News Summary: S&P 500 ends week at a 5-year high

DECEMBER JOBS: Stocks headed higher, capping a good week, after a report showed that hiring held up in December during the tense fiscal negotiations in Washington, with U.S. employers adding 155,000 jobs.
FIVE-YEAR HIGH: Stocks moved up at the end of the day pushing the Standard & Poor's to its highest close in five years.
GOOD START: Stocks got the year off to a strong start, surging after lawmakers came up with a long-awaited budget agreement. The plan wasn't perfect, but it was enough to keep stop the U.S. going over the "fiscal cliff" and, in all likelihood, another recession.

Read More..

Fed officials eye timeline for ending asset purchases

SAN DIEGO (Reuters) - The Federal Reserve could halt its asset purchases this year if the economy improves and unemployment drops, two top Fed officials said on Friday, a view seconded by most economists at Wall Street's top financial institutions.
Meanwhile, another top Fed official warned the U.S. central bank's aggressive easing plan threatens the Fed's credibility.
St. Louis Fed President James Bullard, a voting member of the Fed's monetary policy panel this year, said a drop in the unemployment rate to 7.1 percent would probably constitute the "substantial improvement" in the labor market that the central bank seeks.
That's the bar for the Fed's policy-setting committee to halt the current round of asset purchases that it began in September.
"If the economy performs well in 2013, the Committee will be in a position to think about going on pause" with the asset buys, Bullard told CNBC TV on a sunny balcony outside of the hotel where thousands of economists were gathered for an annual conference here. "If it doesn't do very well then the balance sheet policy will probably continue into 2014."
The Fed has also promised to keep interest rates at their current near-zero level until unemployment drops to 6.5 percent, as long as inflation does not threaten to rise above 2.5 percent.
U.S. unemployment stood at 7.8 percent last month. While that is down from a year ago, monthly job gains are probably not enough to ratchet down unemployment much more.
Philadelphia Fed Bank President Charles Plosser, who expects unemployment to drop to between 6.8 percent and 7.0 percent by end-2013, said on Friday at the same conference that he hoped the Fed would stop buying bonds before the 6.5 percent threshold, implying he anticipated the asset purchases would halt this year.
Economists at nine of 16 primary dealers -- the large financial institutions that do business directly with the Fed -- said they expect the current Fed program of buying $45 billion per month of Treasuries to end in 2013. The Fed is also buying $40 billion in mortgage-backed securities each month.
Meanwhile, Fed policymakers are increasingly concerned about the impact their monthly purchases of $85-billion in longer-term bonds and mortgage securities are having on financial markets.
Minutes from their December policy meeting showed that "several" top officials expected to slow or stop the so-called quantitative easing program, dubbed QE3, "well before" the end of the year - news that surprised some on Wall Street and prompted a drop in stocks and bonds, and a rise in the dollar.
Jeffrey Lacker, president of the Richmond Fed bank, on Friday held his ground opposing QE3, arguing that continued monetary policy is not the appropriate way to tackle the problem.
"It is unlikely that the Federal Reserve can push real growth rates materially higher than they otherwise would be, on a sustained basis," Lacker, who dissented on all Fed easing moves last year, told a meeting of the Maryland Bankers Association.
"I see an increased risk, given the course the committee has set, that inflation pressures emerge and are not thwarted in a timely way," he said.
EYEING 7.1 PERCENT UNEMPLOYMENT
While Lacker is an outspoken policy hawk, Bullard is more of a centrist who is nonetheless toward the hawkish end of the spectrum of Fed policymakers. The pair were the first top central bank officials to speak publicly since the minutes were unveiled on Thursday.
Bullard said he expects unemployment to "continue to tick down through 2013," adding the Fed could ramp down the asset purchases if the jobless rate drops to 7.1 percent.
"That would be probably substantial improvement and the committee could think about removing accommodation on the balance sheet side of the policy at that point," he said.
After the December meeting, the Fed said it would continue buying bonds until the labor market outlook improves "substantially," which Fed Chairman Ben Bernanke has characterized as a "sustained" decline in the unemployment rate.
With the Fed's key interest rate having remained near zero since late 2008 to encourage economic recovery from the Great Recession, the bond purchases are meant to lower longer-term rates and to encourage investment and hiring in the broader economy.
The U.S. economy expanded a respectable 3.1 percent in the third quarter on an annualized basis, but growth is believed to have slowed sharply to barely above 1.0 percent in the last three months of the year.
Government data released Friday showed the U.S. jobless rate held steady from November to December. Bullard called the December jobs number - a boost of 155,000 in new non-farm jobs - "reasonably good.
Plosser, one of the Fed's most hawkish members, said he believes the United States economy likely suffered a lasting decline in its trend potential growth rate as a result of the severe 2007-2009 U.S. recession.
"Any of you who have looked at the data of the most recent ... recession, it certainly looks like we've had a permanent shock," Charles Plosser, president of the Philadelphia Federal Reserve Bank, told a panel at the annual meeting of the American Economic Association. "The problem is we won't know the answer to that for many years to come."
Fed Vice Chair Janet Yellen, a proponent of aggressive Fed easing, also spoke on Friday, but confined her comments to how regulators are tackling risks to financial stability.

