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The excerpt from The Kiplinger Letter published in Kiplinger’s Personal Finance magazine comes from
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1100 13th Street NW, Washington, DC 20005 • kiplinger.com • Vol. 92, No. 23
Dear Client:
Washington, June 5, 2015
Don’t be surprised by higher taxes in 2016.
Though Washington is expected to hold the line…
At least a dozen states will raise taxes
for individuals or corporations in the months ahead
as they struggle to close spending gaps in budgets.
Even some that are led by Republicans.
A handful of other states will consider increases
that may be blocked by state lawmakers or vetoed
as their new fiscal years loom…July 1 for most.
ECONOMIC FORECASTS
STATE
Two main factors are driving the action:
TAXES
The fits-and-starts economic recovery,
which is leaving some states with massive deficits
and others looking for ways to give more to schools
as well as to make up for underfunded pension plans.
And the absence of a federal highway bill
that would reliably fund road and bridge projects.
GDP growth
Over 4% in second-half ’15;
2.6% for the year
Interest rates
10-year T-notes at 2.4%
by year-end
Inflation
Inching up to 1% by Dec. ’15,
from 0.8% in Dec. ’14
Unemployment
5.1% by end ’15,
from 5.6% at end ’14
Crude oil
Trading from $60 to $65/bbl.
by Aug.
Disposable income
Businesses will take a big hit in Nev.
Rising 3.6% in ’15, from 2.5% in ’14,
GOP Gov. Brian Sandoval is expected to sign a bill
after adjusting for inflation
adding new filing fees and setting a gross receipts tax
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for companies that earn at least $4 million a year.
of these Kiplinger forecasts
The package will also revive $600 million in taxes…
payroll and sales levies…that were supposed to sunset but have twice been extended.
Higher business costs are also in the cards in Conn., where Democrats
in the legislature and the Democratic governor OK’d a higher data processing tax,
a new tax system for firms with operations in multiple states and higher tax brackets
for the state’s wealthiest individuals. Some companies are threatening to move away.
Targeted tax increases are in store for airlines in a handful of states.
Fla., Mass., N.C. and Wash. may follow Ga.’s lead in rolling back a jet fuel tax break.
Also under consideration: Higher income and sales tax rates in Pa.
Unspecified boosts to close a $6.2-billion budget gap in Ill. The fight…
a GOP governor versus Democratic-led chambers…could shut down the government.
Higher sales taxes in Kan., where tax cuts brought a $400-million deficit
instead of expected economic growth. The GOP-led Senate rejected tax increases
of $450 million but is likely to increase some taxes to help erase the red ink.
A jump in the gas tax in S.C. and a new transportation tax in Ore…
a voluntary per mile charge that would give drivers credit for gas taxes they paid.
Eight other states have already pushed up their gasoline tax rates this year.
Taxing sugary drinks in Vt. and rolling back an inventory tax credit in La.
States keeping tax rates the same are seeking other ways to ease money woes.
N.M., Okla. and Wyo. are using rainy-day funds or other reserves to plug budget holes
caused by falling oil prices. Alaska is also looking to tap its budget reserve.
Calif. and Minn. have a different problem: How to spend billions in surpluses.
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June 5, 2015
THE
Most sectors of the economy are returning to full expansion mode, as shown
ECONOMY by May’s solid employment gain of 280,000. Retail, leisure and hospitality,
health care plus professional and business services all came back strong in May,
with mining and some manufacturing lagging. Government hiring was the strongest
we’ve seen in two years, another surprising positive for GDP growth going forward.
We see healthy hiring and economic growth continuing in coming months,
enticing more discouraged workers to pursue budding employment opportunities.
A modestly upbeat outlook for hotel and commercial real estate markets
through year-end and into 2016. Nationally, lodging occupancy rates will climb
to 65.2% from 64.4% in 2014, even as more hotel and motel rooms come on line.
Office vacancy rates will edge down a tad in the year ahead from 15.6% currently,
while industrial vacancy rates will fall from 8.4% now to a tick over 8% next year.
Vacancy rates for multifamily housing will remain below 5% into early 2016,
but as more apartments are added in coming months, rents in 2016 will ease some.
STATE
The economies of the New England states will mostly improve this year.
BY STATE Massachusetts. The Greater Boston region is seeing large expansions
by Facebook, 1366 Technologies and other firms, as well as biotech start-ups.
