Tax Breaks for Bailout Recipients Stir Up Debate

From the Wall Street Journal:

Senate legislation unveiled Thursday has estate planners asking whether the window has closed for clients to make gifts to children and grandchildren at unusually low tax rates.

Wealth advisers have recently been touting the 35% gift-tax rate in effect in 2010, and the absence of a generation-skipping tax on gifts to grandchildren. Both taxes are scheduled to snap back to 55% on Jan. 1, creating a tax-saving opportunity for year-end gifts.

But the bill authored by Sen. Max Baucus (D., Mont.) would immediately re-impose the generation-skipping tax and raise the gift tax, both to 45% and retroactive to Thursday, Dec. 2.

Those provisions are part of broader legislation to extend expiring tax cuts, which isn't expected to pass the Senate in its current form. Ultimately it will have to be negotiated with Republicans, which could lead to changes on such items as effective dates.

Still, Mr. Baucus's choice to make the higher tax rates effective as of Thursday, instead of when final legislation actually passes, makes gifts in December a riskier proposition, wealth advisers say.

"There are some people who were thinking about making year-end gifts that would trigger a gift tax, who now will think twice about writing that check," said Anne Coventry, an estate planner at the Pasternak & Fidis law firm.

Citigroup Q4 Loss Narrows, Loans Seem to Stabilize

From WashingtonPost.com:

Citigroup Inc. posted a $7.6 billion quarterly loss on costs related to repayment of U.S. bailout funds and still-high loan losses, but the bank's shares edged higher as some investors saw glimmers of hope. In a sign of stabilization, losses on consumer and corporate loans fell compared with the third quarter.

"They've crept out of the abyss like everyone else," said Henry Asher, president at Northstar Group, whose clients own Citi shares.

"They have a long way to go before they start reporting significant profits," Asher added.

The government still has a bigger stake in Citigroup than in any other major U.S. bank, reflecting the swamp of toxic assets that threatened Citi's survival. Chief Executive Vikram Pandit told investors that U.S. consumer credit remained an issue for the bank, although he said some credit fundamentals appeared to be stabilizing, especially internationally.

The third-largest U.S. bank said its quarterly loss amounted to 33 cents a share, compared with a loss of $17.3 billion, or $3.40 a share, a year earlier. The loss matched analysts' average estimate, according to Thomson Reuters I/B/E/S. Citigroup shares rose 7 cents, or 2 percent, to $3.49 in midday trading.

"It's not an impressive quarter in my view," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel. Investors are still worried about further credit losses ahead, as well as the impact of sweeping changes to banking regulation, McCormick said.

Chrysler To Use Tax Money For Buyouts

From Freep.com:

Chrysler will use taxpayer money to sweeten buyout deals for UAW workers who could lose their jobs at six plants likely to be closed if no buyer can be found.

The autoworkers are now being offered up to $115,000 plus a $25,000 vehicle voucher to leave Chrysler voluntarily.

The larger lump-sum payment, which was increased from $75,000 in earlier buyouts, is available to workers under 50 years old who have 10 or more years of seniority.

Workers 50 or older who qualify for some pension benefits won't receive that type of onetime payment. But those with 30 years, or whose age and years together exceed 85, will receive $50,000 plus the $25,000 voucher for a new Chrysler vehicle.

The new offer, which eligible workers have until May 26 to accept, provides a cushion for several thousand workers who could lose their jobs anyway. It also could take some pressure off the UAW's Voluntary Employee Beneficiary Association (VEBA) retiree health care fund because younger workers who take the buyout may find health care through spouses or new jobs.

The buyouts are funded through Chrysler's taxpayer-backed "debtor-in-possession" financing.

By contrast, the company reserved funds prior to the bankruptcy filing to cover similar buyouts previously offered to UAW members. It is trying to pare its UAW workforce by 3,500 from about 26,000 when the first offer was made in January.

Plants covered by the latest offer are Sterling Heights assembly, Conner Avenue assembly, St. Louis North and South assembly, Kenosha (Wis.) engine and Twinsburg (Ohio) stamping. The offer doesn't apply to workers at plants in Newark, Del., which has closed, or Detroit Axle because some of those workers will be transferred to a new Marysville axle plant that is to open in 2010."This is simply Chrysler's way of reducing the number of employees about whom it will have to worry," said Richard Block, Michigan State University professor of industrial and labor relations.

