposed, it wouldn’t come close to making up for the $1 trillion-plus in revenue that the AMT is expected to generate over 10 years.
What do independent tax experts think of the Buffett Rule? Tuning out the partisan rhetoric on both sides, tax experts say the Buffett Rule would further complicate an already complex tax code by adding a new minimum tax on top of the old AMT.
What’s more, the evidence that the Buffett Rule is correcting a big disparity in the tax code is not so clear cut.
For example, even without a Buffett Rule, most millionaires already pay more in taxes as a percentage of their income than those in the middle class, said Roberton Williams, a senior fellow at the Tax Policy Center. Not always as much as 30%, but a higher percentage of their income than the vast majority of the middle class.
And the Congressional Research Service notes that today’s tax code doesn’t violate the Buffett rule as egregiously as Warren Buffett and others have asserted. Using 2006 data, the CRS found the average tax rate among millionaires is almost 30% — with about a tenth of them paying a rate higher than 35% and another tenth paying a rate below 24%.
Lastly, tax reform done right shouldn’t create a need for a Buffett Rule, an AMT or any other accessory to the tax code, Williams said.
The only reason policymakers call for such measures is when they don’t like the outcomes of the system they’ve got. Tax reform is their chance to design a better system. And if one goal is to tax the rich more, they can do that in a simpler, more effective way than the Buffett Rule.
Bank of England policy makers will maintain the size of their bond-buying program next week amid a split over whether the economy needs more stimulus, economists forecast.
The nine-member Monetary Policy Committee led by Governor Mervyn King will hold the target at 325 billion pounds ($521 billion) on April 5, according to all 39 economists in a Bloomberg News survey. They will also leave their key interest rate at a record low of 0.5 percent, said all 53 economists in a separate poll.
Divisions have emerged as a surge in oil prices threatens to stoke an inflation rate now in its third year above target while Europe
European markets recovered some ground Friday, after sharp losses this week, as finance ministers from the 17 euro countries discussed whether to increase the amount of resources at their disposal for future bailouts.
Though the target of (EURO)1 trillion ($1.3 trillion) requested by a number of international institutions, as well as the U.S. and China, is unlikely to be met, it appeared the ministers would agree to increase the firewall to around (EURO)800 billion.
Some (EURO)300 billion ($398 billion) of that has already been spent in the bailouts of Greece, Ireland and Portugal, meaning (EURO)500 million would be left to fund new rescue packages.
Germany, the eurozone’s largest economy and the biggest contributor to the bailout funds, has signaled it would agree to such a proposal.
“The hope is that Germany will soften its stance and allow the various bailout funds to be enlarged, providing more firepower to combat the crisis,” said Chris Beauchamp, market analyst at IG Index.
Many in the markets see increasing the firewall as a sure step in dampening down the debt crisis, which has crippled the eurozone for the past couple of years. The fear is that the euro bloc just won’t have enough resources to help out Spain and Italy, should they need outside help.
Worries that Spain will be dragged into the debt crisis mire has weighed on markets this week. The new Spanish government is expected to unveil a tough budget later as it attempts to get the deficit down to levels sanctioned by its partners.
Even if a deal to increase the bailout resources is approved at the euro meeting in Copenhagen, Denmark, there are many doubts over whether Italy or Spain, the eurozone’s third and fourth largest economies could be saved if the markets lose confidence.
“The reality is that the firewall is likely to be both underwhelming and insufficient to deal with potential problems in Spain and Italy,” said Neil MacKinnon, global macro strategist at VTB Capital pay day loans.
For now, European stocks have recovered some of their losses this week. Germany’s DAX was up 0.8 percent at 6,931 while the CAC-40 in France rose 0.9 percent to 3,413. The FTSE 100 index of leading British shares was up 0.5 percent to 5,769.
Wall Street was poised for a solid opening too, with both Dow futures and the broader S&P 500 futures up 0.3 percent.
The euro was also 0.3 percent higher at $1.337, supported by figures showing inflation in the eurozone in March only fell to 2.6 percent from the previous month’s 2.7 percent. The market consensus had been for a fall to 2.5 percent.
