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New From the GAO

March 14, 2014 Comments off

New GAO Report
Source: Government Accountability Office

Regional Missile Defense: DOD’s Report Provided Limited Information; Assessment of Acquisition Risks Is Optimistic. GAO-14-248R, March 14.
http://www.gao.gov/products/GAO-14-248R

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SEC — Investor Bulletin: How Fees and Expenses Affect Your Investment Portfolio

March 14, 2014 Comments off

Investor Bulletin: How Fees and Expenses Affect Your Investment Portfolio (PDF)
Source: U.S. Security and Exchange Commission

As with anything you buy, there are fees and costs associated with investment products and services.

These fees may seem small, but over time they can have a major impact on your investment portfolio. The following chart shows an investment portfolio with a 4% annual return over 20 years when the investment either has an ongoing fee of 0.25%, 0.50% or 1%. Notice how the fees affect the investment portfolio over 20 years.

Perspectives: Immigrants and Retirement Resources

March 14, 2014 Comments off

Immigrants and Retirement Resources
Source: Social Security Administraton

The extensive literature documenting differences in wages between immigrant and native-born workers suggests that immigrants may enter retirement at a significant financial disadvantage relative to workers born in the United States. However, little work has examined differences in retirement resources and retirement security between immigrants and natives. In this article, we use data from the Health and Retirement Study linked with restricted data from the Social Security Administration to compare retirement resources of immigrants and natives. Our results suggest that while immigrants have lower levels of Social Security benefits than natives, when holding demographic characteristics constant, immigrants have higher levels of net worth. The estimated immigrant differentials vary a great deal by number of years in the United States, with the most recent immigrants being the least prepared for retirement.

Housing Crash Continues to Overshadow Young Families’ Balance Sheets

March 14, 2014 Comments off

Housing Crash Continues to Overshadow Young Families’ Balance Sheets
Source: Federal Reserve Bank of St. Louis

The average young family—which we define as a single- or multi-person family unit headed by someone under 40—has recovered only about one-third of the wealth it lost during the financial crisis and recession. The average wealth of middle-aged families (ages 40 to 61) and older families (ages 62 or older) has recovered to about its precrisis level.

The main reason young families’ balance-sheet recovery lags is the recent housing crash and its lingering effects. The homeownership rate among younger families has plunged, reflecting both the loss of many homes through foreclosure or other distressed sales and delayed entry into homeownership among newly formed households. The house-price gains that have helped mainly older families to rebuild homeowners’ equity have been overshadowed among younger families by the ongoing retreat from homeownership.

CBO — Emergency Unemployment Compensation Extension Act of 2014 (cost estimate)

March 14, 2014 Comments off

Intergenerational Redistribution in the Great Recession

March 14, 2014 Comments off

Intergenerational Redistribution in the Great Recession
Source: Federal Reserve Bank of Atlanta

In this paper we construct a stochastic overlapping-generations general equilibrium model in which households are subject to aggregate shocks that affect both wages and asset prices. We use a calibrated version of the model to quantify how the welfare costs of severe recessions are distributed across different household age groups. The model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages, as observed in the data. Asset price declines hurt the old, who rely on asset sales to finance consumption, but they benefit the young, who purchase assets at depressed prices. In our preferred calibration, asset prices decline close to three times as much as wages, consistent with the experience of the U.S. economy in the Great Recession. A model recession is almost welfare-neutral for households in the 20–29 age group, but translates into a large welfare loss of around 10 percent of lifetime consumption for households aged 70 and over.

CRS — The Role of Trade Secrets in Innovation Policy

March 14, 2014 Comments off

The Role of Trade Secrets in Innovation Policy (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

Many businesses have developed proprietary information that provides a competitive advantage because it is not known to others. As the United States continues its shift to a knowledge- and service-based economy, the strength and competitiveness of domestic firms increasingly depends upon their know-how and intangible assets. Trade secrets are the form of intellectual property that protects this sort of confidential information.

