*** HAPPY NEW YEAR ***
(…) The far-reaching agreement will have lasting implications for the tax code, future budget battles and the balance of power in Washington. It raises income-tax rates for the first time in almost two decades and fulfills Mr. Obama’s signature campaign promise to prevent rates from rising on the middle class. Not since 1991 has a Republican in Congress supported such a move—a challenge to its brand as the antitax party.
At the heart of the deal are some of the biggest tax changes in years, including an increase in tax rates for couples with incomes over $450,000, to 39.6%. For those same households, capital-gains and dividend taxes would increase to 20%, from 15%. Estate taxes would increase from 35% to 40%.
More than three-quarters of American households would see a tax increase from their 2012 tax levels, according to an analysis by the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute. For households earning between $500,000 and $1 million, the additional tax owed would be about $15,000. For households with incomes over $1 million, it would average about $170,000.
In policy terms, it permanently codifies most of the tax rates that were set only temporarily in the Bush era. After years of failed efforts, the bill permanently keeps the middle class from being hit by the alternative minimum tax, a 1960s edifice intended only for America’s wealthiest.
At the same time, the bill defers some of America’s toughest spending problems—in particular the ballooning cost of health care—and it doesn’t come close to the kind of $4 trillion deficit-reduction deal the country’s leaders had hoped to negotiate. By some estimates, it would cut the deficit by $600 billion over 10 years. (…)
The compromise dodges one cliff, but it sends Congress barreling toward another. In two months, the delayed $110 billion in spending cuts will again kick in. At the same time, the U.S. will face the need to increase its borrowing limit, a change that can only be made by Congress. That sets up another rancorous fight, one with potentially more damaging consequences. Republicans want to use the debt ceiling to extract spending cuts. Mr. Obama has said he won’t negotiate. (Cartoon from The Seattle Times)
The budget deal passed by the U.S. Senate today would raise taxes on 77.1 percent of U.S. households, mostly because of the expiration of a payroll tax cut, according to preliminary estimates from the nonpartisan Tax Policy Center in Washington.
More than 80 percent of households with incomes between $50,000 and $200,000 would pay higher taxes. Among the households facing higher taxes, the average increase would be $1,635, the policy center said. A 2 percent payroll tax cut, enacted during the economic slowdown, is being allowed to expire as of yesterday. (Bloomberg)
The nearby table shows the taxes that are going up this year. The best that can be said is that Senate Republicans managed to moderate the increase in the death tax from what it would have been, and to spare some upper middle-class families from even higher taxes by raising the income threshold for the new 39.6% top rate. But even those families will still see their taxes raised because couples making more than $300,000 will begin to have their deductions and exemptions phased out as their income rises.
NEW SPENDING CUTS
Keep in mind that this entire exercise was also supposed to promote “deficit reduction.” (…) this bill increases spending by at least $30 billion by extending extra jobless benefits for another year. It also postpones for two months the automatic spending cuts that were set to begin this week, so in February we can all witness the delights of another phony showdown that will result in more phony deficit reduction. Maybe they can combine those with a phony debt-limit fight too. (WSJ)
Here’s the front page of the China Daily:
Senate’s ‘fiscal cliff’ bill packed with sweeteners The US Senate passed an eclectic plan to avert the “fiscal cliff”, including a measure to repeal part of Obama’s signature healthcare overhaul and a string of special interest tax breaks.
Small-business borrowing rises in November Borrowing by small U.S. businesses rose marginally in November, indicating they were essentially on hold in terms of growing their enterprises in the face of economic and government fiscal uncertainty, a report on Wednesday showed.
The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to small U.S. companies, rose to 108.3 from a downwardly revised 107 in October, PayNet said. PayNet had initially reported the October figure as 107.5.
Borrowing was up 3 percent in November from a year earlier. (…)
PayNet’s lending index typically correlates to economic growth one or two quarters in the future.
Separate PayNet data showed financial stress at near-record-low levels. Accounts overdue by 30 days rose slightly to 1.22 percent of the total from 1.21 percent the previous month. Phelan said a “normal” rate of delinquency is 1.5 percent to 1.6 percent.
