Like
guests feeling the first rain drops at a Memorial Day barbeque, markets
responded uncertainly to Federal Reserve Board Chairman Ben Bernanke’s congressional
testimony and the newly released Federal Open Market Committee (FOMC) minutes
last week.
Generally,
both Bernanke’s comments and the FOMC minutes reiterated what the Fed has been
saying for some time. According to FOMC minutes, quantitative easing – the
Fed’s purchase of $40 billion of mortgage-backed securities and $45 billion of longer-term
Treasury securities each month – will continue “until the outlook for the labor
market has improved substantially in a context of price stability.” The minutes
also suggested the Fed’s other method for stimulating the economy – low
interest rates – “will remain appropriate for a considerable time after the
asset purchase program ends and the economic recovery strengthens.”
Initially,
stock market investors responded positively to these messages. On Wednesday morning,
both the Dow Jones Industrial Average and the Standard & Poor’s 500 Indices
gained more than 1 percent. By afternoon, the indices had lost more than 1
percent each. By week’s end, the indices had experienced their first weekly
losses since late April.
Uncertainty
about the future of quantitative easing affected bond and gold markets, as well.
By Friday, the yield on benchmark 10-year U.S. Treasury note had risen above 2
percent, reaching its highest level in two months. Gold prices firmed during the
week.
Fed
policymakers will meet twice before Labor Day – in mid-June and late-July. The
minutes of those meetings will be released three weeks after each meeting. If
markets respond as they did last week, investors may experience a bumpy ride
this summer.
the taxman
cometh. If your ears are burning, it may be because the
people who run state and federal governments have been discussing where to find
revenue to fill budget shortfalls. Currently, the solutions they’re pursuing focus
primarily on U.S.-based companies.
As corporate
profits have increased, the tax strategies employed by U.S.-based multinational
corporations have come under Internal Revenue Service scrutiny. According to The Economist, America’s corporate profits
are at an all-time high. Yet, corporate contributions to Uncle Sam’s coffers
have been far lower than they were in the past. In 1947, corporate profits were
about 10 percent of Gross Domestic Product (GDP) and corporate taxes were about
4 percent. Last year, corporate profits were about 12 percent of GDP and
corporate taxes less than 2 percent.
The United States
government recently called a U.S.-based multinational to task because it had employed
“a complex web of offshore entities to pay little or no tax on tens of billions
of dollars it had earned outside America.” The company responded to the inquiry
by pointing out it paid billions of dollars in American taxes during fiscal 2012
and was probably one of the biggest corporate taxpayers in the country.
Internet
retailers and catalogue companies also are becoming part of the hunt for tax
revenue. Under current law, states cannot compel out-of-state retailers to
collect the sales and use taxes owed by residents and businesses. It is up to
individuals to declare and pay those taxes. The National Conference of State
Legislatures estimates the inability to have Internet businesses collect taxes
resulted in about $23 billion in lost tax revenue during 2012. In an effort to
help states collect these taxes, Congress created the Marketplace Fairness Act.
If it becomes law, states that adopt a simplified tax code will be able to
enforce sales and use tax collection by Internet retailers and catalogue
companies. The Act was passed by the Senate early in May.
Weekly Focus – Think
About It
“Adversity
is the diamond dust Heaven polishes its jewels with.”
--Thomas Carlyle, Scottish philosopher
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