DATE: May, 2004
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Recent Economic News | Billion Dollar Scam Preyed on Seniors Monthly Magazine A Growing Economy | Mid-Month Updates From Last Month | Web Site Tax Scam | Taxes Down But Complexity Up | Clinton On Increased Giving |
NEWS SOURCES | ARCHIVES OF PAST MONTHS
Fed
holds fast on interest rates - for now - The Federal Reserve on Tuesday left
short-term interest rates unchanged but signaled a growing readiness to end its
long campaign of cheap money.
The benchmark rate now will remain - for at
least a little longer - at its lowest level since Dwight Eisenhower's second term
as a spur to borrowing, investing and hiring. In a unanimous statement issued
after its meeting Tuesday, the Fed's rate-setting committee cited evidence of
economic growth and a start to hiring. Moreover, it shrugged off recent hints
of inflation - for decades the Fed's main foe - as being "well-contained."
In
previous statements issued with rate decisions, the Fed used the word "patience"
to describe its commitment to low rates. This time, the Fed said it can retreat
at a "measured" pace from rock-bottom interest rates. "They are saying they will
raise rates, but they are being cagey about the timing," said Rajeev Dhawan, director
of the Economic Forecasting Center at Georgia State University. "The timing depends
on when job growth will stick."
Michael E. Kanell The Atlanta
Journal-Constitution 05/05/04
Billion Dollar Scam Preyed on Seniors (5/07/04)
Mutual Benefits Corp., the giant viaticals company in Fort Lauderdale, was shut down by regulators. The industry sells sick people's life-insurance policies to investors. Viatical-settlement companies buy at a discount life insurance policies held by the terminally ill or elderly in need of cash. In turn, they sell the policies to investors, who collect the death benefits when the insured die. Seniors are often heavily targeted as investors.
State and federal regulators on Wednesday shut down Fort Lauderdale-based Mutual Benefits Corp., saying the nation's largest viatical-settlement company committed racketeering by luring tens of thousands of investors into an elaborate Ponzi scheme that raised more than $1 billion. The company faces criminal charges and a civil action. In essence, regulators say, the company promised investors that the policyholders would die within three years -- and was wrong nine out of 10 times.
By manipulating life expectancies, Mutual Benefits flooded the viaticals market with policies. The company thus created shortfalls in their premium funds and used new investor funds to keep up with premium payments. Hence the alleged Ponzi scheme.
"The scope of this fraud is enormous," David Nelson, head of the Miami office of the Securities and Exchange Commission, said. "We're talking about a scheme that involved more than 29,000 investors and raised more than $1 billion."
Investors
who have purchased viatical contracts from Mutual Benefits Corp. can find out
information on the receivership by calling 305-577-1099 and leaving their name
and number. A representative for the receiver will call back within two business
days, according to a recorded message. A website, www.mbcreceiver.com, is expected
to be in operation by Friday.
Patrick Danner Miami Hearld 050704
The American economy grew at a vigorous annual rate of 4.2 percent in the first quarter, with military spending making a significant contribution to economic growth for the first time since the early days of the war in Iraq.
Consumers provided most of the lift, the Bureau of Economic Analysis reported yesterday. Business investment was also strong, adding more to the growth rate than the military outlays. Without the war spending, however, the gross domestic product would have expanded at an only mediocre pace: 3.5 percent.
Because the quarter ended on a stronger note than it began, stepped-up military spending may not be necessary to sustain the economic recovery in the weeks ahead. Retail sales, home sales and consumer confidence all accelerated in March, the quarter's final month, and that acceleration appears to have continued through April.
"We are in the sweet spot of the recovery right now, and the second quarter is also likely to be strong," said Mark Zandi, chief economist at Economy.com, a forecasting and data-gathering firm. The big uncertainty, for Mr. Zandi and for other forecasters, is what will happen in the second half of the year.
Persistently
low interest rates and low inflation, coupled with widespread mortgage refinancing,
gave homeowners hundreds of millions of dollars in extra spending power and finally
turned a sluggish recovery into a vigorous one over the last nine months. Now
those supports are fading, suggesting that the surge in economic growth - the
G.D.P. has risen at a 5.5 percent annual rate since October - might not last.
And if growth tapers off, so will job creation. Total employment has been rising
since August, but is still well below its level in November 2001, when the recovery
began.
Louis Uchitelle Yhe NY Times 4/30/04
Mid-Month Updates from Last Month
There's
Always a 'But' The Washington Post 4/22
Federal Reserve Chairman
Alan Greenspan said yesterday that the U.S. economy is growing robustly and the
labor market is improving without generating broad inflation pressures. Greenspan,
in testimony to the Joint Economic Committee of Congress, repeated his recent
warnings that the Fed will have to raise interest rates "at some point" to head
off inflation. But he also appeared to be in no hurry to push up rates, citing
weak wage growth, rising business efficiency and other forces that have restrained
consumer price inflation and "should continue to do so for a time."
