Planned Giving News Magazine

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NEWS SOURCES | ARCHIVES OF PAST MONTHS

Greenspan Signals Further Rate Increases - 7/20/05 NY Times
The economy is on a solid footing with inflation at bay and policy makers will keep raising interest rates to keep it that way, Alan Greenspan, chairman of the Federal Reserve Board, told a Congressional committee today.
Noting that recent economic reports indicate that the economy has recovered from a soft patch earlier in the year, Mr. Greenspan said the Federal Reserve would stick to its plan of raising benchmark interest rates, which stand at 3.25 percent today, up 2.25 percent from a year ago. Mr. Greenspan was speaking before the House Financial Services Committee in one of his periodic reports to Congress.
"Thus, our baseline outlook for the U.S. economy is one of sustained economic growth and contained inflation pressures," he said according to an copy of his submitted testimony. "In our view, realizing this outcome will require the Federal Reserve to continue to remove monetary accommodation. This generally favorable outlook, however, is attended by some significant uncertainties that warrant careful scrutiny."
Those uncertainties, according to Mr. Greenspan, included rising labor costs, high and volatile energy prices and low-longer term interest rates, which have helped drive growth in the housing markets in many large urban areas around the country.

No Inflation Reported For June - 7/15/05 Washington Post
Consumer prices were flat last month as energy costs fell briefly, helping boost people's purchasing power and retail spending, the government reported yesterday. But with gasoline prices surging in recent weeks, many economists are forecasting a pickup in inflation this month. The government's consumer price index, one of the most widely followed measures of inflation, was unchanged in June after slipping by 0.1 percent in May, the Labor Department said. With no inflation to offset pay gains, real average weekly earnings for most U.S. workers rose 0.2 percent last month from their level in May, the department said in another report. They were up 0.4 percent in the 12 months that ended in June, the first yearly gain since September.

Deficit Declines as Tax Rexeipts Increase - 7/14/05 Govt Executive
White House officials said Wednesday that "the federal budget deficit will slip to $333 billion this fiscal year, from $412 billion in 2004, as a surge of unanticipated tax receipts pushes the red ink significantly below levels projected just five months ago," the Washington Post reports. "The midyear budget forecast also shows that" Bush "is on track to reach his goal of halving the deficit a year before his deadline of 2009."

New Chairman of Council of Economic Advisors Upbeat - 7/14/05 Govt Exec
"Ben Bernanke presented an upbeat economic outlook" Tuesday "in his first speech as chairman of" the president's Council of Economic Advisers, "pointing to a 'healthy and sustainable' expansion and stable core inflation," the Financial Times reports. "Mr Bernanke, who last month stepped down as a Federal Reserve governor, said the administration's 3.4 per cent growth forecast this year was 'on track' in spite of high oil prices."

Economy Continued Steady Growth in June - Unemployment Rate Lowest Since 9/01 - 7/9/05 Washington Post
Job growth picked up last month and the U.S. unemployment rate fell to its lowest level since September 2001, the government reported yesterday, providing more evidence that the economy and labor market have settled into a fairly steady expansion. Builders, health care providers, financial firms and other employers together added 146,000 workers to the nation's payrolls in June, up from a gain of 104,000 in May, the Labor Department reported. The unemployment rate edged down to 5 percent, as the number of people who found jobs exceeded those who joined the search.

Consumer Spending Level - 7/01/05 NY Times
Consumer spending stayed level in May and incomes increased less than forecast, according to a government report released yesterday. Incomes were up 6.7 percent last month from May 2004, paced by a 7 percent gain in wages and salaries, the department said. Disposable income, or the money left over after taxes, increased 0.2 percent in May after a 0.5 percent rise the previous month, and they were up 3.2 percent in the last 12 months. "The economy is a lot stronger today than most people realize," said Mark Vitner, senior economist at Wachovia in Charlotte, N.C. "The Fed is safe in pushing rates up."

Manufacturing Activity Expands at Fast Rate - 7/01/05 NY Times
The U.S. manufacturing sector expanded at a faster-than-expected pace in June, as new orders to factories picked up, a private research group reported Friday. Analysts said the new report offered largely positive news for manufacturing, pointing to a sector that is settling into more normal, sustained expansion.
Activity in the nation's factories increased at a faster pace in June, a private research group said Friday, in a fresh signal that the nation's economy continues to expand. A second report showed construction spending declined for a third straight month in May, but still remains close to its all-time high. (From Associated Press)

Interest Rates Higher - 6/30/05 Govtexec.com
The Federal Reserve raised interest rates for the ninth time in a year, signaling confidence in the economy and concern about inflation -- even as bond investors worry that a downturn is in the offing," the Wall Street Journal reports. "The Fed, as widely expected, raised its target for the federal-funds rate, charged on overnight loans between banks, to 3.25 percent from 3 percent."