Earlier in Asia, sentiment in stock markets was hurt by news that Japan’s factory production fell a worse-than-expected 1.2 percent in February _ its first decline in three months _ as demand for exports weakened. The Nikkei 225 index in Tokyo fell 0.3 percent to close at 10,083.56.
Hong Kong’s Hang Seng fell 0.3 percent to 20,555.58, while mainland Chinese shares were mixed. The benchmark Shanghai Composite Index gained 0.5 percent to 2,262.79 while the Shenzhen Composite Index lost 0.4 percent to 891.84.
Oil prices bounced back alongside equities _ benchmark oil for May delivery was up 32 cents to $103.12 per barrel in electronic trading on the New York Mercantile Exchange. On Thursday, the contract plunged $2.63 to $102.78 after French Prime Minister Francois Fillon said there’s a “good chance” that the U.S. and Europe will agree to release some of their oil reserves.
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Pamela Sampson in Bangkok contributed to this report.
The Senate on Thursday passed a bill making it easier for more companies to become publicly traded by bypassing audits and disclosures now required for investors.
The Senate voted 73-to-26 to pass the House version of the bill with one small change intended to help protect investors. Because of the change, the bill returns to the House.
"The bill is far from perfect, but it’s a good bill," said Senate Majority Leader Harry Reid. "It’ll help capital formation."
House Majority Leader Eric Cantor indicated support for the Senate change and promised quick passage of the bill, meaning it could arrive on President Obama’s desk next week.
Earlier this month, the House overwhelmingly passed the measure that rolls back some rules the Securities and Exchange Commission enforces on small and medium companies attempting to make an initial public offering.
The measure sparked concerned letters from investor groups, unions, consumer groups and even the head of the SEC. All of them said the bill could open the door for more failed IPOs and investor fraud.
In a letter last week, SEC Chairman Mary Schapiro asked lawmakers for changes, saying "too often, investors are the target of fraudulent schemes disguised as investment opportunities."
The bill would relax SEC rules for small and medium-sized companies with less than $1 billion in gross revenue seeking to go public. The measure gives them up to five years, or until revenue tops $1 billion, to supply an independent audit and certain investor disclosures.
Critics said $1 billion is too high a threshold — some 80% of firms going public would be able to bypass disclosures.
It would also make it easier for companies with as many as 2,000 shareholders to avoid registering with regulators.
The bill would also exempt firms from nonbinding shareholder votes on executive pay and benefits packages, which just came as part of the Wall Street reform law paperless payday loans. In the aftermath of the financial crisis, the law made it tougher for CEOs to reap bonuses tied to soaring stock prices — particularly when the company is over-leveraged and making risky bets.
Stocks: Retail investors ‘not in the game yet’
Critics, including the Council of Institutional Investors, said that easing the rules applied to far too many companies and could make investors wary of investing in them.
"A company (with $1 billion in revenues) has the resources to comply with disclosures," said Jeff Mahoney, general counsel to the Council of Institutional Investors.
The bill would also allow companies to solicit investors — including the use of advertisements — when going public, which is currently prohibited. And it would allow them to raise money from larger numbers of small, less sophisticated investors.
Barbara Roper of the Consumer Federation of America warned the provision would make it easier for companies to take advantage of seniors, luring them to sink their retirement savings into an IPO.
"A retiree who has that nest egg isn’t necessarily a sophisticated investor and shouldn’t be speculating on private offerings," Roper said.
The bill would also allow what’s called "crowd funding," allowing firms to bypass regulations to raise money from large pools of small investors by directly soliciting them over the Internet. Critics are concerned about the potential for fraud.
The only change that the Senate added was to require that those working as an intermediary to such crowd funding register with regulators.
– CNN’s Ted Barrett contributed to this story.
U.S. stocks rose slightly Monday in a ho-hum opening after their best week of the year.
The Dow Jones industrial average spent most of the morning in the red, then climbed to 13,247, up 15 points. The Standard & Poor’s 500 and Nasdaq composite fell in the early minutes of trading but then rose. The S&P 500 was up five points to 1,410, and the Nasdaq was up 18 to 3,074.
Last week, the Dow and S&P 500 rose 2.4 percent apiece, their best showing of the year. For the first time, the Dow closed above 13,000 and the Nasdaq above 3,000 on the same day.
