Planned Giving News Magazine

Economy Often Defies Soft Landing
In the cool and quiet marble corridors of the Federal Reserve, the strategy for taming inflation sounds painless, even soothing: a "soft landing" for the economy after several years of flying high. As the central bank contended on Tuesday, when it decided to pause in its two-year effort to raise interest rates, inflation is "elevated" right now but will begin to decline because economic growth is poised for a modest slowdown. Many economists, though, warn that the soft landing may seem anything but soft, and suggest that the Fed is either too rosy about the looming slowdown or naïve about the difficulty of reaching its goal for inflation.
In practice, the Fed has achieved only one true soft landing - in 1994-95, when, under the leadership of Alan Greenspan, it was able to slow the economy enough to cool spending and ease inflation pressure but not so much as to cause a big jump in unemployment. But even Mr. Greenspan, whose ability to fine-tune policy made him famous, presided over two formal recessions, in 1991 and in 2001.
This time, many analysts say that the Fed and its new chairman, Ben S. Bernanke, face considerably tougher challenges. Crude oil, at more than $70 a barrel, is selling at prices that would have been unthinkable in 1995. Productivity growth, which was accelerating in 1995, is slowing these days. The dollar, which was climbing against other major currencies in 1995, is declining against most of them now. Analysts and other experts say that if Mr. Bernanke is serious about his goals for controlling inflation, at least two million more workers may have to lose their jobs over the next two years.
8/11/06 NY Times

IRA Charitable Rollover Provision Passes in Senate
NCPG President and CEO Claims Victory in Long Struggle for Passage The IRA Charitable Rollover Provision could become law as early as today. The Senate on August 3 approved H.R. 4, the Pension Protection Act of 2006, which includes the charitable IRA Rollover provision, by a vote of 93-5. The bill now goes to President Bush for signature. The provision provides an exclusion from gross income for certain distributions of up to $100,000 from a traditional individual retirement account (IRA) or a Roth IRA, which would otherwise be included in income. To qualify, the charitable distribution must be made to a tax-exempt organization to which deductible contributions can be made. The provision would be effective for two years through 2007.
Editors Note - the distibutions would not be allowed to a donor advised fund or a remainder gift vehicle (charitable remainder trust or charitable gift annuity). The legislation does not include a charitable-giving provision long sought by many nonprofit organizations: allowing people who do not itemize deductions on their returns to write off a portion of their charitable donations. The President has said he will sign this bill as soon as possible.
8/04/06 NCPG Email

Houses Approves IRA Rollover
The U.S. House of Representatives approved an IRA Charitable Rollover provision, included in pension reform legislation (H.R. 4) passed late Friday night. The provision provides an exclusion from gross income for certain distributions of up to $100,000 from a traditional individual retirement account (IRA) or a Roth IRA, which would otherwise be included in income. To qualify, the charitable distribution must be made to a tax-exempt organization to which deductible contributions can be made. The provision would be effective for two years through 2007. To read a summary of all the charitable provisions in H.R. 4, click here.
H.R. 4 now heads to the Senate for consideration where passage is far from certain. Because the bill is not a conference report, it is subject to amendment and potentially unlimited debate (i.e., "normal order" in the Senate). In addition, Majority Leader Bill Frist (R-TN) has indicated he will allow a vote on the pension bill only AFTER another bill with billions of dollars of tax "extenders," minimum wage provisions and a permanent reduction in the estate tax is approved. At one time, charitable incentives were being considered as additions to this so-called "trifecta" bill instead of H.R. 4. As such, things remain fluid. NCPG will continue to work with coalition members and congressional staffers through the August recess to map out a strategy for securing passage of the IRA Charitable Rollover.
7/31/06 NCPG