Trade secret law protects secret, valuable business information from misappropriation by others. Subject matter ranging from marketing data to manufacturing know-how may be protected under the trade secret laws. Trade secret status is not limited to a fixed number of years, but endures so long as the information is valuable and maintained as a secret. A trade secret is misappropriated when it has been obtained through the abuse of a confidential relationship or improper means of acquisition.

A number of competing innovation policy concerns help shape the particular doctrines that comprise trade secret law. The availability of legal protection for trade secrets potentially promotes innovation, encourages firms to invest in employee development, and confirms standards of commercial ethics and morality. On the other hand, trade secret protection involves the suppression of information, which may hinder competition and the proper functioning of the marketplace. An overly robust trade secret law also could restrain employee mobility and promote investment in costly, but socially inefficient security measures.

Obama Administration Takes Action to Protect Americans from Predatory, Poor-Performing Career Colleges

March 14, 2014 Comments off

Obama Administration Takes Action to Protect Americans from Predatory, Poor-Performing Career Colleges
Source: U.S. Department of Education

The Obama Administration announced today new steps to address growing concerns about burdensome student loan debt by requiring career colleges to do a better job of preparing students for gainful employment—or risk losing access to taxpayer-funded federal student aid.

The proposed regulations released by the U.S. Department of Education will help to strengthen students’ options for higher education by giving all career training programs an opportunity to improve, while stopping the flow of federal funding to the lowest-performing ones that fail to do so.

CRS — Votes on Measures to Adjust the Statutory Debt Limit, 1978 to Present

March 14, 2014 Comments off

Votes on Measures to Adjust the Statutory Debt Limit, 1978 to Present (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

Almost all borrowing by the federal government is conducted by the Treasury Department, within the restrictions established by a single, statutory limit (ceiling) on the total amount of debt that may be outstanding at any time. By law, the Treasury cannot exceed federal debt limits, so the Treasury periodically has had to ask Congress to enact new debt limits so it can fulfill its financial commitments. Since 1978, Congress has passed, and the President has signed into law, 55 measures adjusting the statutory debt limit either as stand-alone legislation or as part of legislation dealing with other matters.

This report provides roll call vote data identified by the Congressional Research Service for measures to adjust the statutory debt limit. This report will be updated as events warrant.

FTC Announces Top National Consumer Complaints for 2013

March 14, 2014 Comments off

FTC Announces Top National Consumer Complaints for 2013
Source: Federal Trade Commission

Identity theft continues to top the Federal Trade Commission’s national ranking of consumer complaints, and American consumers reported losing over $1.6 billion to fraud overall in 2013, according to the FTC’s annual report on consumer complaints released today.

The Commission received more than two million complaints overall, as reported in the agency’s Consumer Sentinel Network Data Book 2013, of which 290,056, or 14 percent, were identity theft related. Thirty percent of these incidents were tax- or wage-related, which continues to be the largest category within identity theft complaints.

The highest reported age group for identity theft is 20-29, with 20 percent of complaints. Rich says that educating consumers on this topic is a top priority for the agency. Some of the FTC resources include Signs of Identity Theft, Immediate Steps to Repair Identity Theft, and How to Keep Your Personal Information Secure.

Of the more than 1.1 million fraud complaints (classified separately from identity theft) the Commission received, 61 percent of consumers reported an amount of money they had paid, which collectively added up to more than $1.6 billion.

Connecting Individual K-12 STEM Subjects Has Potential Advantages, Poses Challenges

March 13, 2014 Comments off

Connecting Individual K-12 STEM Subjects Has Potential Advantages, Poses Challenges
Source: National Academy of Engineering and National Research Council

A new report from the National Academy of Engineering and National Research Council examines current efforts to connect the science, technology, engineering, and mathematics (STEM) disciplines in K-12 education, both in formal classroom settings and informal learning environments, and suggests research to help determine the conditions most likely to lead to positive outcomes such as greater student retention and achievement, improved college-readiness skills, and increased interest in pursuing a STEM-related career. A short video illustrating today’s STEM education landscape and the potential benefits and challenges of integrated approaches also was released in conjunction with the report. The report and video note that the recently published Next Generation Science Standards, which encourage integration between science concepts and engineering practices, provide an impetus for considering integration.

