DATE: January, 2003

The following is intended as general information and does not represent legal or tax advice. Individual circumstances vary - please consult your legal and tax advisors about your specific situation. As a monthly news souce, some information may be remain on this page for several weeks.

NEWS SOURCES | ARCHIVES OF PAST MONTHS

Americans are generous with their time and money, and their contributions grow as their household income rises, although poorer households giving a bigger share of their income, new study says.

Giving and volunteering also are likely to be greater among adults who started volunteering as youngsters, and among individuals with ties to a formal religious organization, says the Giving & Volunteering in the United States 2001, a report published every two years by Independent Sector.

But the report also cites concerns that individual giving has begun to decline in the face of the sputtering U.S. economy.

"This study clearly shows that people who are worried about their personal financial condition give less than those who are not worried, so nonprofit organizations need to plan for a potential downtown in individual giving," the report says.

"Nonprofits may need to increase their fundraising efforts, plan for the rise in costs of those increased efforts, and make contingency plans for the possibility of fewer resources.

The study also says it "demonstrates clearly the power of the ask: that people who are asked to give are strong givers. Nonprofits may need to ask new groups of people in new ways if they are to meet their fundraising targets."
Philanthropy Journal Nov, 2002

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Economic News Synopsis

Bush's Way Is Clear to Press His Agenda for the Economy
By RICHARD W. STEVENSON The New York Times - November

With his party in control and his political standing solidified, President Bush has new freedom to confront the weakened economy on his terms and has put his advisers to work developing an ambitious agenda for the next two years.

It is sure to include making permanent the 10-year tax cut passed last year, securing new tax cuts for investors, holding down spending in areas other than national security and moving slowly toward overhauling the tax code and Social Security.

Most of the ideas the administration has been considering would affect the economy primarily in the long run. Making last year's 10-year tax cut permanent would have little short-term impact, although Republicans on Capitol Hill are considering calling for phased-in personal income tax rate reductions scheduled for 2004 and 2006 to take effect immediately.

The White House has also been weighing steps to help investors, including reducing the taxation of dividends and increasing, to $8,000 from $3,000, the amount of capital losses that can be deducted on individual income tax returns.

For the long run, the policy debate is likely to be dominated by proposals being developed by the administration to add private investment accounts to Social Security and rewrite the tax code.

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To Cure Economy, Best Doctor Is Still the Fed
By DANIEL ALTMAN The New York Times - November
Now that the Republicans have regained control of Congress, President Bush has promised to give the economy a good prodding. But before he does, he may want to consider three questions: whether the economy actually needs more help to get back on its feet; whether a fiscal stimulus could work quickly enough to be useful; and what kind of stimulus would help taxpayers the most.

For starters, the economy is not shrinking as it was in 2001. It achieved an average growth rate of about 3 percent through the first three quarters of this year. Even if the fourth quarter is disappointing, as many economists expect, 2002 will still go down as a year of historically reasonable growth.

Yet some people may want the economy to grow faster than it would on its own. Still, there are the questions of timeliness and effectiveness.

Making permanent the 10-year slate of tax cuts that President Bush signed in 2001 falls short on both counts. First of all, by the time Democrats exhaust their tactics for blocking such a bill, the economy may be in fine shape.

There are ways to put more money in the hands of people who will spend it, and soon. Mr. Berner, the chief domestic economist at Morgan Stanley, recommends a cut in the Social Security payroll tax, which all working Americans pay. He also said another extension of unemployment benefits could help. On the whole, he said, "there's been a little too much discussion on the marginal tax rate debate and maybe not enough on looking at other ways to approach the issue."

Indeed, the federal government may be able to make the difference between a rather painful, fairly slow recovery and a slightly less painful, not quite as slow recovery. As that language attests, though, the difference is only a matter of degree. The most important prerequisite for a good-as-can-be-expected recovery is probably the determined stance of the Federal Reserve Board.

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Talk in Capital of Easing Taxes on Dividends
By FLOYD NORRIS NY Times - November
If tax reform depends on labels, then ending "double taxation" sounds like a winner.

Under current law, a company pays corporate income taxes on its profits, and receives no deduction for dividends it pays to shareholders. The shareholders then pay taxes at ordinary income-tax rates on the dividends they receive.

Companies have sometimes talked about ending this taxation of dividends, but there has been little lobbying on it. They tend to prefer specific proposals that would benefit them, rather than a generalized idea that would help their shareholders, and everyone else's.

This year, though, there has been a flurry of interest in the subject because of comments that President Bush made in Waco, Tex., in August after hearing Charles Schwab, founder of the discount brokerage firm, push for the change. "That makes a lot of sense," the president said.

