bank run blog

A report released last week by the Government Accountability Office reveals that two-thirds of US corporations claimed zero federal income tax liability between 1998 and 2005. The report, which was compiled at the request of Democratic Senators Carl Levin of Michigan and Byron Dorgan of North Dakota, also finds that 68 percent of foreign-controlled corporations with US operations paid no taxes over the same period. The GAO concluded that together the companies reported trillions in US revenues during the years studied.

“It’s shameful that so many corporations make big profits and pay nothing to support our country,” said Dorgan, who called the report “a shocking indictment of the current tax system.” Levin highlighted the sophisticated accounting practices that enable companies to legally reduce their tax liabilities through the transfer of funds, saying, “corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States.” The report comes in the wake of the Bush administration announcement that the US budget deficit for next year will reach a record $486 billion.

In 2005, the most recent year for which figures are available, 66.7 percent of US corporations, more than 1.2 million companies, paid no federal income tax. Additionally, more than 38,000 foreign corporations also avoided US corporate tax in the same year. The companies avoiding income tax reported a combined $2.5 trillion in sales. The GAO also found that 72 percent of foreign corporations and 57 percent of US companies paid zero income taxes for at least one year between 1998 and 2005. More than 42 percent of US corporations and half of all foreign companies avoided all taxes for two or more years during that period.

The GAO report did not name specific companies. Corporations typically claim zero liability when they report an operating loss, or by the application of tax credits or other government incentives, which may include tax deferments. Critics of US corporate tax policy accuse large corporations of aggressively avoiding tax liability through elaborate transfer pricing structures that shift profits and losses to the most advantageous tax jurisdictions.

cross posted at

redstateupdate.net

The Commerce Department reports that retail sales fell in July, the decline in sales was the first drop seen in five months. Reuters writes the government stimulus package of so-called “tax rebate” checks may have helped to boost consumer spending during the month of June, “but their influence appears to have petered out by July.” Consumer spending makes up more than two-thirds of the US economy.

The White House says high fuel prices are among the factors creating “substantial headwinds faced by households” that bought fewer automobiles last month, causing the drop in consumer spending. Commerce reported that sales at auto dealers and parts stores dropped 2.4 percent.

Bloomberg said that consumer spending “is likely to keep fading as a boost from tax rebates wanes and households try to cope with job losses and house-price declines.” Bloomberg quoted an executive of the Manufacturer’s Alliance who believes;

“A whole host of factors - unemployment growing, wages flat to stagnating, the wealth effect of lower house prices and stock prices - all are conspiring to forecast, I think, weaker sales ahead.”

One bright spot in the retail sales numbers was in the sale of gasoline since last year at this time. Although the American Petroleum Institute reported that gasoline use has declined by more than 2 percent since last year at this time and the Federal Highway Administration said that Americans drove 12.2 billion fewer miles this June compared to last year, the rise in gas prices pushed sales up by 0.8 percent over last years figures.

see stories-
Bloomberg : U.S. Economy: Retail Sales Fell in July, Led by Autos
Associated Press : Retail sales drop for first time in 5 months
Reuters : Check Out Line: The short-lived tax rebate boost

The Telegraph writes that a Merrill Lynch economist said that US unemployment figures suggest that the US is in a recession.

Although the “official” government reported statistics relate that the US economy has not dropped into recession, Merrill Lynch’s David Rosenberg said that the fact that the unenployment rate has risen for each of the past six months confirms that the US has been and continues to languish in a recession. Rosenberg said, “At no time in the past 50 years has this happened without the economy being in an official recession.”

Merrill Lynch predicts that “massively revised” governemnt data will be released that reveals that the US has been in a recession for perhaps the past 10 months.

see article-
Telegraph UK : US is in recession: Merrill Lynch’s David Rosenberg

It’s hard to believe that anyone sees the US dollar as a “safe haven” anymore, but that is what has been happening as commodities continue to fall and the markets remain inscrutably volatile. Add soft data from America’s main trading partners, and it looks like a short-term dollar rally. The Associated Press is reporting Fears of global slowdown buck up the dollar :

“The dollar climbed to eight-week highs against the euro and seven-month highs against the yen as fears of a global slowdown helped the dollar continue its rally.”

Ironically, the exportation of financial turmoil tends to strengthen the US currency :

“The dollar gained as gloomy economic signs came in from abroad.

The Japanese government said a monthly index of business conditions was worsening, setting off the yen decline, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon Corp.

Meanwhile, the German government said industrial orders dropped unexpectedly in June, with orders from elsewhere in Europe leading a decline that underlined pessimism about the outlook for the continent’s biggest economy. Orders dropped 2.9 percent in June, following a 1.4 percent drop in May, the Economy Ministry said.”

In covering the same topic– the dollar’s apparent strength– the Wall Street Journal was able to locate a dissenting view :

“The dollar was surging even before oil prices began to go lower Wednesday, following the release of German economic data. Manufacturing orders in Germany fell for the seventh consecutive month, leading analysts to predict a dire future for that country’s economy.

‘The dollar is gaining by default,’ said Michael Klawitter, currency analyst at Dresdner Kleinwort in Frankfurt. ‘What is happening is not really dollar strength, but rather other currencies are weakening significantly.’”

Associated Press : Fears of global slowdown buck up the dollar

Wall Street Journal : Dollar Rallies on Oil, European Data

This report from Al Jazeera focuses on how rising prices, particularly fuel costs, have had a devastating impact on small communities in rural America.