Chrysler's creditors aren't likely to object because the plants could be more marketable with fewer workers, said Sheldon Stone, a managing director of Amherst Partners.

AIG Reveals $454 Million In 2008 Performance Bonuses

From Reuters.com:

Embattled insurer American International Group (AIG.N) paid some $454 million in previously undisclosed performance bonuses to employees for 2008, the company said in answers to questions from a U.S. lawmaker that released on Tuesday.

AIG was widely criticized for paying out some $165 million in retention bonuses after it received some $180 billion in government bailout aid. Some of the retention bonuses were returned by employees after the firestorm of criticism.

The company told Representative Elijah Cummings, a Maryland Democrat, the performance bonuses were paid out by operating units, across the company's operations in some 120 countries.

Payments ranged from an average of $5,403 to employees of its property-casualty group, to $51,026 on average for those in its asset management group.

The payments are in addition to an about $120 million corporate bonus pool designated for holding company employees and executives at subsidiary companies.

The performance bonus plans for the various AIG units were set before the company teetered on the brink of bankruptcy, forcing them to take government aid last September.

The payments are separate from $1 billion in retention payments to entice employees to stay with the company.

The company also told Cummings AIG's bonus plans for 2009 were under development, "in consultation with the Federal Reserve and Treasury."

Bank Of America May Need More Money

Just days after I posted an entry on the 10 biggest recipients of Federal bailout money, Bank of America announced they may need more help from the government, according to the Associated Press. You can find a snippet of their story below, but the full article can be found here.

Bank of America Corp. (BAC) (BAC) and Citigroup Inc. (C) (C), which have each received $45 billion in government bailout funds, have been told by regulators that "stress test" results show they may need to raise additional capital, The Wall Street Journal said Tuesday.

Charlotte, N.C.-based Bank of America is looking at a shortfall in the billions of dollars, the paper said, citing people familiar with the situation. Both banks plan to rebut the preliminary findings, according to the paper, with Bank of America expected to respond Tuesday ahead of its shareholder meeting Wednesday.

Citigroup declined to comment; Bank of America officials weren't immediately available to comment.

As executives of the nation's largest banks review their stress-test results, even the top performers are lobbying regulators to raise their scores before the numbers are finalized Friday.

Fed officials told reporters Friday that all 19 banks that took its "stress tests" will be required to keep an extra buffer of capital reserves beyond what is required now in case losses continue to mount. That would mean some banks will likely have to raise additional cash. But the Fed stressed in a statement that a bank's need for more capital reserves to meet the requirements should not be considered a measure of the "current solvency or viability of the firm."

Federal Reserve officials held top-secret meetings with bank executives last week to give them preliminary findings of how each bank would fare if the recession got much worse. The government plans to announce the results of the tests May 4, and banks will have the opportunity to appeal the findings.

By law, the banks cannot publicize the results without the government's permission.

Executives sifted through the test results over the weekend, devising arguments they hope will persuade regulators to boost their scores, according to two industry officials who requested anonymity because regulators have barred them from discussing the process.

Banks have until Tuesday to make their cases. They will receive the final test results Friday, and the information will be released next week.

The results will determine the fates of the companies, which together hold one-half of the U.S. banking system's loans. Banks found to need more capital face several possibilities: The government could convert its stake in them to common shares, force them to raise money from investors or eventually release more funds from the Treasury Department's $700 billion financial bailout.

For Treasury, the easiest way to bolster bank balance sheets is to convert the government's existing stake from preferred shares - a form of debt - into common shares that carry voting rights. This would help Treasury avoid returning to Congress for more bailout money - a request lawmakers are likely to rebuff.

The banks' options are designed to ensure banks have enough cash to withstand the mounting loan losses they would absorb in a bleaker economy.

If the test showed a bank would need more money to endure a much worse recession, regulators will force it to meet higher standards for capital reserves, to offset possible future losses.

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Bonus Tax not the Answer, Some Say

From CNN.com:

The Senate is taking up a controversial bill that would impose a hefty tax on bonuses paid out by companies propped up by taxpayer money.

But, as outrageous as the bonuses may seem, critics of the bill say the tax code should never be used as punishment.

Lawmakers cried foul after it was revealed earlier this week that ailing insurance giant American International Group doled out $165 million in retention bonuses, after claiming more than $170 billion in bailout funds.