Greenspan's Speech Focuses on Deflation, Not Inflation
By EDMUND L. ANDREWS NY Times - December
Alan Greenspan, the chairman of the Federal Reserve, warned tonight that deflation, a general decline in prices, could be more damaging to economic growth than inflation.

In a speech to the Economic Club of New York, Mr. Greenspan repeated past assertions that the United States was "nowhere near" falling into deflation. But he dwelt on the subject at considerable length in a somber speech that made it clear he is worried about the possibility.

"It now appears that we have learned that deflation as well as inflation are in the long run monetary phenomena," Mr. Greenspan said.

"Although the U.S. economy has largely escaped any deflation since World War II, there are some well-founded reasons to presume that deflation is more of a threat to economic growth than inflation," he continued.

In a deflationary situation, he said, a central bank has somewhat more difficulty in responding because it is impossible to reduce interest rates below zero.

The Fed's benchmark interest rate on overnight loans between banks is now at 1.25 percent, its lowest level in 41 years and within striking distance of the "zero bound."

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Does Bush Have a Mandate on Social Security, Too?

An early test of whether President Bush views the Republican victories in the elections last month as a mandate for a bold, conservative agenda will be his decision on whether to press vigorously next year for legislation allowing workers to divert a portion of their Social Security taxes into private investment accounts.

The White House is sending mixed signals about what he might do. But people close to Mr. Bush say he was encouraged that many Republicans who won tough races for the Senate and House on Nov. 5 defended, in the face of ferocious Democratic attacks, the principle of allowing workers to invest a share of their payroll taxes in the financial markets.

The consensus in political circles is that making fundamental changes in Social Security is such a monumental task that it can only be accomplished if the president throws all his weight behind the effort.

It is hard to overestimate the magnitude of the challenge of making sweeping changes in Social Security, changes that would affect nearly all Americans. In the last 30 years, only two other presidential initiatives have had comparable scope: Ronald Reagan's successful drive to rewrite the income tax system and Bill Clinton's abortive attempt to make health insurance universal.

If Mr. Bush has decided whether or not to push the issue next year, he has not told anyone outside his inner circle. R. Glenn Hubbard, chairman of the White House Council of Economic Advisers, said his staff was not examining specific Social Security alternatives because it was "premature to do much more unless and until the president wants us to."

Ari Fleischer, the president's press secretary, said Mr. Bush "remains committed to changes in Social Security." But Mr. Fleischer added: "He's reviewing what the right time is. He's a realist. He wants to move forward in a way that will get the job done right."
By DAVID E. ROSENBAUM NY Times WASHINGTON 12/02/02

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Tax Bill Introduced by Senator Kyl

Senator John Kyl (R-AZ) has released S.3. This major tax bill would repeal the estate tax in 2005 and includes many other provisions. Major sections would reduce taxes in the following areas:

Senator Kyl named his bill the "Contract with Investors" and stated that, "By repealing the death tax and putting those resources to better use, as many as 240,000 new jobs could be created over seven years, and Americans would have an additional $24.4 billion in disposable personal income."

Senator Kyl has been a staunch advocate of permanent repeal of the estate tax. The S. 3 tax bill will be considered by the Senate in January. There are no cost estimates yet on provisions within the bill.
GiftLaw 12/02

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Tax Reform Act of 2003?

It is very likely that there will be a Tax Reform Act in 2003. Both parties are actively discussing the expected tax changes. But what charitable provisions should donors and professionals expect?

First, during the year following mid-term elections, it is customary to create a major tax bill. Both the Democratic and Republican leaders of Senate Finance have now published the outline of their tax bill. In addition, the White House is promoting a major tax and stimulus bill.

The general structure of the IRA provisions seems now to be acceptable to all parties. It will be permissible to make direct gifts from IRAs to qualified exempt charities with no income tax deduction. In addition, IRA owners may transfer all or part of IRAs to charitable remainder annuity trusts, charitable unitrusts, charitable gift annuities or pooled income funds for one-life or for the life of the IRA owner and spouse. The probable effective date of the IRA rollovers will be January 1, 2003.
GiftLaw 12/30/02

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Oops, What I Really Meant Was...

In a recent letter ruling, the Internal Revenue Service agreed with a couple that the Charitable Remainder Annuity Trust they had drafted and signed was meant to be a Charitable Remainder Unitrust.

The concern was that the Service would consider that the judicial reformation of the trust would affect the trust's qualification as a unitrust under Section 664 and that the reformation would be considered an act of self-dealing (under Section 4941.)

The error occurred when a husband and wife signed documents drawn up by their attorney which were erroneously prepared as a CRAT instead of a CRUT. The trust was executed and funded before the errors were discovered.

The Service concluded that the intent of the parties was to establish a CRUT and not a CRAT. It therefore stated that it found no evidence of self-dealing and that the qualification of the trust was not impaired.
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