“While most people in the United States will have to rethink their budgets to face rising gas prices, lower income communities here in the south of the country have come to realize that their decisions will be much tougher and paying for the gas and bills could mean cutting back on food and health care.”- Monica Villamizar, Al Jazeera News

The US Department of Agriculture tracks the prices of basic food stuffs year by year. The statistics, reported by the National Agricultural Statistics Service reports that the prices of many agricultural products have risen sharply since 2007. The prices for agricultural products, including the following products are are often tracked by the price of 100 pounds of the crop.

The USDA/NASS reports that the price of;

see home page of USDA/NASS for full reporting

The US Department of Labor reported today that 62,000 jobs were cut from the US economy last month. The government’s officially reported unemployment rate remained at 5.5 percent-the highest unemployment rate since 2004.

MarketWatch reported, “Payrolls have now fallen in all six months this year for a total job loss of 438,000, the strongest evidence that the economy fell into a recession.” The number of jobs lost in America was 22,000 greater than had been predicted by MarketWatch based upon it’s survey of economists.

MarketWatch also reported that the job loss numbers for both April and May were revised downward by the Labor Department, with an additional 52,000 jobs reported as having been eliminated by US companies.

see stories-
MarketWatch : U.S. June nonfarm payrolls fall 62,000
Reuters : Economy extends job loss streak
Charlotte Business Journal : U.S. jobs fell by 62,000 in June

Economists have estimated that up to 40 percent of US business models are severely threatened by rising gas and oil prices. While it is obvious that the transportation and logistics industries (trucking, airlines, rail freight, Fedex) are extremely vulnerable to $4—or $5— gasoline, many other sectors will be significantly impacted. Small businesses are particularly at risk, as in this piece from the Associated Press :

“Cramming into a rusty, creaky van and playing dive bars and house parties is a summer ritual for many young musicians and ambitious independent bands trying to get exposure, make a living and maybe build a solid future in music.

But like everything else that requires lengthy time on the road, filling up at $4 a gallon or more is taking a toll.”

According to the report, bands are curtailing or even canceling their tours, which used to be a reliable, if modest, source of revenue :

“The tough choices being made at the bottom of the music industry food chain are just one more hit to the business already reeling from declining album sales because of digital music.

Gary Bongiovanni, editor-in-chief of Pollstar, a trade publication covering the concert business, said the cost of fuel is affecting all levels, but the ‘people being most affected are new bands touring on the subsistence level. They don’t have the popularity to charge higher ticket prices because of higher fuel costs.’”

Associated Press : High fuel prices put brakes on indie band tours

The trade deficit has swollen to its highest level in over a year with the gap between exports and imports rising by over seven and one half percent in April to $60.9 billion. The imbalance is the largest reported by the Commerce Department since March 2007. The increase was largely blamed on historically high oil prices. Yahoo News reported;

“The higher deficit was driven by a $4.3 billion increase in crude oil imports, which jumped to a record $29.3 billion in April, as the average per-barrel price rose to an all-time high of $96.81. If the price of crude had instead been at $60 per barrel, about where it was a year ago, the trade deficit would have been $11 billion lower in April. Analysts cautioned the deficit will widen further in coming months, given that oil is now trading above $130 per barrel.”

The Commerce Department also reported that deficit with China increased, up by 25.9 percent in April to $20.2 billion, the highest level in three months.

Economists actually predict that the trade deficit should shrink over time because of the underlying weak fundamentals of the US economy, identified by Yahoo News as a “significant economic slowdown in the United States which is cutting into demand for imports and the weak dollar, which has helped to boost U.S. exports.” Bloomberg writes, “The dollar’s two-year slide, coupled with stronger growth in Europe and Asia, is spurring demand for” cheap American products.

Federal Reserve Chairman Ben S. Bernanke pulled a positive out of the feedback loop created by the weak dollar and Americans being unable to tap credit lines to buy more stuff when he said last week, “Currently, the demand for U.S. exports arising from strong global growth has been an important offset to the factors restraining domestic demand, including housing and tight credit.”

The dollar was down 9.6 percent against a trade-weighted basket of currencies from major trading partners in the 12 months that ended in April.

see stories-
Yahoo News :Trade deficit jumps to highest level in 13 months
Bloomberg : U.S. Trade Gap Widened in April on Record Oil Imports

The Commonwealth Fund has released a study that found that the number of under insured Americans increased by 60 percent between 2003 and 2006. The fund focused on Americans “who have health coverage that does not adequately protect them from high medical expenses.” There are over 25 million Americans who currently pay for insurance that does not fully protect them. The fund said that middle class Americans have seen the highest rates of increase, underinsured rates have tripled since 2003.

The San Francisco Chronicle quoted the president of the fund, Karen Davis, who said, “Even the insured have serious gaps in coverage…Insurance coverage is the ticket into the health care system, but for too many, that ticket does not provide genuine access to care.”

Underinsured Americans, as defined in the study, spend 10 percent or more of their yearly income on out-of-pocket medical expenses, even though they also pay for insurance coverage. The study’s authors said;

“An estimated 14 percent of all nonelderly adults were underinsured in 2007, and more than one of four were uninsured for all or part of the year. Adding these two groups together, 75 million adults—42 percent of the under-65 population—had either no insurance or inadequate insurance in 2007, up from 35 percent in 2003”.

In addition, the Commonwealth Fund reported;
- About 68 percent of the uninsured and 53 percent of the underinsured said they went without needed care because of cost, compared with 31 percent of those with adequate insurance.
- Nearly half - 45 percent - of the underinsured reported financial stress due to medical bills. About 51 percent of the uninsured and 21 percent of those with better coverage said they experienced similar financial difficulties.

full study-
Commonwealth Fund : How Many Are Underinsured? Trends Among U.S. Adults, 2003 and 2007