Bush's Big Gamble

The Bush Administration is hoping that the third- largest tax cut in U.S. history, signed into law in May, will charm the economy out of its current funk. The Jobs and Growth Tax Relief Reconciliation Act of 2003 will slice taxes by $330 billion and provide $20 billion in aid to states.

While many economists expect the cut to jolt the economy in the short term, the long-term picture is fuzzier.

One of the criticisms is that the act does little to stimulate business investment directly. Instead, it puts the emphasis on consumer spending by accelerating tax reductions, increasing the child credit, and eliminating the marriage penalty. "It doesn't address the immediate problem," says Ken Goldstein, an economist at The Conference Board. "The slow economy is not because consumers haven't been spending. The real question is, how do you get businesses to invest?"

The act addresses this question only nominally. Just $10.1 billion of the total cuts are earmarked for companies, with an increased write-off for small businesses and accelerated depreciation on some equipment purchases. "There is not much here for medium and large businesses," say Timothy McCormally, executive director of the Tax Executives Institute.

Instead, Congress opted to trim the maximum capital gain and dividend income rate to 15 percent. Experts don't expect the changes to have a drastic impact on the dividend strategies at most companies, but businesses are hopeful that consumers will spend the windfall, providing a spark to the economy. "My view is that the economy was already in recovery mode; this practically guarantees it," says Daniel Laufenberg, chief U.S. economist at American Express Financial Advisors Inc.

David Wyss, chief economist at Standard and Poor's, counters that the big danger is that interest rates will spike and deficits will handcuff the economy just when baby boomers are putting a strain on Medicare and Social Security. He thinks that could lead to a return of the slow-growth, low-productivity period of the 1970s and early '80s. "My guess is that this is going to have to be fixed in five years," he says.

Congress will get that chance. The act uses a neat trick called "sunset provisions" that expire many of the changes in periods ranging from two to five years. But the maneuver has largely been viewed as a ploy to get the cuts Bush wanted at a cost that was palatable to moderate Republicans. The reality is that once cuts are in place, they are hard to roll back. "There are questions about the mechanism that Congress used to get the numbers to work out," says McCormally. "At a time when Congress has come down hard on companies for creative bookkeeping, you have to ask if there is not some creative bookkeeping being used here."

Déjà Vu
There they go again. A bill that would temporarily stop the Financial Accounting Standards Board from requiring companies to expense stock options got a hearing before a House subcommittee on June 3. Along with requiring greater disclosure of options, it mandates a three- year study of the effects of such disclosure before any new accounting standards governing options could take affect.

The bill's sponsors argue that mandating companies to expense options would effectively halt broad-based options plans for rank-and-file employees. "While I agree that accounting standards are best left to FASB," said co-sponsor Anna Eshoo (D­Calif.) in prepared remarks, "promoting job growth and economic viability is a responsibility of the Congress."

FASB opposes the bill, which could stall its final rule on expensing stock options. "The moratorium," chairman Robert Herz noted in his testimony, "...would send a clear and unmistakable signal that Congress is willing to intervene in the independent, objective, and open accounting-standard-setting process."

In 1995, FASB backed off its proposal to expense stock options, bowing to similar pressure from Congress and lobbyists for the high-tech industry.

Email: Return from Senders
Looking for leaders — or slackers — in your finance organization? Check your E-mail.

Using an algorithm originally developed to identify groups of genes with related functions, researchers at Hewlett-Packard Labs analyzed the addresses of close to a million E-mail messages sent among 400 of the lab's workers over three months' time. The result? A remarkably accurate picture of the organization. Some 80 percent of the groups identified mirrored actual departments or proj-ect teams. More intriguing, the remaining 20 percent turned out to reflect strong but informal collaborations that don't appear on the lab's organization chart. The algorithm also correctly identified leaders — both those with management titles and de facto leaders of the informal groups.

Companies traditionally spend big bucks on surveys and consultants to identify so-called communities of practice, says Joshua R. Tyler, co-author of the study. E-mail analysis, he says, "is quick and cheap." Although still in the early stages, he says, the research might also provide "a way to discover the undiscovered stars."

The study focused on internal E-mails, and excluded messages with wide distribution that were likely to be administrative — or jokes, in less-disciplined settings. "Privacy," adds Tyler, "is potentially the biggest obstacle preventing other organizations from trying to deploy this algorithm," although he notes that the study did not look at subject lines or content, only addresses.

• 1
• 2
• 3
• 4
• 5
• next »