Read More..

Wall Street cheers "cliff" deal, but only for now

NEW YORK (AP) — When lawmakers delivered a long-delayed, last-minute agreement on the budget, Wall Street celebrated. And it would be easy to think that the surge in the Dow the following day meant that investors had put their concerns about Washington's political gridlock behind them.
The Dow Jones industrial average surged on the news, but that doesn't mean the volatility is over. In fact, there could be more turmoil in the market soon because decisions on cutting the federal budget deficit have been put off until March, when the government will reach its borrowing limit. Republicans have already said they will demand cuts to spending as a condition for extending the limit.
"The uncertainty is still there, the key issues are spending cuts and entitlement reforms and, for the most part, those were not addressed," says Terry Sandven, chief equities strategist at U.S. Bank Wealth Management. "This sets the stage for sharper rhetoric and increased market volatility as these discussions evolve."
The last time lawmakers tussled over the debt limit, the stock market plunged and the U.S. government lost its AAA debt rating. The Dow fell almost 7 percent in the two weeks before an agreement was reached Aug. 3, 2011.
Many business leaders objected to the agreement lawmakers reached late Tuesday. The Business Roundtable, an association of chief executive officers of leading U.S. companies, said that although it addressed some of the immediate negative consequences that the economy would have faced going over the "fiscal cliff," it failed to address the "serious and fundamental" reforms the economy needs. The National Retail Federation said that the deal was welcome, though it was only the first step in necessary tax reform.
Companies are likely to remain wary of investing until they get more clarity from Washington, says Joe Heider, a principal at Rehmann Financial in Cleveland, Ohio. He likens the current U.S. business climate to a sporting event where the referees tell the players to take the field before telling them that the rules of the game will only be decided on once the final whistle has been blown.
"Washington needs to get out of the way of the financial markets and American business," said Heider. "They need to create some certainty over how businesses should best deploy all the cash that they're sitting on."
And corporations are sitting on a lot of cash. Companies have been steadily building up their reserves over the last five years and are now sitting on record cash piles. By the end of the third quarter of last year, S&P 500 companies had accumulated more than $1 trillion in cash, according to data from S&P Dow Jones Indices.
At least for now, companies are unlikely to invest much of that money back into their businesses simply because demand just isn't strong enough, says U.S. Bank's Sandven. Instead they will spend it on acquisitions, stock buy-backs and pay higher dividends. Those are all actions that should boost stock prices in the near term, despite the ongoing uncertainty and increased volatility that will be caused by political wrangling.
Investors should take advantage of any volatility in the market created by the political wrangling to seek out stocks that have a history of growing their dividends, says Sandven. He estimates that half of the stocks in the S&P 500 have a dividend yield that is higher than the current 10-year U.S. Treasury note. The 10-year Treasury note was at 1.90 percent Friday.
He also recommends that investors buy the stocks of companies that have exposure to emerging markets that have a growing middle class and don't have the same debt issues as the U.S.
Joseph Tanious, a global markets strategist at J.P. Morgan Funds, says investors would be wise to remain calm when the negotiations in Washington around the debt ceiling start to heat up this spring.
The stock market dropped sharply in the weeks after the election Nov. 6 as investors worried that a divided government wouldn't get a deal done in time to meet a budget deadline by the end of the year, but it has rebounded since then. The S&P 500 is now 2 percent higher than it was on election day, even after falling by as much as 5 percent in the two weeks following the vote. On Friday it closed at 1,466, the highest since December 2007.
"When push came to shove, Congress did come together to reach an agreement," says Tanious. "Many people were saying you should be out of the market ... (that) markets are going to capitulate, and that didn't happen."
Stocks have rallied over the last three years as investors remain optimistic that the economy will maintain a slow, but steady, recovery from recession, as the housing market improves and as the outlook for jobs gets better.
And while investors also see the wisdom in addressing the nation's long-term debt problems, they also point out that businesses and consumers have been aggressively paying down their own debts in the aftermath of the 2008 financial crisis. That leaves more flexibility for people and companies to shop, invest, and spend money, helping to lift the economy — and the stock market — even if Washington's political dysfunction worsens.

