Finance & Business World

South African Finance Minister Pravin Gordhan may push back next year

The Obama administration’s corporate tax reform plan will end “dozens and dozens” of tax breaks, U.S. Treasury Secretary Timothy Geithner said on Tuesday as he defended the White House’s election-year call for higher taxes on the wealthy.

Within days, the administration is set to unveil a blueprint for revamping the corporate tax system aimed at leveling the playing field for all companies, which pay wildly differing levels of taxes, while lowering the top corporate tax rate.

Companies are clamoring for a cut in the top 35 percent corporate tax rate but disagree about how to how eliminate special tax preferences that benefit selected industries.

Geithner spoke before the Senate Finance Committee a day after President Barack Obama unveiled a $3.8 trillion budget-and-tax proposal that called for aggressive government spending to boost the economy and higher taxes on the rich.

“We think they can handle it. We think they can afford it,” Geithner said.

The budget proposal is seen as a campaign document, with few elements expected to win approval this year in a divided U.S. Congress as elections approach in November.

Republicans criticized Obama’s budget, saying it chooses winners and losers and moves away from tax reform.

For example, Obama wants to end a manufacturing tax break for oil and gas companies, but expand it for high-tech companies. “Obviously not everyone is going to be playing by the same set of rules,” Republican Senator Jon Kyl of Arizona said.

Geithner said it was a “fair question.”

He said the Obama plan would “wipe out a very substantial, dozens and dozens of special tax preferences,” in the corporate code, but keep a “very limited” number targeting incentives for “creating and building stuff in the United States.”

Senators from both parties said Obama needs to use the bully pulpit to push major changes to the tax code online pay day loans.

The last time major rewrite of the U.S. tax code came in 1986 under the leadership of Republican President Ronald Reagan.

“The key in 1986 was of course the presidential bully pulpit and that the executive branch every single time out talked about how you had to fit the pieces together,” Democratic Senator Ron Wyden said.

Obama said earlier he was “hopeful” of a deal on extending a 2 percentage point cut in the payroll tax paid by workers, which will expire at the end of the month without a deal between sparring lawmakers.

FISCAL CLIFF

The payroll tax extension is the first among many deadlines approaching in coming months that could hamper the fragile economic recovery.

At the end of the year, individual tax cuts enacted under President George W. Bush are set to expire. In addition, $1.2 trillion in automatic budget cuts across all government programs are set to kick in as part of last summer’s deal to raise the debt ceiling.

“A perfect fiscal storm is waiting at the end of the year,” Senator Max Baucus, Democratic chairman of the Senate Finance Committee said.

Geithner agreed that the combination of the deficit reduction measures and higher taxes would hurt the economy.

But he said the administration is proposing to extend the bulk of the tax cuts so that only the wealthiest would be impacted. “The impact of that tax reform would be very, very modest,” he said.

Geithner rejected Republican suggestions that the administration should make drastic cuts to government spending even though the U.S. deficit has soared to $1.3 trillion and the federal debt has topped $15 trillion.

“That would damage economic growth,” Geithner said.

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White House Chief of Staff Jack Lew said hundreds of billions of dollars in spending for roads and bridges, education and manufacturing are necessary to keep the U.S. economy growing.

Federal Reserve Chairman Ben S. Bernanke said the central bank

Stocks are edging lower Monday morning as talks drag on between Greek political leaders over a fresh austerity package required for the country to get more bailout loans.

The Dow Jones industrial average fell 36 points to 12,825 a half-hour before noon. That’s a drop of 0.3 percent. American Express Co. led the Dow lower, losing 1.4 percent.

Sam Stovall, chief equity strategist at S&P Capital IQ, said he thinks investors are starting to realize the stock market is vulnerable to a big drop. Trading has been subdued compared with the wild swings of 2011. The S&P has closed up or down by more than 1 percent only three times since the year began. In December, that happened nine times.

“I look at it like a very low tide warning of an impending tsunami,” Stovall said of the recent calm stretch. “We’re setting ourselves up for a decline, the sort of decline that would make you sit up and take notice,” he said.

In other trading, the Standard & Poor’s 500 index fell 3 points to 1,341, for a drop of 0.2 percent. The Nasdaq composite fell 7 points to 2,898.

The declines follow a big gain Friday after a surprisingly good U.S. employment report. Large gains in the stock market are often followed by modest moves, as traders pull some of their winnings off the table. On average since 1950, whenever the S&P rose by 1 percent or more in a trading day, the index has inched up just 0.1 percent the next day, according to S&P Capital IQ.

Greece’s Prime Minister Lucas Papademos will meet with negotiators from the European Union and the International Monetary Fund in the afternoon and then with the leaders of the three parties backing his coalition government. The Greek parliament must sign off on any budget deal.

