Just Explain It: Why the Fiscal Cliff May Trigger a Recession

Lawmakers in Washington appear to be making little to no progress in avoiding the impending so-called fiscal cliff.  House Speaker John Boehner, R-Ohio, said Friday the negotiations are "almost nowhere." On Thursday Boehner rejected a proposal from the Obama administration saying that the Democrats need to "get serious about real spending cuts."
President Obama's offer continues to call for higher taxes on the wealthy and an extension of the payroll tax cut.   But Republicans say they will not agree to a plan that raises taxes.
As the country continues to head toward the fiscal cliff, this Just Explain It helps to make sense of what it is.
On December 31st, most of us would like to be thinking about a prosperous new year ahead…drinking bubbly and singing Auld Lang Syne with friends.  But there's a chance we could be singing a different tune if President Obama and Congress don't agree on measures to avoid the fiscal cliff.
First, let me explain what the fiscal cliff is.
The fiscal cliff refers to the potentially disastrous situation the U-S faces at the end of this year.  At midnight on December 31st, a number of laws are set to expire.  If the President and the Republicans don't reach an agreement before then, Americans could face broad government spending cuts and tax increases on January 1st.   The combined amount would total over 500 billion dollars. Those 500 billion dollars equal about three to four percent of the nation's entire gross domestic product.  This is what's referred to as the fiscal cliff.
If there isn't a resolution, here are the specifics of what will happen.
Taxes would go up for almost every taxpayer and many businesses. The Bush-era tax cuts, which tax relief for middle and upper-class tax payers, would be a thing of the past.  So would President Obama's payroll tax cut which added about a thousand dollars a year to the average worker's income.
Government spending would be slashed.  That means less money for most military, domestic and federal programs.  $26 billion in emergency unemployment-compensation would be gone. Medicare payments to doctors would be reduced by $11 billion. Federal programs would take the biggest hit.  They stand to lose a total of $65 billion.
If the fiscal cliff isn't avoided, some investors will be hit hard.  Those who receive qualified dividends could see the tax rate on those dividends go from 15% to almost 40% in 2013.
Many business owners believe going over the fiscal cliff will cripple the economy, triggering a deep recession.  They fear demand for their products or services will decrease because consumers will have less money to spend.  It also means that they won't be able to afford new hires or expand their businesses.   Since most Americans would be paying more in taxes, they'd be less inclined to make big purchases, like a home or a new car.
None of this is set in stone, but that's part of the problem.  Markets, businesses and people in general hate uncertainty. The fear of the unknown facing us at the beginning of next year is exactly why so many people are so worked up over the fiscal cliff.
Did you learn something? Do you have a topic you'd like explained?  Give us your feedback in the comments below or on twitter using #justexplainit.

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Decent jobs report despite slowdown in hiring pace

WASHINGTON (Reuters) - The pace of U.S. job growth slowed a bit in December, keeping the unemployment rate steady at 7.8 percent, but details of the Labor Department's U.S. employment report were fairly encouraging.
* Nonfarm payrolls increased 155,000, but job gains for the previous month were revised up to show 15,0000 more positions created than previously reported.
* Construction employment rebounded strongly, gaining 30,000 jobs after sagging 10,000 in November, reflecting increased residential construction activity as the housing market recovery gains traction.
* Manufacturing payrolls gained 25,000 after rising 5,000 in November. Manufacturing working hours increased, a positive sign for a sector that has been cooling in recent months. That helped to lift the overall average workweek to 34.5 hours from 34.4 hours in November.
* With workers putting in more time, the average hourly earnings increased 0.3 percent after rising by the same margin in November.
* More people entered the labor force, a sign of confidence in the jobs market, keeping the unemployment rate elevated. The household survey also showed a modest increase in employment, but more people reported they did not have jobs.
* The bad news is that government shed 13,000 jobs in December after a loss of 10,000 the prior month.
* Temporary help jobs, often seen as a harbinger for permanent hiring, fell in December and retail employment declined by 11,300 jobs after a hiring spree the previous months.

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Bank of America, other banks move closer to ending mortgage mess