New From the GAO

March 13, 2014 Comments off

New GAO Report and Testimonies
Source: Government Accountability Office

Report

1. Financial Audit: Federal Deposit Insurance Corporation Funds’ 2013 and 2012 Financial Statements. GAO-14-303, March 13.
http://www.gao.gov/products/GAO-14-303
Highlights - http://www.gao.gov/assets/670/661692.pdf

Testimonies

1. Afghanistan: Key Oversight Issues for USAID Development Efforts, by Charles Michael Johnson, Jr., director, international affairs and trade, before the Subcommittee on National Security, House Committee on Oversight and Government Reform. GAO-14-448T, March 13.
http://www.gao.gov/products/GAO-14-448T
Highlights - http://www.gao.gov/assets/670/661699.pdf

2. U.S. Postal Service: Action Needed to Address Unfunded Benefit Liabilities, by Frank Todisco, chief actuary, applied research and methods, before the Subcommittee on Federal Workforce, U.S. Postal Service and the Census, House Committee on Oversight and Government Reform. GAO-14-398T, March 13.
http://www.gao.gov/products/GAO-14-398T
Highlights - http://www.gao.gov/assets/670/661638.pdf

2012 Annual Capital Expenditures

March 13, 2014 Comments off

2012 Annual Capital Expenditures
Source: U.S. Census Bureau

These data, based on the 2007 North American Industry Classification System, estimate business spending in 2012 for new and used structures and equipment at the sector level, as well as for three-digit and selected four-digit industries. The data provide a relevant, timely and accurate measure of current business conditions. These statistics are an important input for federal agencies constructing composite national economic measures, such as the Bureau of Economic Analysis’ estimates of private-fixed investments, a major component of gross domestic product; the Bureau of Labor Statistics’ estimates of capital stocks for productivity analysis; and the Federal Reserve Board’s Flow of Funds accounts. Detailed data by types of structures and types of equipment collected in 2012 will be released at the end of March. Internet address: <http://www.census.gov/econ/aces/xls/2012/full_report.html>.

CRS — Restrictions on Itemized Tax Deductions: Policy Options and Analysis

March 13, 2014 Comments off

Restrictions on Itemized Tax Deductions: Policy Options and Analysis (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

The President and leading Members of Congress have indicated that income tax reform is a major policy objective. Some itemized deductions are visible candidates for “broadening the base” of the individual income tax and cutting back on tax expenditures and primarily consist of deductions for mortgage interest, state and local taxes, and charitable contributions. The benefits of itemized deductions are concentrated among higher-income individuals, and that is particularly the case for state and local income tax deductions and charitable deductions.

Proposals for addressing these provisions fall into two general classes. One approach could include repealing or restricting all itemized deductions. A different approach would consider each type of deduction and tailor a reform to the particular objectives and merits of the deductions, such as a lower ceiling on home mortgage interest deduction and a floor for charitable contributions.

This report analyzes various proposals to restrict itemized deductions—both across-the-board and individually tailored—using standard economic criteria of economic efficiency, distribution, simplicity, and estimated revenue effects. In particular, this report estimates each proposal’s potential to contribute to revenue-neutral reductions in income tax rates and the consequences for economic behavior. For an introduction to tax deductions, see CRS Report R42872, Tax Deductions for Individuals: A Summary, by Sean Lowry. For general tax data analysis on itemized tax deductions, see CRS Report R43012, Itemized Tax Deductions for Individuals: Data Analysis, by Sean Lowry.

