Deal struck to send checks to taxpayers

Compromise would provide $600 rebates to most taxpayers in effort to spur spending and head off recession. High-income earners are mostly left out.


NEW YORK (CNNMoney.com) -- Congressional leaders and Bush administration officials agreed Thursday on a $150 billion stimulus measure aimed at keeping the economy from falling into recession.
Most single taxpayers would get $600 and most two-wage households would get at least $1,200. The deal includes an additional amount of $300 per child. A total of 116 million taxpayers will receive checks of some size.
The main exception: higher-income taxpayers or individuals earning $75,000 or more or couples earning $150,000 or more. They would get reduced rebate checks, or none at all, depending on their income.
The deal was announced Thursday afternoon by Speaker of the House Nancy Pelosi, D-Calif., House Minority Leader John Boehner, R-Ohio, and Treasury Secretary Henry Paulson.
Paulson said it is possible the Treasury could start sending out checks 60 days after any legislation is enacted.
Earlier proposals to increase food stamps and extend unemployment benefits are not part of the agreement. But some low-income taxpayers who owe no tax would get rebates, although those checks could be for less than $600.
"This is a middle-class initiative to strengthen the middle class and those who aspire to be in the middle class," said Pelosi. She said the relief was targeted to "those who need the money and will spend the money."
The broad outlines of the deal were first discussed a week ago in a conference call including administration and congressional leaders.
"The Speaker gave some and Republicans gave some, but I think it's a good compromise that will help the American people," said Boehner. "This was not easy."
President Bush, saying the deal would give the economy a shot in the arm, urged quick passage.
"Our economy is structurally sound, but it is dealing with short-term disruptions in the housing market and the impact of higher energy prices," Bush said. "These challenges are slowing growth."
The final negotiations over the last couple of days did not include Senate leaders.
Senate Majority Leader Harry Reid, D-Nev., praised the agreement but added that he expects senators to "work to improve the House package by adding funds for other initiatives." He cited unemployment benefits, food stamps, grants to states and public works projects.
President Bush said he would not support funds for public works being part of the stimulus bill, but Paulson wouldn't rule anything out. He said he would not speculate on Senate action or what changes to Thursday's deal could be "a deal-breaker" for the administration.
One of the biggest sticking points had been the level of assistance for low-income taxpayers who had been excluded from previous rebate plans. As part of the compromise, Republicans agreed to extend rebates to nearly 23 million taxpayers who pay payroll taxes to fund Social Security but make too little to pay income taxes.
Those who earned a minimum of $3,000 in 2007 will get a check for at least $300, or $600 if they are married and filing a joint return, even if they did not owe any income tax. But their rebates will gradually climb as does their income tax bill.
Under the deal, Pelosi said, 35 million low-income taxpayers will receive assistance that would not have under previous rebate programs. She said she may yet offer legislation to address unemployment and food stamp payments, but she and Boehner both said this was not the legislation to do so.
"It is simple, it is clean, it is neat and it will get the money back out into the American economy as quickly as possible," Boehner said about the agreement.
Some have argued that wealthier taxpayers are more likely to put a $300 check into savings or pay down debt, and that directing more of the stimulus to lower-income households that spend the money is likely to have a greater positive impact on the slowing economy.
"For any given pot of money, the more you target the lower-income, credit-constrained households, the bigger the bang for your buck," said Congressional Budget Office Director Peter Orszag in Senate testimony Tuesday.
The stimulus package will also include tax breaks for businesses to spur them to buy equipment, although only limited details were released Thursday afternoon. The total price tag of the package is expected to be at least $150 billion, which is equal to about 1 percent of the nation's economic activity for a year.
The deal also includes a short-term increase to $625,500 from $417,000 in the size of mortgages that can be purchased and guaranteed by government-sponsored mortgage finance firms Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500). Those increased limits would expire on Dec. 31.
In addition, it would include a reform of the Federal Housing Administration.
The proposal would lower home-buyers' down-payment requirements when getting FHA loans, increase the cap on loans eligible to be FHA-insured and lower origination fees It is believed those changes could help lenders make loans to risky borrowers who have found it difficult to arrange for home financing since the collapse in the market for subprime mortgages last summer.
The mortgage crisis and downturn in housing have been major causes of the weakening of the U.S. economy.
The National Association of Realtors and the National Association of Home Builders both argued Thursday that the change in rules for Fannie and Freddie were crucial.