CHARLOTTE/WASHINGTON (Reuters) - Bank of America Corp announced more than $14 billion of legal settlements over bad mortgages it sold to investors and flaws in its foreclosure process, taking the bank a step closer to ending the home loan problems that have dogged it for years.
About $3 billion of Bank of America's Monday's settlements were part of a larger $8.5 billion deal between 10 big mortgage lenders and regulators to end a loan-by-loan review of foreclosures mandated by the government.
Bank of America shares touched their highest level in nearly two years as investors called it a good step toward ending the company's multiple legal woes. The shares later retreated to close down 0.2 percent at $12.09.
Analysts have estimated that Bank of America has paid out some $40 billion for mortgage settlements since the crisis began. Most of those losses stem from its 2008 purchase of Countrywide Financial, once the largest subprime lender in the United States.
But the bank is moving closer to the day when it can stop worrying about mortgages and start focusing on growth, analysts and investors said.
"It's a step in the right direction in terms of trying to put these issues behind the company," said Jonathan Finger of Finger Interests Ltd, a Houston, Texas-based investment firm that owns 1.1 million of the bank's shares.
Besides the multibank foreclosure settlement, the second largest U.S. bank also announced about $11.6 billion of settlements with government mortgage finance company Fannie Mae to end allegations the bank improperly sold mortgages that later soured, and to resolve questions about foreclosure delays.
Bank of America had already set aside money to cover most of those settlements. The deal with Fannie wipes out 44 percent of the buy-back requests the bank faced as of the end of the third quarter. It also eliminates possible future repurchase requests on about $300 billion in loans.
Bank of America's home loan problems are far from over, though. It still needs court approval for an $8.5 billion settlement with private investors and it is locked in litigation with insurer MBIA Inc over mortgage-related claims.
The agreement also does not end a lawsuit the U.S. Justice Department brought against the bank last year over Countrywide and Bank of America loans sold to Fannie Mae and Freddie Mac, the agency said. The suit accuses Countrywide and Bank of America of causing losses to taxpayers of more than $1 billion.
"I think there is still quite a lot of litigation to go, and I don't think we'll see the end of this for some time," said Thomas Perrelli, a former top Justice Department official, speaking of industry wide legal issues stemming from the financial crisis.
BANKS SETTLE
The settlement Bank of America, Citigroup Inc, JPMorgan Chase & Co, Wells Fargo & Co and five other banks entered with regulators pays out up to $125,000 in cash to homeowners whose homes were being foreclosed when the paperwork problems emerged.
About $3.3 billion of the $8.5 billion settlement with the Office of the Comptroller of the Currency will be in cash, with the rest in changes to the terms of loans or mortgage forgiveness.
In April 2011, the government required banks that collect payments on mortgages, known as servicers, to review whether errors in the foreclosure process had harmed borrowers.
The review focused on foreclosures from 2009 and 2010 and looked at processes, including "robo-signing," where servicer employees or contractors signed documents without first reviewing them.
That loan-by-loan review proved slow and expensive, the OCC said.
The reviews had already cost more than $1.5 billion. They turned up evidence that around 6.5 percent of the loan files contained some error requiring compensation, but most of those errors involved potential payouts much less than $125,000, OCC officials said.
Other banks involved in the settlement include MetLife Bank, Aurora Bank FSB, PNC Financial Services Group Inc, Sovereign Bank NA, SunTrust Banks Inc and U.S. Bancorp.
Wells Fargo said its portion of the cash settlement will be $766 million, which will result in a $644 million charge when it reports fourth-quarter earnings on Friday. The bank said it will spend another $1.2 billion on foreclosure prevention actions, which will not result in additional charges.
Citigroup, which reports earnings next week, said it will take a $305 million charge for its cash payment portion of the settlement, while existing reserves would cover $500 million in loan forgiveness and other actions.
Housing advocates said they viewed the settlement as a positive move as it ends a flawed review process and provides some money, if limited, to consumers. But some advocates and lawmakers expressed dissatisfaction with the pact and suggested hearings could follow.
"I remain concerned that banks continue to avoid full accountability, and I believe that borrowers deserve more answers and transparency than the Federal Reserve and the OCC are currently willing to provide," said Elijah Cummings, the top Democrat on the House Oversight committee.
BOFA SELLS SERVICING RIGHTS
For Bank of America, the Fannie Mae deal was the much larger of Monday's agreements.
Fannie Mae and sibling Freddie Mac essentially buy mortgages from banks and package them into bonds for investors. But during the mortgage boom, banks sold loans to the two companies that Fannie Mae and Freddie Mac say should never have been sold because, for example, borrowers had misstated their income. The two mortgage finance companies are pushing banks to buy back the loans.
On Monday, Bank of America also said it was selling the rights to collect payments on about $306 billion of loans to Nationstar Mortgage Holdings and Walter Investment Management Corp. Reuters first reported on Friday that Bank of America was talking to Nationstar and Walter Investment.
Investors appear to have decided the bank is on the right track as its shares hit their highest level since May 2011 on Monday. When Warren Buffett came to the bank's rescue in August 2011 with a $5 billion investment, he received warrants for 700 million shares of stock at $7.14 per share.

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Disney On Ice: Rockin’ Ever After Tickets Skate to Top of Most Popular List on BuyAnySeat.com

Disney on Ice: Rockin’ Ever After is performing to packed houses at the Wells Fargo Center in Philadelphia all this week, before gliding on to the Quicken Loans Arena in Cleveland, Ohio from January 11 – 21, 2013. The show, resplendent with its classic Disney characters and musical hits, skated to the top of the Most Popular Theatre Tickets list last week, said Felina Martinez at online ticket marketplace BuyAnySeat.com.