Estate Tax Legislation Updates
GOP Bid On Wages, Estate Tax Is Blocked Democrats Prevent Vote on Senate Bill Senate Democrats blocked a Republican bid to combine a tax cut for the wealthy with a wage increase for the working poor last night, adding a volatile economic issue to this fall's congressional campaigns. GOP leaders fell three votes short of the 60 needed to cut off debate and bring the package to the Senate floor, where it was considered certain to pass on a simple-majority vote. Republicans said Democrats will pay a price in November, contending that most Americans support the bill's call for an increase in the minimum wage and deep cuts in the estate tax. But Democrats said rich Americans have received enough breaks from the Bush administration and the GOP-led Congress. Voters, they said, will see the Republican-backed bill as a ploy to further enrich upper-income families while trying to usurp the Democrats' role as champions of the working poor.
8/4/06 Washington Post
The House Ways and Means Committee added charitable giving incentives to H.R. 4, the Pension Protection Act of 2006. The full House passed the bill by a vote of 279-131. Included are many of the charitable tax provisions that used to be in the C.A.R.E. bill of 2003, including "Charitable IRA Rollover."
The bill would also make charitable gifts by Subchapter S corporations more attractive. There is also proposed regulation of donor advised funds and supporting organizations. The bill would impose the excess-benefit tax to some self-dealing transactions between donors and the donor advised funds and supporting organizations that they established. It would also extend the private foundation excess business holdings tax (Sec. 4953) to donor advised funds and supporting organizations. Like private foundations, they would have to dispose of closely-held business interests within five years of receipt if donors and related parties owned over 20% of the business. We knew that that the Senate had been advancing charitable legislation over the past few years, but at least during this session of Congress the House had been silent.
7/28/06 Christopher R. Hoyt Univ. of Missouri (Kansas City) School of Law
In what might be a major blow to efforts to lower estate taxes this year, Republican leaders have decided to put off a vote on the issue until after the August recess, when the legislative calendar will be crowded with other measures," the Wall Street Journal reports. "House Republicans, led by Ways and Means Chairman Bill Thomas" of California, blocked an attempt from Senate Majority Leader Bill Frist, R-Tenn., "to add estate-tax overhaul to a bill aimed at shoring up the private pension system that is nearing final congressional agreement and might be brought up this week.
7/25/06 Govtexec.com
Senate Finance Committee ranking minority member Max Baucus, D-Mont., told reporters July 24 that some of the charitable reforms previously passed by the Senate as part of its broad tax reconciliation package will be included in a final pension reform conference report.
7/25/06 PGDC.com

Government Moves to Cut IRS Estate Tax Attorneys
The federal government is moving to eliminate the jobs of nearly half of the lawyers at the Internal Revenue Service who audit tax returns of some of the wealthiest Americans, specifically those who are subject to gift and estate taxes when they transfer parts of their fortunes to their children and others. The administration plans to cut the jobs of 157 of the agency's 345 estate tax lawyers, plus 17 support personnel, in less than 70 days. Kevin Brown, an I.R.S. deputy commissioner, confirmed the cuts after The New York Times was given internal documents by people inside the I.R.S. who oppose them.
The Bush administration has passed measures that reduce the number of Americans who are subject to the estate tax - which opponents refer to as the "death tax" - but has failed in its efforts to eliminate the tax entirely. Mr. Brown said in a telephone interview Friday that he had ordered the staff cuts because far fewer people were obliged to pay estate taxes under President Bush's legislation. But six I.R.S. estate tax lawyers whose jobs are likely to be eliminated said in interviews that the cuts were just the latest moves behind the scenes at the I.R.S. to shield people with political connections and complex tax-avoidance devices from thorough audits.
7/24/06NYTimes

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THE ECONOMY: SEVEN INDICATORS - From CNN Money (as of 8/24/06)

The Indicator	What It's Telling Us	Next Update
Consumer Confidence	Edges up, but outlook remains cautious	Aug 29
Retail sales	Surpringly strong growth	Sept 14
Leading Economic Indicators	Points to cooling economy	Sept 21
Manufacturing Activity (ISM)	Unexpected growth in July	Sept 1
Industrial Output	Suggests hot economy may be cooling	Sept 15
Job Growth	Weak for 4th straight month	Sept 1
Inflation (CPI)	Price gains moderating	Sept 15

