Last Week’s Highlights:
Stocks: Correct on GE earnings
Bonds: 10-yr holds under 3.5%
Oil: Back to the highs – $110
Dollar:: Hanging at the lows
Economics This Week: Sales & Inflation
Look for the inflation data to again hurt market sentiment, with higher trailing year levels due to higher energy costs. The key will be the core inflation rates, which have been relatively moderate near 2.5%. A surge in core rates will make it difficult on both the stock and bond markets.
Date Item Est. Comment
4/14 Retail Sales 0.4% Slight lift from last month
4/15 PPI 0.4/0.1 Up on all fronts
4/16 CPI 0.3/0.2 Trending high
4/16 Housing Starts 1015 Slow again
GEee Whiz and Wachy-ovia!
If worrying about wrapping up our taxes last week wasn’t enough, it took only one tiny little earnings report last Friday to turn the equity market on its head. OK, so GE isn’t such a small report! The bottom line is that one of the country’s most solid companies took it on the chin last Friday and, with it, most of the equity market. GE’s price dropped 13% last Friday – the worst one-day percentage drop in the stock since the 1987 market crash. GE earned 44 cents from operations in the period, down 8% from 48 cents in the year-earlier period, and seven cents below the consensus estimate of 51 cents. Of course, the killer was that it was such a shocking surprise to the market. And the sluggishness will most likely continue, as guidance from GE now suggests a 0% to 5% growth in profits in 2008.
Over the week-end another big financial, Wachovia, announced it was getting a $7 bil cash infusion to keep the boat afloat. According to the AP Wire, Wachovia Corp. will slash its dividend and raise $7 billion in a share sale after reporting a first quarter loss of $393 million – another surprise to the market. The cash infusion is Wachovia's second of this year. In the first quarter Wachovia added $8.3 billion in capital by issuing preferred stock and other securities to investors. Wachovia's problems, like most these days, comes from housing as a result of the 2006 acquisition of lender Golden West, a $25.5 billion deal.
Taxing Times – no kidding!
Tax Freedom Day, the day on which Americans have earned enough money to pay all their federal, state, and local taxes for the year, will fall on April 23 this year, according to the Tax Foundation's annual calculation using the latest government data on income and taxes. That's three days earlier than in 2007. Stimulus rebates and a projection of slow growth in 2008 are the principal reasons for the earlier celebration.
According to Lehman Brothers, corporate tax payment levels are declining significantly.
“Data through March suggest that 2008 may mark the end of an era of extraordinary growth in tax receipts relative to GDP growth. Since reaching a trough in 2003, receipts have rebounded sharply, allowing the deficit to shrink by $250 billion despite significantly higher-than-normal outlay growth. The surge in overall tax receipts largely has been driven by booming corporate tax receipts. Although the past four years have witnessed growth in individual income taxes of 10.1% per year on average, the average growth in corporate tax receipts was more than triple that rate, at 30.6% per year. This surge in corporate tax receipts pushed the share of corporate taxes in overall taxes from 10% to almost 15%, and the growth in corporate tax payments accounted for 30% of the total improvement in receipts since 2003.”
Lehman reports that growth in corporate tax receipts slowed dramatically in 2007 and they believe will slow further in 2008. Through March, corporate tax receipts are down almost 16% versus last year.
Who Pays Income Taxes? See Who Pays What
For Tax Year 2005
Percentiles Ranked by AGI |
AGI Threshold on Percentiles |
Percentage of Federal Personal Income Tax Paid |
Top 1% |
$364,657 |
39.38 |
Top 5% |
$145,283 |
59.67 |
Top 10% |
$103,912 |
70.30 |
Top 25% |
$62,068 |
85.99 |
Top 50% |
$30,881 |
96.93 |
Bottom 50% |
<$30,881 |
3.07 |
Note: AGI is Adjusted Gross Income
Source: Internal Revenue Service |
Presidential Candidate Tax Plan Comparison
|
John McCain |
Hillary Clinton |
Barack Obama |
Marginal Individual Income Tax Rates
|
Maintain current (Bush tax cut) rates. |
No specifics; Increase on income over $250,000. Make the current (Bush tax cut) rates for "middle class" families permanent. |
No specifics; "Repeal Bush's tax cuts for top 1%"
Eliminate income taxes on seniors earning $50,000 per year or less. |
Corporate Income Tax
|
Cut to 25% (from current 35%) |
No plan |
No specifics available. Proposes eliminating "preferential loopholes" and "cracking down on offshore tax havens." |
Tax Reform
|
No specifics; suggests a system that's "simpler" and "fairer" with "lower" rates. |
No plan |
Have the IRS send out pre-populated tax forms based on employer-provided data, allowing tax return completion in "five minutes." |
Estate Tax
|
Modify to apply to estates over $10 million, taxed at 15% rate. |
Estates valued at $7 million or more would be subject to the estate tax. |
Opposes repeal; no specific plan proposed |
Social Security Payroll Tax
|
No specifics; opposes tax increase as solution. |
No plan |
Increase the wage cap, causing more in wages to be subject to the tax. Possibly include a "donut hole" to exempt income just above the current cap (now $102,000). |
Alternative Minimum Tax
|
Permanently repeal. |
No plan |
No plan |
Other Tax Policies |
|
- Would create a matching refundable tax credit for contributions made to 401(k)s. The credit would be a dollar-for-dollar match up to $1,000 for couples earning up to $60,000. Couples earning between $60,000 and $100,000 would receive a 50% match. Those families not enrolled in a 401(k) would be eligible for an “American Retirement Account," functionally a government-run 401(k). Individuals would be able to contribute up to $5,000 per year tax-deferred, and the first $1,000 would be eligible for the matching funds available to private 401(k) holders. |
- Would create a new “Making Work Pay” tax credit of up to $500 per person, or $1,000 per working family. This refundable income tax credit would "provide relief... from the payroll tax system." It would offset the payroll tax on the first $8,100 of earnings while still preserving the important principle of a dedicated revenue source for Social Security.
- Would create a universal 10 percent mortgage credit. Non-itemizers would be eligible for this refundable credit, which would "provide the average recipient with approximately $500 per year in tax savings."
- Would give full-time workers making minimum wage an EITC benefit up to $555. If the workers are "responsibly supporting their children on child support," the Obama plan would give those workers a benefit of $1,110.
- Would create an "American Opportunity Tax Credit." This universal and fully refundable credit would "ensure that the first $4,000 of a college education is completely free for most Americans."
- Would reform the Child and Dependent Care Tax Credit by making it refundable. |
Source: www.taxfoundation.org
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