Read More..

Turkey: Military will keep fighting rebel Kurds

ANKARA, Turkey (AP) — Turkey will press ahead with military operations against autonomy-seeking Kurdish rebels even as Turkish officials hold talks with the rebels' jailed leader to end the 28-year-old conflict, officials said Friday.
Last week, the government confirmed that Turkey's intelligence agency was talking to rebel leader Abdullah Ocalan with the aim of convincing the Kurdistan Workers' Party, or PKK, to disarm. Ocalan has been serving a life sentence on a prison island off Istanbul since 1999.
Yet Turkish officials said Turkey had no intention of halting its military drive against the group, which took up arms in 1984 and is fighting for self-rule in southeast Turkey, often from bases in northern Iraq. The conflict has killed tens of thousands of people since then.
"Operations are continuing," Interior Minister Idris Naim Sahin told the state-run Anadolu Agency in an interview. "They will continue until members of the group who bear enmity against our people are no longer in a position to attack or shed blood."
Yalcin Akdogan, chief adviser to the Turkish prime minister, wrote in the Star newspaper Friday: "There is no question of suspending or halting the fight against terrorism."
"Security policies must remain as a complementary factor (to talks)," Akdogan wrote in a column.
Akdogan also warned that groups within the PKK who are opposed to any negotiated settlement to the conflict could "sabotage" the talks by attacking Turkish targets.
Turkey has admitted holding secret discussions with Ocalan and other PKK members, as recently as 2011, although officials later said the talks were abandoned when rebels killed 13 soldiers in southeast Turkey in July of that year.
The latest peace effort comes after hundreds of Kurdish prisoners linked to the PKK heeded a call from Ocalan in November and abandoned a hunger strike pressing for greater Kurdish rights and improved prison conditions for the rebel leader. The incident demonstrated Ocalan still holds sway over the rebels even after 13 years of being in prison.
The negotiations also coincide with efforts by parties in Parliament to draft a new constitution for Turkey, which the government says would safeguard the rights of minority Kurds, who make up some 20 percent of the country's 75 million population.
Turkish officials have not revealed details of the talks with Ocalan or what Turkey is offering the rebels as an incentive to disarm.
Nurettin Canikli, a senior legislator from Prime Minister Recep Tayyip Erdogan's ruling party, said some progress had been made but would not say if the PKK was any closer to laying down arms.
Akdogan, the adviser, wrote that many PKK fighters were sick of life hidden away in the mountains of southeast Turkey or northern Iraq and suggested that the prospect of "coming down from the mountains" would be an incentive to disarm.