Recent Economic News

Orders for durables fall 2.4% in July - 8/24/06 MarketWatch

New orders for U.S.-made durable goods fell 2.4% in July on a big decline in orders for transportation goods, the Commerce Department said Thursday. Excluding the 9.6% drop in transportation goods, durable-goods orders rose 0.5%, the 10th increase in the past 12 months. The drop in durable-goods orders was much larger than the 0.7% decline predicted by economists surveyed by MarketWatch, but June's orders were revised higher by 0.6 percentage points to 3.5% to offset some of the short-fall. Durable-goods orders are up 9.3% year-to-date. Transportation orders had soared in recent months on hefty increases for civilian aircraft. Orders returned to normal in July.

Home Sales Fall to Unexpectedly Low Rate - 8/23/06 NY Times
Sales of existing homes fell in July to an unexpectedly low rate, a sign that a widespread softening of the housing market is taking hold. The National Association of Realtors reported today that purchases fell 4.1 percent last month to an annual rate of 6.3 million homes, the slowest since early 2003. The rate was 11.2 percent higher a year ago. At the same time, the inventory of unsold homes on the market swelled to a 7.3-month supply, the most in more than a decade. The national median price of a sold home held steady in July at $230,000. But the association said that prices fell in most areas of the country, and in many places are now lower than a year ago. Only in the South are prices still rising: the median home there sold for 3.2 percent more last month than a year earlier. Had it not been for that gain, the national median home price would have declined for the first time since 1995.
From MarketWatch - Economists were expecting a 0.9% decline in sales to 6.56 million, according to a survey conducted by MarketWatch. The 4.1% drop was larger than any of the 39 economists predicted.

Inflation Gives Signs of Slowing - 8/17/06 NY Times
The government's latest report on consumer prices, issued yesterday, suggests that inflation is slowing. The overall rise came to a seasonally adjusted 0.4 percent in July, mainly because of a surge in gasoline prices and in the monthly cost of renting a home, even as the housing market itself deteriorated. Nothing else went up very much, the government reported, and apparel prices plunged because of deep discounts in women's summer clothing as retailers sought to work down inventories. This latest reading for the Consumer Price Index comes a week after the Federal Reserve halted its string of 17 consecutive interest rate increases. The Fed argued that a slowing economy, in response to the accumulating rate increases, justified the pause - and that the slowdown, in turn, would moderate inflation. Yesterday's report seemed to support that contention.

U.S. July leading economic indicators fall 0.1% - 8/17/06 MarketWatch
The composite index of leading economic indicators dropped 0.1% in July, the Conference Board said, a sign the economy is cooling off. "The economy is cooling but isn't likely to stall out," said Ken Goldstein, the group's labor economist. With the leading index flat over June and July, modest growth is on the horizon through the fall and maybe the winter, Goldstein said. A cooling housing market, higher interest rates, and higher energy prices have all contributed to slowing the consumer market and the labor market, he said.

U.S. housing starts fall 2.5% in July - Building permits at lowest level since Aug. 2002 - 8/16/06 MarketWatch
New construction on homes fell in July to the lowest level in nearly two years, adding to the evidence of a slowing economy. New construction of U.S. homes fell 2.5% in July to a seasonally adjusted annual rate of 1.80 million, the Commerce Department said Wednesday. This is the fifth decline in housing starts in the last six months. It's the lowest level since November 2004.

Core wholesale prices fall 0.3% in July- Pipeline inflation builds with 7.9% rise in core intermediate PPI- 8/16/06 MarketWatch
Core inflation at the wholesale level fell in July, but price pressures mounted for goods midway through the production process, sending the Federal Reserve mixed signals about inflation one day ahead of the release of the more-important consumer price index. The core producer price index fell 0.3% in July, the first decline since October, the Labor Department reported Tuesday. The headline PPI rose 0.1%. Both figures were well beneath Wall Street expectations.

