February 7, 2023

You’re the Boss Blog: Small-Business Tax Incentives Survive the Deal

The Agenda

How small-business issues are shaping politics and policy.

Most of the discussion about the last-minute legislation to avert sharp tax increases for 2013 has concentrated on the Bush tax cuts — their permanent extension for most Americans and their expiration for a very few. But the bill also renews dozens of other income-tax provisions for individuals and businesses through a series of provisions that the legislating class calls “extenders.” And though advocates for small businesses were concerned that legislators might overlook their interests in the high-pressure negotiations, it turns out that their pessimism was unfounded. Nearly all of the most important provisions won a reprieve through at least this year. (It just goes to show that an old temporary tax credit almost never dies, it just becomes an extender.)

Here’s where things stand for many of the small-business tax incentives that were on the table:

Section 179 expensing: This popular provision allows small companies to fully expense many investments in just one year, instead of over five years or more. The amount of investment eligible for immediate expensing grew to $500,000 in 2010 and 2011, but was to fall to $139,000 in 2012 and $25,000 in 2013. The new law extends the $500,000 limit through 2013, and pushes the $25,000 cap to 2014. Section 179 is available only to companies with total capital expenditures for the year under a certain threshold — $2 million through 2013 and $200,000 starting in 2014.

Bonus depreciation: Since 2008, companies have been able to take advantage of a special depreciation allowance that allows them to write off 50 percent (and sometimes more) of certain kinds of investment in the first year. The provision was set to expire at the end of 2012, but has been extended through the end of this year, or, in some cases, through 2014.

Research and Experimentation Tax Credit: The RD tax credit, as it’s also known, expired at the end of 2011. The new law extends it through 2013 and increases the potential credit for businesses that acquire other companies.

Built-in gains tax: Normally, when a company converts from a C corporation to an S corporation, it must retain its assets for at least 10 years or pay a 35-percent tax on the built-in capital gains that occurred before the company made the conversion. (The provision is intended to discourage a corporation from making the conversion simply to avoid double taxation — first at the corporate level, then at the shareholder level — on capital gains.) Since 2009, Congress has shortened the period, ultimately to five years for assets sold in 2011. The new law extends the five-year period through 2013.

Temporary exclusion of 100 percent of gain on small-business stock: This recent stimulus provision, an incentive to invest in small companies by making the capital gains tax-free, expired at the end of 2011 but has been extended through 2013.

Work opportunity tax credits: These are tax credits for employers who hire military veterans or people belonging to certain disadvantaged groups (for example, people receiving government assistance or living in distressed areas). Tax credits for hiring the disadvantaged expired in 2011 and those for veterans expired at the end of 2012; both have been extended through 2013.

Fifteen-year depreciation for qualified improvements to leasehold, retail or restaurant property: Under this provision, which expired in 2011, a renter, retailer, or restaurateur can write off improvements in 15 years, rather than over 39 years (which may be longer than the business would even exist). It has been extended through 2013.

•Adjustment to stock of S corporations making charitable contributions: This temporary provision made it easier for owners of an S corporation to take deduction for making donations. It expired at the end of 2011 but now is extended through 2013.

Enhanced charitable deduction for contribution of food inventory: This provision allowed companies to donate their inventory of “apparently wholesome food” — that’s a legal term, really — and take up to twice the deduction they would normally get. It expired in 2011, but has been extended through 2013. However, a similar provision that allowed C corporations a bigger deduction for donating computer equipment to schools and libraries was not renewed.

Article source: http://boss.blogs.nytimes.com/2013/01/02/small-business-tax-incentives-survive-the-deal/?partner=rss&emc=rss

With Gap Wide and Time Short, Obama and Boehner Meet

The meeting broke up after about an hour with no immediate sign from either side that there had been a breakthrough.

Earlier Thursday, Mr. Boehner dug in on demands that Mr. Obama lay out more concrete cuts to Medicare and other entitlements as the price for tax increases on the rich.