The House of Representatives on Thursday passed a measure that would tax individuals on any bonuses received in 2009 from companies getting $5 billion or more in money from the Troubled Asset Relief Program, or TARP. Bonuses for people with incomes over $250,000 would be taxed at a 90 percent rate.

Most Democrats supported the bill, while Republicans were sharply divided.

House Speaker Nancy Pelosi, D-California, said the bill was necessitated by the poor judgment shown by firms receiving bailout money.

"We must stabilize the financial system in order to strengthen our economy and create jobs," she said. "We must also protect the American taxpayer from executives who would use their companies' second chances as opportunities for private gain."

Taxing Bonuses

We are all angry about the AIG bonuses, rightfully so. By offering large bonuses to AIG leadership, we are rewarding gross incompetence. “You utterly destroyed this company. Nice job, here’s your stack of cash.”

What can be done about it now, though? A handful of lawmakers have suggested taxing these bonuses at an enormously high rate. Ok, that will effectively give the money back to the government. But this is using taxes to punish people. And that is not the purpose of taxes.

Taxes are paid to create revenue streams for operating government bodies. The tax code is not an alternative to jail time, nor should it be. This will create a dangerous precedent. What’s next? Drug dealers can avoid prosecution by paying a higher tax rate?

Bailed Out Companies Owed IRS Millions

News broke this week that at least 13 companies receiving TARP funds owe a combined total of $220 million in unpaid federal taxes. Frankly, since these companies were running into the ground, this is not really surprising. And, since 40 million individual taxpayers owe the IRS, these corporations are in good company. Where it gets a little trickier, however is that each company who accepted TARP funds signed contracts stating that they did NOT have unpaid taxes.

We are left with two possibilities.

1. These executives were even more out of touch with their companies’ functioning than we previously thought. That they truly did not know they owed the IRS millions of dollars. Ignorance, evidently, is bliss!

2. If these executives were not ignorant of their companies’ enormous debts to the government, then this is outright criminal. They signed their names, took billions of dollars in aid, all the while defrauding the government and American taxpayers.

Which is worse? Incompetence or dishonesty?

And where in this were their lawyers? As an attorney and a business owner, I certainly wouldn’t sign anything that hadn’t been reviewed by my attorney. It is just good common sense: read the contract before you sign it. But clearly, common sense is not so common anymore.

Transit Agencies May Get Help on Bad Tax Deals in Bailout

From the Wall Street Journal:

Public transit agencies may get relief from the federal government from soured tax shelter leasing deals, as part of the auto-industry bailout bill Congress is weighing this week.

A provision under discussion as part of the draft bill would spare transit agencies in major cities like Houston, Chicago and Los Angeles from having to pay millions in penalties to banks with whom they entered into the deals.

Under the tax shelter arrangements, transit agencies agreed to sell assets like train cars to financial institutions, and lease them back from the firms. The transit agencies received cash upfront, while the banks reaped tax depreciation benefits from owning the equipment.

However, many of the deals were insured by American International Group Inc. When AIG collapsed and its credit rating was downgraded, the transit agencies were in technical default of the leaseback agreements, triggering millions in penalties.

Washington's transit agency settled with Belgium's KBC Bank last month, in a case where the bank sought $43 million in penalties.

The final details of the auto bill were still under negotiation late Tuesday between congressional leaders and the White House. Senate Majority Leader Harry Reid (D., Nev.), said he hopes the Senate can vote on the package Wednesday.

A provision in a draft version of the bill obtained by Dow Jones Newswires would have the federal government guarantee the obligations of the transit authorities. Transit agencies had lobbied Congress for that guarantee, because it would remove them from default in their leaseback arrangements.

The Treasury Department had already rebuffed a request from the transit community that it step in and guarantee the deals, according to people familiar with the discussions.

Autoworkers Making $70 An Hour? Not Really

From CBS News.com:

If you've been following the auto industry's crisis, then you've probably read or heard a lot about overpaid American autoworkers--in particular, the fact that the average hourly employee of the Big Three makes $70 per hour.

That's an awful lot of money. Seventy dollars an hour in wages works out to almost $150,000 a year in gross income, if you assume a forty-hour work week. Is it any wonder the Big Three are in trouble? And with autoworkers making so much, why should taxpayers--many of which make far less--finance a plan to bail them out?

