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How Much Did the Attacks Affect the Markets? ...
There is no question: The moment those planes crashed into the World Trade Center towers, there was an immediate and devastating impact. The stock exchanges were down for almost a week. Major financial players in the markets lost both lives and business, especially Cantor Fitzgerald, which lost more than 500 employees. ... And as of this writing, the City has already spent more than $11 billion on the rescue and clean-up efforts. But the effects did not stop with Wall Street. Almost immediately, the airline industry cut back dramatically on flights and services and turned to the feds for a bailout. The Congress quickly proffered a package in the form of funds and loan guarantees amounting to some $17 billion; but that was not enough to keep tens of thousands of airline workers from being let go within a week or two of the attacks. Small
Gestures for NYC ... Grand Gestures for Corporations ... The House bill made the pages of the New York Times under the title, "An Economic Stimulus Bill With Corporations in Mind." [Oct. 27th.] And, as one might expect, there are both yea's and nay's surrounding the latest House move. Take, for example, the proposed change in the depreciation schedule. The change in the depreciation schedule is estimated to decrease federal revenues by some $39 billion in the first year alone. Proponents of the bill have argued that this change is long overdue, particularly the 5-year depreciation schedule for computer equipment, which is likely to become out-dated before it is fully depreciated. Opponents of the measure, however, point to the fact that, for the purposes of economic stimulus, the bill would have been better off cramming the break into one year instead of three, forcing corporate hands to dig into revenues for capital expenditures now, instead of biding their time. But the biggest concern among some opponents is actually focused on the states, which, unlike the federal government, have to run within balanced budgets. According to Robert Greenstein, executive director of the Center on Budget and Policy Priorities, since most states follow fed guidelines on write-offs in determining corporate taxes, some 44 states and Washington, D.C., would lose an average of $5 billion each year for the three years the depreciation scheme is in effect. Obviously, that is not the kind of money that states can make up easily, especially in the current economic downturn. Vermont, as just one example, is already in the process of trimming its budget, with 1% across-the-board decreases at a minimum. Fortunately, speculation has it that the House bill will be significantly modified in the Senate. If those modifications change the depreciation break, either by amount or duration, that can help both the economy and the states. But the biggest concern of opponents to the House version is expected to weather whatever Senate opposition might be forthcoming. That concern is about the Alternative Minimum Tax. Repeal of the Alternative
Minimum Tax ...
The House bill seeks not only to repeal the Alternative Minimum Tax [AMT], but also to provide refunds going back to its inception in 1986. Current figures set out by Citizens for Tax Justice estimate that, among the refund checks will be one to IBM for $1.4 billion. Others include $833 million for General Motors, $671 million for General Electric, $572 million for Chevron-Texaco, and $254 million for Enron. Of all of them, however, only Enron is currently experiencing any financial difficulties. IBM, on the other hand, recently said it would meet investor expectations, and GE brought in some $9.8 billion in the first three quarters of the year, an increase of more than 6.5% in a year when most corporations were seeing significant decreases in earnings. Why is the repeal of the AMT likely to make it through the Senate? According to Robert McIntyre, director of Citizens for Tax Justice, because in recent years more and more individuals, including those with relatively modest incomes, have been hit harder by the minimum tax while corporations have increasingly found more and more loopholes. In 1990, four years after the AMT went into effect, roughly 132,000 individuals paid about $830 million in Alternative Minimum Tax. By 1998, some 2 million taxpayers were liable and that figure had risen to $5 billion. On the other hand, corporations, which were seen as the original targets of the AMT, only paid two-thirds of that amount, or $3.3 billion, in 1998, down significantly from the $8.1 billion they'd paid back in 1990. Icing on the Corporate
Tax-Break Cake ... Local Impacts? ... On the other side, corporate tax breaks, particularly for large local players like IBM, might mean greater job stability for some workers. But if the airline industry is any example, and there's no reason to think that it isn't, such an outcome is not likely. The fact is, the economy has been sliding from its exuberant days for some time. That slide started in the first quarter of last year, and the exuberance came crashing down around April Fools Day, when the market bubble finally burst. There have been some attempts at a rebound since then. But each attempt has been met with further melt-downs that have coincided with quarterly profit reports, which, for many corporations, have been dismal, to put it mildly. Big players, among them, once-giant players like AT&T and Lucent, are trading at a fraction of their peak values from last year, and they continue to decline. Whether the proverbial worst is over remains to be seen. But the one thing that's been keeping the economy afloat since the corporations began their belt-tightening more than a year and a half ago has been consumer spending. But as corporations get tax breaks and workers still lose their jobs, consumer confidence, too, has begun to sink, and nothing in the current tax stimulus package seems likely to turn that around. If consumer confidence, which translates pretty directly into consumer spending, continues to decline, then the ripple-effect will almost certainly add to the economic difficulties. Tourism will go down, as well as jobs in other sectors, as well. That will also mean additional lost revenues for the state, which is already wondering how deep the cuts will have to go before we reach bottom. But make no mistake. These effects were "in the pipeline" long before the attacks of September 11th. Whether the attacks will have made things even worse for the economy remains to be seen.
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