The speaker’s tone — and a hostile White House response — raised the level of pessimism that a wide-ranging agreement could be reached quickly to head off hundreds of billions of dollars in automatic tax increases and spending cuts beginning next month. Adding to the growing sense that the two sides might not come together, rank-and-file Republicans said the leadership had not begun laying the groundwork for a major concession on taxes.

But Mr. Boehner pointedly did not rule out a vote on legislation before the end of the year to extend Bush-era tax cuts for the middle class — and in so doing allow tax cuts on incomes over $250,000 to expire.

“The law of the land today is that everyone’s income taxes are going to go up Jan. 1,” Mr. Boehner said. “I’ve made it clear that I think that’s unacceptable, but until we get this issue resolved, that risk remains.”

Little more than two weeks are left before the nation heads over the so-called fiscal cliff, and neither Mr. Boehner nor Mr. Obama has budged from his core demands.

The president continues to insist on an immediate increase in the top two income tax rates as a condition for further negotiations on spending and entitlement changes. If the speaker insists on further spending cuts, White House officials say, he must lay out his specific demands, something Mr. Boehner has so far declined to do.

Mr. Boehner has offered to raise his opening bid of $800 billion in increased tax revenue over 10 years, but only if the president makes a significant commitment to overhaul entitlements and slow their growth. The White House’s opening bid committed to pressing changes next year to federal health care programs that would save $400 billion over 10 years. The speaker wants a far larger pledge and a firm commitment that the president will put his political weight behind substantive changes to Medicare and the tax code.

The president, Mr. Boehner said, appears intent on squandering “a golden opportunity to make 2013 the year that we enact fundamental tax reform and entitlement reform to begin to solve our country’s debt problem and, frankly, revenue problem.”

Washington now faces three potential outcomes to the fiscal impasse, lawmakers from both parties say. A broad deal could be reached in which some taxes go up immediately and some cuts are secured to stop the broader tax increases and halt the across-the-board tax cuts — and to lock in targets for entitlement savings and revenue produced by changes in tax policy to be worked out next year.

If no deal is reached, Republicans are increasingly talking about a more hostile outcome in which the House passes legislation that extends tax cuts for the middle class, sets relatively low tax rates on dividends, capital gains and inherited estates, and cancels the across-the-board defense cuts, but leaves in place across-the-board domestic cuts. Then House Republicans would engage in what Mr. Boehner, in a private meeting with them last week, called “trench warfare,” a running battle with the president on spending, first as the government approaches its statutory borrowing limit early next year, then in late March, when a stopgap government spending bill runs out.

Finally, many Republicans say it is now possible that the government will plunge into the fiscal unknown. Representative Patrick T. McHenry, Republican of North Carolina, said Mr. Boehner had given Republicans no indication “that he’s going to budge.”

“He’s not going to raise rates in any way, shape or form,” he said. “That has not changed.”

Republicans who have advocated giving in on rate increases now say their party appears to be preparing for the worst. Representative Charles Bass, a New Hampshire Republican who was defeated for re-election last month, said the pain for Republicans would not be immediate because the tax increases would not be apparent to most Americans that quickly. But “by the third or fourth week of January, their life will be so miserable,” he said, “their life will be so unbearable, they’ll just want to get done with it.”

Even as Mr. Boehner intensified his public campaign to pressure Mr. Obama to specify reductions in spending for Medicare and other entitlement benefit programs, the Republicans continued to be mute on what reductions they favor.

They are not proposing the sort of program overhauls — making Medicare a voucherlike system, and turning Medicaid into a lower-cost block grant to the states — that have been part of their House budgets for the past two years, sponsored by Representative Paul D. Ryan, the House Budget Committee chairman and Mitt Romney’s running mate in the presidential race. In any case, the Ryan budgets delayed the changes so they would not save much in the next 10 years.

And as many Democrats now recall, Republicans attacked Mr. Obama and Congressional Democrats throughout the recent campaign for having approved Medicare reductions of $716 billion over a decade as part of the 2010 health care law.

