Monster Tax Breaks for the 1% Cost Uncle Sam $12 Trillion Over the Next Decade

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Income ranges for family of four: Highest quintile ($163K and up); fourth quintile ($110K to $163K); middle quintile ($77K to $110K); second quintile ($50K to $77K); lowest quintile (less than $50K).

NEW YORK (CNNMoney)

There are more than 200 tax breaks in the U.S. tax code, and the top 10 for individuals are by far the most expensive. How expensive? They will cost federal coffers $12 trillion over the next decade.

But the dollar benefits of those top 10 breaks are not distributed evenly across income groups.

The top 20% of households will enjoy more than half of the combined benefits of the major tax expenditures this year, according to a report by the Congressional Budget Office released Wednesday.

And within that top 20%, the benefits skew disproportionately to the highest earners.

The top 1% — who make at least $327,000 as individuals or $654,000 as a family of four — get 17% of the breaks’ value.

The largest breaks include the tax-free treatment of employer contributions to workers’health insurance; tax preferred retirement savings; state and local tax deductions; and reduced rates on capital gains and dividends.

That’s not to say that low- and middle-income households don’t benefit from the major tax breaks and wouldn’t notice if they were curtailed — a distinct possibility when lawmakers eventually do embark on tax reform.

This year, households in the middle income quintile will enjoy about 13% of the value of the biggest breaks, the budget office estimates. Those in the middle include one-person households earning roughly $39,000 to $55,000 and four-person households earning between $77,000 and $110,000.

The lowest earners, who make no more than $25,000 as singles or $50,000 as four-person households, will get only 8% of the benefit of the tax expenditures. What value they do see will come primarily from the Earned Income Tax Credit and, to a lesser extent, the child tax credit.

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“Stocks are hitting record highs on a seemingly daily basis, and BlackRock CEO Larry Fink thinks the bull market has another five or six years to go.

Investors could experience annual returns of 8 to 10 percent during that period, he tells CNBC. This could put the Dow Jones industrial Average above 28,000 in 2019.

“Sounds pretty good, doesn’t it?” he quips.

That would represent an 83 percent jump from the 15,314 level prevailing Wednesday afternoon. The Dow reached an all-time peak of 15,542 a week ago.

Given corporate earnings strength, stocks offer attractive values, Fink says.

“The S&P [500] is around 15½, 16 times earnings,” he explains. “There’s no question in my mind that equities remain … fairly cheap.” …”

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“This you can bet on: The Federal Reserve will eventually stop its $85 billion-a-month bond-buying program, an economic lifeline aimed at getting the country back on its feet after the financial crisis.

While no one knows when the central bank will start winding down the quantitative easing that has pushed down interest rates, Fed Chairman Ben Bernanke hinted last week that the taps may start running dry sooner rather than later — perhaps as early as this summer.

The very thought sent a shiver through world stock and bond markets, though investors took some comfort after a closer look at Bernanke’s remarks and reassurances from European and Japanese central banks.

Markets got back on track this week on the prevailing view that Bernanke may not act all that soon after all. Still, the underlying message was clear: All good things must come to an end.

That said, there are ways to protect your portfolio and perhaps profit from the big shift. Experts recommend three strategies — a move into cash, alternative bond funds and buying shares that have lagged the recent run-up in stock prices — among other ideas.

Here are some tactics investors might consider as the era of quantitative easing ends:

CASH IS KING….”

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Banks also reduced to a six-year low the amount they set aside in case of losses on loans, the FDIC said…..”

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“A letter that was addressed to New York City Mayor Michael Bloomberg has tested positive for ricin, The New York Times reports.

The Wall Street Journal has confirmed the news with the NYPD.

Bloomberg never personally received the poison letter.

Another letter that also tested positive for the substance was reportedly sent to a Washington, D.C. building that houses Mayors Against Illegal Guns, which Bloomberg helps run….”

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“…………..that’s a lot of stock being pulled out of the market.

Deutsche Bank

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“It’s been a crazy few weeks in the Treasury bond market.

