State Budget Woes Are Poised to Get Worse

The Wall Street Journal - State budgets look bad now, but they are set to get worse.

The bulk of funds from the federal government's stimulus package will be allocated by 2011, but tax collections aren't likely to be enough to take their place -- even if the economy is recovering.

The drop in tax revenue is set to be deeper and last longer as collections have become more sensitive to business cycles in recent years. At the same time, states face growing health-care costs and the need to replenish pension programs funded by decimated investments. And some of the stimulus funds expand programs that will require state money to sustain them after the federal largesse runs out.http://online.wsj.com/article/SB124398568837379031.html

When an Economic Cure Fights Itself

The New York Times - ALMOST every day, a few letters arrive, saying that a group in some city or town is about to have a “tea party.”

The gist, in case you haven’t received any of these invitations, is that President Obama’s taxing and spending plans are far too lavish. The United States will be burdened with immense debts, the protesters say. Taxes will be far too high for comfort, and we will decline as a nation. The tea parties are aimed at stopping all that.

These tea parties strike me as off-base, in some respects, though they evoke a certain principle that rings true, or at least possibly true.

First, I don’t quite get the taxation uproar. As far as I know, no new taxes of any size have been enacted. The only new tax I can spot immediately in front of us is the “cap and trade” levy on carbon emissions, which would be a tax on energy consumers. And even that, based on a questionable idea, doesn’t seem imminent.

When the recession ends, though, we will be facing very large budget deficits, even under the best projections. Unless the Federal Reserve is just going to print money — usually a dangerous road to inflation — how will we pay for government, except through taxes? And who has the money to pay, except the rich? So unless I am missing something, don’t we have to tax the rich, defined in some sensible way?

That’s just arithmetic. I wish that lowering spending were an option, but it’s not. Politicians talk about cutting spending and going through the budget, line by line, looking for waste. It never happens — except that sometimes, the military budget is cut, which is the last thing we should cut in a world as dangerous as ours. And right now, over all, the military budget isn’t being cut, although some programs are being reduced while others are expanding.http://www.nytimes.com/2009/04/12/business/economy/12every.html

Today's Top News

Bondholders and the White House now have a CEO they want running GM
New GM Chief Bends to U.S. Pressure
DETROIT -- Facing heavy government pressure, General Motors Corp.'s chief executive spent his second day on the job making a public break from his predecessor, sending a sharply different message of willingness to shake up the ailing auto maker.http://online.wsj.com/article/SB123850236944873521.html#mod=testMod

What's Going On Here - Aren't Things Suppose to be Getting Better?
Global Slump Seen Deepening.
The outlook for the global economy worsened on the eve of a summit of the world's 20 biggest economic powers, as two international agencies warned that global output will fall in 2009 for the first time since World War II. Fresh evidence of the deepening slowdown came from around the world. Euro-zone data Tuesday showed inflation at 0.6% in Europe's single-currency area for the year through March, the lowest level since official records began in 1996. In the U.S., home prices fell 19% in January compared with a year earlier. Japan's business-confidence fell to an all-time low in data released by its central bank early Wednesday, a day after the jobless rate there rose to a three-year high.http://online.wsj.com/article/
SB123849211128473261.html

States Push to Raise Taxes on Richest Taxpayers
The governor and Democratic lawmakers in New York will attempt to patch an $18 billion budget deficit by imposing much higher taxes on the richest residents, joining several states considering such a move this year. Under a proposal by Gov. David Paterson, New York would follow California and Maryland in pushing its top earners into higher tax brackets that are several percentage points more than what most earners pay. And New Jersey is considering raising its top-tier income taxes even higher, to more than 10% compared with the 5.25% marginal rate paid by most household. http://online.wsj.com/article/SB123854978218576549.html

What Are the Implications For Lower Oil Prices and Is Oil Headed Back Up?


Oil Falls Below $50 a barrel
Oil prices slipped below $49 Wednesday as new signs of deterioration in the world's three biggest economies -- the U.S., Japan and China -- undermined crude's recent gains. Benchmark crude for May delivery was down $1.22 to $48.44 a barrel by midday in Europe in electronic trading on the New York Mercantile Exchange. That fall nearly wiped out overnight gains, when the contract rose $1.25 to settle at $49.66. In London, Brent prices fell 96 cents to $48.28 a barrel on the ICE Futures exchange.http://online.wsj.com/article/SB123858224641977803.html

Home Sales are followed closely - is this a leading or lagging indicator?
Home Prices Drop, but Homes Still Not Cheap
Homeowners are watching anxiously for any signs of housing market stabilization. So, too, are all those who believe the market may hold the key to the economy.
And yet the most recent data makes for more gloomy reading.The closely watched Case-Shiller index, which tracks prices across twenty major cities, shows that through January the crash was getting worse, not better. And yet, even after these declines, homes overall still may not be that cheap relative to wages. More on that later.http://online.wsj.com/article/SB123853857749575441.html