The only alternative proposals called for by Republicans would slowly raise the eligibility age for Medicare, and mandate a new formula for cost-of-living adjustments that would have the effect of reducing Social Security payments. Mr. Obama indicated reluctant, tentative support for both ideas in his private, failed debt-reduction talks last year with Mr. Boehner if Republicans accepted higher taxes on wealthy taxpayers. But in the face of building opposition from labor and liberal groups, he has backed off that stance, especially the higher Medicare age.

Mr. Obama has proposed specific ideas for cutting Medicare spending, but Republicans do not like most of them, in particular one that would force drugmakers to pay higher rebates for Medicare beneficiaries’ drug purchases, just as they long have for Medicaid. Also, Republicans say Mr. Obama’s roughly $400 billion, 10-year total for savings is about $200 billion too little.

Article source: http://www.nytimes.com/2012/12/14/us/politics/obama-and-boehner-to-meet-again-on-fiscal-talks.html?partner=rss&emc=rss

Fundamentally: Pessimism Can Be the Stock Market’s Best Friend

SINCE the market ran into serious trouble during the summer, the Standard Poor’s 500-stock index has clawed its way back to the 1,200 level on four separate occasions. On the first three runs, the rallies quickly lost steam amid fresh sets of worries about the global economy.

No wonder that investors have shown little confidence in the staying power of the latest rebound, which since Oct. 3 has lifted stock prices by 13 percent, leaving the S. P. at 1,238. Last week, the Investors Intelligence adviser survey, a widely followed gauge that tracks the opinions of more than 100 independent investment newsletters, showed that bears continued to outnumber bulls even though the index had climbed almost half the way back.

But sentiment can be a funny thing. The best thing that Wall Street may have going for it right now is that so many investors are pessimistic. That’s because the mood in the market is often regarded as a contrarian indicator of future activity.

In late April, for example, the number of bullish newsletter advisers outnumbered bears by a ratio of three to one — with 54.3 percent of advisers expressing optimism at the time and 18.5 percent being bearish. That sense of hope was registered just as the market peaked and started its worst slide since the financial crisis, dropping 19.4 percent by early October in what some strategists have considered to be a bear market. (In recent years, a bear market has often been defined as a 20 percent drop in prices, based on daily closing values.)

Conversely, in the logic of contrarian thinking, negativity can be a very good thing. “When you see high levels of pessimism, it can be a sign of a market bottom and signal that there’s lower risk to buy,” said John Gray, co-editor of Investors Intelligence.

Sentiment indicators for consumers, on the other hand, are often regarded as a good way to capture the emotional state of households — yet they’re often wrong when it comes to predicting how families will really behave.

Here’s a case in point: The most recent Reuters/University of Michigan consumer sentiment survey, released on Oct. 14 showed that the mood of households continued to worsen in mid-October, even as the stock market showed new signs of life.

“Consumer confidence is inching itself deeper into the recession zone,” said Chris G. Christopher Jr., senior principal economist at IHS Global Insight.

Yet the most recent government data show that retail sales jumped a larger-than-expected 1.1 percent in September. In short, actual consumer spending would seem to point to a much rosier economic outlook, which in turn should help support hopes for a more stable stock market.

Jeffrey Kleintop, chief market strategist at LPL Financial, says the recent mood of households doesn’t seem to reflect some of the positive economic numbers that have been released lately.

“The data on earnings, the economy, and the news out of Europe is not great,” he says. “But it is great relative to sentiment.”

He adds that “the only time the gap between economic data and economic sentiment was as wide as it was in the past couple of months was in late 1999 and early 2000 when the opposite of the current situation was the case: sentiment was much more positive than the data.”

It’s not just retail spending that market strategists are watching.

Despite concerns about the outlook of consumers, the S. P. 1500 retail index has showed surprising strength this year — it is up more than 7 percent. In fact, this group of stocks is only around 2 percent below its record high.

