National News

Supreme Court to decide: Is severance pay taxed?

Marketplace - American Public Media - Tue, 2014-01-14 02:50

Today, the Supreme Court hears arguments in the United States v. Quality Stores. The respondent is a company that declared bankruptcy in 2001. At issue is whether severance payments are subject to payroll taxes.

Severance is considered compensation, so it is subject to income tax. This case deals with about a million dollars worth of payroll taxes -- what are called FICA taxes.

"It is the taxes that the federal government imposes to fund Social Security and Medicare," explains Sean Anderson, a lecturer at the University of Illinois.

So are severance payments wages? Alan Viard, a fellow at the American Enterprise Institute, says that is at the heart of this case: "A vagueness, I guess, that is built into the definition of what it means for something to be remuneration for employment."

Quality Stores says severance payments don’t amount to wages, because the recipient has been let go. The Obama administration disagrees, noting that, if it loses, the government would owe money to employees and companies beyond Quality Stores to the tune of $1 billion.

"A billion dollars, of course, sounds like a lot of money, and it is a lot of money," says Bill Gale, a fellow at The Brookings Institution. "But not in the context of the federal budget."

This is another ambiguity in a tax code that is now more than 70,000 pages long.

Stock markets take time to reflect on 2013

Marketplace - American Public Media - Tue, 2014-01-14 02:14

European markets took a dive this morning. And our own Wall Street wasn't looking too good yesterday either. 

James Knightley, senior international economist at ING in London, joins Marketplace Morning Report host David Brancaccio to discuss to reasons behind the plummeting numbers. 

Going to Plan B when jobless benefits get cut off

Marketplace - American Public Media - Tue, 2014-01-14 01:59

On Dec. 28, 1.3 million people lost their unemployment benefits because Congress can't agree on an extension. If the extension is not renewed, the number of long-term unemployed losing benefits will grow to five million by the end of the year.

Michelle Noriega is one of the 1.3 million whose benefits expired. On a recent Tuesday night, she was at The Other Door, a bar in North Hollywood. It was close to midnight when the moment she had been waiting for finally happened. Her name was pulled out of a bucket and she was invited up to the stage to perform.

Tuesday is open mic night for aspiring stand-up comedians. Michelle opened with a joke about getting older -- she's about to turn 39 -- and then moved on to a bit about sharing her last name with the former Panama dictator. No relation. Standup is new to Noriega.

"It's kind of a new passion of mine and it's helped me cope with not having a job," she said.

Noriega's last job was project manager at a nonprofit that promotes green building innovations. She was laid off at the end of 2012, and since then she's received $450 a week in unemployment benefits. That's not enough to cover her living expenses, but enough to allow her to apply only for jobs in her field. And she came close landing a few, including one that would have paid six figures.

"A job like that is really everything I want out of my next step career-wise," she said. "But if I don't have it that's just my reality."

Now that her benefits are gone, she's expanded her job search to places like Starbucks.

"I'm not above that," she said. "I would be very grateful to have a job like that, especially if I don't have unemployment benefits."

Before she graduated from college, she promised herself that she would never move back in with her parents, no matter how broke she was.

"I also promised that I would not pull money from my pension plan, but I've gone through all the other financial resources I have," said Noriega. She pulled money from her pension.

Right now she's waiting to hear back from three potential jobs, one good one, one entry-level office job, and one with Starbucks. If she doesn't have an offer by the end of this month, she will move back to Texas to live with her parents.

Labor economist Heidi Shierholz says Noriega and the other one million plus who lost benefits represent a cross section of the labor market.

"There's not something strange or uniquely unemployable, or uniquely inflexible about today's long term unemployed," said Shierholz.

What is unique about this extension cutoff is the timing.

"It has never been even close to this bad when extensions were allowed to expire in any prior recession," added Shierholz.

Right now, 2.6 percent of the labor force has been unemployed for longer than six months, which, Shierholz said, "is twice as high as it was any time Congress ever allowed the extensions to expire following prior recessions."

A Fed explainer: What's Reverse Repo?

Marketplace - American Public Media - Tue, 2014-01-14 01:12

The Federal Reserve, you may have heard, has an enormous balance sheet. It has paid banks trillions of dollars for securities and bonds. That has some people concerned about inflation down the road.

But, as we've talked about before, the Fed is developing tools it can use to raise interest rates and prevent inflation should the economy heat up.

One of those tools is a special kind of interest the Fed pays to banks. The Fed can control it, moving it up or down, to influence other interest rates in the economy.