Denver, CO (PRWEB) January 04, 2013
Disney on Ice: Rockin’ Ever After continues to captivate, charm and of course, melt hearts of all ages.
After highly successful Holiday runs at the Izod Center in East Rutherford, New Jersey and the Barclay’s Center in Brooklyn, New York – as well as performances in Raleigh and Fayetteville, North Carolina and Albany, New York – the show is in Philadelphia this week, before heading on to Cleveland, Rosemont, Chicago and Boston for performances through-out January and February.
The traveling troupe then treks to Ottawa, Montreal, Toronto, St. Louis, Kansas City, Dallas, San Antonio and Houston before a scheduled wrap in late April 2013.
“We’re seeing extremely high online traffic for Disney On Ice: Rockin’ Ever After tickets,” said Felina Martinez at online ticket marketplace BuyAnySeat.com. “Although many of the upcoming performances are starting to sell out, we’re proud to be able to offer fans and their families a great selection of discount Disney On Ice: Rockin’ Ever After tickets, with a worry-free guarantee to protect their purchase,” said Martinez.
“In fact, we have a huge selection of inexpensive tickets now available on our site,” said Martinez. “To access the complete selection of discount Disney On Ice: Rockin’ Ever After tickets we now have available, customers can go to BuyAnySeat.com and search for Disney On Ice: Rockin’ Ever After – then select their tickets,” said Martinez.
For the uninitiated, Disney on Ice: Rockin’ Ever After is the music and the magic of Disney set to stunning choreography. Polished, professional skaters and other performers glide in and around familiar fairytale sets, playing favorite characters like Minnie and Mickey, Ariel, Belle, Merida, and Rapunzel. Plus, of course, it all takes place in tempo to the most popular Disney tunes, including the songs from the beloved popular princess movies. According to fans, it’s everything they could hope for and more.

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Larson Electronics Releases a 277 Volt AC A19 LED Bulb for the Industrial Marketplace

In an ongoing effort to meet the needs of the industrial marketplace, Larson Electronics announced the addition of their LED-A19-10-E26 A19 LED bulb. The unique feature of the Larson Electronics A19 LED bulb, which is a replacement for the standard 100 watt incandescent light bulb, is that it operates on voltages ranging from 120 to 277 VAC.

Kemp, TX (PRWEB) January 04, 2013
Larson Electronics announced the addition of an A19 style LED bulb, featuring 10 watts of power and operating on voltages ranging from 120 to 277 VAC. Equipped with a food safe plastic cover, the LED-A19-10-E26 fits into standard E26 (US) and E27 (Europe) sockets. With 10 watts of power, the Larson Electronics A19 LED bulb produces 1050 lumens. Designed for harsh environments, the Larson A19 LED bulb operates in temperature ranges from -50C to 85C.
“Given that most commercial facilities are wired to the grid at 480 Volts, they automatically have 277 VAC available, so our 277 Volt capable A19 bulb is a logical fit for this marketplace,” said Rob Bresnahan with LarsonElectronics.com. “The lumen output on this A19 LED bulb is at the top of the available choices in the marketplace, but the key feature of this bulb is its ability to operate on voltages ranging from 120 to 277 VAC. We also offer a 12/24 Volt DC version as well for the automation controls market.”
Larson Electronics produces a wide range of LED retrofit bulbs for 120/277 VAC applications and 12/24 VDC applications, including T-series bulbs, PAR38 and PAR46 bulbs. You can learn more at LarsonElectronics.com or contact 1-800-369-6671 (1-903-498-3363 international).

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HealthCompare Remains Confident about Business-as-Usual in Light of New States Being Added to the New Insurance Exchanges

HealthCompare remains confident as state health exchanges are being formed across the country.

Orange, CA (PRWEB) January 04, 2013
HealthCompare remains confident as state health exchanges are being formed across the country.
"In 10 months, consumers in all 50 states will have access to a new marketplace where they will be able to easily purchase affordable, high quality health insurance plans,” said Health and Human Services Secretary Kathleen Sebelius, as she reported new states being added to the list of conditionally approved state exchanges.
These new “exchanges” will operate in much the same way that HealthCompare has always operated, offering quality, affordable plans that consumers were able to compare side-by-side.
Understanding the complexity of health insurance, HealthCompare made the layout of their comparisons as simple as possible, allowing visitors to get a free health insurance quote in a way that enabled them to see premium to premium and deductible to deductible comparisons - a not easily found benefit with other online health insurance sites.
With the new setup of health insurance exchanges all over the country, HealthCompare is confident that they will continue to lead the way in their industry because they have what others don’t: apple to apple comparisons.
About

About Health Compare: HealthCompare was launched in 2009 to work with brokers and carriers to help individuals and families easily research, compare, buy, and enroll in the right health insurance plan at the right price. Based in Orange, Calif., it delivers accurate, customized, health insurance quotes for the country's diverse population.
Through a unique partnership with its sister company, CONEXIS, HealthCompare has the ability to quickly reach thousands of COBRA-qualifying consumers and provide them with COBRA alternatives at the moment they become eligible for COBRA benefits. This provides these consumers with an opportunity to enroll in individual or family plans and potentially save hundreds to thousands of dollars on COBRA premiums and, at the same time, rewards referring brokers with referral fee income for the life of each policy.