Similarly, the S. P. consumer discretionary index — which tracks shares of S. P. 500 consumer companies that make goods that households want, not need — has soared 16 percent since the market bottomed on Oct. 3, outpacing the broad market.

“This does point to the expectation now, at least from investors, that we are going to avoid a new recession,” said Doug Ramsey, chief investment officer at the Leuthold Group, an investment management and advisory firm.

To be sure, this doesn’t necessarily mean that the stock market has regained its footing. Historically, Mr. Ramsey notes, the severity of bear markets that are associated with recessions is actually quite similar to downturns that occur during times of economic growth.

Nor does it mean that the recent bout of market volatility will be over soon.

But it does mean that the gloomy mood among many investors could turn out to be good for the market in the short term.

In the long run, will that be enough to counteract the real economic worries that are weighing down the market, particularly the continuing fiscal mess in Europe? That’s a discussion for another day.

Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.

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Off the Charts: A Rising Fear of an Extended Downturn

The Conference Board said this week that in September exactly 50 percent of Americans polled for its consumer confidence survey said jobs were “hard to get.” This slightly exceeds the figure of 49.4 percent who felt that way in October 2009, the month the unemployment rate peaked at 10.1 percent. The most recent unemployment rate, for August, was a full point lower.

The difference is small, and statistically insignificant. But it nonetheless illustrates how economic pessimism has risen in recent months, more than two years after the recession officially ended. As can be seen in the accompanying charts, there has also been a sharp drop in expected interest rates, itself a sign of an expectation that the economy will not soon recover.

The Conference Board jobs question, asked regularly since 1967, offers three possible responses, with the others being that jobs are “plentiful” — 5.5 percent in September — or “not so plentiful” — 44.5 percent in the latest survey. During only one previous cycle did the “hard to get” figure get to 50 percent. In 1982, when the unemployment rate rose to 10.8 percent, the figure topped out at 61.6 percent.

The Conference Board survey also asks for forecasts as to whether there will be more or fewer jobs in six months. In September, 12 percent expected improvement, up slightly from 11.8 percent the previous month. They were the lowest figures since the recession officially ended in June 2009.

The final chart shows an interest rate not usually seen — the market forecast of the yield on five-year Treasuries issued five years from now. There is a forward market for Treasuries, where such esoteric things trade. Rates have been low for a few years because of the weak economy and accommodative monetary policy, but there has been general confidence that within five years the economy will have improved enough that rates will be higher.

An exception to that came in late 2008, when the market forecast suddenly plunged as the credit crisis intensified and fears grew of a Great Depression. At the low point, just after Christmas, the forecast was for a rate of 2.84 percent five years later. As fears calmed, the rate rose.

Last week, another plunge pulled down the rate to 2.76 percent, lower than in 2008. This week, it bounced back to a little over 3 percent, still a low rate.

Some of that decline stems from the Federal Reserve’s announced plans to try to hold down longer-term rates, but it seems unlikely that is the entire explanation. The more likely reason is that there is rising worry that economic growth will not return for years, as governments and central banks are unwilling or unable to take measures needed to produce recovery.

President Franklin D. Roosevelt famously said at his first inauguration, in the depths of the Depression in 1933, that “the only thing we have to fear is fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” There is a lot of fear now, and that fear may itself be working against a recovery.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

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Retail Sales Rise, but Pessimism Drives Consumer Sentiment to a 30-Year Low

Consumer sentiment, which hit its lowest since 1980 when the economy was in recession, fell on fears of a stalled recovery combined with gloom from partisan bickering over government debt, the Thomson Reuters/University of Michigan’s consumer sentiment survey reported.

The preliminary August reading on the consumer sentiment index fell to 54.9 in early August, down from 63.7 in July, and has fallen for three months. The August reading was well below the median forecast of 63.0 among economists polled by Reuters.

However, retail sales climbed 0.5 percent in July, the biggest increase since March, after a revised 0.3 percent gain in June, according to the Commerce Department.

“People’s spending doesn’t always correspond with their mood,” said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn. “I doubt things are as weak as the sentiment readings suggest, but no doubt people will be cautious in August.”