But there's a problem. Only certain banks are directly affected by that interest rate control. A significant part of our financial system isn't banks -- it's other things, like hedge funds or money market mutual funds. For them, the Fed needs a different tool to set interest rates.

It's called REVERSE REPO.

It's not new, but the Fed has been testing it out and they might roll it out again down the line. On a scale of 1 to sexy, Reverse Repo sounds like a negative 10. But really, I promise, "the repo market is actually a very very critical part of money markets," as Frederic Mishkin can attest. He teaches at Columbia's Graduate School of Business.

Before we talk Reverse Repo, let's talk regular Repo. Here's how it works. When a big financial institution wants to say make a loan, but it doesn't quite have enough cash to do it, it'll basically.... go to a pawnshop to pawn off it's bonds.

It goes something like this:

BANK OF STACEY VANEK SMITH: "Hey RepoPawnShopForBanks.... listen... I need some cash to lend to my friend who wants to build a factory – she's gonna pay me back with 5 percent interest! So can I pawn these bonds? You gimme some cash for them. But keep the bonds on hand for me, cause I'm gonna want them back later. I'll buy them back for a little more than you paid and you can make a little money."

REPO PAWN SHOP FOR BANKS: "Sounds cool, here's some cash, hand over the bonds, they'll be safe with me. I'll sell them back to you when you have cash again. Good luck with your factory friend."

In reality, the pawn shop is another bank or financial institution, and they do this with one another all the time. One day one money market mutual fund is the pawn shop, another day it's the one doing the pawning.

Incidentally, the fact that the two financial institutions agree that the bonds will get repurchased is why it's called a repo agreement.

The point is: The Repo market is like a pawn shop for financial institutions and it helps them lend.

So what's Reverse Repo? It's what you do to get financial institutions like the Bank of Stacey NOT to lend so much or so generously. Perhaps you are the Fed four years in the future and you are worried about inflation because people are lending too much. Here's how you do it:

FEDERAL RESERVE: "Hey Bank of Stacey, this is the Federal Reserve Reverse Repo Pawnshop. Listen, I know you wanted to lend to your friend and get 5 percent interest back , but that's awfully low. I don't think you should be so generous. In fact, why don't you just lend that factory money to ME instead of to your friend. I'm not gonna build a factory with it. I'm gonna do NOTHING with it. Here, I'll pawn my bonds to YOU, and I'm gonna buy them back later for 10 percent more than you gave me – it'll be like you're making 10 percent interest!"

BANK OF STACEY: "What about my friend?"

FEDERAL RESERVE REVERSE REPO PAWN SHOP: "Um can she pay 10 percent interest? I don't think so. So if you could just go ahead and lend me the money. Kthxbai."

See how that worked? The Bank of Stacey isn't going to go investing in some shady factory for 5 percent when it can invest in the Fed for 10 percent. In fact, if given the option, the Bank of Stacey would still prefer investing with the Fed at 5 percent too -- because there is no risk that the Fed would ever not pay the Bank of Stacey back. The Bank of Stacey might still decide to loan money to the factory, but that factory is gonna have to sweeten the deal. It'll have to pay more than 10 percent interest. Probably a lot more.

So whatever the Fed offers to pay, everyone else in the economy has to pay that or more. Reverse Repo allows the Fed to set a floor on the interest rates in the economy. If it raises that rate, it raises all interest rates in the economy (since they are all based on the zero risk benchmark of the Fed or Treasury). If it drops that rate, all interest rates in the economy drop.

The most important difference between Reverse Repo and the Interest On Excess Reserves that we discussed yesterday is that Reverse Repo applies to many more financial institutions than just banks.

And that is Reverse Repo. It's a way of controlling interest rates for not just banks but all kinds of financial institutions.

Google acquires Nest for $3.2 billion

Marketplace - American Public Media - Tue, 2014-01-14 01:10

If you're selling a successful startup these days your price tag should have several billion dollars on it. That seems to be the going rate these days. Smart thermostat maker Nest was acquired by Google yesterday for $3.2 billion. Nest's CEO Tony Fadell once worked for Steve Jobs designing iPods, and now his direct boss will be Google's Larry Page.

Nilay Patel, managing editor of The Verge, joins Marketplace Tech host Ben Johnson to discuss. 

Security Experts Say Data Thieves Are Getting Harder To Fight

NPR News - Tue, 2014-01-14 00:36

Even retailers that invest heavily in sophisticated security systems are seeing new vulnerabilities from rogue hackers who are buying software tools on the black market.