In the absence of any major economic news, the markets latched on to announcements from a few well-known companies.
Apple rose about 2 percent to $595.88 after announcing that it would pay a shareholder dividend and buy back $10 billion of its stock over three years. The stock hit an all-time high of $600.01 last week.
The dividend is expected to expand the company’s shareholder reach because value-oriented mutual funds that focus on dividends will buy it. Apple’s stock has already risen from $405 this year, partly in anticipation of the dividend.
UPS rose 4 percent after announcing it would buy TNT Express, the second-largest express mail company in Europe, further cementing UPS’ status as the world’s largest delivery company.
Citigroup rose 4 percent after announcing it had sold its share in a Shanghai bank for $668 million. The move should help the bank establish its own businesses in China. The bank is slimming down to try to shake off the vestiges of the financial crisis.
Sprint Nextel fell 5 percent after a Sanford C. Bernstein analyst downgraded the stock to underperform and predicted that future incarnations of the iPhone will not work too well with the Sprint network. The analyst, Craig Moffett, also expressed concern about the company’s heavy debt burden.
There was little in the way of major economic indicators. The National Association of Home Builders index of builder confidence came in unchanged from the previous month.
“There’s not really a lot to say,” said Stephen Carl, head equity trader at Williams Capital Group. “I guess we could just toss a coin in the air and see which way it goes.”
Prices for U.S. Treasury debt slid for the ninth day in a row, and the yield on the 10-year Treasury note hit 2.32 percent, the highest since October. Investors feeling more confident in the economy are putting their money in riskier assets like stocks.
European markets were mixed. The main stock indexes fell less than 1 percent in France, Britain and Germany. Stocks rose 1.7 percent in Greece and 0.7 percent in Spain.
Though Greece’s debt crisis has faded from the spotlight, Greece remains in deep recession, and uncertainty lingers. Unions throughout Europe are protesting cuts in benefits, making it difficult for governments to rein in their spending.
Leadership questions are also bubbling up, with the Greek finance minister stepping down to run the majority Socialist party and France gearing up for presidential elections.
At a conference Sunday in Beijing, International Monetary Fund chief Christine Lagarde said that European leaders need to stay vigilant about debt.
“The world economy has stepped back from the brink, and we have causes to be a little bit more optimistic,” she said. “But optimism should not give us a sense of comfort and certainly should not lull us into a false sense of security.”
The price of oil continued to rise, climbing to $107.70, up 63 cents. The average price for a gallon of regular gasoline rose a penny over the weekend to $3.84 and is up 30 cents in a month, pushed higher by tension in Europe over Iran’s nuclear program..
International Monetary Fund Managing Director Christine Lagarde urged policy makers to be vigilant as oil prices, debt levels, and the risk of slowing growth in emerging markets threaten global economic stability.
Increased domestic sales helped Synergetics USA Inc. raise profits in the second quarter of fiscal 2012, which ended on January 31.
The O’Fallon, Mo.-based maker of equipment for eye and brain surgeries reported a net income of about $1.9 million, or 7 cents a share, compared to $1 cashadvance.3 million, or 5 cents a share, a year ago. Sales rose 14 percent to $15.1 million.
Euro-area finance ministers signed off on a second Greek bailout, clearing the way for the first payment from the 130 billion-euro package ($170 billion) to be made this month.
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Greece’s Parliament late on Tuesday approved new cuts in public sector pensions and government spending required to secure a second package of international rescue loans.
Lawmakers voted 202-80 in favor of cutbacks worth a total euro3.2 billion ($4.31 billion) and aimed at bringing the 2012 budget back in line with targets. Lawmakers from both parties in Prime Minister Lucas Papademos’ coalition, the majority Socialists and the conservatives, backed the legislation.
Earlier, the debt-crippled country’s Cabinet decided to apply recent labor reforms, including deep cuts to the minimum wage, retroactively to Feb. 14.
Greece is obliged to adopt a series of austerity measures and reforms before it can receive any funds from its new euro130 billion ($174 billion) package of rescue loans from other eurozone countries and the International Monetary Fund.