Read More..

Britain's top tabloid scolds Argentina over the Falklands

BUENOS AIRES/LONDON (Reuters) - Britain's biggest-selling newspaper had a simple message for Argentina in an editorial published on Friday in the South American country: "HANDS OFF" the Falkland Islands.
The seven-paragraph epistle, penned by the populist Sun tabloid and published in Argentina's main English language newspaper, came in response to fresh demands from President Cristina Fernandez to open talks over the sovereignty of the South Atlantic archipelago.
The two countries fought a 10-week war in 1982 over the remote islands, which are part of Britain's self-governing overseas territories and are known in Argentina as Las Malvinas.
Britain won the war but Argentina started pressing its sovereignty claim anew last year after oil exploration began in waters near the islands.
"British sovereignty over the Falkland Islands dates back to 1765, before the Republic of Argentina even existed," the Sun said in its open letter to Fernandez, published in both Spanish and English in the Buenos Aires Herald.
"In the name of our millions of readers," the Sun said, "HANDS OFF!"
The Sun, part of media mogul Rupert Murdoch's empire, has a long history of publishing fervently patriotic articles. One of its front pages during the 1982 war it marked the news that British forces had sunk the Argentine warship General Belgrano with the banner headline "GOTCHA."
As the extent of Argentine losses began to emerge, the Sun changed its headline in later editions. A total of 323 Argentines lost their lives in the attack on the Belgrano.
While the rhetoric has yet to reach such levels, tensions have flared between London and Buenos Aires against the new backdrop of oil prospects.
Crude was found to the north of the Falklands in 2010 by Rockhopper Exploration, drawing interest from hedge funds and other investors despite threats from Argentina to disrupt the activity.
In an open letter from Fernandez to Prime Minister David Cameron published in British newspapers on Thursday, the fiery two-term Peronist leader accused Britain of breaching United Nations resolutions calling for a negotiated solution.
Cameron rejects negotiations, saying the approximately 3,000 people of the Falkland Islands have chosen to be British.
In its Friday edition, the Sun used less moderate language for its own British readers than in its open letter to Fernandez, labeling her country a "banana republic."
"Stirring up trouble over the Falklands creates a convenient sideshow for Argentina's tin-pot leaders as they battle problems at home," the Sun said in its editorial, referring to economic woes in Argentina punctuated by slow growth and high inflation.
"But they are wasting their breath. And they should remember what happened last time.

Read More..

Excavators head to Myanmar to find WWII Spitfires

LONDON (AP) — An airplane-obsessed farmer, a freelance archaeologist, and a team of excavators are heading from Britain to the Myanmar city of Yangon on Saturday to find a nearly forgotten stash of British fighter planes thought to be carefully buried beneath the former capital's airfield.
The venture, backed with a million-dollar guarantee from a Belarusian videogame company, could uncover dozens of Spitfire aircraft locked underground by American engineers at the end of World War II.
"We could easily double the number of Spitfires that are still known to exist," said 63-year-old David Cundall, the farmer and private pilot who has spent nearly two decades pursuing the theory that 36 of the famous fighter planes were buried, still in excellent condition, in wooden crates in a riverbed at the end of an airport runway.
"In the Spitfire world it will be similar to finding Tutankhamen's tomb," he told reporters at a media conference held in a London airport hotel Friday.
Not everyone is as convinced. Even at the conference, freelance archaeologist Andy Brockman acknowledged that it was "entirely possible" that all the team would find was a mass of corroded metal — if it found anything at all.
But Cundall said eyewitness testimony — from British and American veterans as well as elderly local residents of Myanmar — coupled with survey data, aerial pictures, and ground radar soundings left him in no doubt that the planes were down there.

Read More..