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Republicans see some leverage in "fiscal cliff" talks

WASHINGTON (Reuters) - U.S. Republicans may have some leverage in their fiscal cliffhanger with President Barack Obama: the threat of forcing a disproportionate number of Democrats to pay the so-called alternative minimum tax.
Under U.S. law, taxpayers each year must pay the greater of regular federal income tax, or the AMT. The latter requires taxpayers to give up certain tax breaks, typically exemptions and deductions for state and local taxes and medical costs.
Only about 4 million taxpayers pay the AMT because Congress routinely passes a law to adjust for inflation, to spare middle-income and upper-middle income taxpayers. Without this legislative fix, called a "patch" by lawmakers, up to 33 million taxpayers will have to pay an AMT liability for 2012, according to the Internal Revenue Service.
That is one in five taxpayers.
The number of taxpayers affected by the AMT would jump because the AMT exemption amounts and income brackets do not automatically rise with inflation and also because across-the-board individual tax cuts a decade ago did not cut AMT rates.
States with the wealthiest taxpayers and the steepest state taxes, which typically cannot be deducted under the AMT, include New York, California and Illinois - Democratic strongholds.
That may make the threat of a lapse one of the Republicans' strongest cards after Obama's re-election last month on a theme of tax fairness.
"The AMT is one of the more significant pieces of leverage that the Republicans have," said Evan Liddiard, a former tax adviser to Orrin Hatch, the top Republican on the Senate Finance Committee. "It will pinch harder in the blue states."
That may make Republicans less likely to agree to a bill that addresses only the AMT.
Obama's Democrats and Republicans, led by House of Representatives Speaker John Boehner, have been battling while trying to keep from falling over a $600 billion "fiscal cliff" - a combination of tax increases and spending cuts due to be implemented early next year.
Now at a standstill, talks on how to avert the fiscal cliff have been largely focused on whether to renew low tax rates for the wealthiest taxpayers along with everyone else.
In a brief interview in the Capitol, Hatch said voters in the Democratic-leaning states will not be amused if their taxes go up unexpectedly.
"When they find out they are going to get hammered because of the AMT and the lack of plan by this administration to resolve that problem, yes, I think that will cost them (the Democrats) a few votes," Hatch said.
Because the latest AMT patch expired in 2011, it is in some ways more urgent to address the AMT than the Bush-era tax cuts expiring at the end of December.
Congress last patched the AMT in the lame-duck session in 2010. A bipartisan bill passed by the Senate finance committee to patch AMT for 2012 and 2013 was estimated to cost $132.2 billion.
The cost is one reason the AMT never gets patched permanently. Republicans generally want to scrap the AMT altogether; Obama's latest budget calls for adjusting it for inflation.
IRS WARNINGS
Further complicating the AMT picture is the chaos predicted for the tax-filing season due to begin on January 22, the first working day after Obama's inauguration ceremony in Washington.
A letter from the tax-collecting IRS Commissioner Steve Miller on potential agency problems related to the fiscal cliff focuses almost exclusively on the AMT.
Failure to "patch" the AMT could lead to 60 million taxpayers not being able to file tax returns or get a refund, in addition to a software nightmare for the IRS computer systems.
Miller wrote lawmakers on November 13 warning them of serious repercussions for taxpayers, including 28 million with a "very large unexpected tax liability," and delays in refunds for millions.
"Consistent with past practice, I have instructed IRS staff again this year to leave our core systems "as-is" with respect to the AMT, and hold off on the substantial design and engineering work" required otherwise, he wrote.
Miller last briefed the Senate Finance Committee about the need for action late last month, according to a Senate source.
Representative Richard Neal, a senior Democrat on the Ways and Means Committee who represents parts of Massachusetts, said fixing the AMT was an absolute must.
"It has to be done. It reaches too many people if it's not," Neal said. "I think it is again being used as (a) bargaining (chip)."
Republicans say they are holding out for a bigger deal.
"That is not going to solve the fiscal cliff," said Republican Representative Pat Tiberi, who leads the revenue sub-panel of the tax-writing House Ways and Means Committee.
"It is a very important part of the tax code but once you start picking winners and losers in the tax code, how do you get ... the big deal done?"