CRS — The First Day of a New Congress: A Guide to Proceedings on the House Floor

March 13, 2014 Comments off

The First Day of a New Congress: A Guide to Proceedings on the House Floor (PDF)
Source: Congressional Research Service (via Federation of American Scientists)
<blockquote
Article 1, Section 2 of the Constitution sets a term of office of two years for all Members of the House. One House ends at the conclusion of each two-year Congress, and the newly elected Representatives must constitute a new House at the beginning of the next Congress. Consequently, the House must choose its Speaker and officers and adopt the chamber’s rules of procedure every two years.

The Constitution mandates that Congress convene at noon on January 3, unless the preceding Congress by law designated a different day. Although no officers will have been elected when the House first convenes, officers from the previous Congress perform certain functions, such as conducting the election of the Speaker.

See also: The First Day of a New Congress: A Guide to Proceedings on the Senate Floor (PDF)

Bankruptcy Procedures Designed to Protect Taxpayer Rights and the Government’s Interest Were Not Always Followed

March 13, 2014 Comments off

Bankruptcy Procedures Designed to Protect Taxpayer Rights and the Government’s Interest Were Not Always Followed
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
The bankruptcy automatic stay provision prohibits the IRS from taking certain collection actions against a debtor (taxpayer) as soon as it learns, or is notified by a U.S. bankruptcy court, that a bankruptcy petition has been filed. Similarly, the debtor may be granted a discharge, which remains after the case is closed and is a permanent injunction order prohibiting the IRS from taking any form of collection action against the debtor personally with respect to discharged debts. If the IRS does not observe the automatic stay or the discharge injunction, taxpayers’ rights could potentially be violated and the IRS could be sued for damages.

WHY TIGTA DID THE AUDIT
In Fiscal Year 2012, IRS data showed that the Field Insolvency function received 306,920 bankruptcy cases on taxpayers owing approximately $2.5 billion in taxes, penalties, and interest. This audit was initiated to determine whether the function has effective controls and procedures in place to take appropriate and timely actions to protect the Government’s interest and taxpayers’ rights during bankruptcy proceedings.

WHAT TIGTA FOUND
Field Insolvency function specialists frequently did not follow required procedures when working bankruptcy cases. Although TIGTA did not identify any violations of taxpayers’ rights and/or failure to protect the Government’s interest during this review, there is a higher risk that this could occur when procedures are not followed.

TIGTA’s review of three random samples of closed bankruptcy cases showed that specialists did not always follow established procedures in 17 (57 percent) of 30 Chapter 7 cases, 15 (50 percent) of 30 Chapter 11 cases, and 13 (43 percent) of 30 Chapter 13 cases reviewed. Specifically, specialists did not always timely or properly conduct the initial case analysis, follow up on scheduled case actions within a reasonable time, or timely or properly close cases.

TIGTA also reviewed a random sample of 30 bankruptcy cases with Automated Proof of Claim flag conditions (errors that need to be resolved by a specialist). Specialists did not timely or properly resolve the flag conditions in 12 (40 percent) of 30 cases.

WHAT TIGTA RECOMMENDED
TIGTA recommended that the Director, Field Collection, Small Business/Self-Employed Division: 1) enhance casework priorities and efficiencies; 2) ensure that specialists are properly conducting the initial analysis and closing actions; 3) ensure that the Automated Insolvency System follow-up tool is the preferred method for creating follow-ups; 4) ensure that case actions are properly documented for Automated Proof of Claim flag conditions; and 5) ensure that the Flagged Cases Report is the preferred method for monitoring cases.

In their response to the report, IRS officials agreed with all of our recommendations and plan to take corrective actions.