Pakistani girl shot by Taliban leaves UK hospital

Three months after she was shot in the head for daring to say girls should be able to get an education, a 15-year-old Pakistani hugged her nurses and smiled as she walked out of a Birmingham hospital.
Malala Yousufzai waved to a guard and smiled shyly as she cautiously strode down the hospital corridor talking to nurses in images released Friday by the Queen Elizabeth Hospital Birmingham.
"She is quite well and happy on returning home — as we all are," Malala's father, Ziauddin, told The Associated Press.
Malala, who was released Thursday, will live with her parents and two brothers in Britain while she continues to receive treatment. She will be admitted again in the next month for another round of surgery to rebuild her skull.
Experts have been optimistic that Malala, who was airlifted from Pakistan in October to receive specialized medical care, has a good chance of recovery because the brains of teenagers are still growing and can better adapt to trauma.
"Malala is a strong young woman and has worked hard with the people caring for her to make excellent progress in her recovery," said Dr. Dave Rosser, the medical director for University Hospitals Birmingham. "Following discussions with Malala and her medical team, we decided that she would benefit from being at home with her parents and two brothers."
The Taliban targeted Malala because of her relentless objection to the group's regressive interpretation of Islam that limits girls' access to education. She was shot while returning home from school in Pakistan's scenic Swat Valley on Oct. 9.
Her case won worldwide recognition, and the teen became a symbol for the struggle for women's rights in Pakistan. In an indication of her reach, she made the shortlist for Time magazine's "Person of the Year" for 2012.
The militants have threatened to target Malala again because they say she promotes "Western thinking," but a security assessment in Britain concluded the risk was low in releasing her to her family. British police have provided security for her at the hospital, but West Midlands Police refused to comment on any security precautions for Malala or her family going forward.
Pakistani doctors removed a bullet that entered her head and traveled toward her spine before Malala's family decided to send her to Britain for specialized treatment. Pakistan is paying.
Pakistan also appointed Malala's father as its education attache in Birmingham for at least three years, meaning Malala is likely to remain in Britain for some time.
Hospital authorities say Malala can read and speak, but cited patient confidentiality when asked whether she is well enough to continue her education in Britain.
While little has been made public about Malala's medical condition, younger brains recover more fully from trauma because they are still growing. Dr. Anders Cohen, chief of neurosurgery at the Brooklyn Hospital Center in New York, estimated she might recover up to 85 percent of the cognitive ability she had before — more than enough to be functional.
"She'd be able to move on with life, maybe even become an activist again," said Cohen, who is not involved in Malala's treatment.
In the Swat Valley, people reacted with joy at the news of her release. Family and friends handed out sweets to neighbors in Malala's hometown of Mingora.
"Obviously we all are jubilant over her rapid recovery, and we hope that she will soon fully recover and would return back to her home town at an appropriate time," said Mahmoodul Hasan, Malala's 35-year-old cousin. Like Malala's father, he runs a private school in Mingora.
But the Swat Valley remains a tense place. Only last month, several hundred students in Mingora protested plans to have their school named after Malala, saying it would make the institution a target for the Taliban.
Malala's father vowed to return to Pakistan with his family once Malala is fully recovered.
"I thank the whole of Pakistan and all other well-wishers for praying for her and our family," he said. "What I am doing here is all temporary, and God willing we all will return to our homeland."

Read More..

