Finance Blog number 1

The global economy faces

Chancellor Angela Merkel won a parliamentary vote on Greek aid after warning German lawmakers that pushing Greece out of the euro would risk

Two St. Louis-area organizations, and a third group with a large office in Clayton, received a combined $230 million in federal New Markets Tax Credits, the U.S. Department of Treasury said Thursday.

The credits are designed to draw investment in businesses and real estate projects in low-income neighborhoods. Recipients - typically banks and community development groups - offer the credits as an incentive to investors in projects in qualifying Census tracts. They are worth 39 cents on the dollar, so the $230 million equates to $89.7 million.

In past years in St. Louis, these credits have been used to help fund everything from downtown office projects to equity investments in local businesses.

Recipients with local ties include:

U.S. Bancorp Community Development Corp., which is based in St. Louis but works on tax-credit financing nationwide, received a $100 million award. St. Louis Development Corp., the city-run development agency, received $50 million. Advantage Capital Community Development Fund, which is based in New Orleans but has a large office in Clayton, received $80 million.

The funds to not have to be used in a recipient’s home region - though they likely will be in the case of SLDC - and projects here have drawn New Markets credits from national lenders in the past.

This year, the awards include a set-aside to finance “healthy food” projects in so-called “food deserts” - areas with little access to quality groceries. One-fourth of SLDC’s award must go towards healthy food financing, and one-fifth of U.S. Bancorp’s.

All told, the Treasury Department awarded $3.6 billion in New Markets credits on Thursday. It received $26.7 billion worth of applications. President Obama is seeking $5 billion for New Markets Tax Credits in his 2013 budget.

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The new fund designed to spur science startups in Missouri has been declared unconstitutional by a judge in Cole County.

Circuit Judge Dan Green tossed out the Missouri Science and Innovation Reinvestment Act (MOSIRA) in a ruling Tuesday morning, saying that the way it was approved by lawmakers in last fall’s special legislative session violated the state constitution.

The measure would have dedicated some new tax revenue from science and technology companies in the state for a fund to help launch startups in those industries. Gov. Jay Nixon had proposed putting $4 million into the fund in his next budget.

But Green ruled that the bill approving it violated state law because it included a “contingency clause” saying it couldn’t go into effect unless a separate tax credit reform bill was also passed. That bill died in the General Assembly.

Right-to-Life groups that have long opposed MOSIRA over concerns that it could fund stem cell or human cloning research filed suit in December, and Green sided with them.

“Missouri Roundtable For Life is gratified that Judge Green has upheld the rule of law and protected the taxpayers and citizens of Missouri from state officials implementing an unconstitutional law,” said Fred Sauer of Missouri Roundtable For Life. “We are dedicated to ensuring that Missouri citizens understand all the details of the MOSIRA scheme, so that politicians and their special interest cronies will never try this again.”

MOSIRA has long been a top priority of the state’s high-tech and biotech industries, who say Missouri needs funds to invest in startups to compete with other states and grow jobs here. They have pushed the bill for several years now and won votes in both houses, only to see it die.

“It’s disappointing,” said Donn Rubin, president of the St. Louis biotech trade group BioSTL. “What’s frustrating is that something that is so broadly supported gets caught up in unrelated struggles over other issues like tax credit reform.”

While the ruling puts MOSIRA on ice for this year, it’s not clear what will happen next.

State officials could appeal the ruling - a spokesman for Gov. Jay Nixon did not immediately return calls seeking comment. Or a new version of the bill could be filed in the General Assembly. If passed on its own, it would not include the “contingency clause” that Green struck down.

But Senate Pro Tem Rob Mayer (R-Dexter) told the Kansas City Star that a new bill was unlikely to succeed without broader tax credit reform.

“That was true during the special session and that’s true now,” he said.

Read more here: http://midwestdemocracy.com/articles/missouri-judge-rules-mosira-unconstitutional/#storylink=cpy

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Inflation picked up slightly last month, as rising gas prices took a bigger bite out of consumers’ wallets.

The government’s key measure of inflation, the Consumer Price Index, showed prices rose 0.2% from December to January, slightly weaker than the 0.3% increase economists had predicted.

Rising prices at the gas pump were a key factor, increasing 0.9% during the month, the Labor Department said. Improving U.S. economic data, including stronger job growth, and tension with Iran have been driving the price of oil and gasoline higher.

Gas prices ended last month at a national average of $3.443 a gallon, according to the AAA Fuel Gauge Report.

Tom Kloza, chief analyst at the Oil Price Information Service, recently forecast gas prices will hit a $4 national average by Memorial Day. They could even near $5 a gallon in certain regions.

Check gas prices in your state

Could this mark a repeat of early 2011?

Amid revolutions in North Africa and the Middle East, gas prices spiked 3.5% In January 2011 alone, and kept rising, nearing $4 a gallon in May. Those higher prices trickled through to other goods and dragged on consumer spending. Economic growth slowed and job growth eventually slumped.

So far, the 2012 price hikes at the gas pump aren’t as severe, but that’s not to say employers aren’t concerned.

