Monday, May 28, 2012
Obama Administration Proposes to Slash Corporate Tax Rate
On February 22, 2012, Trasury Secretary Timothy Geithner proposed Obama administration's far-reaching corporate marginal tax rate reduction plan that would lower the top marginal rate from 35 percent to 28-percent. Although the corporate tax rate for the US companies is 35% as opposed to 23% marginal rate for their counterparts in other OECD nations, the average effective rate for US companies is much lower: 18.5%. In exchange of lowering the marginal rate from 35% to 28%, the Obama administration proposed to eliminate tax breaks for oil and gas companies, thus expecting to raise an estimated $250 billion over 10 years. According to a preliminary report published in Fall 2011 by the Joint Committee on Taxation, reduction in marginal rate from 35% to 28% would cost $700 billion over 10 years. Also as part of funding the marginal rate reduction, Obama administration proposed to tax, not known yet the rate of taxation, on the overseas earning of US companies.
Saturday, May 26, 2012
BABY PRODUCTS, BABY FORMULA, President Obama's 2013 Budget Blueprint
President Barack Obama on February 13, 2012 sent Congress the 2013 Fiscal Year (October 1, 2012-September 30, 2013) budget blueprint that envisioned a plan for $4 trillion in the deficit savings over the coming decade, mostly by letting the tax cuts expire for the wealthy. The break-up of the $3.8 billion spending plan includes:
* 43% Mandatory Spending (Medicare, Medicaid, Social Security)
* 7% Interest on Debt
* 22% Defense, Security
* 11% Domestic
* 18% Other entitlements
The projected revenue of $2.9 trillion includes:
* 33% Payroll Tax
* 12% Corporate Income Tax
* 3% Excise Tax
* 47% Income Tax
* 5% Other
Although the projected deficit of $901 billion is less than $1 trillion threshold, it is still a matter of concern as the government needs to borrow 24 cents for each dollar it spends. Part of the revenue growth will come from letting the Bush-era tax cuts for households earning $250,000 per year and on dividend incomes for wealthy taxpayers expire after 2012.
*** SALIENT FEATURES OF 2013 OBAMA BUDGET BLUEPRINT
** Elimination of numerous tax breaks for oil, coal and gas companies (would raise $41 billion over 10 years).
** Purchase cuts of Navy ships and F-35 JSF aircrafts.
** Trimming of 100,000 troops from Defense payroll over the coming years.
** Seeking $476 billion for transpotation projects, including roads, bridges and a much-criticized high-speed rail initiative. Proposal included $50 billion "upfront" investment for transportation.
** Disbursement of grants to better performing schools as part of the "Race to the Top" initiative.
** Imposition of (10-year, $61 billion ) new tax on banks to partly recover bailout from 2008 financial crisis.
** Investment of $30 billion to modernize at least 35,000 schools, and $30 billion to help states hire teachers, police and fire personnel.
** Creation of $8 billion "Community College to Career Fund" to train 2 million workers for jobs in potential growth areas.
House Republicans' Budget Plan for Fiscal 2012
On March 20, 2012, House Republicans infused in the Presidential Year of Politics their own dose of economic remedy by unveiling their own budget bluprint for Fiscal 2012 (October 1, 2012-September 30, 2013). House Budget Committee Chairman Paul Ryan, R-Wis., this time modified the plan on Medicare reform slightly compared to last year's much villified plan of replacing traditional Medicare by providing seniors subsidy to buy private insurance. According to this year's budget blueprint, seniors (seniors who are currently eligible for Medicare or 55 and older are exempt) will be offered the subsidy to buy private healthcare insurance from the federal insurance exchange, while retaining the traditional Medicare as an alternative offering for the future retirees. Under this year's House Republicans' budget proposal, the Medicare eligibility age will increase to 67 from 65 in 10 years. Medicare spending will be shaved by $205 billion deeper than Obama blueprint over the next decade.
* Medicaid
Medicaid will be cut by $770 billion (over the next 10 years) more than what President Obama has proposed in his budget blueprint. The Medicaid will be given to states as flexible block grants as will be food stamps and housing assistance.