Industrial output data disappoints - 8/16/06 Reuters

Output at U.S. factories, mines and utilities rose a smaller-than-expected 0.4 percent in July, according to a government report Wednesday that suggested a hot manufacturing economy may be cooling. Capacity use rose to 82.4 percent, the highest rate since 82.5 percent in June 2000, from a downwardly revised 82.3 percent in June, the Federal Reserve said. Analysts polled by Reuters had expected a 0.5 percent gain in July industrial production and capacity use at 82.6 percent following June's output of 0.8 percent and capacity use originally reported as 82.4 percent. The data could provide some comfort to an inflation-wary Federal Reserve.

Core CPI rises modest 0.2% in July - Soaring energy prices push consumer price index up 0.4% - 8/16/06 MarketWatch
The main gauge of consumer inflation eased back in July, rising just 0.2% after four months of 0.3% gains, and reducing the likelihood that the Federal Reserve Board will need to raise interest rates at next month's policy meeting. "The combination of relatively benign core inflation and weak housing in July reinforces our view that the Fed is finished tightening for this cycle," said Douglas Porter, an economist at BMO Nesbitt Burns. While the core CPI, which excludes food and energy prices, was up 0.2, soaring energy costs pushed the total CPI up 0.4% in July, as expected by economists surveyed by MarketWatch. The economists were expecting core prices to rise 0.3%, although a sizable number were predicting the 0.2% rise that was reported.

Core U.S. wholesale prices fall 0.3% in July - 8/15/06 MarketWatch
Inflationary pressures at the wholesale level eased in July, but price pressures mounted for goods midway through the production process, according to Labor Department data released Tuesday The producer price index for finished goods rose 0.1% in July, below the 0.3% gain expected. The core PPI -- which excludes food and energy prices - fell 0.3%, the first decline since October. Economists expected the core rate to rise 0.2%. For intermediate goods destined for further processing before final sale, prices rose 0.5% in July. Core intermediate goods prices rose 0.7%, bringing the year-over-year increase to 7.9%, the most since February 2005. Prices of crude materials rose 3.1%.

U.S. Trade Gap Narrowed in June - 8/11/06 NYTimes

The trade deficit may have bottomed out. The Commerce Department reported yesterday that the deficit in the nation's trade of goods and services reached $64.8 billion in June, modestly below the $65 billion deficit recorded for May. This suggested that the slowing economy in the United States and the weaker dollar, combined with faster economic growth overseas, were gradually reining in America's gaping imbalance in commerce with the rest of the world. Although May's reported deficit was revised upward from a previous estimate of $63.8 billion, economists said the data suggested the imbalance had stabilized since it hit a peak of $66.6 billion last October.

Retail sales surge 1.4% in July - Robust consumer spending could bring back Fed rate hikes - 8/11/06 NY Times

Reviving talk of further rate hikes, U.S. retail sales increased at the fastest pace in six months in July, rising 1.4% on higher auto and gasoline sales, the Commerce Department reported Friday. Higher sales were seen across the board, from electronics to clothing. Sales of durable goods were particularly strong. Two special factors boosted July sales: Autos and gasoline. But even excluding both autos and gas, retail sales were up 0.7%, also the best since January.

Fed Keeps Key Rate Steady At 5.25% - Decision Follows Economic Slowdown - 8/09/06 Washington Post
The longest sustained campaign of interest-rate hikes in Federal Reserve history ended yesterday as the central bank left its benchmark rate unchanged, snapping a string of 17 consecutive increases. The decision reflected a belief by Fed policymakers that the economy is slowing sharply and may continue to do so in coming months -- enough, the Fed hopes, to quell an upsurge of inflation. The central bank warned that it was ready to increase the rate again if inflation went higher.