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Toll Brothers 4Q net income soars on tax benefit

 Toll Brothers says its fiscal fourth-quarter net income soared, helped by a large income tax benefit and a 48 percent rise in revenue. The luxury homebuilder delivered more homes and its order backlog increased.
CEO Douglas C. Yearley Jr. said in a statement on Tuesday that higher home prices, low interest rates, pent-up demand and improving consumer confidence prompted buyers to return to the housing market this year.
Last week a batch of government reports showed that rising home values, more hiring and lower gas prices pushed consumer confidence in November to the highest level in nearly five years. On Tuesday, Core Logic reported that a measure of U.S. home prices rose 6.3 percent in October compared with a year ago, the largest yearly gain since July 2006.
For the three months ended Oct. 31, Toll Brothers Inc. earned $411.4 million, or $2.35 per share. That's up sharply from $15 million, or 9 cents per share, a year ago.
The latest quarter included an income tax benefit of $350.7 million.
Excluding the tax benefit and other items, earnings were 35 cents per share.
Analysts expected earnings of 25 cents per share for the quarter, which typically exclude one-time items, according to a FactSet poll.
Revenue increased to $632.8 million from $427.8 million, topping Wall Street's forecast of $565.1 million.
Homebuilding deliveries climbed 44 percent to 1,088 units, while net signed contracts jumped 70 percent to 1,098 units. The average price of homes delivered increased to $582,000 from $565,000 a year earlier.
Toll Brothers, based in Horsham, Pa., may benefit by catering to the luxury sector. Its target market includes households that typically make more than $100,000 a year, can afford to make a down payment of as much as 30 percent, have great credit record and an unemployment rate about half that of the general population.
Backlog, a measure of potential future revenue, rose 54 percent to 2,569 units. The cancellation rate declined to 4.6 percent from 7.9 percent.
The company's full-year net income jumped to $487.1 million, or $2.86 per share, from $39.8 million, or 24 cents per share, a year earlier. Annual revenue climbed 27 percent to $1.88 billion from $1.48 billion.
Toll Brothers anticipates delivering between 3,600 and 4,400 homes in 2013 at an average price of $595,000 to $630,000 per home.
Its shares fell 57 cents, or 1.8 percent, to close at $31.86 Tuesday. Its shares peaked for the past year at $37.08 in mid-September.
The company has operations in Arizona, California, Colorado, Connecticut, Delaware, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Pennsylvania, South Carolina, Texas, Virginia, and Washington

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IRS finalizes new tax for medical devices in healthcare law

The U.S. Internal Revenue Service on Wednesday released final rules for a new tax on medical devices, products ranging from surgical sutures to knee replacement implants, that starts next year as part of President Barack Obama's 2010 healthcare law.
The 2.3-percent tax must be paid, effective after December 31, by device-makers on their gross sales. The tax is expected to raise $29 billion in government revenues through 2022.
Companies including Boston Scientific Corp, 3M Co and Kimberly-Clark Corp have been lobbying the U.S. Congress for a repeal of the tax.
A repeal bill passed the Republican-controlled U.S. House of Representatives in June, but it has not been voted on by the Democratic-controlled Senate.
"The excise tax is on the medical device manufacturers and importers (who) will now have access to 30 million new customers due to the health care law," Treasury Department spokeswoman Sabrina Siddiqui said in a statement.
Many medical devices that are sold over-the-counter - such eyeglasses, contact lenses and hearing aids - are exempt from the tax, as are prosthetics, the IRS said.
The tax applies mostly to devices used and implanted by medical professionals, including items as complex as pacemakers or as simple as tongue depressors.
Products sold for humanitarian reasons, such as experimental cancer treatment devices, are not exempt from the tax.
Some medical device companies are hoping to delay the tax's start date as part of a resolution of the "fiscal cliff" deadline at the end of the year involving many tax and spending measures, said Steve Ferguson, chairman of Cook Group Inc.
"We would like to be part of the punt," Ferguson said, referring to an extension of current tax policy into 2013.
In one potentially problematic aspect of the tax, companies selling dual-use products to medical and non-medical customers must pay the tax on those products, potentially putting them at a competitive disadvantage, said Lew Fernandez, a director at PricewaterhouseCoopers LLP and a former IRS official.
For example, it remains "an open question" when latex gloves come under the tax, he said.