About 68% of executives surveyed by the Corporate Executive Board expect cost pressures to increase in 2012 — and not just on energy. On Thursday, the Labor Department’s Producer Price Index showed a modest 0.2% increase in the cost of raw materials in January, after commodity prices fell the month before.

But higher costs won’t necessarily lead to higher prices for consumers.

Businesses don’t expect to see a major increase in consumer confidence this year, according to Michael Griffin, executive director at CEB. It’s that slack in the economy, amid high unemployment and slow wage growth, that is likely to keep companies from trying to pass higher costs on to consumers.

"Demand is still fairly weak out there so it’s difficult for firms to raise prices," said Gus Faucher, senior economist at PNC Financial Services Group. "Consumers are shopping around and still watching their costs."

Year over year, the inflation report showed consumer prices were up 2.9% in January, barely changed from a 3% annual inflation rate in December.

The CPI report also showed food prices rose 0.2% in January, mainly driven by higher prices at restaurants. Prices at grocery stores barely changed. Overall, food prices up 4.4% over a year ago.

Core CPI, which strips out volatile food and energy, showed consumer prices rose 0.2% in January, and 2.3% year-over-year.

Core inflation is at its highest level since September 2008, when the rate was 2.5%. 

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Consumer prices rose modestly in January on higher costs for food, gas, rent and clothing.

But economists downplayed the increase, saying inflation will likely ease in the coming months as prices for raw materials level off.

Separately, a gauge of future economic activity rose in January for the fourth straight month, adding to evidence that the economy has strengthened in the new year.

The consumer price index increased 0.2 percent last month, after a flat reading in December, the Labor Department said Friday.

Excluding volatile food and energy, so-called core prices ticked up 0.2 percent. A big reason for the increase was that clothing prices jumped 0.9 percent. Medical care, rent and tobacco prices also increased.

Car prices were unchanged, and airfares fell.

Core inflation over the past 12 months moved up to 2.3 percent — its highest point in more than three years. A steady rise in core prices could limit the Federal Reserve’s ability to take steps to boost the economy.

Still, economists said inflation is likely leveling off. For example, clothing prices are higher because of a spike last year in the cost of cotton. When the impact of the cotton hike fades, clothing costs should ease.

Guy LeBas, fixed income strategist at Janney Montgomery Scott, said the rise in the core reflected a delayed response to those soaring commodity prices.

The report “points to a benign path for inflation for 2012,” LeBas said. “Consumer demand is fairly anemic right now … firms can’t raise prices when nobody’s buying.”

Separately, the Conference Board said its index of leading economic indicators rose 0.4 percent last month to its highest point since July 2008. The steady rise has coincided with other positive data that suggest the recovery is picking up.

The unemployment rate fell to 8.3 percent, the lowest in nearly three years, after employers added 243,000 net jobs — the most in nine months. Auto sales are up, unemployment aid applications are down and factories are cranking out goods at a healthy pace.

The Fed is forecasting that inflation will remain in check this year. It expects that the inflation gauge it follows will increase by about 1.6 percent in 2012. That’s below the Fed’s target for inflation of 2 percent. Low inflation was one of the reasons the Fed last month said it plans to hold its benchmark interest rate at a record low near zero until late 2014.

Falling energy and food costs kept wholesale prices in check last month, the Labor Department said Thursday. The producer price index rose 0.1 percent in January, after dropping the same amount the previous month.

Wholesale gas costs rose, but that was more than offset by steep drops in natural gas, home heating oil and electricity prices.

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Chinese Vice President Xi Jinping is wrapping up a pivotal four-day visit to the United State with a daylong series of events in Los Angeles with his American counterpart Joe Biden.

China’s soon-to-be leader met with Gov. Jerry Brown on Thursday and toured a shipping terminal at the giant Port of Los Angeles.

The visit was a reminder of China’s huge footprint at the busiest port in the United States. Nearly 60 percent of the imports moving through the Port of Los Angeles come from China, including $120 billion worth of computers, TVs, sneakers and other goods last year

On Friday, Biden and Xi start with a China trade forum in downtown Los Angeles, followed by a luncheon and school visit to meet children learning Mandarin. They’ll end the day with a governor’s forum at Disney Hall.

Xi’s U.S. tour comes at a politically challenging time in U.S.-China relations, with the White House sending stern messages on currency and trade policies and Republican presidential candidates claiming President Barack Obama isn’t doing enough to keep America competitive with the Chinese economy.

The Asian power sells four times as many goods to the U.S. as the United States sends in return to China. The U.S. shipped $13.5 billion in exports to China through the Los Angeles port last year.

In a carefully scripted event, Xi took a short walking tour through the China Shipping terminal with Brown and Mayor Antonio Villaraigosa. The facility sprawls over nearly 100 acres.

“We’re not just growing our ports, but we’re greening our ports,” Villaraigosa told Xi.

“When I heard that this is an environmentally friendly green port, I felt that this was a major achievement,” Xi later told a crowd in a brief statement after his stroll with Villaraigosa.

“This is a solid foundation for future U.S.-China trade and economic cooperation,” he said.