But healthier economic growth won’t be felt in western Mass. until later in the year.
State GDP will grow 2.5% versus 2% in 2014, while payrolls are poised to climb 1.8%.
Connecticut. Here, too, biotech start-ups are drawing venture capital,
helping to boost the economy, while financial and insurance firms are stabilizing.
Look for GDP expansion of 2.1%, up from 1.6% last year. Hiring will gain 1.7%.
New Hampshire. With high-tech manufacturers on the upswing in the state,
FedEx and UPS are building specialized warehouses near Nashua to service them.
GDP will grow 2.1% compared with 1.4% in 2014; employment will rise 1.4%.
Rhode Island. The long-beleaguered Ocean State will see a slight uptick
in GDP growth…1.7% versus 1.6% last year. But employment will rise just 1.1%,
a notch below last year’s gain, largely because of job cuts in public education
and construction. Meanwhile, health care and food service firms are expanding.
Vermont. Tourism is on the rebound, benefiting the hospitality industry.
Another positive: Vermont Castings, a manufacturer of fireplaces and grills,
is moving production back to the state from overseas. State GDP will grow 1.3%
compared with 1.2% last year, while employment is poised to expand 1.7%.
Maine. Though the Portland area is improving, the Pine Tree State
will see the slowest growth in output and employment of all the New England states.
GDP will grow 1.1%, same as last year, while payrolls will eke out a paltry 0.6% gain.
REGS
Have employees who work remotely? Keep an eye on pay rules on the way
that might someday regulate how staffers are paid for the time they spend
sending e-mail and doing other tasks from home or elsewhere. The Dept. of Labor
will be asking employers how they track the hours that employees work electronically
and whether they’re paid for that time. Requiring compensation for all overtime
is a top priority for the DOL, so regs applying to online work done after hours are likely.
Businesses will get more time to implement new accounting standards
from the Financial Accounting Standards Board that aim to streamline the reporting
of revenue. Accounting principles now vary across industries, firms and countries,
resulting in the use of many different accounting methods for similar transactions.
The change will require both public and private companies to use the same method.
The delay applies to public as well as private firms. Public companies
can put off use of the new standards until their 2018 annual statements. Private ones
have till the 2019 statements. But both can adopt the standards earlier if they want.
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June 5, 2015
POLITICS
One of the few things the many 2016 presidential hopefuls can agree on:
The need to cut government down to size. GOP candidates will line up
in favor of ditching whole agencies to save money and tame a federal bureaucracy
that they see as too large. Even Hillary Clinton, the likely Democratic nominee,
will call for shrinking the federal workforce, as her husband proposed in the 1990s.
But don’t hold your breath. Trimming government is easier said than done.
At about 4.2 million, Uncle Sam’s employees have held fairly steady since 1995,
through administrations of both parties and even after the sequester deal of 2011.
Every agency, board and commission has devoted backers…lawmakers, contractors
and federal unions…who’ll keep Congress from axing it. Republicans, for example,
have been trying to eliminate the Dept. of Education for decades, to no avail.
Even the smallest, most obscure agencies are likely to live on. Legislators
would take heat for cutting them and wouldn’t save much money in the process.
ENERGY Don’t expect any of the presidential candidates to campaign against ethanol
too aggressively. Though some in Congress are sponsoring legislation
that would dial back the federal mandate that requires blending corn-based ethanol
into gasoline, presidential contenders won’t push for it. Ethanol is big business in Iowa
and other farm states that no candidate wants to alienate early in the campaigning.
But several states are rethinking their ethanol rules. Calif., Ore. and Wash.
are moving to a more flexible system to encourage the use of more renewable fuels
and to foster cellulosic ethanol and other alternatives to regular, corn-based ethanol.
Hawaii, meanwhile, is nixing its ethanol mandate, which hasn’t proved to be the boon
for sugar growers that state lawmakers expected when the rule took effect in 2006.
TECH & Uncle Sam is starting a program to bring Internet to those who can’t afford it
TELECOM and thus miss out on work opportunities, education, emergency alerts, etc.
The Federal Communications Comm. plans to start subsidizing Web service
for low-income folks, using money that until now has assisted only telephone access.
Approximately 13% of Americans aren’t online, many of them for economic reasons.
Cable and Internet providers could cash in, benefiting from new customers
logging on with help from the feds. The government’s current phone service subsidy
of $9.25 per household per month will go up, reflecting the higher cost of Web service.