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H&R Block 2Q loss narrows as revenue rises

 H&R Block's fiscal second-quarter loss narrowed, helped by cost-cutting efforts. Revenue climbed mostly because of a strong tax season in Australia.
The nation's largest tax preparation company typically turns in a loss in the August-to-October period because it takes in most of its revenue during the U.S. tax season. H&R Block's quarterly performance beat analysts' estimates and its stock hit the highest level in more than two years.
The company is optimistic and gearing up for its busy season.
"The U.S. tax season is right around the corner and we believe we're on pace to deliver significant earnings and margin expansion in fiscal 2013," President and CEO Bill Cobb said in a statement on Thursday.
For the three months ended Oct. 31, H&R Block Inc. lost $105.2 million, or 39 cents per share. A year earlier it lost $141.7 million, or 47 cents per share, for the quarter.
Its loss from continuing operations was 37 cents per share. Analysts surveyed by FactSet expected a bigger loss of 41 cents per share.
Selling, general and administrative expenses declined and the quarter was free of any impairment charges. The prior-year period included a $4.3 million impairment charge.
Revenue rose 6 percent to $137.3 million from $129.2 million. This topped Wall Street's forecast of $129.6 million.
Shares of H&R Block gained 89 cents, or 5.1 percent, to close at $18.26. Earlier in the session the stock reached $18.40, its highest point since May 2010.
Tax services revenue increased 7 percent primarily due to the strong Australian tax season. Corporate revenue fell because of lower interest income from H&R Block Bank's shrinking mortgage loan portfolio.
H&R Block disclosed in October that it hired Goldman Sachs to help it explore options for its banking arm, H&R Block Bank. Those options, Block said, could result in the company no longer being regulated as a savings and loan holding company by the Federal Reserve.
The Federal Reserve announced some proposed rules in June that would impose higher capital requirements on savings and loan holding companies. H&R Block contends that if the proposed rules are enacted it would have to hold on to significant additional capital.
H&R Block, based in Kansas City, Mo., prepared 25.6 million tax returns worldwide in fiscal 2012.

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Tax filing delay looms if no fix for minimum tax: IRS

WASHINGTON (Reuters) - The top U.S. tax collector warned on Thursday of a delayed start to 2013's tax season if Congress fails to reset the alternative minimum tax (AMT) on high-income taxpayers so that it does not sweep in millions of middle-income people.
Without another adjustment by lawmakers soon to the AMT, "many of us will see a delayed filing season," said Steven Miller, named just last month as Internal Revenue Service acting commissioner.
Miller did not give an exact date by which Congress must approve an AMT "patch" to prevent a delay to the tax season, which is scheduled to begin on January 22.
"We don't have any drop-dead time in mind," Miller told reporters after a speech at a conference in Washington.
But his remarks came on a day of continued stalemate in Washington between Democrats and Republicans over what to do about the "fiscal cliff" approaching at the end of the year.
The AMT is a crucial part of the assorted tax increases and automatic spending cuts that make up the so-called "cliff," a convergence of events that, absent congressional action, threatens to plunge the U.S. economy back into recession.
"Many people don't realize that they could potentially face a significantly delayed filing season and a much bigger tax bill for 2012," if the AMT is not dealt with, Miller said.
"In programming our systems, the IRS has assumed that Congress will patch the AMT as Congress has for so many years.
"And I remain optimistic that the fiscal cliff debate will be resolved by the end of the year. If that turns out not to be the case, then what is clear is that many of us will see a delayed filing season," Miller said.
The AMT is a tax intended to make sure that at least some tax is paid by high-income people who otherwise could sharply reduce or eliminate their regular income tax bills through using tax loopholes. About 4 million people annually pay the AMT.
Unlike the regular income tax, the AMT is not indexed for inflation. So the thresholds that determine who must pay the tax have to be regularly raised. This prevents the AMT from hitting middle-class people whose incomes may have crept upward on the back of inflation, but who are not wealthy.
Congress last patched the AMT in late 2010. Without another patch, the AMT could hit as many as 33 million people for the 2012 tax year, according to the IRS.
Democratic Senator Charles Schumer of New York said on Thursday he is "hopeful" that the AMT problem will be fixed with a broader "fiscal cliff" resolution before December 31.
Republicans in Congress may see the AMT as leverage in their "fiscal cliff" negotiations with President Barack Obama and the Democrats.
The IRS might have until mid-January to implement an AMT patch and still start the tax season on time, if Congress approves the fix as expected, said Richard Harvey, a tax professor at Villanova University and a former IRS official.
The AMT "is a ticking time bomb that is going to go off some time in January," Harvey said.