Well, here's one reason: The figure is wildly misleading.

Let's start with the fact that it's not $70 per hour in wages. According to Kristin Dziczek of the Center for Automative Research--who was my primary source for the figures you are about to read--average wages for workers at Chrysler, Ford, and General Motors were just $28 per hour as of 2007. That works out to a little less than $60,000 a year in gross income--hardly outrageous, particularly when you consider the physical demands of automobile assembly work and the skills most workers must acquire over the course of their careers.

More important, and contrary to what you may have heard, the wages aren't that much bigger than what Honda, Toyota, and other foreign manufacturers pay employees in their U.S. factories. While we can't be sure precisely how much those workers make, because the companies don't make the information public, the best estimates suggests the corresponding 2007 figure for these "transplants"--as the foreign-owned factories are known--was somewhere between $20 and $26 per hour, and most likely around $24 or $25. That would put average worker's annual salary at $52,000 a year.

So the "wage gap," per se, has been a lot smaller than you've heard. And this is no accident. If the transplants paid their employees far less than what the Big Three pay their unionized workers, the United Auto Workers would have a much better shot of organizing the transplants' factories. Those factories remain non-unionized and management very much wants to keep it that way.

But then what's the source of that $70 hourly figure? It didn't come out of thin air. Analysts came up with it by including the cost of all employer-provided benefits--namely, health insurance and pensions--and then dividing by the number of workers. The result, they found, was that benefits for Big Three cost about $42 per hour, per employee. Add that to the wages--again, $28 per hour--and you get the $70 figure. Voila.

Except ... notice something weird about this calculation? It's not as if each active worker is getting health benefits and pensions worth $42 per hour. That would come to nearly twice his or her wages. (Talk about gold-plated coverage!) Instead, each active worker is getting benefits equal only to a fraction of that--probably around $10 per hour, according to estimates from the International Motor Vehicle Program. The number only gets to $70 an hour if you include the cost of benefits for retirees--in other words, the cost of benefits for other people. One of the few people to grasp this was Portfolio.com's Felix Salmon. As he noted Friday, the claim that workers are getting $70 an hour in compensation is just "not true."

Of course, the cost of benefits for those retirees--you may have heard people refer to them as "legacy costs"--do represent an extra cost burden that only the Big Three shoulder. And, yes, it makes it difficult for the Big Three to compete with foreign-owned automakers that don't have to pay the same costs. But don't forget why those costs are so high. While the transplants don't offer the same kind of benefits that the Big Three do, the main reason for their present cost advantage is that they just don't have many retirees.

The first foreign-owned plants didn't start up here until the 1980s; many of the existing ones came well after that. As of a year ago, Toyota's entire U.S. operation had less than 1,000 retirees. Compare that to a company like General Motors, which has been around for more than a century and which supports literally hundreds of thousands of former workers and spouses. As you might expect, many of these have the sorts of advanced medical problems you expect from people to develop in old age. And, it should go without saying, those conditions cost a ton of money to treat.

The Pros and Cons of an Auto Industry Bailout

With the economy what it is and our country in the middle of a presidential transition, another huge bailout request is a lot for the average American to take in. It is hard to decipher fact from fiction at a time like this, let alone make an objectionable opinion from all the bias political statements being made. For this reason, I decided to do some research of my own and compile a list of the pro’s and con’s of an auto industry bailout.

Pro 1: Eco Cars

If the bailout money works the way it is supposed to and pulls the big three out of the hole, good things could potentially come of it. One proposal is that after being saved the automakers could be pushed to manufacture and sell cars that are both good for the environment and economy. As Jeffrey D. Sachs of the Washington Post states, "Washington should seize the opportunity to begin a new era of U.S. technological leadership in the global auto industry, starting with an immediate loan. This is an opportunity to embark on a major industry restructuring to position the United States to lead the world in producing cars that get 100 miles or more per gallon".