As with his previous travels, Xi was focusing on forging relationships.

Xi spent the morning Thursday in Iowa, where officials from the U.S. and China signed a five-year deal to guide discussions on food security, food safety and sustainable agriculture.

China became the top market for U.S. agricultural goods last year, purchasing $20 billion in U.S. agricultural exports, according to the U.S. Department of Agriculture.

Much of Xi’s visit, which began earlier this week in Washington, D.C., has been focused on agriculture. The strategic cooperation agreement signed Thursday outlines mutual goals and responsibilities of each nation.

“It charts the course and gives us a guiding document that we can reference and, over time, refine and improve,” said Scott Sindelar, the agricultural minister counselor at the U.S. embassy in Beijing, who attended the Des Moines conference.

According to the USDA, the value of U.S. farm exports to China supported more than 160,000 American jobs last year across a variety of business sectors.

U.S. Secretary of Agriculture Tom Vilsack said the two nations will have to work together to help feed a growing global population.

“We have the responsibility and opportunity to work together to address the causes of global hunger that effect more than 925 million people. Current populations trends mean that we must increase agricultural production by 70 percent in the year 2050 to feed nearly 9 billion people,” he said.

Not everyone celebrated the vice president’s arrival. The California Fair Trade Coalition, a San Francisco-based nonprofit that supports expanding trade while promoting economic justice, issued a statement calling on Brown to “address China’s predatory trade practices.”

“The economic potential for trade with China is massive, but if they aren’t forced to level the playing field, this can only be a losing proposition for U.S. workers,” said coalition director Tim Robertson.

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President Obama’s plan to reform the corporate tax system will come out in the next few weeks, Treasury Secretary Tim Geithner told a Senate panel Tuesday.

But don’t get too excited. It won’t be detailed legislation. In fact, it’ll be vague on purpose in an effort to find "common ground" on broad principles between Republicans and Democrats on Capitol Hill, Geithner said.

"We want to maximize the chance we can take advantage of that (common ground) to build consensus on something that’s going to work," Geithner told the Senate Finance Committee.

The Obama administration has been talking about unveiling a plan to fix corporate tax system for well over a year. Last year, the pressure for a corporate tax system fix heated up with news of General Electric’s zero tax rate in 2010 due to profits overseas and losses at its financial unit. General Electric (, Fortune 500) CEO Jeffrey Immelt is the chief of President Obama’s Council for Jobs and Competitiveness.

The top corporate tax rate of 35%, among the highest in the world, has long been bemoaned by business leaders and tax experts. They say it discourages foreign investment in the United States and hinders the ability of U.S. companies to compete internationally.

The Obama administration is expected to talk about lowering the top rate while axing some of the more than 130 business corporate tax breaks currently on the books and limiting companies’ ability to shift profits to nations where tax rates are lower.

"In short, it will help level the playing field for businesses and allow the government to collect needed revenue while promoting economic growth," Geithner said in his written statement.

Obama budget fails to tackle entitlements

However, cutting the top rate to below 30% will require some serious slash-and-burn action. And details are key to moving corporate tax reform forward, said Clint Stretch, managing principal of federal tax policy at Deloitte Tax.

For example, a lot of publicly traded companies will want to know what they would pay in a tax year versus what they can defer. And cash-sensitive companies are going to want to know if they can depreciate the value of capital equipment.

"At some point people have to step up and say here are the details — here are the winners and losers," Stretch said. "Folks want to know where they are on that spectrum."

- CNNMoney senior writer Jeanne Sahadi contributed to this report. 

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Illinois same-sex couples in civil unions are discovering an unpleasant quirk of their new status. The state of Illinois will make them do their federal taxes twice.

Illinois’ civil union boosts drudgery at tax time, and it probably won’t save same-sex couples any money.

Here’s why: Illinois law requires that same-sex couples in civil unions be treated as if they were married for tax purposes.

The state income tax form requires that they transfer numbers from their federal income tax form. To produce the proper numbers, civil union couples must fill out a federal tax form as either married filing jointly or married filing separately, and submit it with their state forms.

But the federal government doesn’t recognize civil unions. It won’t even take a married tax form from a gay couple that tied the knot in a state recognizing same-sex marriages.

To keep on Uncle Sam’s good side, both partners have to fill out the federal forms again, filing as singles.

Heterosexual married couples often save on their federal taxes by filing as married cash advances pay day loan. That’s mainly because federal taxes are progressive, and the brackets are adjusted to be kinder to those who are married. But the Illinois income tax is flat, with no progressive brackets. Generally speaking, that means no savings on state income taxes.

“I don’t think anybody anticipated this issue,” says lawyer Todd Sivia of Edwardsville, who has a specialty in tax, estate and real estate issues in civil unions.

By act of the Illinois legislature, residents starting last year were able to join in civil unions. Sivia expects that other unexpected issues may pop up in the titling of property, estate planning, and especially in divorce.

“The law on this will be evolving for the next 10 or 15 years,” he says.

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Taiwan President Ma Ying-jeou named Sean Chen as premier, choosing an official who oversaw the island