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Above graphs from CNN Money

Monthly Features Recent Economic News Seven Economic Indicators Major Index Twelve Month Charts Mid Month and Recent Updates Senate's Tax Bill Includes Incentives for Charitable Gifts Advisory Panel on Tax Reform Faint Hope For IRA Rollover To Fight Rising Prices, Fed Nominee May Need New Weapon Monthly Magazine Tax Reform Concerns Charity Tax Abuse Legislation News 2006 Inflation Adjustments Widen Tax Brackets CARE Act Reintroduced Hurricanes Katrina and Rita Scam Alert Major Gift Opportunity through 12/31/05 News Sources Past Issue Archive

Recent Economic News

Durable Goods Orders, Consumer Confidence and New Home Sales Rebounded in October - 11/29/05 NY Times
Sales of new homes surged to a record in October, the government reported today, bucking recent reports of a slowdown in the roaring housing market. New home sales jumped 13 percent last month, to an annual pace of 1.42 million, and selling prices increased modestly, the Commerce Department said. The report comes a day after the National Association of Realtors said existing home sales fell 2.7 percent last month and inventories rose to their highest levels in more than two years. The positive housing news was accompanied today by two reports that showed a sharp rise in consumer confidence this month (consumer confidence index surged by 13.7 points) and higher orders for big-ticket goods like planes in October.

A Hint That Fed's Rate Increases May End Soon - 11/23/05 NY Times
The Federal Reserve offered its first hint on Tuesday that its long series of interest rate increases could be drawing to an end. Some analysts said the minutes confirmed that the Fed was closing in on a "neutral" rate that neither stokes inflation nor slows economic growth.

Leading Indicators Jump in October - 11/21/05 CNN Money
A key gauge of the direction of the U.S. economy rose 0.9 percent in October, offsetting a large decrease in September, a private research group said Monday. The New-York based Conference Board said its index of leading indicators rose to 137.9 in October after a downwardly revised 0.8 percent decline in September.

Homebuilding Slips to Slowest Pace in Five Months - 11/18/05 NYTimes
New-home construction dropped to its slowest pace in five months and building permits had their biggest monthly drop in almost six years in October, the government reported yesterday, providing more evidence of a housing slowdown. Although not conclusive, a stream of reports in recent weeks has signaled that the long housing boom is coming off its peak and that slower growth or even a decline might lie ahead.

Retail Sales - Better Than Expected Gains - 11/15/05 AP
Retail sales performed far better than expected in October as consumers took encouragement from falling gasoline prices to head back to the shopping malls. The Commerce Department reported that overall sales dipped a slight 0.1 percent, but that was significantly better than the 0.7 percent decline economists had been expecting. The weakness came from a big 3.6 percent drop in auto sales, which have weakened with the removal of attractive discounts automakers had used during the summer. In other economic news, the Labor department reported that wholesale prices rose by 0.7 percent in October after an even sharper 1.9 percent increase in September.

U.S. Trade Deficit Hits $66 Billion - 11/10/05 NYTimes
The trade deficit widened by 11 percent and set another record in September as exports of airplanes plummeted and imports of natural gas and petroleum products surged in the weeks after Hurricane Katrina struck the Gulf Coast. The deficit with China also hit a record. America imported $66.1 billion more in goods and services than it exported in the month, breaking the previous record set in February when the economy registered a $60.4 billion deficit. The trade deficit in the first nine months of the year totaled $529.8 billion, about 18 percent higher than at this time in 2004.

US Economy in General Good Health - 11/4/05 Washington Post
Alan Greenspan said yesterday that the U.S. economy is in generally good health but will suffer in coming years unless Congress slows the growth of federal budget deficits. Recent hurricanes Katrina, Rita and Wilma will temporarily reduce employment and economic activity. "But the economic fundamentals remain firm, and the U.S. economy appears to retain important forward momentum," Greenspan said. "The longer-term prospects for the U.S. economy remain favorable." Greenspan warned, however, that large budget deficits will drive up interest rates over time, raising the government's debt-service costs. "Unless the situation is reversed, at some point these budget trends will cause serious economic disruptions," he said.

Central Bank "Puzzled" - 11/4/05 Washinbgton Times
Federal Reserve Chairman Alan Greenspan said that "long-term interest rates are no longer responding as they have in the past to the central bank's rate increases or to large federal budget deficits." Although he warned that the rates on 10-year to 30-year mortgages and bonds may have a 'delayed' reaction and jump in response to mounting deficits, he conceded the central bank remains 'puzzled' as to why they remain so low.