Con 1: Taxpayer Cash

Perhaps the most obvious con, it is no secret that we will all be helping bail these companies out. Although it is still unknown where the money may or may not come from, taxpayer cash will be included for sure. Bloggers, business leaders, and experts are expressing their frustration about this all over the Internet. Mark J. Perry, an economics professor at the University of Michigan, questions, “should U.S. taxpayers really be providing billions of dollars to bailout companies that compensate their workers 52.5% more than the market (assuming Toyota wages and benefits are market), 54% more than management and professional workers, 132% more than the average manufacturing wage, and 157% more than the average compensation of all American workers?” However, many still concede to the bailout because they feel it is the only feasible option, and claim that the effects of a bankrupt auto industry would cost more to taxpayers then a bailout would.

Pro 2: Recession Woes

While most are already feeling the effects of a recession on their wallets and gas tanks, it could be a lot worse if something else “big” happens. Some experts feel not bailing out the big three could result in a much deeper and more severe recession then we are already in. With thousands of jobs connected to the auto companies and stocks across the board, their downfall could have a large effect on our economy.

Con 2: Bankruptcy

One of the only other options for GM and the rest of the big three is to file bankruptcy under chapter 11. It is true that we have already assisted these companies financially this year and it helped them for few months. For this reason, some economists feel another bailout would just be like bailing out a sinking ship that is going to sink no matter what we do. Bankruptcy however, could be their only salvation, and many experts claim that it could be their best option. Michael Levine of the Wall Street Journal claims, “the cost of terminating dealers is only a fraction of what it would cost to rebuild GM to become a company sized and marketed appropriately for its market share. Contracts would have to be bought out. The company would have to shed many of its fixed obligations. Some obligations will be impossible to cut by voluntary agreement. GM will run out of cash and out of time.”

Pro 3: Chrysler Bailout

As history tends to repeat itself, I think it important to consider the Chrysler bailout of 1979. In the mid 70's while our country was going through a gas crisis, Chrysler refused to stop making their biggest most gas guzzling luxury cars. This mistake led them to requesting a bailout in late ‘79. However, to the surprise of the watching country, Chrysler came out with the "K-car" that sold like hot cakes and pulled the company out of a financial crisis. Chrysler then paid off their debt to the government 7 years early, and the government made over $660 million in profit from the bailout when all was said and done. Many people claim that if given another bailout, the auto companies could pull themselves out from near bankruptcy, and the federal government could generate revenue as well.

Con 3: Private Jet-setting

Unfortunately, when the CEO's of the big three traveled to Washington D.C. to request billions from taxpayers early this week, all three CEO's took private jets with round trip travel costs totaling of over $40,000 per CEO. This ostentatious show of wealth was considered highly disrespectful to the taxpayers about to consider bailing them out and created tons of bad publicity for the potential bailout. If companies are going to get taxpayer’s money, then we need to know that they are being frugal with it.

AIG Seeks IRS Refund for $329 Million

Weeks after getting billions of dollars in federal bailouts, American International Group Inc. (AIG) is seeking over $300 million from the Internal Revenue Service (IRS).

According to the Wall Street Journal, “the clash dates from before the bailout,” and that “the company disclosed in a securities filing this week that it filed a ‘claim for refund’ with the IRS” for $329 million.

However, AIG’s timing of the announcement comes shortly after the company received an estimated $150 billion in multiple bailouts from the Federal government. Additionally, the company also made headlines for lavish weekend conferences costing hundreds of thousands of dollars. WJS.com claims that AIG is in “the peculiar position of effectively using government funding to fight the U.S. government.”

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AIG Plans Another Lavish Resort Event

Last week, AIG (American International Group Inc.) got lots of bad publicity for hosting a $440,000 conference just weeks after getting bailed out by the federal government. Both the White House and Congress spoke out in displeasure, and both presidential candidates have also chastised AIG for the costly event. However, according to Bloomberg, they are already planning another.

“The event, at the Ritz-Carlton in California's Half Moon Bay, aims to ‘motivate and educate'’ about 150 independent agents who sell AIG coverage to high-end clients, said spokesman Nicholas Ashooh.

White House spokeswoman Dana Perino today called ‘despicable’ expenses from the first gathering, a weeklong conference last month at the St. Regis Resort in Monarch Beach. Those costs included $23,000 for spa services, according to Representative Henry Waxman, chairman of the Oversight and Government Reform Committee.

AIG considered buying advertisements to explain its position, only to be told by public relations consultant George Sard that it would be ‘a really bad idea.’