* Changes to Tax Codes
Not clear yet on details, but the existing six tax rates will be simplified to two rates: 10 percent and 25 percent, with most of the tax credits and deductions to be eliminated.
* Corporations
The corporate tax rates will be lowered to 25 percent from 35 percent, and the regime will be changed to "territorial" tax instead of tax on "worldwide profit".
However, Ryan blueprint wants to hasten discretionary and mandatory spending cuts to avoid $110 billion automatic cuts from military and domestic programs ($55 billion in Pentagon spending Plus $43 billion nondefense appropriations Plus $12 billion in other programs) beginning in 2013 as part of August 2011 debt deal between Congress and White House.
Under the House plan, deficit for Fiscal 2012 will fall from the current level of $1.18 trillion to $797 billion as compared to $977 billion under Obama's blueprint. By 2016, the budget deficit will fall, under the House Plan, to $241 billion as compared to $529 billion as estimated by the Congressional Budget Office last week. The Ryan plan will accumulate an additional debt of $3.1 trillion through 2022 as compared to $6.4 trillion under the Obama blueprint. Ryan plan envisions repeal of Obamacare and elimination of Freddie Mac and Fannie Mae.
* 43% Mandatory Spending (Medicare, Medicaid, Social Security)
* 7% Interest on Debt
* 22% Defense, Security
* 11% Domestic
* 18% Other entitlements
The projected revenue of $2.9 trillion includes:
* 33% Payroll Tax
* 12% Corporate Income Tax
* 3% Excise Tax
* 47% Income Tax
* 5% Other
Although the projected deficit of $901 billion is less than $1 trillion threshold, it is still a matter of concern as the government needs to borrow 24 cents for each dollar it spends. Part of the revenue growth will come from letting the Bush-era tax cuts for households earning $250,000 per year and on dividend incomes for wealthy taxpayers expire after 2012.
*** SALIENT FEATURES OF 2013 OBAMA BUDGET BLUEPRINT
** Elimination of numerous tax breaks for oil, coal and gas companies (would raise $41 billion over 10 years).
** Purchase cuts of Navy ships and F-35 JSF aircrafts.
** Trimming of 100,000 troops from Defense payroll over the coming years.
** Seeking $476 billion for transpotation projects, including roads, bridges and a much-criticized high-speed rail initiative. Proposal included $50 billion "upfront" investment for transportation.
** Disbursement of grants to better performing schools as part of the "Race to the Top" initiative.
** Imposition of (10-year, $61 billion ) new tax on banks to partly recover bailout from 2008 financial crisis.
** Investment of $30 billion to modernize at least 35,000 schools, and $30 billion to help states hire teachers, police and fire personnel.
** Creation of $8 billion "Community College to Career Fund" to train 2 million workers for jobs in potential growth areas.
House Republicans' Budget Plan for Fiscal 2012
On March 20, 2012, House Republicans infused in the Presidential Year of Politics their own dose of economic remedy by unveiling their own budget bluprint for Fiscal 2012 (October 1, 2012-September 30, 2013). House Budget Committee Chairman Paul Ryan, R-Wis., this time modified the plan on Medicare reform slightly compared to last year's much villified plan of replacing traditional Medicare by providing seniors subsidy to buy private insurance. According to this year's budget blueprint, seniors (seniors who are currently eligible for Medicare or 55 and older are exempt) will be offered the subsidy to buy private healthcare insurance from the federal insurance exchange, while retaining the traditional Medicare as an alternative offering for the future retirees. Under this year's House Republicans' budget proposal, the Medicare eligibility age will increase to 67 from 65 in 10 years. Medicare spending will be shaved by $205 billion deeper than Obama blueprint over the next decade.
* Medicaid
Medicaid will be cut by $770 billion (over the next 10 years) more than what President Obama has proposed in his budget blueprint. The Medicaid will be given to states as flexible block grants as will be food stamps and housing assistance.
* Changes to Tax Codes
Not clear yet on details, but the existing six tax rates will be simplified to two rates: 10 percent and 25 percent, with most of the tax credits and deductions to be eliminated.
* Corporations
The corporate tax rates will be lowered to 25 percent from 35 percent, and the regime will be changed to "territorial" tax instead of tax on "worldwide profit".
