Unstructured Finance

Essential reading: Cliff fix hits small business, and more

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

* Cliff fix hits small business. Emily Maltby and Angus Loten – The Wall Street Journal. The fiscal-cliff deal didn’t change the corporate tax rate, which is no more than 35 percent. But many small S-Corp businesses will see a tax increase to 39.6 percent. Link

* Small-business tax incentives survive the deal. Robb Mandelbaum – The New York Times. The bill also renews dozens of other income-tax provisions for individuals and businesses through a series of provisions that the legislating class calls “extenders.” And though advocates for small businesses were concerned that legislators might overlook their interests in the high-pressure negotiations, it turns out that their pessimism was unfounded. Link

 * How deal was made, unmade, then saved. Patrick O’Connor and Peter Nicholas – The Wall Street Journal. By early Wednesday, partisans on the left and right had found plenty to grumble about in Congress’s New Year’s deal to avoid going off the fiscal cliff. But it is unlikely there would have been any deal at all to grumble about if not for a Sunday afternoon phone call from one end of Pennsylvania Avenue to the other. Link

* Tax deal shows possible path around House GOP in fiscal fights to come. Jonathan Weisman – The New York Times. With the contentious 112th Congress coming to a close, the talks between the White House, Senate Republicans and Senate Democrats that secured a path around a looming fiscal crisis on Tuesday may point the way forward for President Obama as he tries to navigate his second term around House Republicans intent on blocking his agenda in the 113th. Link 

* Deductions limits will affect many. John McKinnon – The Wall Street Journal. One of the biggest tax increases in the fiscal-cliff bill is also one of the least understood: a set of limits on tax deductions and other breaks that will hit far more households than the bill’s rate increases for top earners. Link 

Essential reading: Cliff bill means some pay more taxes, and more

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

* Analysis: 77 percent of households to see tax increase. John McKinnon – The Wall Street Journal. The fiscal cliff bill’s impact would be far-reaching for American taxpayers, and particularly painful for very high-income households, according to a new analysis. About 77 percent of American households would see a tax increase compared to their 2012 tax levels, according to the analysis by the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute. Link 

* Amid pressure, House passes fiscal deal. Jennifer Steinhauer – The New York Times. Ending a climactic fiscal showdown in the final hours of the 112th Congress, the House late Tuesday passed and sent to President Obama legislation to avert big income tax increases on most Americans and prevent large cuts in spending for the Pentagon and other government programs. Link

* Congress’s feeble finish to the ‘fiscal cliff’ fiasco. The Washington Post editorial. The compromise bill passed by Congress to avert the worst effects of the “fiscal cliff” is a small, imperfect package that will do too little to address the nation’s long-term debt problem. But for all its weaknesses, the bill’s enactment is far better than a failure by this Congress to act before it adjourns Thursday. Link

Why Steven Cohen won’t turn SAC into a family office

By Matthew Goldstein

Every time the insider trading investigation thrusts Stevie Cohen back into the spotlight, there’s always speculation about whether the billionaire trader will simply give back money to his outside investors and convert his $14 billion SAC Capital into a family office in order to avoid the unwanted headlines. But as tempting as that might be to the publicity-averse Cohen, the well-known trader has a big financial incentivel to keep managing money for his outside investors.

SAC Capital’s fee structure–one of the highest in the $2 trillion hedge fund industry–probably pays for a good chunk of Cohen’s overhead, say people in the hedge fund industry. These sources say that by charging a 3 percent asset management fee and skimming off as much as 50 percent of the firm’s trading profits, SAC Capital’s outside investors provide Cohen with a rich source of cash to pay his 900 or so employees.

Now sure, if Cohen were to return the roughly $6.3 billion in outside money that SAC Capital manages, he could reduce his workforce dramatically and move his operation out of its spacious offices at 72 Cummings Point Road in Stamford, Conn. But with billions of his own money invested in SAC Capital, Cohen would still need to employ a healthy crew of analysts and traders to manage his personal wealth in order to get the kind of double-digit returns he’s accustomed to. Last year, SAC Capital was up a little over 10 percent after accounting for fees–compared to the industry average of about 5 percent.

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.

  •