High unemployment, stagnant wages and the protracted debate in Congress over raising the government debt ceiling alarmed consumers in the University of Michigan survey even before the downgrade of United States sovereign debt by Standard Poor’s. The consumer sentiment index registered most of the decline before the credit rating downgrade on Aug. 5.

“Never before in the history of the surveys have so many consumers spontaneously mentioned negative aspects of the government’s role,” the survey director, Richard Curtin, said in a statement.

“This was more than the simple recognition that traditional monetary and fiscal policy measures were largely spent. It was the realization that the government was unable or unwilling to act,” Mr. Curtin added.

Bad economic times were expected by 75 percent of all consumers in early August, just below the record peak of 82 percent in 1980. Buying plans for household durables and vehicles declined in early August, falling back to their recession-level lows.

“Obviously this is quite an ugly number,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

“How could you have hopes for anything less than what we got, with the markets being in turmoil, the fear, and the U.S. being downgraded? It took the wind out of the stock market a bit, but I don’t think it will be that meaningful.”

However, retail sales in July posted the biggest gain since March, tempering fears that the nation’s economy might be slipping back into recession.

The 0.5 percent increase was in line with analysts’ forecasts and followed an upwardly revised 0.3 percent gain in June.

Excluding autos, sales increased 0.5 percent, well above forecasts for a 0.2 percent gain. The figures were bolstered by a 1.6 percent increase in gasoline station sales, in part reflecting the higher cost of fuel. Retail sales excluding autos, gasoline and building materials rose 0.4 percent.

In another report, the Commerce Department said business inventories rose slightly less than expected in June, suggesting firms remained cautious about future demand at the end of the second quarter. Inventories climbed 0.3 percent, after a downwardly revised 0.9 percent rise in May, the report said. Economists had expected a rise of 0.5 percent in June.

Article source: http://feeds.nytimes.com/click.phdo?i=84905b19bb7922574605f1dea461c96e

Money Troubles Take Personal Toll in Greece

“Many times I have thought of taking my father’s car and driving it into a wall,” he said, declining to give his last name because he was reluctant to draw attention to himself under these circumstances.

Hunched over and shaking, he sat last week in the spartan office of Klimaka, a social services organization here that provides help to the swelling numbers of homeless and depressed Greek professionals who have lost their jobs and their dignity.

“We were the people in Greece who helped others,” he said. “Now we are asking for help.”

It has been one year since Greece avoided bankruptcy when Europe and the International Monetary Fund provided a 110 billion euro ($155 billion) bailout. While no one expected the country to reverse its sagging fortunes quickly, the despair of Greeks like Anargyros D. reflects a level of suffering deeper than anyone here had anticipated.

Economists are predicting a 4 percent contraction in gross domestic product this year, and the data support the pessimism. Cement production is down 60 percent since 2006. Steel production has fallen, in some cases more than 80 percent in the last two years. Analysts say that close to 250,000 private sector jobs will have been lost by the end of the year, pushing the unemployment rate above 15 percent.

With headlines shouting of credit rating downgrades, panicky Greeks are taking their money from banks. Greece lost 40 billion euros of deposits last year, and bankers say withdrawals have increased recently.

These struggles have again made Greece an urgent matter for the 17-nation euro zone, whose finance ministers are to meet on Monday to discuss Greece and the debt crisis that has defied Europe’s yearlong efforts to contain it. On the table will be whether Greece, which is now projected to miss its deficit target by as much as two percentage points of G.D.P. this year, will be granted another round of loans totaling as much as 60 billion euros, and what further budget cuts would be required in return.

But there is serious debate about whether this kind of prescription — subjecting Greece to more cuts and sacrifice in order to justify a second installment of funds from a reluctant Europe — is the right one.

This form of remedy violates two basic economic principles, according to Yanis Varoufakis, an economics professor and blogger at the University of Athens. “You do not lend money at high interest rates to the insolvent and you do not introduce austerity into a recession,” he said. “It’s pretty simple: the debt is going up and G.D.P. is going down. Have we not learned the lesson of 1929?”

