Tax Cut Politics

The recent politics surrounding the Bush-era tax cuts, put in place in 2001 and 2003, acquires significance in the backdrop of their expiry at the end of 2010 unless the Congress renews it. Many politicians and economists want the tax cuts to be extended for two more years to make sure the economic recovery gains on firm footing. However, President Barack Obama wants to extend the tax cuts for 98% of people who have incomes $200,000 or less for individuals and $250,000 or less for families, while doing nothing for the top 2% of the taxpayers. Under the Obama plan, letting the top tax rates to be hiked to 36% from 33% and to 39.6% from 35% would save $700 billion over the next decade. If all the tax breaks are allowed to lapse, in which 10% tax bracket will be abolished, 25% tax bracket will be increased to 28%, 28% to 31%, 33% to 36% and 35% to 39.6%, total savings will be $3.7 trillion over the next decade, including $3 trillion for the middle-class with incomes less than $200,000 for singles and $250,000 for families. If the Bush-era tax cuts are extended, the total costs over the next decade will amount to $3.9 trillion.

New Banking Rules

A global panel, the 27-nation Basel Committee on Banking Supervision, has been brain-storming since 2008 to come up with a regulatory framework to avoid a financial meltdown like the ones witnessed in 2008. On September 12, the panel outlined many of the measures, including:

* Raising the so-called tier 1 capital, also known as capital reserve, to 4.5% of the total balance sheet in 2013 and eventually raising it to 6% in 2019.

* Requiring banks to keep an emergency reserve, "conservation buffer", at the 2.5% of the balance sheet.

* Allowing individual nations to demand banks to build up further reserves during good times, also known as "countercyclical buffer", at 2.5% as a cushion against excessive lending during economic good times.

* Introducing a leverage ratio of 3%, implying banks have to keep at least 3% of total assets, including derivatives or other instruments that they might not carry on their balance sheets.

* Agreeing on working towards additional safeguards for "systemetically important banks".

The new rules are expected to be endorsed by the G-20 summit in November to be held at Seoul, and to be phased in starting January 1, 2013.

India's Ascension as the Fourth Largest Economy

China has recently surpassed Japan as the second largest economy of the world. Also, India, with its burgeoning middle class and a proven record of being low-cost innovation hub, leaped forward to the fourth position. However, the U.S.A., hit hard by the Great Recession (2007-2009), still remains the strongest economy.The recent International Monetary Fund and the U.S. Chamber of Commerce statistics show the following GDP numbers adjusted for purchasing power as of 2009:

U.S.-------------------------------------------$14.2 Trillion

China------------------------------------------$8.7 Trillion

Japan------------------------------------------$4.1 Trillion

India-------------------------------------------$3.5 Triliion

Germany---------------------------------------$2.8 Trillion

Source: IMF, The US Chamber of Commerce and The Dallas Morning News