Christmas updates to shine light on UK retail prospects

The prospects for consumer spending and the broader British economy will be in focus next week when a host of retailers, including Marks & Spencer and Tesco, report Christmas sales figures.
Many store groups found the going tough last year as consumers fretted over job security and a squeeze on incomes.
With wage rises failing to match inflation and another round of government spending cuts slated for 2013, retailers were expected to strike a downbeat tone on the outlook and say growth will be reliant on internal initiatives.
While grocers traditionally cope better in tough times thanks to their focus on essential goods, they are finding growth hard to come by even as they expand their offering into homewares and other non-food offerings.
Analysts think No. 4 grocer Wm Morrison Supermarkets will, on Monday, post the worst of the Christmas figures out of the food retailers reporting next week.
Sales at Morrison stores open over a year, excluding fuel, were seen down about 2 percent. That would follow a fiscal third-quarter fall of 2.1 percent and partly reflect the lack of an online presence and minimal convenience store presence.
Indeed, the retail sector's best Christmas performers - all helped by a strong online presence - may have reported already.
John Lewis - Britain's biggest department store group, and sister company Waitrose - an upmarket grocer, have both reported record Christmas sales, while clothing retailer Next posted a solid outcome and raised profit guidance.
MARKET LEADER
For retail market leader Tesco, which updates on Thursday, analysts forecast like-for-like sales, excluding fuel and VAT sales tax, to grow 0.5-1.5 percent in its home market, having fallen 0.6 percent in its third quarter.
That said, Tesco is up against a weak comparative - a dismal Christmas performance in 2011 resulted in its first profit warning in 20 years and a move to spend 1 billion pounds ($1.6 billion) on a recovery plan.
While the world's No. 3 retailer may show some progress in its home market, its overseas problems are mounting. Though the group has flagged an exit from the United States, in South Korea - its biggest overseas market, legislation allowing local governments to impose shorter trading hours is hurting. Also, trade in eastern Europe is being hit by euro zone instability.
Sainsbury, Britain's No. 3 grocer, has guided to second-half like-for-like sales growth similar to the 1.7 percent in its first half. For its third-quarter update, expected Wednesday, analysts forecast like-for-like growth of about 0.9 percent.
DISCIPLINED
Though pre-Christmas promotional activity among clothing groups was widespread it appears to have been less severe than in 2011.
"Anecdotally, it was hugely more disciplined than last year," Simon Wolfson, chief executive of Next - Britain's second-biggest clothing retailer, told Reuters on Thursday.
That should bode well for margins at Marks & Spencer, Britain's largest clothing retailer, which updates on Thursday.
Analysts expected M&S to report a 1.5 percent drop in fiscal third-quarter general merchandise sales from British stores open at least a year. That would be a small improvement on a second-quarter decline of 1.8 percent.
However, like-for-like food sales were seen up 0.5 percent, less than the 1.5 percent rise in the previous period.

Read More..

Has Obama Been Good for Millionaires?

The question of whether Americans are better off than they were four years ago depends, of course, on the American.
For the 12 million unemployed, the answer is most certainly no.
But for many of America's millionaires, the answer may be more affirmative.
A new study from WealthInsight, the London-based wealth-research and data firm (and yes, they are non-partisan), showed that the United States added 1.1 million millionaires between Jan. 1, 2009 and the end of 2011, the latest period measured. There were 5.1 million millionaires in America at the end of 2011, compared with around 4 million at the end of 2008.
That works out to more than 1,000 millionaires a day under the Obama administration. (They defined millionaires as people with total net worth of $1 million or more, excluding primary residence).
(Read more: Rich Will Spend More Under Romney: Poll)
"It's true that Obama has been good for millionaires, at least in absolute terms," said Andrew Amoils, analyst at WealthInsight. "He certainly hasn't been bad for millionaires."
Amoils said that quantitative easing and financial bailouts especially helped the finance sector, which accounts for the largest share of millionaires. It also helped that markets recovered in 2009.
The timeframe is worth noting. Measured against the 2007 peak, when 5.27 million Americans had a net worth of at least $1 million, the nation lost 165,360 millionaires. Their combined wealth is down six percent, to $18.8 trillion from a peak of more than $20 trillion in 2007.
We don't know how 2012 will turn out, though if stock markets continue to strengthen, the millionaire count for 2012 is likely to increase. Wealth Insight says the number of millionaires in America will grow to more than six million by 2016, and their combined fortunes will jump 25 percent over the same period.
(Read more: Millionaires Give Nine Percent of Income to Charity)
Where did all the millionaires come from between 2008 and 2011?
Mainly from retail, tech and finance -- and in both blue and red states.
Of the sectors adding the largest number of people worth $30 million or more, the retail, fashion, and luxury goods sector ranked first. That was followed by energy and utilities, then tech, telecoms and finance. Transportation and construction saw the biggest drops.
The number of people worth $30 million or more grew 26 percent in Connecticut since 2008, 20 percent in Kansas, 12 percent in Michigan, showing that the wealth creation was nationwide.