By
Nell Henderson
Dollar
Jumps on Hawkish Greenspan Comments The Financial Times 4/21
The dollar
rallied to multi-month highs on Wednesday in the wake of hawkish comments from
Alan Greenspan, the chairman of the Federal Reserve. Mr Greenspan said deflation
was no longer a threat to the US economy, calling into question how long the Fed
will maintain interest rates at a 46-year low of 1 per cent. "Greenspan has laid
down the gauntlet. The deflation dragon is slain and the inflation hydra is blooming,"
said David Gilmore, a market commentator at FXA.
By Steve Johnson
in London The Financial Times
Nation
Chained to Rates Washington Post 4/19
In the world of interest rates,
"normal" is something Americans haven't experienced for a while. During the past
couple of years, consumers have been spoiled by opportunities to borrow at rates
that were last available generations ago. They happily took advantage of that
cheap credit to buy bigger homes and fancier cars, while running up debt on their
credit cards and home-equity lines. Now that rates appear to be headed toward
some semblance of normal, a considerable amount of adjustment is likely to be
in store for America's debt-laden economy, as car buyers are weaned from interest-free
financing, homeowners get socked with higher charges on their equity lines and
monthly credit card bills rise.
Borrowing costs are still far below the inflation-bloated levels of the 1970s and 1980s, of course, and nobody can be certain that the latest run-up won't be reversed. But economists are nearly unanimous in agreeing that because of the recent improvement in the employment picture and this week's report of an increase in consumer prices, the Federal Reserve will start lifting the short-term rates it controls later this year. And the financial markets have already sent longer-term rates upward, with the yield on the benchmark 10-year U.S. Treasury note hitting 4.34 percent yesterday, compared with 3.85 percent six weeks ago.
Mortgage
lending accounts for more than three-quarters of all household debt. Many economists
fell that has become mostly fixed rate as rates have dropped. Still, other economists
worry some about home equity credit lines, which soared from $150 billion in 2000
to $346 billion at the end of last year. These are generally tied to the prime
lending rate, which has remained low but is almost certain to rise in coming months
once the Fed starts nudging its own short-term rate higher.
By
Paul Blustein and Nell Henderson
The government is asking a federal court to shut down what it charged is a wide-ranging system of tax fraud that has misled about 100,000 taxpayers into taking improper deductions and credits, and has cost the U.S. Treasury $324 million in tax revenue.
The
civil case, filed Tuesday in Las Vegas by the Justice Department and Internal
Revenue Service, accused the National Audit Defense Network (NADN), a group of
related companies and 13 individuals, of selling phony home-based Internet businesses
that promise thousands of dollars in tax credits under the Americans with Disabilities
Act (ADA).
Albert B. Crenshaw Washington Post 4/15/04
Related - The "Corporate Sole" Scam
On April 8, 2004, the Department of Justice filed suits against five individuals. These suits are similar to one, filed previously against Joseph Saladino of Palmdale, California. All the individuals involved have been advocating the creation of a church entity known as a "corporation sole."
After creating the "corporation sole," the individual transfers income and assets to the corporation. Most personal living expenses are then paid by the corporation and in theory are not taxable. Individuals also have filed false tax returns claiming that personal income is not taxable under the "claim of right" theory.
The
Department of Justice claims that over 700 individuals have paid fees of $200-$2,295
for assistance in creating this unlawful tax shelter. The suits seek to enjoin
the promotion of the "corporation sole." It is probable that the Department of
Justice will also pursue individual actions against all of the persons involved
to require payment of taxes and penalties.
From
GiftLaw 4/9/04
Congress passed
major tax cuts in both 2001 and 2003. These tax cuts have reduced total federal
taxation by many billions of dollars. However, these tax savings have come with
a price in complexity. According to the non-partisan National Taxpayers Union
(NTU), the average Form 1040 "long form" takes 29 hours to complete. Even a 1040A
short form takes over 11 hours. It's interesting to note that ten years ago, the
1040 long form was completed on average in 11 hours. The time required to complete
tax forms has more than doubled during the past decade. With the increase in complexity,
CPAs and other tax professionals now prepare 62% of returns. If returns completed
through tax preparation software are included, the total percentage of returns
by professionals is now over 88%.
From GiftLaw 4/19/04
Former President Clinton Makes Case For Additional Giving
In the May issue of Worth magazine, former President Bill Clinton asks high-income donors who are benefiting from the estate tax reduction to contribute more money to charitable organizations.
Clinton argues that individuals in high-income tax brackets receiving additional money from the cuts in the estate tax don't need the funds and should never have received them in the first place, according to a press release from the magazine. Instead, they should give the money away, and he notes four key issues that the money should support:
- Economic empowerment in poor communities;
- Racial and religious reconciliation;
- Educating and expanding community service by young people; and
- International fight against HIV/AIDS.
Clinton
estimates that if the estate tax cuts are made permanent, individuals in the highest
tax bracket will benefit by an average of $180,000. However, the former President
does add that he is not sure that the permanent elimination of the estate tax
would have the dramatic negative impact on giving that many in the charitable
sector have predicted. But it does mean, according to Clinton, that charities
will have to appeal to donors on the merits of their own organizations, programs
and causes.
AFP Newswire 4/26/04
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Revised: June 2, 2004 12:07.