U.S.: Extension of payroll tax holiday may threaten Social Security Funding

In the LATimes Michael Hiltzick writes that extension of the payroll tax cut will undermine Social Security. Most commentators are quite happy with the extension of the Social Security Tax payroll holiday as well as unemployment insurance plus maintenance of reimbursement levels for Medicare doctors.

Hiltzick worries that each extension makes it less likely that politicians will have the courage to reinstate the statutory 6.2 per cent. This will threaten funding for Social Security.

Hitzick admits that so far the tax holiday has not hurt Social Security's financial resources. One hundred per cent of the cut must be covered by transfers from general revenue. Since 2010 that comes to 130 billion dollars. This new extension will cost about 94 billion.

Hiltzick believes that Social Security is now on the table for cuts and the revenue stream from the payroll tax is in jeopardy. Andrew Biggs a former Social Security official but now at the conservative American Enterprise Institute told the author:"Who is ever going to say, 'Now the economy's so strong that it's the right time to raise taxes'?" Other analysts think that it will be possible for the old rates to return. Given the opposition that Republicans might make against such a tax hike this seems unlikely. For much more see the full article.

U.S. home prices in decline

  In 19 of 20 U.S. cities home prices declined during the month of October. The average price of a home in the cities monitored in the index was down 3.4 per cent from the same month last year. This was more than the 3.2 per cent that economists surveyed by Bloomberg had forecast.
   Atlanta Georgia had the biggest fall, off 11.7 per cent from last year. Only Phoenix Arizona bucked the trend. Perhaps Canadian snowbirds are snapping up bargains while they last driving up prices.
    Many analysts predict that there will be a further decline next year. Many foreclosures were put on hold earlier and now the foreclosures will resume. This will add to unsold housing stock and weaken prices. A regulator reported that in the third quarter foreclosures had jumped 21 per cent from the same quarter last year.
   Unless economic conditions improve for many households there could be even more foreclosures. Almost a quarter of U.S. homeowners owe more on their mortgages than the worth of their houses. For more see this article.


 

Citigroup to slash 4,500 jobs

The CEO Vikram Pandit said the cuts were in response to declining revenues and market conditions. The measure is expected to reduce costs although there will also be some costs such as severance pay associated with the cuts.

Worldwide Citigroup employs about 267,000 people. The cuts are just a small percentage of their total work force. New regulations requiring larger minimum capital levels and cutting off revenues from trading and investment banking will cut into bank revenues.

Some analysts feel that even more jobs will be cut. Data collected by Bloomberg shows that financial firms have slashed over 200,000 jobs this year. This contrasts with only 58,000 cuts last year.

Citigroup is investing in countries such as Brazil, China and India. In fact emerging markets now make up half Citigroup's profits. These economies are expanding about three times the rate of developing countries. For more see this article.