Read More..

Obama Wins 2012 Election: Why Your Taxes Are Going Up

When President Obama and the new Congress begin to tackle important legislation and federal policy in January, one of the key issues will be how to reform America's byzantine tax code.
Obama campaigned on a platform to raise taxes on the wealthiest Americans, declaring that millionaires and billionaires need to "pay their fair share." The president proposed the highly controversial "Buffett Rule," which would make sure those individuals earning more than $1 million a year would pay at least 30% of their income in federal taxes.
Related: Do the Rich Have a Moral Obligation to Pay Higher Taxes? Gov. Jerry Brown Says 'Yes'
The top individual tax rate is currently 35% but few U.S. households and individuals actually pay that much; various tax deductions and loopholes reduce one's tax burden.
According to the Obama campaign, the richest 400 taxpayers in 2008 (who each made more than $110 million that year) paid an average income tax rate of just 18%. In 2009 over 20,000 U.S. households with more than $1 million in income paid a federal tax rate of less than 15%.
Obama has vowed to raise the top income tax rate for individuals to 39.6% and let the Bush-era tax breaks end for the highest income earners. The majority of Americans — those who are lower to middle class — could also see a 2% tax increase if Congress allows the temporary payroll tax holiday to expire at the end of the year.
Related: Here's Why Your Taxes Are Going Up 2% Next Year: Just Explain It
Nearly half of voters support raising taxes on incomes over $250,000, according to Tuesday night's exit polls.
Len Burman, a professor of public affairs at Syracuse University and a co-founder of the bipartisan Tax Policy Center, believes higher tax rates play just a small role in resolving the nation's budget woes.
"In the long term [Obama] is going to need to raise taxes on more than just the rich," Burman says in an interview with The Daily Ticker. "The budget problem isn't going to be solved without broader-based tax increases, preferably done in the context of tax reform and also serious entitlement reform. We're not going to be able to solve this on the tax side alone."
Burman, who recently co-wrote the new book "Taxes in America: What Everyone Needs to Know," says tax rates do not need to be raised for any income group if Congress and the White House would agree on one simple change: raising the capital gains rate, i.e. the profits from the sale of an investment. Assets, such as stocks, art or real estate, that are held for at least a year are currently taxed at a special 15% rate; Obama wants to raise that to 20%.
"The problem with a low tax rate on capital gains is not that it allows Mitt Romney and Warren Buffett to pay very low taxes but that it creates this huge opportunity for tax sheltering," he notes. "There's a whole industry that's devoted to coming up with these schemes. [Raising capital gains rates] could make the tax system more progressive and allow for lower tax rates" and a reduction in the deficit Burman says.
Obama's tax proposal also targets the Alternative Minimum Tax, the Estate Tax and as well as many personal tax credits and itemized deductions. Obama would make permanent the 2007 AMT patch and index it for inflation. He would raise the estate tax to 45% from 35% on estates worth more than $3.5 million. He would lower the corporate tax rate to 28% from 35% and provide a refundable $3,000 credit per added employee for companies that expand their workforce. He would tax carried interest as ordinary income.
Related: Corporate Tax Loopholes=Corporate Socialism: Pulitzer Prize Winner David Cay Johnston
A divided Congress refused to compromise with Obama during his first term and could very well dismiss the president's tax reforms for the next four years. Republicans are loathe to raise taxes by even a penny and Obama has said he would veto any budget bills that did not include tax increases. Neither party wants to raise taxes in a weak economy. But the options available for reducing the deficit and generating new revenue are few and far between.

Read More..