Low Rates Could Be Around for Long Term - 6/27/05 New York Times
Federal Reserve officials, who meet this week, are beginning to suspect that the perplexing decline in long-term interest rates is more than a temporary aberration. The possibility has major implications for the economy, and it creates new puzzles for Fed officials on how they should respond.
The unexpected decline of long-term interest rates has kept mortgage rates at their lowest level in decades and fueled what many analysts fear is a bubble in housing prices. Alan Greenspan said in February that the low long-term rates might simply be a "short-term aberration." But Mr. Greenspan and other senior officials are now suggesting that the change is more enduring.
While there is division about the proper interpretation, some officials have been optomistic. "My sense is that people think this could be the new reality, that this could be fundamental, that it could be long-lasting," said Laurence H. Meyer, a former Fed governor and now vice chairman of Macroeconomic Advisers, a forecasting firm. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, suggested "the most likely explanation for the low rates," he said, is that "inflation is low and that inflation expectations are low."

http://money.cnn.com/news/economy/#indicators

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Estate Tax Compromise Agreement on "Basic Parameters"
Sen. Jon Kyl (R-AZ) and Sen. Max Baucus (D-MT) have spent the past two weeks in intense discussions about an estate tax compromise. Since there are not 60 Senators who support permanent repeal of the estate tax, Sen. Kyl and other opponents of the estate tax have decided to pursue a compromise.
Sen. Kyl describes the compromise in this way, "We have an agreement on basic parameters, but we're both trying to be a little flexible to make sure we can satisfy the requirements of members of our conference and to make sure we can get the votes necessary to pass something." The general parameters will probably include the following:

Social Security Reform Has To Wait
After much discussion, the House and Senate both decided to pick up Social Security reform again in the fall. There had been hope on the Republican side to get a bill out of the House Ways and Means Committee before that. With energy, trade and transportation bills forthcoming, Social Security reform will have to be put on hold.
Come the fall, Congress will several proposed reform bills to consider. Rep. McCrery and Sen. Jim DeMint (R-SC) introduced the Growing Real Ownership for Workers (GROW) Act which proposes using excess contributions to Social Security over the next decade for personal accounts. The concept of personal accounts and others will be a matter of significant discussion.

Public Good IRA Rollover Act Introduced in the Senate
The "Public Good IRA Rollover Act" has been introduced in the Senate by Sen. Byron Dorgan (D-ND). This bill (S. 1366) is a companion bill to the House legislation (H.R. 1607) which was introduced last April. Both bills would allow donors to make tax-free transfers from IRAs as charitable gifts. Taxpayers age 70 1/2 or older would be able to make transfers as outright gifts, and those age 59 1/2 or older could make transfers for a life income gift (charitable remainder trust, gift annuity, or pooled income fund). The Senate bill was immediately referred to the Senate Finance Committee. The House bill has been awaiting action by the Ways and Means Committee since its introduction last spring.
From National Committee on Planned Giving

Backstopping the Economy Too Well? - 6/20/05 Washington Post By Nell Henderson
In financial markets, they call it "the Greenspan put" -- a belief that if stock or bond prices fall too much, the Federal Reserve will help prop them up with quick interest rate cuts to pump more cash into the system.
But according to some Fed observers, this confidence is a worrisome legacy after Greenspan's nearly 18 years helping to steer the economy through a variety of storms.
"The essential Greenspan legacy . . . is the idea that the Fed will allow nothing to go really wrong," said James Grant, publisher of Grant's Interest Rate Observer, a biweekly analysis of financial markets.
Greenspan does not lay claim to such powers. He and other Fed officials have expressed concern about increasingly risky financial behavior, stepping up their warnings about exotic investment strategies, real estate speculation and loose lending practices. (see related article below - Greenspan Wary of Risky Mortgages)
In financial dealings, a "put" is a contract that ensures an investor will get no less than a certain price for an asset, such as a stock or a bond. It puts a floor under falling prices and insures against greater losses. Investors have come to perceive the Fed's policies of recent years as "free insurance for aggressive risk-taking," said John H. Makin, an economist at the American Enterprise Institute.
The idea of "the Greenspan put" stems in part from the chairman's success in helping to steady financial markets through the stock market crash of 1987, the recession of 1990-91 and international financial crises of the 1990s.

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Social Security Reform Takes Shape - 7/3/05 GiftLaw
Chairman Charles Grassley (R-IA) indicates that he expects the Senate Finance Committee to consider the bill prior to the end of July. There are two major sections for the bill. The first covers the solvency of the Social Security System. The second addresses the politically sensitive area of personal accounts.
There will be three parts to the solvency solution.

Personal accounts will continue to be a very sensitive area. Senate Finance members have suggested carve-out accounts, add-on accounts or using current Social Security surplus to create personal accounts. Congressman Wally Herger (R-CA) has advocated using current Social Security surplus to create personal accounts called "Growing Real Ownership for Workers (GROW)." Rep. Herger states, "The GROW accounts proposal would create personalized accounts for each American worker, protected from frivolous use on other unrelated government spending and preserved for their own benefit in retirement."

Trust Division Won't Prevent Resulting Trusts From Qualifying as Charitable Remainder Trusts - 6/20/05
A married couple created a charitable remainder trust naming themselves as the sole joint and survivor income recipients. "For a variety of reasons" (which didn't include the divorce) the couple would now like to divide their trust into two identical trusts with each spouse being the sole income recipient of their respective trust. The Service has ruled that the proposed division of one trust into separate trusts will not cause either of the resulting trusts to fail to qualify as charitable remainder trusts under section 664 or cause gain or loss to be recognized by the husband and wife who set up the original trust under section 1001.
Planned Giving Design Center - Ltr. Rul. 200524013

Greenspan Wary of Risky Mortgages - 6/10/2005 Washington Post
Price Peaks Built on 'Exotic' Loans Trouble Fed Chairman
Federal Reserve Chairman Alan Greenspan yesterday expressed concern that the growing use of riskier new mortgages is helping push up home prices to "unsustainable levels" in some local markets. Home prices in some areas of the country may fall when the market cools, but that probably would not cause serious harm to the overall U.S. economy, he told Congress's Joint Economic Committee. The economy continues to expand at a decent if uneven pace, Greenspan said, indicating that the Fed probably will continue to raise short-term interest rates gradually to keep inflation under control

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