Car Buying Finance Options

By Joe Kenwright and CarPoint.com.au


It's time for a new car and having made the decision to buy, the next question is often not what car, but how you are going to pay for it
Financing a car can be a minefield to the uninitiated, especially when the salesperson starts bandying about terms like hire purchase, novated leases, residuals and balloons. But despite the confusing nature of the jargon, most of the finance products on offer are fairly simple and with a little understanding you can make sure you are getting the best deal for your situation.With the wide range of car prices now existing you need to consider the choices carefully. Unless you plan to hand over cold, hard cash for your next car -- and if you've ruled out leasing -- then you are one of thousands of car buyers annually who finance their purchases through a car loan of some kind. Your car-buying experience will include two separate purchases -- one for the car and one for the loan. They can be researched and shopped for separately. Research your finance options and check that you qualify for a loan before visiting dealers to shop for the car.When car shopping, don't discuss finance until after the price of the car and the value of your trade-in have been settled. Avoid discussing car prices in terms of monthly payments. Shop for loans aggressively, comparing them and asking lenders to give you their best rates. Don't view the process as asking for assistance. Develop a working knowledge of financial terms and arrangements, and have current local interest rates at your fingertips before discussing finance with the dealership.

WHERE TO SHOP
Shop around. Telephoning and searching the Internet for information usually work for obtaining ballpark figures on interest rates. But when you get serious, make an appointment and visit loan officers in person. There are a number of alternatives for finance, ranging from the dealer where you buy the car to credit unions to banks.

TAX BREAKS
Depending on your employment and income, you may find certain financial arrangements generate tax breaks that can significantly cut the bottom line. A visit to an accountant may allow you to buy a better car than you first thought. Key words to check out are leasing, novated leasing and salary sacrifice.If you are after finance with a bit more flexibility, then you should probably investigate specialised finance companies. These basically fall into two categories; those associated with the banks, like Esanda which is 100 percent owned by the ANZ Bank or those tied in with carmakers such as Ford Credit or GMAC.Interest rates vary little between the two types but those associated with the carmakers, called vendor finance companies, probably have a slightly wider range of products because they are solely focussed on automotive finance.Either way they both claim a far greater flexibility than the banks and are able to tailor finance packages and interest rates to individual circumstances. The finance is also usually arranged at the dealer at the same time as you buy the car and approvals can often be made within a couple of hours.

CAR DEALERSHIPS
While your first impression may be to forgo dealer finance as being more expensive than other kinds, it pays to consider the option carefully. It can be convenient -- a one-stop deal. Typically, you can get a loan approved while you're at the dealership. Convenience doesn't necessarily cost more. Indeed, subsidies available to dealers from manufacturers can allow a dealership to undercut other lenders.

BANKS & CREDIT UNIONS
Banks are also very active in the car loan market, typically offering a variety of loan types. Some banks give lower rates to customers who open, or already have, cheque and savings accounts with them. Interest rates at credit unions generally are lower than at other loan sources. If you are a member of a credit union or can join one in order to get a loan, it may pay to shop there.

FINANCE COMPANY
Another option is to obtain a loan through a finance company. For people whose credit rating is less than perfect, working with a finance company, either directly or through the dealer, often makes it easier to secure a loan.

INTEREST
The greater the risk to the finance provider, the more interest you pay. The shorter the loan, the less interest you pay. And if your circumstances are unsettled, consider an insurance policy to cover your payments if something goes wrong. Some institutions will insist on this safety net but it adds to the cost.The interest rate is a big factor but because there are several ways of calculating this, the final amount you end up paying at the end of the loan is the most important figure. You should shop around for the best finance deal just like you would any other consumer product. Some used car dealers will offer special finance rates as an incentive.

THE BOTTOM LINE
Regardless of their source, all loans can be compared by their Annualised Percentage Rates (APR) to determine their relative cost. While lenders may compute interest charges on instalment loans by various methods, the APR adjusts the actual rates to reflect the loan's true cost per year. As long as the APRs are the same, the costs of any loans you are considering also are the same.