However, Ryan blueprint wants to hasten discretionary and mandatory spending cuts to avoid $110 billion automatic cuts from military and domestic programs ($55 billion in Pentagon spending Plus $43 billion nondefense appropriations Plus $12 billion in other programs) beginning in 2013 as part of August 2011 debt deal between Congress and White House.
Under the House plan, deficit for Fiscal 2012 will fall from the current level of $1.18 trillion to $797 billion as compared to $977 billion under Obama's blueprint. By 2016, the budget deficit will fall, under the House Plan, to $241 billion as compared to $529 billion as estimated by the Congressional Budget Office last week. The Ryan plan will accumulate an additional debt of $3.1 trillion through 2022 as compared to $6.4 trillion under the Obama blueprint. Ryan plan envisions repeal of Obamacare and elimination of Freddie Mac and Fannie Mae.
BABY PRODUCTS AND FORMULA
FDA, Abbott Reach Agreement on Plant Starting
The current baby formula shortage can be traced to a market monopoly by four companies: Abbott, Perrigo, Nestle SA and Mead Johnson. Combined, they control 90% of the U.S. baby formula market. In February 2022, when the contamination at the largest U.S. baby formula plant at Sturgis, Michigan was reported and the operation at the plant run by Abbott was subsequently suspended, an already strained market for baby formula started to plunge into a total chaos of a disbalanced demand-supply equilibrium. In recent weeks, the crisis has become a headwind for Biden administration, and Republicans have blamed President Biden for the scarcity. On May 16, 2022, Abbott and FDA reached an agreement to resume operation at the Sturgis plant, but it would take 6 to eight weeks to normalize the movement of pallets of formula from the plant to store shelves.
House Unveils a $28 million Aid Package
House Democrats on May 17, 2022 unveiled a $28 million aid package to help address the baby formula crisis that had afflicted the nation and created a political liability for Democrats and President Joe Biden. The aid package unveiled by Rep. Rosa DeLauro, chair of the House Appropriations Committee, will augment staffing level at FDA to accelerate the inspection regime, streamline the regulatory process and cut down the latency between production and shelfing.
Defense Production Act Invoked to Address Baby Formula Shortage
President Joe Biden on May 18, 2022 invoked the Defense Production Act to ease the baby formula crisis by streamlining all related steps in the production and distribution ecosystem and accelerate the production of baby formula domestically. In addition, the U.S. military will charter commercial flights to import baby formula from overseas makers as part of the Operation Fly Formula. President Biden authorized Agricultural Department and Department of Health and Human Services to request Pentagon to arrange, under the Operation Fly Formula, formula imports as a bridge before the domestic production ramped up.
78K Pounds of Baby Formula Flown in
U.S. Military on May 22, 2022 flew in approximately 78,000 pounds of baby formula from Germany to Indianapolis. Since U.S. military could not requisition commercial aircraft, it used military plane to fly in pallets of baby formula. Agricultural Secretary Tom Vilsack was on hand on May 22, 2022 to greet the first shipment of baby formula under Operation Fly Formula.
Abbott Plant in Michigan Resumes Operation
Abbott Nutrition's baby formula plant at Sturgis, Michigan resumed operation on June 4, 2022, bringing a sigh of relief for Biden administration and a leery nation as parents had been searching for baby formulas all over. It will take at least 7 to 8 weeks for the formula to reach store shelves and help ease the supply crisis that had dawned since February 2022.
Third Tranche of Baby Formula Arrives, This Time to DFW
On June 9, 2022, a gargantuan FedEx Express MD-11 charter flight brought in about 11,000 pounds of baby formula to the DFW International Airport. Large pallets of Nestle baby formula have been flown in as part of Operation Fly Formula and they will be sold entirely online. June 9, 2022, marks the third Operation Fly Formula flight. There will be more Operation Fly Formula flights in the coming days. Operation Fly Formula is a joint endeavor of Health and Human Services, Agricultural Department, General Services Administration and Department of Defense. FDA is also involved to certify the quality of the product imported from overseas.
