Unstructured Finance

Essential reading: Fiscal cliff talks down to the wire

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Obama summons congressional leaders for ‘fiscal cliff’ talks. Lori Montgomery and Rosalind Helderman – The Washington Post. President Obama summoned congressional leaders to a Friday summit at the White House in a last-ditch effort to protect taxpayers, unemployed workers and the fragile U.S. recovery from severe austerity measures set to hit in just four days. Also Thursday, House of Representatives Speaker John Boehner announced he would call the House back into session this weekend. And in perhaps the most significant development, Senate Minority Leader Mitch McConnell was engaged directly in talks with the White House. He signaled an interest in cutting a deal. Link 

 * Summoned back to work, senators chafe at inaction. Jennifer Steinhauer – The New York Times. Senators bid hasty goodbyes to families, donned ties and pantsuits in lieu of sweat pants and Christmas sweaters and one by one returned to the Capitol on Thursday to begin the business of doing nothing in particular. But for once, those lawmakers were fully united, if only around their sadness and frustration at being stuck in Washington in a holiday week, peering over the edge of the fiscal abyss. Link

Cliff talks down to the wire. Janet Hook and Carol Lee – The Wall Street Journal. Congress and the White House took small steps toward breaking the budget impasse Thursday, but Democrats and Republicans grew increasingly fearful they will not be able to avert the tax increases and spending cuts known as the fiscal cliff, a prospect that is unnerving consumers and investors. President Barack Obama invited congressional leaders to the White House on Friday afternoon for a last-ditch effort to broker a deal, as the Senate returned to Washington on Thursday. House Republican leaders said in a Thursday conference call with Republicans, who are growing nervous about their party being blamed for the deadlock, that the House will reconvene Sunday evening. Link

Calendar

Some important tax and accounting dates in the weeks to come:

Sunday, Dec. 30

* U.S. House of Representatives returns to work on legislation to avoid tax increases and spending cuts associated with the fiscal cliff that begin to kick in on Jan. 1.

Monday, Dec. 31

* U.S. government borrowing hits its debt ceiling, according to Treasury Secretary Tim Geithner.

Thursday, Jan. 3

* The 112th U.S. Congress adjourns. New Congress in session starting at noon ET.

Accounting for retirement benefits produces “phantom” earnings – report

The cost of pensions gets plenty of attention, both from the companies that sponsor them and their investors.  Other retirement benefits, including medical costs, don’t garner the same scrutiny.

That’s because under federal law, pensions must be funded at certain minimal levels, while  “other post-employment benefits” (OPEB)  have no mandatory funding, no matter how under-funded they may be.

OPEB remain a huge obligation sitting on corporate books, however, and as accounting sleuth Jack Ciesielski ferreted out in a recent report, for many companies they are a growing contributor to earnings.

Wall Street channels Charles Dickens in 2012

By Lauren Tara LaCapra

As 2012 comes to an end, it’s clear that Wall Street has had the best-worst year in quite some time.

Bank profits are at record highs and lows, driven by free money from the Fed that they can’t make any money with, and a historically small number of historically huge deals. Facebook’s IPO – among the biggest ever – happened this year, and it was an enormous failure and a terrific success all at once.

And if that’s not enough to convince you, just take a look at the big-tiny payday that Wall Street employees are expected to get this year: bonuses for bankers, traders and money managers are supposed to rise up to 10 percent, in what a top pay consultant called one of the weakest years in a decade or more. Since big banks have been required to shift more bonus money into restricted stock with clawback provisions, some employees even feel like they’re getting punished by those bigger paychecks.

Obama hearts El-Erian

By Sam Forgione and Matthew Goldstein

OK, so it’s not a big gig like being nominated to head the Treasury Dept. But President Obama’s decision to tap PIMCO’s Mohamed El-Erian to head the President’s Global Development Council is no insignificant matter.

As the co-chief investment officer of the giant bond shop founded by Bill Gross, El-Erian is seen as the eventual heir apparent to run the Newport Beach, Calif firm. And El-Erian increasingly has become one of PIMCO’s most visible faces—maybe even more than Gross himself these days–when it comes to talking about what ails the U.S. and global economies.

The assignment is another indication of PIMCO’s growing ties to the Washington establishment, something that has developed as the firm has grown to manage $1.92trillion in assets and played a starring role along with BlackRock in helping to manage some of the financial crisis rescue programs. (For more see the Special Report that Jenn Ablan led earlier this year on Gross and his empire, Twilight of the Bond King).

