The European Central Bank again reduced interest rates. For the first time in the ECB’s history, there is a negative rate on bank deposits. Commercial banks that keep their money at the ECB overnight will actually pay 0.1 percent for the privilege, after nearly two years of a zero rate. This is a bold move to incentivize banks to lend and get the economy going, instead of getting charged for holding cash. Despite higher unemployment than desired, the ECB’s primary motivator is reaching a higher inflation target. Bank President, Mario Draghi, has promised to take further measures if necessary.
To rent or to buy
The drastic repercussions of the 2008 housing situation have made it clear that preference of home ownership is no longer the norm. People that can comfortably own a house still are giving serious thought to renting, either because of a tenuous employment outlook or the possibility that home value appreciation may be stalled. There have always been plenty of internet resources that assist in the “rent vs. buy” decision, but this calculator seems particularly comprehensive. It not only includes purchase, rent and mortgage details, but also incorporates investment assumptions, closing costs, and other maintenance fees.
Net new businesses on a downward trend
New business creation is the primary driver of job gains, so it stands to reason that recent employment issues have coincided with an unwelcome trend of yearly net decrease in U.S. businesses. This study by the Brookings Institution implies continued slow growth if the trend continues. The formation of new businesses is not keeping up with the number of businesses ending and lower quality jobs are replacing those that have been lost.
Federal regulators need a blueprint for financial professionals and family members dealing with a cognitively impaired investor. The hope here is to prevent activity or decisions that might jeopardize his or her financial well being. With the dramatic increase in Alzheimer’s and dementia, several bodies are creating guidelines to deal with this conflict. Client confidentiality rules come into play, where an investment professional may be leery of crossing a line by telling one’s family members of mental decline. At least one state, Washington, allows a hold to be placed on an investor’s account once there is concern about mental capacity.
“Amazon Tax” alive and well in Illinois
The push still exists to tax internet retailers and “level the playing field” with traditional bricks-and-mortar companies. In Illinois, the Amazon Tax that was struck down just last October by the state’s Supreme Court has been revived. This is forcing several online companies, including Groupon, to reevaluate whether or not to continue business operations in the state. Many states operate under the 1992 U.S. Supreme Court ruling that states can’t collect sales taxes from out-of-state retailers unless the company has a physical presence in the state.
Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at[email protected].
Related Slideshow: 7 Strategies for Rhode Island Economic Development in 2014
What will it take to move the Rhode Island economy forward in 2014? GoLocal talked with elected officials, candidates, and leaders for their economic development plans in the coming year.
Below are key elements of the economic priorities for Governor Lincoln Chafee, Speaker of the House Gordon Fox, Senate President M. Teresa Paiva-Weed, House Minority Leader Brian Newberry, gubernatorial hopefuls General Treasurer Gina Raimondo and Ken Block, and RI Center for Freedom and Prosperity's Mike Stenhouse.
"My goal is to have the state continue to focus on the fundamentals. We will invest in education, workforce development and infrastructure , and provide aid to cities and towns to lessen the burden on property taxpayers. I’m confident that these investments and our focus on the basics will allow Rhode Island to exceed Moody’s predictions.”
"Among the many pieces of legislation the House will address will be issues of higher education affordability, expanding apprenticeship opportunities, and offering help to our manufacturers. We will also look closely at our tax structure to make sure we are competitive with our neighboring states, including the corporate tax and the estate tax, and I will carefully review the recommendations of the commission studying our sales tax.”
Greg Pare, spokesperson for the Senate President, said that the Senate is planning to issue recommendations soon on workforce development initiatives to address the skills gap among Rhode Island job seekers.
"An example of a proposal anticipated in that report is the elimination of state’s Indirect Cost Recovery on the Job Development Fund, which is about $1.2 million this year. Those funds would be directed towards job training and skills development programs to provide immediate impact and help workers gain the skills necessary to succeed in today’s economy."
"To grow our economy, we need to make Rhode Island a leader in manufacturing again. Great things can happen at the intersection of government, higher education, and the private sector. Rhode Island is lucky to have thriving institutions in each of these three sectors, and we need to foster collaboration among them to find solutions to our challenges, and spark our economy.
By promoting partnerships in high-growth areas, [Rhode Island Innovation Institute] will help grow our manufacturing base, and create new, high-quality jobs."
"First, we need to fix Rhode Island’s broken Unemployment Insurance program. The state’s Unemployment Insurance tax, paid by employers, is ranked worst in the country by the Tax Foundation. It is one of the factors that makes Rhode Island an uncompetitive place to do business. Also, it is inherently unfair that a large group of businesses are effectively subsidizing the payrolls of a small group of businesses who misuse the system. There is a simple change to state law that can fix this problem."
"Rhode Island’s temporary disability tax (TDI) is broken, and places an unnecessarily high tax burden on Rhode Islanders. This tax, paid for by employees, will be reduced by changing the way we manage the program. As Governor, I will substantially reduce the cost of purchasing this insurance by requiring that Rhode Island’s program adhere to national norms."
"To best encourage new job creation, I propose the following tax incentive: exempt from future capital gains taxes any new investments in Rhode Island-based businesses. This change would create a powerful incentive for investors who are deciding where to locate a new business, or where they relocate an existing one. This proposal has the potential change the economic playing field for Rhode Island."
“It would be overly ambitious to set being #1 as a goal right now, but we think 25, the middle of the pack, is a reasonable goal to set, one we think we should pursue, and one we can achieve,” said Newberry. "One of the initiatives is a requirement that every bill receive a fiscal evaluation before it can be heard by committee, better insuring that legislators know the real cost of the legislation they are acting on."
"Another proposal would exempt social security income from RI state income tax, making Rhode Island more tax-friendly for our seniors and keeping them here rather than migrating to more tax-friendly states."
“Strong action is way overdue here. Nearly 60% of Rhode Islanders now believe that the state is headed in the wrong direction. We think they’re right, and our central goal is to get it turned around."
Repeal or rollback of the state’s regressive sales tax; or the requirement that families have no choice on what schools best educate their children; or punitive estate taxes that drive wealthy people to other states; or restrictions on out-of-state companies to sell health insurance in RI; or the minimum franchise tax, which stifles entrepreneurship; or corporate welfare, to level the playing field; or even renewable energy mandates that drive up costs for every family and business …"