Among companies making big moves:

_ Boeing Co. fell 1.3 percent following reports that the company found a problem in its 787 Dreamliner.

_ Netflix Inc. fell 3 percent after Verizon Communications and Coinstar Inc. said they will launch a video-streaming service later this year, a challenge to Netflix. Coinstar is the parent of Redbox, a DVD rental company. Coinstar rose 1.4 percent and Verizon less than 1 percent.

_ Micron Technology Inc. fell 2.5 percent following news that the chip maker’s CEO died in a plane crash. Steve Appleton, 51, was at the helm for 18 years, leading the only company he’d ever worked for.

_ Humana dropped 5.6 percent, the biggest loss in the S&P 500 index. The health insurance company reported revenue that fell short of analysts’ expectations. Humana also raised its earnings outlook for 2012 but that, too, was below analysts’ forecast.

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President Barack Obama announced a package of proposals designed to jolt the housing market, his latest effort to reignite the economy after four years of foreclosures and falling home prices.

Much work remains to achieve maximum U.S. employment and stable prices, and the central bank will do its part, an influential Federal Reserve official said on Friday.

The pace of the U.S. economic recovery remains “sluggish” and is likely to slow somewhat this year, New York Fed President William Dudley said in prepared remarks. Unemployment is likely to remain “unacceptably high” for some time, he added, while inflation is likely to be below the Fed’s new 2-percent objective for several years.

“Clearly, much work remains to achieve the Fed’s dual mandate of maximum sustainable employment in the context of price stability,” Dudley said in a briefing to media.

The Fed, which has kept interest rates near zero for more than three years, “has done and will continue to do its part in supporting the recovery - but it is not all-powerful,” he added.

“Other complementary policy actions in housing, fiscal policy and structural adjustment or rebalancing of the economy will be essential if we are to achieve the best available recovery free business cards.”

Besides the low rates, the Fed has also bought $2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades. Yet the recovery has been slow and the outlook issued by the Fed this week was bleak, leading the central bank to say it expects to keep rates “exceptionally low” at least through late 2014.

Dudley, a permanent voter on the Fed’s policy-setting committee, added that he expects “moderate” growth this year, and warned the risks are skewed to the downside in part because of Europe’s debt crisis. The economy continues to operate with “significant excess slack,” he said.

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The Greek government and its creditors return to the negotiating table this week to revive stalled talks on a debt swap as German Chancellor Angela Merkel places pressure on both sides to forge a deal.

Greek Finance Minister Evangelos Venizelos said two days ago that talks with the Institute of International Finance will resume on Jan. 18. The Washington-based IIF, which represents banks holding the bonds, said on Jan. 14 there is a

So the U.S. economy added hundreds of thousands of jobs last month and everything is fantastic, right?

Well, not exactly. More than 40,000 of those jobs were couriers and messengers, which were in demand during the holidays because of the increased focus on online shopping rather than retail. But these jobs tend to be temporary seasonal hires and not permanent additions.

"People are happy to get those jobs for the time they have them, but come January, they’re out looking for jobs again," said Dean Baker, co-director of the Center for Economic and Policy Research.

The U.S. Labor Department reported that the economy added 200,000 jobs, which was stronger than economists expected, and the unemployment rate dipped to 8.5%.

Obama proposes pay hike

But spokeswomen for FedEx (, Fortune 500) and UPS (, Fortune 500) confirmed that they increased temporary hiring during the 2011 holiday season even more than the year before. However, many of those jobs have already evaporated.

"The hiring boost this holiday season was greater than the prior holiday season," said Kara Ross of UPS, noting that her company hired 55,000 temporary workers for the 2011 holiday season, an increase of 5,000 from the year before credit reports free.

Ross said that many of those new hires were drivers, driver helpers, loaders and unloaders. Many of them won’t remain on the payrolls after the holiday season, she said, though the level of attrition is yet to be determined.

"It just depends on our volume loads," she said. "Some of them we might keep on; some of them we might not."

Carla Boyd of FedEx said her company hired 20,000 temporary seasonal workers from October to December, an increase of 17,000 from the prior holiday season.

Unemployment rate, state by state

"There’s an incredible holiday surge," said Boyd. "We had our busiest day in history on Dec. 12."

On that day, FedEx had 17 million shipments, compared to the year-ago holiday peak of 15.6 million. But the annual average is 8.5 million, so FedEx doesn’t need that many workers year-round.

"The problem is that you have a lot of reporters touting this as a really strong report, and if that creates a view among policy makers that the economy is on the mend, then that undermines the need to do anything," said Baker. 

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