CRS — Taxation of Hedge Fund and Private Equity Managers

March 13, 2014 Comments off

Taxation of Hedge Fund and Private Equity Managers
Source: Congressional Research Service (via Federation of American Scientists)

Private equity and hedge funds are investment pools generally available only to institutions and individuals able to make investments in excess of $200,000. Private equity funds acquire ownership stakes in other companies and seek to profit by improving operating results or through financial restructuring. Hedge funds follow many strategies, investing in any market where managers see profit opportunities. The two kinds of funds are generally structured as partnerships: the fund managers act as general partners, while the outside investors are limited partners. Fund managers are compensated in two ways. First, to the extent that they invest their own capital in the funds, they share in the appreciation of fund assets. Second, they charge the outside investors two kinds of annual fees: a percentage of total fund assets, and a percentage of the fund’s earnings. The latter performance fee is called “carried interest” and is treated as capital gains under current tax rules.

Since the 110th Congress, concerns have been raised that the current tax rules are inequitable and inconsistent with some tax policy principles. Proposals that address this concern have focused on taxing some portion (or all in some cases) of carried interest as ordinary income. In the 113th Congress, the Tax Reform Act of 2014 would tax carried interest, exempting income earned from real estate, as ordinary income. S. 268 and the President’s FY2014 Budget Proposal would tax carried interest as ordinary income, while taxing another form of compensation, known as enterprise value, as capital gains income. According to the Joint Committee on Taxation, the provision in the Tax Reform Act of 2014 would raise $3.1 billion in revenue in the FY2014- FY2023 budget window, while the provision in the President’s FY2014 Budget Proposal would raise $17.4 billion in revenue in the FY2014-FY2023 budget window.

This report discusses the major issues surrounding the tax treatment of hedge fund and private equity managers and will be updated as legislative developments warrant.

CRS — Offender Reentry: Correctional Statistics, Reintegration into the Community, and Recidivism

March 13, 2014 Comments off

Offender Reentry: Correctional Statistics, Reintegration into the Community, and Recidivism (PDF)
Source: Congressional Research Service (via University of Iowa Law Library)

The prison population in the United States has been growing steadily for more than 30 years. The Bureau of Justice Statistics reports that since 1990 an average of 590,400 inmates have been released annually from state and federal prisons and almost 5 million ex-offenders are under some form of community-based supervision. Offender reentry can include all the activities and programming conducted to prepare ex-convicts to return safely to the community and to live as law-abiding citizens. Some ex-offenders, however, eventually end up back in prison. The most recent national-level recidivism study is 10 years old; this study showed that two-thirds of exoffenders released in 1994 came back into contact with the criminal justice system within three years of their release. Compared with the average American, ex-offenders are less educated, less likely to be gainfully employed, and more likely to have a history of mental illness or substance abuse—all of which have been shown to be risk factors for recidivism.

CRS — Congressional Redistricting and the Voting Rights Act: A Legal Overview (updated)

March 13, 2014 Comments off

Congressional Redistricting and the Voting Rights Act: A Legal Overview (PDF)
Source: Congressional Research Service (via University of Iowa Law Library)

The Constitution requires a count of the U.S. population every 10 years. Based on the census, the number of seats in the House of Representatives is reapportioned among the states. Thus, at least every 10 years, in response to changes in the number of Representatives apportioned to it or to shifts in its population, each state is required to draw new boundaries for its congressional districts. Although each state has its own process for redistricting, congressional districts must conform to a number of constitutional and federal statutory standards, including the Voting Rights Act (VRA) of 1965.

CRS — An Analysis of the Geographic Distribution of the Mortgage Interest Deduction

March 13, 2014 Comments off

An Analysis of the Geographic Distribution of the Mortgage Interest Deduction (PDF)
Source: Congressional Research Service (via National Low Income Housing Coalition)

This report analyzes variation in the mortgage interest deduction tax expenditure across states. Tax expenditures, such as the mortgage interest deduction, can generally be viewed as government spending administered via the tax code, or as tax incentives that are intended to achieve particular policy objectives. Regardless of the interpretation, tax expenditures provide a benefit to qualifying taxpayers by lowering their federal tax liabilities. Recent proposals to change the mortgage interest deduction could affect how its benefits are distributed. Understanding how the deduction’s benefits are currently distributed across taxpayers in different states may help Congress in assessing the potential impact on constituents from a particular policy change.

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