Deficit Reduction Bill - 11/4/05 CongressDailyAM
The Senate passed a sweeping five-year deficit reduction package of roughly $35 billion Thursday, but its fate remains unclear as the House heads into debate as early as next week on a vastly different $54 billion version. The Senate budget reconciliation bill, approved on a 52-47 vote, finds its savings through cuts in Medicare, Medicaid, farm programs and student lender subsidies, while adding revenues through pension premium increases and spectrum sales.

Manufacturing Index Little Changed for October, Easily Topping Economists' Forecasts - CNN Money 11/1/05
The pace of manufacturing remained strong in October, according to a survey of business executives released Tuesday that beat Wall Street expectations. The survey of business executives showed new orders and production levels both remaining strong, although slowing slightly from the September readings. Of those surveyed, 30 percent reported an increase in new orders, and 31 percent reported better production levels, although both components were weaker than the prior month. While manufacturing remained strong, the report had one troubling sign for markets, as businesses reported higher prices for the goods they need. The prices paid subindex rose to 84 from 78 in September, the highest reading since May 2004.

Fed Seen Nudging Rates Up Again - Washington Post 11/1/05
Federal Reserve policy-makers were set to nudge U.S. interest rates higher for a 12th straight time on Tuesday, confident that expansion is on track but wary that costlier energy could fire dangerous inflation. There was unanimous agreement among economists surveyed earlier this month by Reuters that the Federal Open Market Committee will agree to push the trend-setting federal funds rate up another quarter percentage point to 4 percent. Last week's government report showing gross domestic product expanded at a 3.8 percent annual rate in the third quarter, despite the impact of rising energy prices and hurricanes, was one measure of the economy's resilience. Growth accelerated from the second quarter's 3.3 percent. EDITOR'SNOTE - it was later announced that the rate was raised to 4%, the highest level in 4-1/2 years, with hints at more hikes to come.

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THE ECONOMY: SEVEN INDICATORS - From CNN Money (as of 11/21/05)

The Indicator	What It's Telling Us	Next Update
Consumer Confidence	Confidence bounces back	Dec 27
Retail sales	Weak autos sales drag down overall reading	Dec 13
Leading Economic Indicators	rose 0.9 percent in October, offsetting September's decline	Dec 19
Manufacturing Activity (ISM)	Index little changed for October, tops expectations	Dec 1
Industrial Production	increased 0.9 percent in October after a drop of 1.5 percent in September	Dec 15
Job Growth	Jobs creation still weak in October	Dec 2
Inflation (CPI)	Prices higher, but inflation fears calmed	Dec 15

Senate's Tax Bill Includes Incentives for Charitable Gifts
A tax bill passed by the Senate on November 18 includes several charitable incentives sought by the broader nonprofit community, including the IRA rollover provision, the non-itemizer deduction, and the artists' deduction. The bill also includes a number of new requirements aimed at reforming the charitable sector. The House hopes to hold a vote on their version of the tax package (which does not include charitable giving incentives or reforms) soon after returning from the Thanksgiving recess. Substantial differences between the House and Senate bills will need to be resolved before the measure is approved by Congress and signed by the President.
American Symphony and Orchestra League Update 11/23/05

Advisory Panel Report on Tax Reform
The President's Advisory Panel on Federal Tax Reform has issued its final report, which includes six recommendations designed to strengthen incentives for charitable giving. In addition to recommending a number of sweeping changes to the federal income tax system, the 307-page report, Simple, Fair, and Pro-Growth: Proposals to Fix America's Tax System, dedicates four pages to improving incentives for charitable giving. The recommendations include creating a deduction for all taxpayers for charitable contributions that exceed 1 percent of income; allowing tax-free distributions from individual retirement accounts (IRAs) to be made directly to qualified charitable organizations; requiring reports for large charitable contributions claimed as deductions; allowing taxpayers to sell property and donate the proceeds to charity; improving rules for valuing gifts of property to charities; and taking effective action to ensure better oversight of tax-exempt organizations.
Unlocking Philanthropy Newsletter of 11/1705 quoting Tax Analysts, 11/2/05

Faint Hope for IRA Rollover
The Senate Finance Committee continues to work on markup of a $68.8 billion dollar tax reconciliation bill. The primary hold-up on the bill is uncertainty whether Sen. Olympia Snowe (R-ME) will support a one year extension of the 15% rate on dividends and capital gains tax. Sen. Grassley (R-IA) emphasized that this was an essential part of the bill. He stated, "If we pass a tax bill, it's going to have an extension of capital gains in it or we won't have a tax bill."
Sen. Rick Santorum (R-PA), the primary sponsor of the CARE Act in the Senate, indicated that he would attempt to attach two key provisions of the CARE Act to the tax reconciliation bill. These provisions include allowing charitable gifts from IRAs and the non-itemizer deduction. In order to offset the cost of these provisions, he plans to include some of the charitable tax reforms on easements, appraisals and gift valuation. Sen. Santorum was emphatic that the combined package would be helpful to charities. He stated, "I want this to be a net plus for charities, not a net minus."
Giftlaw 11/14/05