Friday, May 25, 2012
Google's Acquisition of Motorola Mobility
Google's $12.5 billion acquisition of Motorola Mobility, announced six months ago, got US Department of Justice's approval on February 13, 2012 as well as okay from EU regulators. Google has valued Motorola's more than 17,000 patents as prized assets to fend off challenges from Apple, Microsoft and other players in smartphone, tablet and mobile market.
Monday, May 21, 2012
A Landmark Mortgage Settlement Deal
A $25 billion mortgage settlement deal was announced on February 9, 2012 that would put more checks-and-balances to nation's foreclosure abuses. Federal and state officials said that the deal was struck by the federal government, 49 states and five big lenders. Oklahoma negotiated a separate deal with the five lenders. Negotiation is still in progress involving 14 other lenders. There are two different groups of recipients under the deal: State and Federal government agencies, and individual borrowers. The breakdown of payments, under the deal, is given below:
(1) Bank of America $3.24b (state and federal) $8.58b (relief to borrowers)
(2) Wells Fargo $1.01b (state and federal) $4.34b (relief to borrowers)
(3) J.P. Morgan Chase $1.08b (state and federal) $4.21 (relief to borrowers)
(4) Citigroup $0.42b (state and federal) $1.79 (relief to borrowers)
(5) Ally Financial $0.11b (state and federal) $0.2b (relief to borrowers)
The deal requires the lenders to reduce loans for 1 million households at the brink of foreclosure, and send an average of $2,000 to about 75,000 Americans, who have been improperly foreclosed between 2008 and 2011. The banks will have three years to comply with the terms of the deal. Under the deal, the states have agreed not to pursue civil charges over the abuses covered by the settlement. Homeowners can still pursue on their own, and federal and state authorities can still press criminal charges against the lenders.The deal, arrived at the end of 16 months of contentious negotiations, is the biggest settlement by a single industry since the $206 billion 1998 tobacco deal with several states. The settlement also ends a separate inquiry into inflated appraisal practices followed by Countrywide, acquired by the Bank of America in 2008, from 2003 through 2009. Estimated 1 million households entitled to get relief from lowering of the loans would see, under the deal, an average reduction of $20,000 off their principal. But 90 percent of underwater homeowners would not be entitled to get relief out of the settlement although some may refinance their mortgages at 5.25 percent. However, loans held by Fannie Mae and Freddie Mac--almost half of all mortgages--are excluded from the settlement. North Carolina's banking commissioner, Joseph A. Smith Jr., will be an ombudsman for the deal.
(1) Bank of America $3.24b (state and federal) $8.58b (relief to borrowers)
(2) Wells Fargo $1.01b (state and federal) $4.34b (relief to borrowers)
(3) J.P. Morgan Chase $1.08b (state and federal) $4.21 (relief to borrowers)
(4) Citigroup $0.42b (state and federal) $1.79 (relief to borrowers)
(5) Ally Financial $0.11b (state and federal) $0.2b (relief to borrowers)
The deal requires the lenders to reduce loans for 1 million households at the brink of foreclosure, and send an average of $2,000 to about 75,000 Americans, who have been improperly foreclosed between 2008 and 2011. The banks will have three years to comply with the terms of the deal. Under the deal, the states have agreed not to pursue civil charges over the abuses covered by the settlement. Homeowners can still pursue on their own, and federal and state authorities can still press criminal charges against the lenders.The deal, arrived at the end of 16 months of contentious negotiations, is the biggest settlement by a single industry since the $206 billion 1998 tobacco deal with several states. The settlement also ends a separate inquiry into inflated appraisal practices followed by Countrywide, acquired by the Bank of America in 2008, from 2003 through 2009. Estimated 1 million households entitled to get relief from lowering of the loans would see, under the deal, an average reduction of $20,000 off their principal. But 90 percent of underwater homeowners would not be entitled to get relief out of the settlement although some may refinance their mortgages at 5.25 percent. However, loans held by Fannie Mae and Freddie Mac--almost half of all mortgages--are excluded from the settlement. North Carolina's banking commissioner, Joseph A. Smith Jr., will be an ombudsman for the deal.