The bailout, and accompanying bond swap deal with private creditors, are meant to save the country from a potentially catastrophic default in late March that could drag down other financially vulnerable countries and threaten the European Union’s joint currency, the euro.
The rescue package is Greece’s second in less than two years. The country has been surviving since May 2010 on funds from a first bailout from the eurozone and IMF, and has received euro73 billion ($98 billion) from the initially approved euro110 billion ($147 billion) package.
But more than two years of harsh austerity implemented to secure the rescue funds have taken a hefty toll on the recession-bound Greek economy, with businesses closing in the tens of thousands and unemployment at a record high 21 percent.
“It is dramatic to cut someone’s pensions. … But why do we have to take these measures? Because our budget is still running at a loss,” Finance Minister Evangelos Venizelos said in Parliament. “We are still adding debt to our debt. And if we do not start to generate a primary surplus next year, that will be catastrophic.”
The newly approved legislation imposes nearly euro400 million ($538 million) in cuts to already depleted pensions.
Health and education spending will be reduced by more than euro170 million ($229 million), subsidies to the state health care system will be cut by euro500 million ($673 million), and health care spending on medicine will fall by euro570 million ($767 million).
Furthermore, some euro400 million ($538 million) will be lopped off defense spending _ three quarters of which will come from purchases.
The law also revises the 2012 budget, changing the government deficit target to 6.7 percent of gross domestic product from an initial forecast of 5.4 percent.
Measures approved by Papademos’ Cabinet earlier Tuesday include a 22 percent cut in the minimum salary, currently at euro751 ($1,010) per month, for private sector workers, and a 32 percent cut for workers under the age of 25, where the rate of unemployment is nearly 50 percent.
Limits also are being imposed on collective wage agreements and the process of labor arbitration, with some measures to remain in effect until overall unemployment falls below 10 percent.
Lawmakers are to vote again on Wednesday on another bill implementing cuts that have previously been announced.
The new wave of austerity measures have sparked widespread anger among a public that has seen its income and living standards drop with no clear end to the crisis in sight.
On Tuesday, about 100 uniformed police, coast guard and fire service unionists protested pay cuts outside Parliament, with a small group burning a wartime military German flag used in the Nazi era in 1935-1945. While Germany is a major contributor to both Greek bailouts, Berlin’s insistence on an austerity-based cure for the country’s financial woes has angered many Greeks.
Papademos, a technocrat heading Greece’s temporary coalition government, is to head to Brussels for a meeting Wednesday with European Commission chief Jose Manuel Barroso.
Greece’s European partners have been pressing the country to implement the measures it has already passed, after repeated delays and missed targets over the last two years eroded trust in the ability of Greece’s politicians to stick to their pledges.
European Parliament President Martin Schulz was in Athens on Tuesday for a series of meetings, and he gave a speech in Parliament stressing that “Greece must remain in the euro.”
“We must do everything we can to prevent the collapse of the euro,” he said, adding that more emphasis must be put on measures to promote growth rather than only on cutbacks.
“A policy based solely on austerity spells economic disaster,” he told Greek deputies.
“Budgetary prudence is certainly essential (but) … there is too much focus on financial penalties and austerity packages,” Schulz said, adding that economic growth could be stifled in many European countries.
“How are countries whose economies are at a standstill, which are facing a recession, supposed to pay off their debts? Greece has already paid a high price. It cannot go on paying,” he said.
On Monday, the Standard & Poor’s ratings agency downgraded Greece’s credit rating to “selective default” over a debt writedown deal with private creditors that is an integral part of the second bailout.
The downgrade had been widely expected, as ratings agencies had said the bond swap with private creditors, which seeks to cut euro107 billion ($144 billion) off Greece’s debt, would constitute a selective default. Once the swap is carried out next month, the agencies are expected to upgrade Greece.
Late Tuesday, the International Swaps and Derivatives Association said it has accepted for consideration a question relating to a potential credit event with respect to Greece. An ISDA statement said a meeting will be held at 1100GMT on Thursday to determine whether a credit event has occurred.
The decision by the New York-based trade association, which represents hundreds of banks and other companies, will ultimately determine whether the bond swap will trigger payment of insurance taken by investors against a Greek default.
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Derek Gatopoulos and AP Television in Athens contributed.
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