WARNING
Most financial arrangements are structured so that payments cover mainly interest for the first year or two. If you have to sell the car early, the sale price may not cover the loan or lease because the car's value will have dropped faster than the amount owing. Extra money will usually be required to break a financial arrangement in the first two years. If a seller invites you to take over the book or pay the balance of a lease or loan, check it out carefully.

Take The Lead: Gross Profit - The Road Less Traveled

By Brian Canning, Contributing Editor

In first measuring and then attempting manage a business, we are often faced with the need to make strategic decisions in getting ourselves from an unprofitable state to one of profit. Choices will often fall between increasing sales, cutting expenses or increasing gross profit. Though working to increase sales would seem a logical response and cutting expenses will certainly have a positive effect on bottom line performance, gross profit is by far the most effective way to improve cash flow and bottom line performance. There is no quick fixMost of us, when faced with a cash deficit, will immediately set about doing two things. We will work harder and we will spend less. As individuals this might mean more hours at the office, turning out the overtime and at home, eating out less and doing without the luxuries in our lives.
We might also put off buying those new golf clubs and maybe cut back on staff overtime and watch our utility bills. The problem here is that increased sales without profits just has you working harder with no return and though cutting expenses is generally a good thing, it is unlikely that you will be able to cut them far enough to improve profits before we start reducing production capacity and our ability to operate. Gross profits might be a solution that will allow us to improve the return on our current sales.What if there was another path to profitability?We do an exercise in our classes where we take a hypothetical shop with hypothetical sales, costs and expenses. We ask our clients what things they would do to increase bottom line return (NOP). The most common response we get would be to increase sales. Maintaining shop efficiencies and margins where they were, we increase our imagined sales by 20%. There is no discussion of our ability to handle this or if it were even practical. We add 20% to the top line, track flow through to the bottom line and note profit dollars generated. A significant number to be sure! Yet in the practical world you cannot budget for a sales increase such as this and unless there is an effort toward our being more efficient and productive, we are likely to be very busy, much stressed and barely better off for all the effort.
Next we take our shop and decrease our expenses or fixed cost by 10%. Again, in the real world it is not entirely practical that we cut our expenses by this drastic an amount but for the sake of this exercise we do it and with all other performances being equal, we once again track bottom line performance. There is no doubt that the very second you reduce expenses you will see an improved bottom line and we definitely did. An even larger number! In most shops rent is the single largest expense with advertising being a close second. I would encourage any shop owner to frequently audit expenses, look for ways to reduce this number but only in ways that would allow us to continue to operate efficiently.
Finally we took this imaginary shop and simply manipulated the cost numbers to show a 5% increase in gross profit. Now, unlike the other two exercises, this small increase in gross profit would be completely practical and in most cases, easily doable. With a very modest adjustment in how we price our parts, in how we pay our techs and in how well we control overtime, we could easily improve gross profit by 5%. Other ways would include asking for deeper discounts from our parts vendors or in building our menu items and canned jobs to reflect a very modest gross profit increase. And finally, pay attention to what prices we end up charging our customers. Negotiating a great price will mean little if you give it away in discounts. In doing this exercise we were able improve bottom line performance dramatically and well beyond what we accomplished with a huge increase in sales and much better than we accomplished in slashing our expenses.
Be realistic, but flexible In searching for solutions to our problems with cash flow we need to be practical and confine our efforts to those things that we can reasonably accomplish. Chasing sales numbers would seem a reasonable response but unless you are profitable, which the average shop is not, you will work very hard to get a modest return. Cutting expenses is another rational approach but one limited by what is real and achievable. There are few businesses that have 10% fat to cut from their expenses and too often in the effort, we end up reducing our ability to efficiently operate. Sprinting with one less leg becomes an exercise in futility. Most important in all of this is how easily we can affect gross profit. It is just our getting a little better at things we already do. Gross profit is the path and cash is our destination.
Profit and cash flow are such that we are struggling. We are having difficulty in making ends meet or hitting our goals. Something has to change. It is not simply selling more or cutting back on expenses. Search for ways to be more efficient and productive. Be different. Be profitable.