After a big rally that began in mid-March, amid the outbreak of the Cypriot financial crisis and fears over a slowdown in global growth, Treasuries have given up all of their gains, and bond yields are now rising to the highest levels in over a year.

This morning, the yield on the 10-year U.S. Treasury hit a high of 2.23%.

Naturally, there is a lot of debate over where yields go next. Goldman Sachs, one of the prominent shops calling for higher yields, has published a call saying the sell-off in Treasuries is “for real” this time.

Despite hitting a high of 2.23% earlier, yields have since backed down to 2.15%, and bonds are now positive on the day.

And amid the wild price action, we’re seeing a massive amount of trading in the market…..”

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“NEW YORK (Reuters) – A Congressman on Wednesday called on the Department of Justice to investigate JPMorgan Chase & Co’s power trading in Michigan, as the Federal Energy Regulatory Commission (FERC) considers whether to sanction the firm.

Michigan Congressman Dan Kildee, a Democrat who sits on the Committee on Financial Services, said in a letter to the DoJ that it should pursue its own investigation into JPMorgan to see if it manipulated electricity markets.

The bank has told shareholders it has been notified by FERC staff that they intend to recommend that the five members of the commission take action over an alleged manipulative trading scheme in Michigan and California earlier this decade.

JPMorgan has denied that it manipulated power markets, and has vowed to “vigorously defend” itself and its employees.

“These allegations are serious charges, including traders devising deliberate schemes to manipulate energy prices and top bank executives lying under oath,” said Kildee in the letter, a copy of which was obtained by Reuters.

“The people of Michigan, and the American public generally, deserve a marketplace where all participants play by the same rules. I urge the Justice Department to resolve this matter by investigating these potentially illegal practices.”

JPMorgan spokeswoman Jennifer Zuccarelli declined on Wednesday to comment on Kildee’s letter, but said that the FERC notice to the bank is only a “statement of the staff’s views, and does not represent findings of the commission.”

She added “we strongly disagree” with the FERC conclusions….”

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Source

“(Reuters) – Dish Network Corp said it raised its offer for Clearwire Corp to $4.40 per share in cash, topping Sprint Nextel Corp’s bid.

Sprint raised its buyout offer for wireless service provider Clearwire to $3.40 per share on May 21 under pressure from activist shareholders.

(Reporting by Garima Goel in Bangalore; Editing by Phil Berlowitz)”

“Former Federal Reserve Chairman Paul Volcker said today the central bank will probably “fall short” by being asked to do too much.

“It’s fashionable to talk about a dual mandate, that policy should somehow be directed toward two objectives, of price stability and full employment,” Volcker told the Economic Club of New York. “Fashionable or not, I find that mandate both operationally confusing and ultimately illusory.”

With unemployment lingering at 7.5 percent — still higher than before the last recession — the Federal Open Market Committee announced May 1 that it will increase or decrease the pace of its monthly bond purchases in response to changes in inflation and the labor market. The policy makers agreed to maintain monthly buying of $40 billion in mortgage securities and $45 billion of U.S. Treasuries in a bid to boost employment.

“Asked to do too much, for instance to accommodate misguided fiscal policies, to deal with structural imbalances, to square continuously the hypothetical circles of stability, growth and full employment, then it will inevitably fall short,” Volcker said. Those efforts cause it to lose “sight of its basic responsibility for price stability, a matter that is within the range of its influence.”

Volcker, 85, served as chairman of the Fed from 1979 to 1987. He helped cut the unemployment rate to an eight-year low of 5.7 percent in 1987, his last year as Fed chairman, after reversing interest-rate increases that brought inflation down from as high as 15 percent.

Rewriting Regulations…”

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“Alcoa Inc. (AA), the largest U.S. aluminum producer, had its credit rating cut to one level below investment grade by Moody’s Investors Service after the metal’s price fell amid a global oversupply.

The long-term rating on Alcoa’s $8.6 billion of debt was lowered by one step to Ba1 from Baa3, Moody’s said in a statement today. The outlook is stable, indicating the rating won’t be reduced again soon.