Cell carriers will get less of the money as users switch to subsidized at-home Internet.
Internet customers can expect new fees to raise funds for the program.
Telephone customers are already charged for underwriting subsidized voice service.
On the upswing: Sales of illegal wireless signal jammers. The devices
are often misleadingly marketed as approved by regulators and used to nix cell service
in factories and other job sites where employers might not want workers on the phone.
Reduced enforcement by the feds means more interference with wireless data
is likely in coming years. The FCC is closing offices around the country to cut costs,
limiting the agency’s ability to handle complaints about interference on TV broadcasts,
calls and other data. Regulators will be tough on the offenders they do catch, though.
Some interference is accidental. Even a Wi-Fi router that is set incorrectly can cause it.
New regs coming from the FCC will be more complex, spelling hassles for businesses.
AT
Transgender employees have the right to use the restroom of their choice,
WORK
according to new guidance from the Occupational Safety and Health Admin.
OSHA says a person who identifies as a man should be allowed to use the men’s room,
and someone who identifies as a woman...the women’s room. Moreover, such workers
should not have to provide employers with any documentation of their gender identity.
At least four states and Washington, D.C., require employers to follow similar practices.
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June 5, 2015
JOB
Look for online learning to go mobile in a big way over the next few years.
TRAINING An alliance between Qualcomm and EdX, a free online learning initiative
begun at MIT and Harvard, will spark mobile programs in the U.S. and elsewhere,
helping to improve access for students and workers with different types of phones.
Future upgrades will enable users to download some programs to mobile devices,
allowing them to keep learning when they’re in areas that lack strong connectivity.
The mobile push is sure to speed rollouts of employee training programs
as they become accessible anywhere. Also on tap: A slew of new learning apps.
SHIPPING Note upgrades to key East Coast ports as they prepare to handle megaships
that are expected to begin traversing the widened Panama Canal next year.
The ships can carry more than twice the amount of cargo as ships now using the canal.
The Port of Virginia at Norfolk. It will spend $2 billion over the next decade
to expand its cargo capacity and reduce congestion by building more truck lanes.
The port has a 50-foot-deep channel and congressional authority to go even deeper.
The Port of Baltimore. Already dredged to 50 feet, and boasting four cranes
capable of servicing big ships, the port is looking to expand its car-handling capacity.
The Port Authority of New York and New Jersey. To accommodate big ships,
the Bayonne Bridge, which stretches from Bayonne, N.J., to Staten Island, N.Y.,
and across one of the busiest shipping channels in the country, is being raised 64 feet.
THE
The U.S. and Brazil will repair relations and rev up trade opportunities
WORLD when Brazil’s President Dilma Rousseff visits the White House on June 30.
Her trip will lack the trappings of the state visit originally planned for Oct. 2013
but canceled by Rousseff because the U.S. National Security Agency had spied on her.
The revelation by former NSA contractor Edward Snowden is blamed for costing Boeing
a $4.5-billion fighter jet contract, which Brazil ended up awarding to Sweden’s Saab.
Brazil’s deteriorating economy is prompting the nation to reach out
to the U.S. and other countries in search of expanded trade ties and investment.
Washington, too, is under pressure from American firms to bolster trade.
The U.S. had been the top exporter to Brazil. That ranking now belongs to China.
Next year promises to be kinder to Canada’s oil producing regions…Alberta
and Saskatchewan...which are being battered this year by the low prices for crude.
Each province should see its GDP expand by 1.8% in 2016 on higher oil prices
and recovering prices for nickel, zinc and other commodities key to western Canada.
The June 30 deadline for a deal to curb Iran’s nuclear plans won’t be met.
But an agreement with the U.S. and others will be worked out by year-end,
clearing the way for a lifting of economic sanctions in return for Iran’s cooperation
in dialing back its capacity to make weapons. There are simply too many loose ends
to allow completion by the end of the month, and there won’t be any repercussions.
There may be more false starts as Iran’s government puts up a tough front.
One big sticking point: Inspections. The U.S.-led coalition wants inspectors
from the International Atomic Energy Agency to be able to look just about anywhere.
Iran wants to exclude military facilities, but it will give in on that point in the end.
Yours very truly,
June 5, 2015
THE KIPLINGER WASHINGTON EDITORS
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