Saturday, May 5, 2012
Federal Reserve's Policy Meeting in 2012
Federal Reserve's first Federal Open Market Committee (FOMC) meeting for 2012 was held January 24-25, 2012. On January 25, 2012, Fed issued the first of the four annual directions on the key Federal Funds rate. There are two components of the interest rate-related report:
* The first component illustrates how high each of 17 committee members think the rate will go up at the end of 2012, 2013 and 2014.
* The second component highlights how many members think the first rate hike will occur in each year from 2012 through 2016.
At the conclusion of the first FOMC meet (January 24-25, 2012), the direction on interest rate showed that the first rate hike might not even come before 2014.
FOMC Meeting in June 2012 (June 19-20, 2012)
Fed policymakers during the Open Market Committee meeting decided to extend the $400 billion "Operation Twist", first announced in September 2011 and scheduled to expire in June 2012, through the end of the year by selling $267 billion in shorter-term securities (both Treasury securities and mortgage-backed securities) and replacing them by purchasing equivalent longer-term bonds that would mature in six to 30 years and new mortgage-backed securities.
FOMC Meeting in July-August 2012 (July 31-August 1, 2012)
Fed policymakers adopted a stay-put approach during two-day open market committee meeting. At the end, Fed said that it would "closely monitor incoming information" and would "provide additional accommodation as needed" to stimulate the economy and job creation.
FOMC Meeting in September 2012 (September 12-13, 2012): Quantitative Easing III
Federal Reserve shifted its stand on monetary policy with an open-ended campaign of purchase of mortgage bonds, starting with $23 billion buying in September 2012. The September 2012 figure of $23 billion translates into $40 billion monthly bond purchase, and Fed announced that it would continue to do so until the labor market improved "substantially". Each month, it would set a new target for bond buying, implying that $40 billion monthly figure was not a pre-fixed target. Fed, mandated with crafting monetary policy to ensure price stability and near-full employment, also announced that it would maintain Federal Funds Rate to near zero through middle of 2015. Eleven members of FOMC voted for QEIII, while the lone dissenter was Richmond Fed President Jeffrey Lacker.
FOMC Meeting in October 2012 (October 23-24, 2012)
The Fed policymakers during its two-day (October 23-24, 2012) Federal Open Market Committee meeting held its position steady. It is on track of buying $40 billion monthly bond-buying that had been launched after the last Fed policymaking meeting September 12-13. Fed is also continuing another long-term bond-buying program started in 2011 and slated to end December 2012. However, Fed may extend that $45 billion bond-buying program beyond December 2012 if the situation warrants such action.
FOMC Meeting in December 2012 (December 11-12, 2012)
Federal Reserve policymakers left a key interest rate, Federal Funds Rate, untouched at the near zero percent level, the same level it has been since December 2008, during the last open market committee meeting of the year. Also, Fed clarified its controversial bond buying campaign by setting a threshold that it would continue doing so until the jobless rate fell below 6.5 percent. Fed also reiterated that it would continue with monthly purchase of $45 billion in long-term treasury securities and $40 billion in mortgage-backed bonds. Now, Fed has more than $2.8 triillion in long-term bonds in its balance sheet.
* The first component illustrates how high each of 17 committee members think the rate will go up at the end of 2012, 2013 and 2014.
* The second component highlights how many members think the first rate hike will occur in each year from 2012 through 2016.
At the conclusion of the first FOMC meet (January 24-25, 2012), the direction on interest rate showed that the first rate hike might not even come before 2014.
FOMC Meeting in June 2012 (June 19-20, 2012)
Fed policymakers during the Open Market Committee meeting decided to extend the $400 billion "Operation Twist", first announced in September 2011 and scheduled to expire in June 2012, through the end of the year by selling $267 billion in shorter-term securities (both Treasury securities and mortgage-backed securities) and replacing them by purchasing equivalent longer-term bonds that would mature in six to 30 years and new mortgage-backed securities.
FOMC Meeting in July-August 2012 (July 31-August 1, 2012)
Fed policymakers adopted a stay-put approach during two-day open market committee meeting. At the end, Fed said that it would "closely monitor incoming information" and would "provide additional accommodation as needed" to stimulate the economy and job creation.