“The aluminum price has been in a downward decline since reaching post-recession highs in 2011,” Moody’s said in the statement. Strength in the automotive and aerospace industries isn’t sufficient for a “significant” recovery in profitability and Alcoa won’t achieve investment-grade metrics within Moody’s rating horizon, Moody’s said.

While Alcoa has shuttered high-cost smelting capacity, expanded profitable segments and reduced costs, slowing economic growth in China and rising global production have caused aluminum prices to fall.

“We believe Moody’s decision is a greater reflection of macroeconomic conditions and the volatility of metal prices than a true statement of the financial and operating strength of Alcoa,” Alcoa said in a separate statement.

Output Cuts….”

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“MidAmerican Energy Holdings Co., the power-production unit at Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), agreed to buy NV Energy Inc. (NVE) for about $5.6 billion in cash to expand in Nevada.

The acquisition will make MidAmerican the largest U.S. utility owner by customer count, according to data compiled by Bloomberg.The Berkshire unit will pay $23.75 per share, 23 percent more than NV Energy’s $19.28 closing price today, the companies said in a statement.

Buffett has been boosting investments in capital-intensive businesses as he seeks to allocate funds at his Omaha, Nebraska-based company, which had a cash pile of $49.1 billion as of March 31. MidAmerican will have assets of about $66 billion after the completion of the deal, which is expected in the first quarter of next year, according to the statement.

“By joining forces with MidAmerican, we will gain access to additional operational and financial resources,” Michael Yackira, chief executive officer of Las Vegas-based NV Energy, said in the statement.

The purchase is the largest announced acquisition of a U.S. regulated electricity company since Duke Energy Corp. (DUK)bought Progress Energy Inc. last July…..”

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“Brazil’s central bank accelerated the pace of interest rate increases, as policy makers step up efforts to slow inflation that forestalled the economy’s rebound in the first quarter.

The bank’s board, led by President Alexandre Tombini, voted unanimously to raise the benchmark Selic rate 50 basis points to 8.00 percent, matching the forecast of 19 of 57 economists surveyed by Bloomberg. Thirty-eight analysts expected a second straight 25 basis-point increase.

“The committee considers that this decision will contribute to put inflation on a decline and assure that this trend will persist next year,” policy makers said, according to their statement posted on the central bank’s website.

President Dilma Rousseff’s administration has renewed pledges to slow inflation even as Brazil’s $2.5 trillion economy has expanded less than expected by analysts for five straight quarters. While the government kept borrowing costs at a record low 7.25 percent from October through March and expanded tax cuts to spur activity, stimulus measures have failed to spark growth and driven inflation to the upper limit of the central bank’s target range. Latin America’s biggest economy unexpectedly slowed in the first quarter as higher consumer prices eroded demand.

Swap rates on the contract maturing in July, the most traded in Sao Paulo today, fell two basis points, or 0.02 percentage point, to 7.56 percent. The real weakened 1.7 percent to 2.1106 per dollar.

‘Timely Way’….”

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“The Memorial Day weekend typically marks the start of the summer vacation season, which for about three-fourths of American workers will mean the possibility of some paid time off.

The United States is the only highly developed nation that doesn’t require employers to offer paid vacation time, according to a new report from the Center for Economic and Policy Research, a left-leaning think tank.

The report examined vacation policies in 21 developed countries, including the United States. The researchers found that every country except the U.S. had laws making employers offer between 10 and 30 paid vacation days a year….”

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“Worries the Federal Reserve may begin to slow its stimulus efforts sent mortgage rates last week to their highest level in a year, drying up demand for home refinancings, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said interest rates on fixed 30-year mortgage rates surged 12 basis points to average 3.9 percent in the week ended May 24. It was the highest level since May 2012 and the biggest jump in 14 months.

The rise sent the seasonally adjusted index of mortgage application activity down 8.8 percent as refinancing applications tumbled 12.3 percent. It was the biggest drop in refinance applications this year as demand fell to the lowest level since December.

The refinance share of total mortgage activity decreased to 71 percent of applications from 74 percent the week before.

Still, the gauge of loan requests for home purchases, a leading indicator of home sales, rose 2.6 percent, suggesting potential homeowners may have sought to lock in a still-low rate….”