The arrest on Saturday of Dominique Strauss-Kahn, the head of the I.M.F., on charges related to sexual assault could create new uncertainty about a push for more severe austerity. Mr. Strauss-Kahn generally favored a less onerous approach, and if he is forced to resign it is possible that tougher conditions preferred by Germany will be imposed.

But while the debate over how to fix the Greek economy has played out in public, the ways in which this slump is tearing at the country’s social fabric are less well known. The transformation has been jarring to a citizenry long accustomed to a generous welfare state.

Social workers and municipal officials in Athens report that there has been a 25 percent increase in homelessness. At the main food kitchen in Athens, 3,500 people a day come seeking food and clothing, up from about 100 people a day when it first opened 10 years ago.

The average age of those who show up is now 47, down from 60 two years ago, adding to evidence that those who are suffering now are former professionals. The unemployment rate for men 30 to 60 years old has spiked to 10 percent from 4 percent since the crisis began in 2008.

Aris Violatzis, Anargyros D.’s counselor, says that calls to the Klimaka charity’s suicide help line have risen to 30 a day, twice the number two years ago.

“We cannot imagine this,” Mr. Violatzis said. “We were once the 29th-richest country in the world. This is a nation in deep emotional shock.”

Article source: http://feeds.nytimes.com/click.phdo?i=99650a4786bcfd3ecd611f0a51ade1e4

Off the Charts: In a Survey of Bosses, Good News for Job Seekers

In a quarterly survey of chief executives, the Business Roundtable found that 52 percent of companies planned to hire workers in the United States over the next six months, while just 11 percent said they expected to reduce employment.

Never before have so many chief executives said they planned to hire, or so few said they planned to cut payrolls. The survey has been taken every three months since late 2002.

The Business Roundtable includes chief executives of 200 major American companies. If most of them did add workers, that would almost certainly have a substantial effect on employment in the country. Two other broader surveys of companies are taken each month by the Institute for Supply Management. Its survey of manufacturers has been showing more companies planning to increase employment than reduce it since the fall of 2009, and indeed manufacturing employment rose in 2010 for the first full year since 1997, according to the Labor Department.

It took longer for service companies to begin hiring. But the I.S.M. survey of such companies has shown positive readings since last fall, and the latest government report indicates that employment in that sector has risen to the highest level in two years.

All the surveys are aimed at measuring the breadth of employment plans, as opposed to the magnitude of such plans. So a company planning to add a few workers would count just as much as one planning to add thousands.

Whatever the companies say, though, consumers remain far from certain that jobs will materialize. In the latest consumer confidence survey by the Conference Board, only 20 percent of respondents said they expected jobs to be added to the economy over the next six months, slightly fewer than the number who expected a decline. Still, consumers have a history of pessimism in that survey, as is shown in the chart, and the proportion expecting gains is higher than it was in the years before the recession.

The I.S.M. numbers are normally presented on a scale of zero to 100, with 50 indicating that as many companies are hiring as are firing; numbers above that level indicating more hiring. The higher the figure, the more prevalent hiring is. In the charts, the figures are rebased so that zero is the neutral number.

Both the service and manufacturing figures slipped a little in March, which could indicate that growth is slowing. But the manufacturing figures for each of the first three months of 2011 were higher than in any previous month since 1973.

The Business Roundtable survey was conducted from Feb. 28 through March 18, and received responses from 142 of the 200 chief executives, which the organization said was the largest response rate ever.

The survey includes three questions, each of which produced unusually optimistic responses. Asked about their own companies’ plans for capital spending in the United States, 62 percent said they planned increases, while 6 percent expected to reduce spending. That was the best response since the first quarter of 2005, when 60 percent planned increases and only 3 percent expected to spend less.

In response to another question, 92 percent of the chief executives said they expected increases in sales for their companies, while none said they expected a decline. It was the first time that none of the executives thought sales would decline.

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