FOMC Meeting in September 2012 (September 12-13, 2012): Quantitative Easing III
Federal Reserve shifted its stand on monetary policy with an open-ended campaign of purchase of mortgage bonds, starting with $23 billion buying in September 2012. The September 2012 figure of $23 billion translates into $40 billion monthly bond purchase, and Fed announced that it would continue to do so until the labor market improved "substantially". Each month, it would set a new target for bond buying, implying that $40 billion monthly figure was not a pre-fixed target. Fed, mandated with crafting monetary policy to ensure price stability and near-full employment, also announced that it would maintain Federal Funds Rate to near zero through middle of 2015. Eleven members of FOMC voted for QEIII, while the lone dissenter was Richmond Fed President Jeffrey Lacker.
FOMC Meeting in October 2012 (October 23-24, 2012)
The Fed policymakers during its two-day (October 23-24, 2012) Federal Open Market Committee meeting held its position steady. It is on track of buying $40 billion monthly bond-buying that had been launched after the last Fed policymaking meeting September 12-13. Fed is also continuing another long-term bond-buying program started in 2011 and slated to end December 2012. However, Fed may extend that $45 billion bond-buying program beyond December 2012 if the situation warrants such action.
FOMC Meeting in December 2012 (December 11-12, 2012)
Federal Reserve policymakers left a key interest rate, Federal Funds Rate, untouched at the near zero percent level, the same level it has been since December 2008, during the last open market committee meeting of the year. Also, Fed clarified its controversial bond buying campaign by setting a threshold that it would continue doing so until the jobless rate fell below 6.5 percent. Fed also reiterated that it would continue with monthly purchase of $45 billion in long-term treasury securities and $40 billion in mortgage-backed bonds. Now, Fed has more than $2.8 triillion in long-term bonds in its balance sheet.
Congress Postpones Online Piracy Bills
On January 20, 2012, US Congress, under public onslaught from Google and millions of digital masses, postponed Senate-introduced Protect Intellectual Property Act (PIPA) and House-introduced Stop Online Piracy Act (SOPA). On January 18, 2012, Wikipidea and other web sites have escalated the pressure on Congress, Hollywood and traditional media by staging a 24-hour blackout. The PIPA and SOPA intend to seek court orders against foreign websites for copyrights infringement, and prohibit online advertisers and credit card businesses to carry out transactions against the alleged violators.
Thursday, May 3, 2012
Kodak Files for Bankruptcy
The iconic American company Kodak on January 19, 2012 filed for Chapter 11 bankruptcy protection after years of struggle to get adjusted to the fast-moving digital world. Kodak had just one profitable year since 2004. It closed in 2007 on a high note, grossing a profit of $676 million. That the company was looking for bankruptcy protection became clear in September 2011 when it had hired a major restructuring law firm, Jones Day, as adviser. Kodak is now focused on empasizing and expanding more lucrative lines of businesses such as printers, softwares and packaging. Kodak hired Dominic DiNapoli, VP of FTI Consulting, to navigate the iconic company through the maze of bankruptcy.
History of Eastman Kodak
--------------------------------
*1880: George Eastman founded the company in 1880.
*1888: The company in 1888 marketed world's first roll film.
*1900: It turned the photography into hysteria by launching $1 Brownie camera.
*1912: The company which had pioneered profit-sharing began to pay dividends in 1912.
On January 23, 2012, Kodak replaced Chief Re-structuring Officer Dominic DiNapoli by the Managing Director of Alix Partners LLP, James Mesterharm, who had helped General Growth Properties, Zenith Electronics and Silicon Graphics in Chapter 11 reorganization.
History of Eastman Kodak
--------------------------------
*1880: George Eastman founded the company in 1880.
*1888: The company in 1888 marketed world's first roll film.
*1900: It turned the photography into hysteria by launching $1 Brownie camera.
*1912: The company which had pioneered profit-sharing began to pay dividends in 1912.
On January 23, 2012, Kodak replaced Chief Re-structuring Officer Dominic DiNapoli by the Managing Director of Alix Partners LLP, James Mesterharm, who had helped General Growth Properties, Zenith Electronics and Silicon Graphics in Chapter 11 reorganization.
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