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To Fight Rising Prices, Fed Nominee May Need New Weapon
Early in his tenure as chairman of the Federal Reserve, Alan Greenspan declared that the risk of too much inflation was so considerable that he would "err more on the side of restrictiveness than of stimulus." And he meant it. Ben S. Bernanke, who is expected to take over at the Fed in February, faces a fundamentally different set of circumstances than those that Mr. Greenspan confronted 18 years ago.
"Inflation is clearly not right around the corner like it used to be," said Edward M. Gramlich, until recently a Fed governor and now interim provost at the University of Michigan. "The relationships are different, and Mr. Bernanke is going to have to figure them out."
Perhaps the biggest differences Mr. Bernanke will face are the rise of global production, as well as much easier access to capital, particularly from abroad. Adding to the change is labor's weaker bargaining power. These factors have combined to greatly diminish the force of old-style inflation in which demand outran supply, pushing prices ever higher, and wages, too, until the Fed put the brakes on the economy.
Instead, a new style of inflation has emerged as one of the principal threats to the economy. It is evident in the stock market bubble of the late 1990's and in surging home prices in this decade. This asset price spiral, as it is called, has proved much more resistant to the Fed's standard interest rate tool than traditional inflation. What lifts asset prices, Mr. Bernanke and others argue, is the willingness of lenders to offer riskier types of loans, which "juice up the housing market and are not very responsive to interest rates," as Mark Zandi, chief economist at the research firm Economy.com, put it.
In the past, the danger of default as rates rose tended to discourage lenders from making overly risky loans. The lender, often a bank, kept the loan and bore all the risk. Mr. Bernanke, in response to the risk shifting, has raised the possibility of limiting the dangers through the use of regulations - microregulatory policy, he calls it. "There are two ways to approach bubbles: one is interest rate policy, the other is microregulatory policy," he said in a little noted interview published last year by the Federal Reserve Bank of Minneapolis. "Microregulatory policy is the much better approach, in my view," Mr. Bernanke said.
NYTimes 11/4/05 By Louis Uchitelle

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Tax Reform Concerns
"Large sections of the business community have grave concerns not only with the particular initiatives likely to be proposed by the president's tax reform panel, but with the whole concept of tax reform," CongressDailyAM reports. "The President's Advisory Panel on Tax Reform is scheduled to issue its recommendations to" Treasury Secretary John Snow today. "Snow will then use the proposals as the basis for his own recommendations to Bush, who could in turn make tax reform a centerpiece of his 2006 domestic agenda."
CongressDailyAM 11/1/05

• Easements are the number one target, with façade easements a particular concern.
• Second, charitable trusts are occasionally used by tax protesters to avoid payment of income tax.
• Charitable tax shelters are the third area of concern. The tax shelter industry continually seeks creative ways to involve charities in tax shelter strategies.
• Fourth, compensation of executives at medical centers has been a continuing topic of review.
  GiftLaw 10/31/05

• The value of each personal and dependency exemption, available to most taxpayers, will be $3,300, up $100 from 2005.
• The new standard deduction will be $10,300 for married couples filing a joint return, $5,150 for singles and $7,550 for heads of household. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
• Tax-bracket thresholds will increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15% bracket from the 25% bracket will be $61,300, up from $59,400 in 2005.
• The annual gift tax exemption will be $12,000, up from $11,000 in 2005.
  IRS Wire 2005-130 10/28/05

• The IRS has established a toll-free disaster assistance telephone number, 1-866-562-5227, specifically for hurricane victims. Whenever a matter involves tax relief or tax refunds, the first step a disaster victim should take is to call the IRS.
• For others, donate to recognized charities.
• Be wary of charities with names that sound like familiar or nationally known organizations. Some phony charities use names or Web sites that sound or look like those of respected, legitimate organizations. The IRS Web site at IRS.gov has a search feature that allows people to find legitimate, qualified charities to which donations may be tax-deductible. Legitimate charities may also be found on the Federal Emergency Management Agency (FEMA) Web site at fema.gov.
• Don't give out personal financial information - such as Social Security numbers or credit card and bank account numbers and passwords - to anyone who solicits a contribution from you. Scam artists use this information to steal your identity and financial resources.
• Don't give or send cash. For security and tax record purposes, contribute by check or credit card. Write the official name of the charity on your check.
  Internal Revenue Bulletin 2005-115 10/4/2005
  

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