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Recent Economic News Articles

          Productivity Slowed in Fourth Quarter

The productivity of America's workers slowed in the final three months of 2003, advancing at a 2.7 percent annual rate -- a still respectable pace that bodes well for the economy's strengthening recovery.

The increase came after productivity -- the amount an employee produces per hour of work -- rocketed at a 9.5 percent rate in the third quarter, the Labor Department reported Thursday.

Although the fourth-quarter's productivity performance was weaker than the 3.4 percent growth rate that economists were forecasting, it still marked a decent pace. Analysts were hopeful that companies -- after having squeezed so much efficiences out of existing workers last year -- will expand their ranks of workers to meet growing demand.

"The key point about this is that we are back to realistic levels of productivity gains. To me that's good because it indicates the economy is moving into a more sustainable growth phase, where workers are being hired, capital is being used and profits are being earned,'' said Joel Naroff, president of Naroff Economic Advisors.
From The NY Times 2/5/04

          Greenspan Says Recovery Vindicates Fed's Actions
Alan Greenspan, the chairman of the Federal Reserve, claimed victory on Saturday in the Fed's three-year battle to limit the damage from the 1990's stock market bubble.

"There appears to be enough evidence, at least tentatively, to conclude that our strategy of addressing the bubble's consequences, rather than the bubble itself, has been successful," Mr. Greenspan told the American Economic Association's annual meeting.

"Despite the stock market plunge," he said, "terrorist attacks, corporate scandals and wars in Afghanistan and Iraq, we experienced an exceptionally mild recession, even milder than that of a decade earlier."
NY Times 1/3/04

          A Recovery Unlike Others Seems to Alter Fed Rate View
If this economic recovery were like almost any other in the last several decades, President Bush might well be on a classic election-year collision course with the Federal Reserve. But Fed officials have made it clear that they view this recovery as quite different from those in the past, and they seem determined to continue their policy of offering remarkably cheap money, even though the economy seems poised for its fastest growth in four years. Economic growth soared at an annual rate of 8.2 percent in the third quarter of last year, and the consensus view among forecasters is that the economy will grow by 4 percent in 2004. The difference this time is that inflation, running at barely 1 percent and still slowing, is - if anything - lower than Fed officials would like. Job creation, meanwhile, remains weaker than in any recovery since World War II and factory use remains at surprisingly low levels.
NY Times 1/26/04

          Rates Stay Low
The Federal Reserve left a key short-term interest rate at a 45-year low on Wednesday (1/28) but dropped a promise it had been making since August to keep rates low "for a considerable period." The wording change was enough to jog financial markets, sending stock prices plunging, even though private economists said they believed the Fed still planned to keep rates unchanged for most of this year.
Contra Costas Times 1/29/04

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Don't be more charitable than the IRS likes

It could be the next big thing in income tax enforcement: cracking down on excessive deductions of property donated to charities. The Bush administration this week unveiled legislative proposals to tighten rules on deducting donations of vehicles and intellectual property like patents. The proposals reflect growing concern that too many taxpayers are wildly inflating the value of the property for write-offs. Even if the proposals don't become law, closer IRS scrutiny seems likely.

          The basics.
Only taxpayers who itemize may deduct. More than $40 billion in deductions - about 30% of the total - reflect donation of property rather than cash, the IRS says.

          Two important rules:
First, the deduction can't exceed the fair market value of the donated item at the time the gift is made. The IRS defines fair market value as "the price a willing, knowledgeable buyer would pay a willing, knowledgeable seller when neither has to buy or sell."

Second, it's up to you the taxpayer - not the charity - to establish and defend the value.

Reflecting the subjectivity of setting values, IRS advice is predictably vague. There are no "fixed formulas," the IRS advises in one of its publications. It says a variety of factors may be pertinent: cost of the property to the taxpayer, a recent purchase offer, prices on sales of comparable property, likely replacement costs or the opinions of experts.

Given the murkiness, Mark Luscombe, tax analyst at financial publisher CCH, offers a practical tip: "If anyone cheats a little, nothing will probably happen. If anyone gets too greedy, IRS will probably notice."

As for claiming deductions, keep in mind that the higher the value, the greater the required documentation.

          Key thresholds:
$250-plus. You'll need a statement from the charity describing the goods donated. And the statement must be received before a tax return is filed, or it won't be accepted in an IRS audit.

$500-plus. You'll need to file with your return a Form 8283, which digs deeply into the details of the property donated and the circumstances of the contribution.

$5,000-plus. You'll need a formal appraisal.

The IRS has a long list of rules to assure that the appraiser is qualified and objective. Note that a big gift of publicly traded stocks, which has a precise value that is easily checked, is exempt from the appraisal requirement.

At the ultra-high end, the IRS can get very picky. For artwork of $50,000 or more, the IRS has a process by which a contributor can get advance approval of a tax deduction. One of the new Bush proposals would allow the IRS to get pickier. Corporations and wealthy contributors of patents would be limited to deducting the amount of cash that ownership actually generates for the charity.

          Clothes, household goods.
The ordinary taxpayer has a couple of options for determining values for a pile of clothes or a few stray pieces of furniture. Some charities provide guidance on what your household donations are likely to bring when they sell them. Goodwill Industries posts values for dozens of common items at www.goodwillpromo.org.

          Vehicles.
With an estimated 4,300 charities soliciting car donations, this has become a red-flag issue for tax enforcers. The new Bush proposal to Congress would require taxpayers either to produce an appraisal for a donated vehicle, or accept IRS-dictated limits for deductions on the make and model donated.

The government's General Accounting Office last month documented widespread abuse in car donations. Not only are values inflated for tax purposes, in many cases charities receive only a small share of the true value of the vehicle, the GAO said.

          Audits, penalties.
Before you lose sleep this tax season about setting just the right value for that case of used lava lamps, keep in mind that you've got a couple of things going for you. Unless you claim a ridiculously inflated deduction, chances are you'll never be challenged. The most recent numbers from the IRS suggest chances of an audit are about 1 in 200, well below what they were in the mid-1990s.

In addition, penalties are structured to give taxpayers ample latitude in valuing non-cash deductions. No penalty is assessed unless the claimed deduction is at least double the true value of the goods, and you've cut your tax liability by more than $5,000. The IRS, however, will want payment of back taxes plus interest if you're shown to have overreached on your deductions.
Thomas A. Fogarty, USA TODAY