‘To spend the taxpayer's money on an expensive ad campaign to apologize for how you used taxpayer money leaves you open to further attacks,’ Sard wrote in an e-mail to Ashooh. Sard, chief executive officer of New York-based Sard Verbinnen & Co., said the message was a private e-mail mistakenly sent to Bloomberg and wasn't intended to be a public statement.

President George W. Bush didn't push for the bailout ‘to help top executives go to a spa,’ Perino said today at the daily White House briefing. Hours later, the Federal Reserve agreed to loan AIG an additional $37.8 billion on top of the initial $85 billion.

AIG Chief Executive Officer Edward Liddy, who replaced former CEO Robert Willumstad as a condition of the federal loan, today told Treasury Secretary Henry Paulson that the company intends to reevaluate expenses.

‘We understand that our company is now facing very different challenges,’ Liddy wrote in a letter to Paulson. ‘We owe our employees and the American public new standards and approaches.’

Common Misconceptions About the Wall Street Bailout

With ongoing media coverage from every angle, the Wall Street bailout legislation has become a web of complicated myths and facts that can be difficult for the average taxpayer to untangle. In times like these we turn to political leaders to let us know what is going on and what they are going to do about it. Unfortunately, we are at the tail end of an election season and many of our leaders are more concerned about the election then fixing our economy. It hard to trust candidates fighting for your vote or leaders who waste time playing the blame game. To help out the readers of my blog sort through this web of facts, I have compiled this list of common misconceptions about the Wall Street bailout.

Myth: The bailout will only help Wall Street, not people living on Main Street

Reality: Although Wall Street has lost the trust of taxpayers, our economy depends on it. The bailout isn't made to directly "help" any one specific person, but to help maintain the lifestyle of all Americans. It means keeping your bank accounts, loans, small business, insurance, and job in place. It means keeping your life in place.

Myth: Nancy Pelosi's speech changed Republican votes

Reality: While Pelosi’s speech was a toe over the line and obviously attacked Republicans, it is still doubtful to me that it actually changed any votes. By the time congress was in session that day, they should have sufficiently reviewed the bill and already had their votes decided. While some Republicans and Democrats alike were upset by what Pelosi said, her words caused outrage—not the death of the first legislation.

Myth: Congress spent too much time passing the bill

Reality: While many were upset by the first bills failure, Congress was simply doing their job. It is their duty to review, re-review, and thoroughly discuss important bills. Hundreds of billions of dollars were on the table, and rash decisions were simply not the right way to go. I doubt anyone really wanted them to push the bill through without giving it the attention it deserved.

Myth: The entire economic crisis is Bush’s fault

Reality: While it'd be easiest to point the finger at a single person, the fact is the economic crisis been coming for longer than just eight years. Democrats and Republicans alike pushed changes to regulations that governed financial institutions. In addition, I would not solely blame improper loan companies or even the corporations that need bailing out. This is a deep-rooted crisis cause by dozens, if not hundreds of mistakes that have been made.

Myth: The bailout will provide immediate relief

Reality: While the country watches as more jobs are lost and the DOW continues to fall, they are wondering why the bailout is not working yet. The truth is that the U.S. Treasury Department needs to set up a system to distribute the funds, and it could take as long as six weeks before they get to that point.

Myth: Innocent taxpayers are paying for the bailout

Reality: What a lot of people do not realize is that their money is not being wasted. In exchange for the funds, the federal government will take partial ownership of the companies it bails out. Then will then be able to sell these shares in the future, possibly even for a profit! Additionally, by investing into companies it will assure a more sound American economy, which will benefit everyone who lives in this country.

Myth: Why bail them out? The sooner they fall, the sooner we recover

Reality: While this could work, the downside is that if it does not, we will all be in the hole. Unfortunately this country is not just relying on itself, and a pretty big chunk of our debt lies on foreign investors who are not very impressed with the situation. If those investors decide to pull their funds from American investments, then the economy could get much worse.

Myth: The bailout will reduce the value of the dollar

Reality: The U.S. dollar is on a flux, meaning that it is not going up or down... it is doing both. Even before the bailout this was the case, and it is not likely to affect inflation dramatically either way. The financial meltdown is a worldwide crisis, and the dollar has actually made significant improvements over foreign currencies over the past few weeks.

IRS eases tax rules on US firms with foreign units

From the Associated Press:

The Internal Revenue Service, seeking to make cash more available during the current credit crunch, has issued a rule making it easier for U.S. corporations to bring home money made by their foreign subsidiaries.