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Analysis: Democrats' discord undercuts Obama estate tax push

 Divisions among Democrats are undermining President Barack Obama's push to raise the U.S. estate tax on inherited wealth, just weeks before the arrival of the "fiscal cliff" could drive the present estate tax rate even higher than Obama proposes.
Action on the estate tax could be postponed. But in his successful re-election campaign, Obama called for wealthy Americans to pay more in taxes - and it is overwhelmingly the wealthy who pay the estate tax.
The outcome may hinge on whether Obama insists on his estate tax proposal - or something close to it - as forcefully as he has insisted on raising individual income tax rates for high income-earners, or whether he lets the issue be put off.
If a single facet of the complicated partisan stand-off over taxing the wealthy best captures Capitol Hill's fiscal gridlock, it may be the estate tax - a long-standing and volatile issue - that may finally be coming to a head.
"If you look at where the public is on tax issues compared to the last time this was debated - it is night and day," said Frank Clemente, campaign manager for left-leaning Americans for Tax Fairness. "They are deep into this tax fairness position."
The "fiscal cliff" is a collection of federal tax increases and automatic government spending cuts that, if allowed to take effect as scheduled early in 2013, could push the U.S. economy into recession, according to economists' forecasts.
Part of the picture is the estate tax.
Under laws signed a decade ago by former Republican President George W. Bush, the estate tax is applied to inherited assets at 35 percent after a $5 million exemption. That means a deceased person can pass on an inheritance of up to $5 million before any tax applies.
Inherited wealth passed to a spouse or a federally recognized charity is generally not taxed.
Obama wants to raise the rate to 45 percent after a $3.5 million exemption. If the Bush rates are allowed to expire and Congress does nothing, the rate will shoot up next year to the pre-Bush levels of 55 percent after a $1 million exemption.
SCHUMER ON ESTATE TAX
New York Senator Charles Schumer on Thursday said the Democrats' proposal to avert the "fiscal cliff" involves $1 trillion in immediate deficit reduction that includes new revenue from raising the estate tax to the level proposed by Obama.
No less a power broker than Democratic Senate Finance Committee Chairman Max Baucus said this week, however, that he wants to hold the estate tax steady at current rates.
Baucus is up for re-election in 2014 from Montana. He says ranch and farm owners in his state would stand to lose if federal taxes rose on passing property to heirs.
"Rural Montana is much different than urban America," Baucus told Reuters in a brief interview in the U.S. Capitol.
He told a Montana newspaper on Sunday that he would even support scrapping the estate tax altogether, as most Republicans favor. A spokesman for Baucus - the Senate's top tax law writer - said he will seek as much estate tax "relief" as he can get.
At least three other rural-state Democratic senators have proposed extending current estate tax rates: Claire McCaskill of Missouri, Jon Tester of Montana and Mark Pryor of Arkansas.
Spokesmen for Pryor and McCaskill said everything is on the table as Congress struggles to deal with the "fiscal cliff."
But one thing is clear: the voice of farming lobbyists is registering with Democrats on the volatile estate tax issue, although it is only marginally about farms and ranches.
BEYOND FARMS AND RANCHES
The estate tax's impact extends beyond farmers and ranchers. It applies mostly to very wealthy Americans, whose taxes have been specifically targeted for increase by a president whom voters returned to the White House just three weeks ago following a tough campaign in which taxes were a key topic.
Of the 3,600 estates subject to the estate tax this year, only 100 are classified as farming estates, according to the congressional Joint Committee on Taxation.
The wealthiest 10 percent of Americans pay nearly all of the estate tax under current rates, according to the Tax Policy Center, a non-partisan fiscal policy think tank.
The number of estates subject to the tax would double under the plan proposed by Obama. About 300 farming estates would be subject to the tax under Obama's terms, which would raise about $100 billion in new revenue for the government over 10 years.
Republicans have benefited previously from Democratic division over the tax. In July, Senate Democrats shelved a plan to raise the estate tax with a symbolic extension of the Bush tax rates for the middle-class.
A senior Senate Democratic aide said the tax was pulled from the bill because Obama felt strongly about boosting the tax. It is unclear how hard he will fight for his position this time.
BY ANY OTHER NAME
The divide between the political parties over the tax is so wide that they cannot even agree on a name for it. Democrats call it the estate tax, as it is described in law.
Republicans, who generally want to repeal it, have another, more provocative name. They call it the "death tax" and characterize it as a penalty on being wealthy and successful.
First enacted nearly a century ago to combat the rise of dynastic wealth and check income disparity, the estate tax is the most progressive tax there is. That means it hits the wealthy much more than lower income groups.
It was a Republican president, Teddy Roosevelt, that proposed the first permanent inheritance tax, arguing that inheritance of "enormous fortunes" does a society no good.
"No advantage comes either to the country as a whole or to the individuals inheriting the money by permitting the transmission in their entirety of the enormous fortunes which would be affected by such a tax," Roosevelt said.
Another decade passed before it was adopted in 1916, partly to fund World War I. The rate has waxed and waned, hitting a high of 77 percent prior to World War II.