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“Citigroup has reached a settlement with a federal agency that had accused the bank of misleading Fannie Mae and Freddie Mac into buying 3.5 billion of mortgage-backed securities.

The settlement with the Federal Housing Finance Agency was disclosed in a filing on Tuesday in U.S. District Court in Manhattan, where a series of related cases by the agency against Wall Street banks are pending.

The filing did not disclose the terms of the deal. FHFA spokeswoman Stefanie Johnson said the settlement was “satisfactory” but declined to say how much Citi would pay….”

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“FRANKFURT (Reuters) – Loans to the euro zone’s private sector contracted for the 12th month in a row in April, raising pressure on the European Central Bank to take fresh policy action to help lift the bloc out of recession.

Loans fell 0.9 percent from the same month a year ago, ECB data showed on Wednesday, a slightly bigger fall than the mid-range forecast for a drop of 0.7 percent in a Reuters poll of economists.

The ECB, which meets next week, has flooded banks with money but many still remain wary of lending to businesses – particularly in the recessionary periphery of the euro zone – against a weak economic backdrop and uncertain outlook.

Banks granted non-financial firms 18 billion euros less in loans in April than in the previous month, data adjusted for sales and securitizations showed, after a fall of 2 billion euros in March.

“The marked fall in lending to euro zone businesses in April ramps up pressure on the ECB to come up with concrete measures aimed at improving credit availability to companies, especially small and medium-sized ones,” said Howard Archer, economist at Global Insight.

ECB data also showed that loan growth rates vary greatly between euro zone countries, with those hardest-hit by the debt crisis seeing big reductions.

In Spain, lending to firms, excluding banks, fell 8.8 percent from the same month a year earlier. Ireland saw a 5.6 percent decrease, while lending fell 3.3 percent in Greece and 3.5 percent in Portugal.

German lending growth to firms was just above zero, as it recorded a 0.3 percent annual growth rate. Growth in the Netherlands, Finland and France was faster than that.

ECB MEETING….”

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“(Reuters) – Student loan provider Sallie Mae Corp said it would split the company into two publicly traded entities and named John Remondi as its chief executive officer.

Sallie Mae, the largest U.S. student lender, said it would separate its consumer banking business from the larger education loan management business as part of a plan to unlock value and enhance long-term growth potential.

The company, which trades under the formal name of SLM Corp, said the split will be undertaken through a tax-free distribution of common stock to its shareholders….”

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“NEW YORK (Reuters) – The number of foreclosed homes held steady in April, while there were fewer properties sitting in the pipeline, fresh signs the housing recovery is on track, data from CoreLogicshowed on Wednesday.

There were 52,000 foreclosures completed last month, the same amount as in March, but down about 16 percent from 62,000 in April last year, CoreLogic said .

Before the housing crisis, foreclosures averaged 21,000 a month between 2000 and 2006. There have been about 4.4 million completed foreclosures since the financial crisis began in September 2008.

There were about 1.1 million homes in some stage of foreclosure in April, down 2 percent from the month before and a drop of 24 percent from a year ago.

Foreclosure inventory accounts for 2.8 percent of all mortgaged homes….”

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“The Organization for Economic Cooperation and Development warned central banks that ending the global loose-money policies could result in much higher borrowing costs for governments.

“Exit from unconventional monetary policy, when needed, may be difficult to manage and less smooth than desirable, possibly leading to sharp rises in bond yields and serious negative consequences for growth in a number of advanced and emerging economies,” said OECD Chief Economist Pier Carlo Padoan. We think that the eurozone could consider more aggressive options. We could call it a eurozone-style QE.”

The rich-country group also cut its outlook for the US to 1.9% for this year, down from 2%. It expects global GDP to rise 3.1%, down from an earlier estimate of 3.4%. The eurozone is likely to shrink 0.6%, a more severe contraction than the 0.1% drop previously forecast.

Europe’s unelected executive body, the European Commission, is acknowledging that it’s unlikely that some countries meet their budget deficit targets, the Financial Times reports. The EC will emphasize structural reform and give Spain, France, and the Netherlands more time to lower deficits to 3% ….”

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