The IRS temporarily expanded a 1988 ruling allowing corporations to borrow money held by foreign subsidiaries without having to pay the 35 percent corporate income tax.

"We were recognizing that there were liquidity restraints for companies" during the current credit crisis, Treasury Department spokesman Andrew DeSouza said Tuesday. He said the action would make it easier for foreign subsidiaries to provide loans to their domestic parents.

The current rule allows a company's foreign units to make a tax-free loan to the company as long as it is repaid in 30 days. Over a one-year period, the company can have outstanding loans from its subsidiaries for up to 60 days.

The temporary rule change would allow the U.S. company to keep cash from a single loan for up to 60 days. In total, the company could have borrowed money for up to 180 days in a one-year period.

To avoid being subject to taxation, the money would have to be paid back and could not be used as distributions such as dividends.

Congress, as part of tax legislation passed in 2004, enacted a similar break giving corporations a one-time deduction of 85 percent on dividends received from foreign subsidiaries. That act, aimed at encouraging domestic investment, lowered the effective tax on qualifying dividends from 35 percent to 5.25 percent.

The IRS said in a recent report that 843 corporations took advantage of the deduction. It said that $312 billion in repatriated dividends qualified for the deduction, creating a total deduction of $265 billion.

Senator Clinton Calls for Renewed Bipartisan Action on Economic Crisis

From Yonkers Tribune.com:

Sen. Hillary Rodham Clinton today underscored the need for quick bipartisan action to halt the growing economic crisis. In a conference call with media, Senator Clinton said the economic impact of failing to address the crisis would spread well beyond Wall Street and seriously damage Main Street as well. Senate Clinton said jobs, family incomes, and the broader economy is at risk if nothing is done to stem the crisis. She described the bipartisan plan narrowly rejected by the House of Representatives yesterday as a flawed but necessary compromise and a major improvement over the Bush Administration’s initial proposal.

“I understand the deep skepticism surrounding the proposal, and clearly I was against the original plan sent over from the Treasury because it was a blank check giving Treasury virtually unlimited powers to do whatever they saw fit,” Senator Clinton said. “But we have negotiated through the Congress on a bipartisan basis a better alternative that installed taxpayer protections, asserted oversight and accountability, and came up with the checks and balances we should have had rather than the blank check.”

Senator Clinton urged her colleagues to set aside their differences and make hard compromises for the good of the nation.

“We cannot let the perfect be the enemy of the good, or in this case the enemy of what’s necessary,” Senator Clinton said. “We have to go back and in a bipartisan fashion, face up to the difficult decisions ahead of us.”

Euro Falls Most Since 2001 Against Dollar as Bailouts Spread

From Bloomberg.com:

The euro fell the most against the dollar since 2001 after France and Belgium led a state-backed rescue of Dexia SA, as the widening financial crisis forces governments to prop up financial institutions across Europe.

The cost of borrowing in dollars and euros reached record highs today as banks' reluctance to lend at the end of the third quarter exacerbated the freeze in global credit markets. The dollar rose against the yen on speculation the U.S. Senate will salvage a $700 billion bank-bailout plan as early as tomorrow after Congress rejected it yesterday.

``The consensus is the U.S. banking system is a little bit further along in its exposure of its toxic assets,'' said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. ``It's a case of which is relatively worse. The dollar's going to benefit against the euro because Europe has more to expose.''

The euro tumbled 2.4 percent to $1.4092 at 5 p.m. in New York, from $1.4434 yesterday, the most since a 2.5 percent slide in January 2001. The currency dropped as much as 3 percent, the biggest intraday decline since its 1999 debut. The euro slid to 149.56 yen from 150.38. The yen weakened to 106.11 per dollar from 104.18, after reaching 103.54, the most since Sept. 16.

Implied volatility on one-month euro-dollar options rose to 16.9575 percent, or the highest in almost eight years. On Sept. 18, it reached 15.55 percent, the same level that triggered the Group of Seven nations to buy euros in 2000 to halt the 27 percent slide from its 1999 debut. The dollar had its biggest drop ever against the euro Sept. 22, falling 2.1 percent.

The euro also fell against the British pound after Belgium and France said they would lend Dexia, the world's biggest lender to local governments, $9.2 billion to shore up capital.