Essential reading: Boehner’s budget ‘Plan B’ collapses, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Boehner’s budget ‘Plan B’ collapses. Janet Hook – The Wall Street Journal. House Speaker John Boehner, facing a rebellion in his party’s conservative ranks, abandoned his own plan to avert tax increases for most Americans Thursday night, throwing Washington’s high-stakes budget negotiations into disarray and bringing the prospect of tumbling over the fiscal cliff into sudden focus. Link

* Threat of tax changes rattles muni market. Kelly Nolan and Mike Cherney – The Wall Street Journal. Many muni investors are worried that budget negotiations in Washington could result in new taxes on interest they receive from municipal bonds. Link  

* Struggling homeowners may lose critical tax break in fiscal cliff talks. Amtita Jayakumar – The Washington Post. Among the tax breaks at risk in the negotiations between the White House and Congress to avert the “fiscal cliff” is a measure aimed at helping struggling homeowners. Households could soon receive an extra tax bill if Congress does not extend a five-year tax break. Link  

Blue states lose: how avoiding the U.S. fiscal cliff hits some states harder than others

Democratic-voting blue states could face a greater economic fallout from any fiscal cliff resolution than their Republican red state brethren, according to a Dec. 17 white paper  from municipal bond research firm eBooleant Consulting.

Entitled “The Blue State Tax Crunch,”  the paper predicts a recession for these states even if a broad, country-wide recession is avoided.

Size is one problem. Any changes made to the federal tax code  to try to avoid the cliff will be felt most in the largest states. They already contribute the most to federal taxes and the majority of these big states are blue. Higher tax rates will have an impact.

Essential reading: Tax impact for small business hard to gauge, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Tax impact for small business hard to gauge. John McKinnon – The Wall Street Journal. The latest budget offers exchanged between the White House and Republican leaders would raise tax rates on a tiny fraction of small-business owners, but would still affect a sizeable portion of business activity, studies show. Link

* Boehner seeks support for tax increase on the wealthiest. Lisa Mascaro – The Los Angeles Times. As President Obama and House Speaker John A. Boehner took turns blaming each other for the sudden lull in the budget talks, the action continued off-camera Wednesday as the Ohio Republican focused on building support from his conservative majority to increase tax rates on the wealthy. Link 

 * John Boehner’s Plan B would raise taxes on the poor. Dylan Matthews – The Washington Post. While Speaker Boehner’s bill makes permanent the expansion of the Child Tax Credit (CTC) signed into law by George W. Bush as part of the 2001 tax cut deal it does not extend an expansion that was passed as part of the 2009 stimulus package, and has been renewed since then, allowing poor families to refund more of the credit. Link

Essential reading: Boehner’s backup tax plan shakes up ‘fiscal cliff’ negotiations, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Boehner’s backup tax plan shakes up ‘fiscal cliff’ negotiations. Paul Kane and Lori Montgomery – The Washington Post. House Speaker John A. Boehner veered off the bipartisan course he had been charting toward a broad tax-and-entitlement deal with President Obama and instead Tuesday pushed a GOP package to extend tax cuts for income up to $1 million. Link  

* Rubio responds to Plan B: Raising taxes not the right way. Natalie Jennings – The Washington Post. Senator Marco Rubio joined other Republicans in offering a tempered response to House Speaker John Boehner’s proposed “Plan B” legislation to avoid the “fiscal cliff.” “I continue to know that raising taxes on anybody is not a good way to generate economic growth,” Rubio said. Link  

* Proposed cap on federal tax deductions would hit California hard. Michael Hilzik – The Los Angeles Times. The plan to cap federal tax deductions at either a set figure or a percentage of income would strike deepest and hardest mostly at residents of California, as well as other populous states with high levels of government services, high state and local taxes, and relatively expensive housing. Link  

Calendar

Some important tax and accounting events in the week ahead:

Monday, Dec. 17

* Joint Board meeting of the U.S. Financial Accounting Standards Board and the International Accounting Standards Board on revenue recognition. Video webcast.

* U.S. Government Accounting Standards Board chair Robert Attmore addresses New York State Society of Certified Public Accountants Public Schools Committee. Albany, NY.

 Tuesday, Dec. 18

* Colorado Society of CPAs Securities and Exchange Commission and Public Company Accounting Oversight Board Conference. Denver.

  •