Tuesday, December 07, 2010

President Obama and congressional Republicans have agreed to a tentative deal that would
extend all the Bush-era income tax breaks set to expire on Dec. 31, continue unemployment benefits for
an additional 13 months, and cut payroll taxes to encourage employers to start hiring. – WP – see below
Hiring plans pick up around the globe – employers in countries such as China and India expect to
pick up the hiring pace in ’11; US hiring plans are improved, but more modest. – Manpower

US Employment Outlook

Greek equities (+3%) and CDS spreads (12bps tighter) benefited from remarks from the
President of the European Commission that "after a positive assessment of compliance with program
conditionality, I expect the Eurogroup to approve the release of the next tranche of the loan of EUR 6.5
billion on 19 January 2011, which will be on top of the IMF disbursement due at the end of December."
– Bloomberg
Ireland - all eyes later this morning will be on the Ireland budget vote (debate is due to
commence around ~10:30amET)
EC covered up report that exonerated HFs role in Greek debt crisis - "The European Commission
has been accused of covering up a report that concluded that hedge fund trading did not exacerbate the
Greek sovereign debt crisis, as some politicians had maintained" - London Telegraph

Some of the points from the White House/GOP tax plan (JP Morgan):
Extending all the Bush rates on a temporary basis for 2 years (it doesn’t seem like the two sets
of income tax rates will be detached, meaning that this could become a political battle again when
Obama is running for reelection in ’12).
The dividend and capital gains tax would stay at 15% through at least ’15
A temporary reinstatement of the estate tax at 35% (a level generally thought to be favored by
the GOP); under current law (i.e. before Tues night’s pact), the rate will move from 0% for ’10 to 55% in
’11. The 35% would be for estates worth more than $5MM and would last for 2 years.
Unemployment benefits would be extended for 13 months (they expired at the end of Nov)
Cutting payroll taxes – the current 6.2% tax on an individual’s wages would be cut to 4.2% for 1
year; the employer’s half of this tax would stay at 6.2%. This tax reduction would replace the “Making
Work Pay” tax that is due to expire at the end of the year. There could be some pushback here as this
tax funds Social Security.
Companies may receive a 100% accelerated depreciation benefit for 1 year (the ’09 stimulus bill
gave companies a 50% accelerated depreciation table).
The college-tuition tax credit would stand and there would be an expansion of the earned
income tax credit.