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Political Groups Aim Early Attacks At New Hampshire Senator

NPR News - Tue, 2014-01-14 00:35

The midterm congressional elections are 10 months away. But some political and ideological organizations are already buying ads to criticize incumbents they hope to take down in November, like Democratic Sen. Jeanne Shaheen.

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Political Groups Aim Early Attacks At New Hampshire Senator

NPR News - Tue, 2014-01-14 00:35

The midterm congressional elections are 10 months away. But some political and ideological organizations are already buying ads to criticize incumbents they hope to take down in November, like Democratic Sen. Jeanne Shaheen.

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Some Brits Not Ready To Say 'Ta-Ra' To Iconic Telephone Box

NPR News - Tue, 2014-01-14 00:35

A race is on to save Britain's beloved crimson phone booth, threatened not by habitat loss or climate change, but by the ubiquity of cell phones. The country had 92,000 payphones in 2002; now, it has just 48,000. But devotees are finding new uses for the booths.

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California Hospital Workers Pitch Obamacare To ER Patients

NPR News - Tue, 2014-01-14 00:34

Some 5,000 uninsured people go into O'Connor Hospital's emergency department each year. A staffer tasked with helping them find coverage says 70 percent of the people she sees could now get it — if they follow through and apply.

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Discovering Grief And Freedom In A Family's History Of Slavery

NPR News - Tue, 2014-01-14 00:32

Robert Goins was tracing his genealogy when he found his ancestors' names listed among livestock and farm implements in a plantation ledger. With that painful discovery, he kept digging until he found a very different story: that of a great-great-great-grandfather who lived as a freeman.

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How do you measure the cost of a toxic spill that turns off the tap?

Marketplace - American Public Media - Tue, 2014-01-14 00:10

A saying of Ben Franklin's has special resonance in Charleston, W.V., "When the well's dry, we know the worth of water." Or, when it's been contaminated. Even for residents who don't run restaurants, or need hospital care, the inconveniences added up over five days.

Amanda Hardman appreciates her good luck. She's got a car, so she can get to distribution spots for bottled drinking water. Better yet, her husband has an old house outside of town with a well. Fifteen people from three different households are making the trek for showers.

But the water tank there is limited, so it brought home some everyday lessons in water conservation: "You know, not to leave the water on while you brush your teeth," she says. "Not to leave the shower on while you shave your legs."

And that taking a shower is worth a 30-minute drive each way -- even if that means other chores don't get done, and social life grinds to a halt.

Economist David Zetland wrote "The End of Abundance: Economic Solutions to Water Scarcity." He says West Virginia residents have -- at least temporarily -- flipped to a Third World experience of water. The real cost isn't just the bottled water and the paper plates. It's the time spent getting basic needs met.

"In the developing world, young girls don't go to school because they spend their entire lives gathering water," he says.

Egypt Holds Key Vote On Country's New Charter

NPR News - Mon, 2014-01-13 23:20

Egyptians start voting Tuesday on a draft for their country's next constitution. It's a vision for the nation's future and a milestone in a military-backed roadmap put in place after Mohammed Morsi was overthrown in a coup last July.

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Officers Acquitted In California Homeless Death

NPR News - Mon, 2014-01-13 23:14

Two former Fullerton police officers who were videotaped in a violent struggle with a homeless man during an arrest were acquitted Monday of killing him. The arrest was captured on a 33-minute surveillance video that was key evidence at the trial.

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Mysteries Persist Surrounding West Virginia Chemical Spill

NPR News - Mon, 2014-01-13 17:54

West Virginia officials told residents Monday to flush out their home water systems before using the tap water again, and the ban on the water persists in some places. Tests at the affected water treatment plant show almost no contamination. However, some toxicologists say, the spill shows how little is known about many chemicals in common use.

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Water Bans Lifted In Several West Virginia Areas

NPR News - Mon, 2014-01-13 16:49

Some 300,000 water customers have been under a ban since a chemical spill last Thursday. The ban on using tap water was lifted in at least three affected areas Monday.

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Nearly Six Decades Later, Integration Remains A Work In Progress

NPR News - Mon, 2014-01-13 16:47

In Little Rock, Ark., a federal judge approved a settlement that brings an end to a landmark school desegregation case. The case dates back to 1957, when nine black students integrated Central High School, which up until that point was all-white. But after 60 years of desegregation efforts, are the classes really integrated?

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