Investors follow the Stock Market closely - is this a leading or lagging indicator?
Stock Bull Still Breathing, But Dow Loses 13% Overall in Period.
For investors, the first quarter was a case of one step forward but two steps back.
As the Federal Reserve, Treasury and governments around the world stepped up efforts to address the financial crisis, fears of a systemic collapse abated and investors showed glimmers of willingness to take on more risk. It wasn't enough to prevent stocks from posting their sixth consecutive losing quarter and dashing the hopes of many investors by setting lows in the process. Even a 20% rally over the span of three weeks -- putting the market into a bull market by common definition -- faded in the final days of the quarter as bad news out of the auto industry reminded investors that challenges remain.http://online.wsj.com/article/SB123849617556773343.html


How Much Lower Can Car Sales Go?
Vehicle-sales data for March will print Wednesday and once again the numbers will look depressing. But, just maybe, auto sales have bottomed. Car buyers are expected to have purchased in March roughly 9.5 million new cars on a seasonally adjusted, annualized basis, according to Moody's Economy.com. That will mark the third consecutive month in the sub-10 million range. The past decade saw monthly new-car sales annualized at about 16 million to 17 million a year, spiking at times above 20 million. But what follows "could be less, because if you reason there was a bubble in housing, then there was some degree of bubble in durable consumption," such as car sales, says Peter Kretzmer, senior economist at Bank of America.http://online.wsj.com/article/SB123853992973675517.html

What Does this Mean for Microsoft?


PC Makers Test Laptops Running Google Software
Hewlett-PackardCo. and other PC makers are considering using free software developed by GoogleInc. to run some small computers, a move that would open a new front in the battle between the Internet giant and MicrosoftCorp. PC makers are testing Google's Android operating system—which has so far been used to power mobile phones—for use in new models of so-called netbooks, inexpensive laptops that have become the fastest-growing segment of the PC industry. Google, which dominates Internet search, already challenges Microsoft on other fronts, including with its free word-processing and spreadsheet software, neither of which has succeeded in denting Microsoft's Office suite. The effort to move Android to netbooks targets Windows, which generated more than 60% of Microsoft's operating profit in its last fiscal year.http://online.wsj.com/article/SB123852934905974845.html

If the Dollar Loses its Status - What does that Mean for the U.S. Economy?

Dollar Losing its Status as a Safe Haven
The dollar surged out of the gate in the first months of 2009 only to stumble as the quarter drew to a close. Further obstacles could lie ahead. There are two main impediments in the dollar's path: the latest efforts by the Federal Reserve to jump-start the U.S. economy, and investors' tentative return to riskier types of assets. Both developments mean that investors are less likely to seek out the dollar as a safe port in a storm, something they have done relatively consistently since the global financial crisis intensified last year. Still, the dollar ended the quarter on a positive note. It strengthened 5% against the euro, 9% against the Japanese yen and 4% against a trade-weighted basket of 16 currencies tracked by J.P. Morgan Chase.http://online.wsj.com/article/SB123855139602376717.html

A Swiss Bank Is Set to Open Its Secret Files

In the hush-hush world of Swiss banking, the unthinkable is happening: secrets are spilling into the open.

UBS, the largest bank in Switzerland, agreed on Wednesday to divulge the names of well-heeled Americans whom the authorities suspect of using offshore accounts at the bank to evade taxes. The bank admitted conspiring to defraud the Internal Revenue Service and agreed to pay $780 million to settle a sweeping federal investigation into its activities.

It is unclear how many of its clients’ names UBS will divulge. Federal prosecutors have been examining about 19,000 accounts at the bank, but UBS ultimately may disclose the identities of only a few hundred customers.

But to some, turning over any names at all heralds the end of the secret Swiss bank account, whose traditions date to the Middle Ages.

“The Swiss are saying that this is the end of Swiss banking as they knew it,” said Jack Blum, an offshore tax specialist. “Nobody will trust the security of the Swiss bank account.”

As part of the settlement, UBS agreed to cooperate with a broad summons issued by the Justice Department to turn over the names. Under the terms of a so-called deferred prosecution agreement, the bank and its executives could be indicted if UBS didn’t identify the customers.

UBS has said it is closing the offshore accounts of its American clients. But under the deal with the United States authorities, the bank must provide periodic written evidence of that to prosecutors. UBS earned $200 million annually from the business.

Prosecutors suspect that from late 2002 to 2007, UBS helped American clients illegally hide $20 billion, letting them evade $300 million a year in taxes. http://www.nytimes.com/2009/02/19/business/worldbusiness/19ubs.html

Richest Americans See Their Income Share Grow

In a new sign of increasing inequality in the U.S., the richest 1% of Americans in 2006 garnered the highest share of the nation's adjusted gross income for two decades, and possibly the highest since 1929, according to Internal Revenue Service data.

Meanwhile, the average tax rate of the wealthiest 1% fell to its lowest level in at least 18 years. The group's share of the tax burden has risen, though not as quickly as its share of income.

The figures are from the IRS's income-statistics division and were posted on the agency's Web site last week. The 2006 data are the most recent available.

The figures about the relative income and tax rates of the wealthiest Americans come as the presumptive presidential candidates are in a debate about taxes. Congress and the next president will have to decide whether to extend several Bush-era tax cuts, including the 2003 reduction in tax rates on capital gains and dividends. Experts said those tax cuts in particular are playing a major role in falling tax rates for the very wealthy. http://online.wsj.com/article/SB121677287690575589.html?mod=todays_us_page_one