TrimTabs provides an early look at December employment, estimating payroll growth of 145K-165K jobs last month, down from 220K in November. Wage growth jumped to 8.2% Y/Y as companies shifted bonus payments to December. Look for a sharp reversal in January. The company derives its estimates by looking at daily tax deposits to the Treasury from all salaried employees. (SA)
Registrations of new cars in France slumped 14% in 2012 to the lowest level in 15 years as car buyers postponed purchases amid deepening economic gloom, according to data released on Wednesday by the French automobile manufacturers’ association. (…)
Wednesday’s data show a 15% drop in registrations of new cars in France during December, bringing the total for the full year to 1.90 million, the lowest level since 1997. (…)
Emmanuel Bulle, who analyzes the European industrial sector for Fitch Ratings, estimates that European car sales fell between 7% and 8% in 2012. The year got off to a bad start due to a base effect from the car scrapping scheme that was phased out at the end of 2010. Sales registered in the first few months of 2011 were boosted by orders booked at the end of 2010 as car buyers rushed to take advantage of the scrapping scheme. However, the base effect was no longer present after March.
South Korea’s exports were down in December from a year earlier, snapping two straight months of expansion, as Christmas and the presidential election cut into the number of working days.
Exports were off 5.5% to $45.097 billion while imports were down 5.3% to $43.072 billion, resulting in a surplus of $2.026 billion, according to preliminary data from the Ministry of Knowledge Economy.
A slide in exports had been expected, but it turned out to be sharper than the market foresaw—sapping hopes for a pick-up in Asia’s fourth-largest economy.
Several of India’s car makers Tuesday reported a drop or a modest increase in sales for December, despite year-end discounts and the recent introduction of new models. (…)
In December, car makers announced year-end discounts on several models, while announcing plans to raise car prices from January. Despite their efforts, most customers continue to postpone their purchasing decisions.
The Society of Indian Automobile Manufacturers has cut its forecast for growth in car sales to between 1% and 3% for this financial year through March 2013, from the earlier estimate of 9%-11%. (…)
GDP data first sign city-state entering period of slower growth
The government said on Wednesday that the economy grew at a “modest” pace of 1.1 per cent on a year-on-year basis, down from 3.6 per cent the same quarter a year previously.
While that was an improvement on the flat growth rate of the previous quarter, manufacturing has shrunk for two successive quarters as weak demand from the eurozone has sapped the electronics sector.
Monday, we saw that the HSBC China PMI rose 1.0 to 51.5 in December. China’s official PMI confirms that the domestic market is currently the main driver and that China continues to suffer from the Eurozone woes.
The manufacturing Purchasing Manager’s Index in December remained at 50.6, unchanged from November’s reading and indicating that expansion momentum has stabilized.
Most of the sub-indices saw gains, with the sub-index for input prices up 3.2 percentage points to 53.3 percent from a month earlier. But four sub-indices, including new export order and output sub-index, witnessed slight month-on-month declines that were all within one percentage point.
The nation will “step up efforts to promote strong, sustainable and balanced growth in the world economy,” Hu said in the speech broadcast by state radio and television.
Japan’s population last year declined by 212,000, the biggest drop on record, according to an estimate by the nation’s health ministry.
That’s the largest reduction since the ministry started recording the data in 1947 and a sixth straight year of declines. The number of births fell by 18,000 to a record low of 1.03 million last year, the ministry said.
In a finding that could undermine many New Year’s resolutions, a new government study shows that people who are overweight are less likely to die in any given period than people of normal weight. Even those who are moderately obese don’t have a higher-than-normal risk of dying.
Being substantially obese, based on measure called body mass index, or BMI, of 35 and higher, does raise the risk of death by 29%, researchers found.
But people with a BMI of 25 to 30—who are considered overweight and make up more than 30% of the U.S. population—have a 6% lower risk of death than people whose BMI is in the normal range of 18.5 to 25, according to the study, being published Wednesday in the Journal of the American Medical Association. (…) …