U.S. Q2 Productivity Up 1.1%, Unit Labor Costs Up 4.2% - 8/08/06 MarketWatch
Productivity of the U.S. non-farm business sector rose at a 1.1% annual rate in the second quarter, the Labor Department estimated Tuesday. Unit labor costs - a key gauge of inflationary pressures - rose 4.2% annualized - the most since the fourth quarter of 2004. Both measures were above expectations. Economists were expecting productivity to rise 0.9% in the second quarter. They forecast unit labor costs to rise 3.5%. In the first quarter, productivity was revised to a 4.3% increase from 3.7% previously. First quarter unit labor costs rose 2.5% rather than the 1.6% increase originally reported. On a year-on-year basis, productivity is up 2.4%. Unit labor costs were up 3.2% year-on-year, the fastest pace since the fourth quarter of 2000.

Joblessness Rises Amid Uncertainty - Unemployment at Five-Month High - 8/05/06 Washington Post
Unemployment jumped last month to 4.8 percent as home builders, retailers and other employers grew more uncertain about hiring in a slowing economy, the Labor Department reported yesterday. Hiring was weakest last month in the industries most affected in recent months by rising interest rates and high energy prices, which have dampened home sales and crimped consumer spending.

The U.S. Labor Market Lost Strength Again in July - 8/04/06 MarketWatch
This gives the Federal Reserve more freedom to pause next week after 17 rate hikes. The U.S. economy added fewer-than-expected 113,000 nonfarm jobs in July and the unemployment rate rose to 4.8%, its highest level since February. The payrolls number was weaker than the 143,000 gain economists surveyed by MarketWatch were expecting.

U.S. continuing jobless claims rise to 4-month high - 8/03/06 MarketWatch
The number of people collecting state unemployment benefits over the past four weeks rose to the highest level since March, another sign that hiring in the U.S. economy has softened. The Labor Department said Thursday first-time claims for unemployment benefits rose by 14,000 to 315,000 in the week ending July 29. The four-week average of new claims was nearly flat at 313,750. The number of workers collecting jobless benefits rose by 11,000 to 2.48 million in the week ending July 22. The four-week average of continuing jobless claims rose by 8,000 to 2.47 million, the most since March. The insured unemployment rate remained at 1.9%.

Growth in Sectors of the U.S. Economy Not Involved with Manufacturing Slowed During July - 8/03/06 MarketWatch,
The ISM nonmanufacturing index fell to 54.8% last month from a reading of 57.0% in June. The drop was sharper than expected. Economists had been looking for the index to inch lower, to 56.9%, according to a survey of economists conducted by MarketWatch.

Core inflation rising at 11-year high in June - 8/01/06 MarketWatch
Real consumer spending tepid for fourth straight month
U.S. core consumer inflation matched an 11-year high in June, keeping the pressure on the Federal Reserve to fight inflation. The core personal consumption expenditure price index, excluding food and energy, increased 0.2% for the third straight month in June, and has risen 2.4% in the past 12 months. Consumer prices including food and energy also rose 0.2% in June, and are up 3.5% in the past year. Meanwhile, personal incomes rose 0.6% in June, outpacing the 0.4% increase in consumer spending. After adjusting for inflation, real consumer spending rose 0.2% in June, the fourth straight month of tepid spending. Factoring out taxes and inflation, real take-home pay rose 0.4%, the biggest increase in disposable income since December. Real per capita disposable incomes rose 0.3%. The gains in nominal monthly incomes, spending and inflation were exactly as expected by Wall Street economists surveyed by MarketWatch. The inflation figures continue to trouble Fed policymakers, who have said core prices are rising faster than they'd like. The evident slowdown in economic growth, largely due to a weaker housing market and high energy prices, should also remove inflationary pressures over time, officials have said. Two Fed officials said Monday that the decision about whether to raise rates again would be a close call, and would depend in part on incoming data on growth and inflation.

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