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Canadian year-to-date budget deficit narrows in September

 Canada's federal budget deficit dropped in the first six months of the fiscal year, falling to C$8.9 billion ($9.0 billion) in April to September from a C$11.8 billion shortfall in the same period of last year, the Department of Finance said on Friday.
The monthly deficit in September fell slightly to C$2.69 billion from C$2.75 billion in September 2011.
Revenues in the first six months of the fiscal year were up by 2.8 percent, compared with the same period in 2011, reflecting higher income tax revenues, excise taxes and duties, the finance department said.
Program expenses rose by 1.4 percent, mainly due to higher transfer payments.
September revenues fell by 0.1 percent from September 2011 while program expenses increased by 0.6 percent. Public debt charges fell by 7.6 percent.

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Number of ND 'income millionaires' jumps by 102

A record number of North Dakotans reported seven-figure incomes last year, many of whom are benefiting from the state's oil bonanza, the state Tax Department says.
Figures released to The Associated Press show a record 634 people reported incomes of more than $1 million on their 2011 individual tax returns, up from 532 in 2010 and 384 in 2009. In 2006, while North Dakota's oil boom was in its infancy, there were 339 so-called "income millionaires."
About 90 percent of the drilling in western North Dakota occurs on private land.
Tax Department analyst Kathy Strombeck said the increase in the number of North Dakotans with million-dollar incomes comes largely from royalties paid to mineral owners by oil companies.
"Oil has a lot to do with it," she said. "I imagine we'll see growth for a while as we ratchet up projection."
Through September, North Dakota already has set an oil production record for the fifth consecutive year and the state is on pace to best the previous mark by more than 50 million barrels. The state Department of Mineral Resources said crude production through September totaled more than 173.9 million barrels, up from the record 152.9 million barrels set last year.
Tax Department records show the average adjusted gross income in the state increased from $53,036 in 2010 to $60,947 last year. The average adjusted gross income on 2006 returns was about $43,300.
The number of returns has jumped from 339,000 in 2006 to 403,625 last year. The total reported income has increased from $14.6 billion to $21.9 billion during those years, data show.
Tax Commissioner Cory Fong said the higher incomes and the increase in the number of people filing tax returns in the state "adds to the narrative of what we've got going on here in North Dakota."
The oil industry has helped grow wages throughout the state and created hundreds of high-paying jobs. It also has an effect on other industries, including wholesale trade and manufacturing, he said.
"In a way, it's lifting all boats," Fong said.

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Obama says Republican "fiscal cliff" plan out of balance

 President Barack Obama rejected a Republican proposal to resolve a looming fiscal crisis on Tuesday as "still out of balance" and insisted any deal must include a rise in income tax rates on the wealthiest Americans.
Obama told Bloomberg Television that the Republicans' reliance on eliminating tax deductions instead of letting taxes rise on Americans making more than $250,000 a year would not raise enough money to fund the government.
House of Representatives Speaker John Boehner of Ohio, the top Republican in Congress, laid out a proposal on Monday that called for spending cuts but did not give any ground on Obama's call for an increase in tax rates for the top 2 percent of U.S. earners.
"Unfortunately, the Speaker's proposal right now is still out of balance. You know, he talks, for example, about $800 billion worth of revenues, but he says he's going to do that by lowering rates. And when you look at the math, it doesn't work," Obama said.
Obama, who won re-election last month, said it was important for Republicans to acknowledge that tax rates had to rise for top earners to raise revenue sufficient to balance spending cuts.
"We're going to have to see the rates on the top 2 percent go up. And we're not going to be able to get a deal without it," he said.
Obama said on Tuesday that while tax rates must go up for a "fiscal cliff" deal, it may be possible to lower rates at the top end of the scale late next year as part of tax reforms that would close loopholes and limit deductions.
"Let's let those go up," Obama told Bloomberg in an interview, referring to tax rates for the wealthiest Americans.
"And then let's set up a process with a time certain, at the end of 2013 or the fall of 2013, where we work on tax reform, we look at what loopholes and deductions both Democrats and Republicans are willing to close, and it's possible that we may be able to lower rates by broadening the base at that point."
Obama acknowledged there were more spending cuts that could be made and he pledged to work with Boehner to trim what he called excessive healthcare costs in the budget but that a deal was not possible without raising tax rates on the wealthy.
"There's probably more cuts that we can squeeze out, although we've already made over $1 trillion worth of spending cuts," he said.
Obama said there was not enough time this year to come up with an overhaul of the U.S. tax system and entitlement programs that Republicans want as a condition for an agreement to avoid the so-called fiscal cliff, a combination of tax hikes and spending cuts set to start in 2013 that economists predict will throw the economy into depression.
He said that despite weaknesses in Europe and Asia, he believed the U.S. economy is "poised to take off."
Obama added he is considering bringing a top business executive onto his economic team, but that the Senate confirmation process can be so difficult that some business executives shy away from government service.

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Republicans see some leverage in "fiscal cliff" talks

U.S. Republicans may have some leverage in their fiscal cliffhanger with President Barack Obama: the threat of forcing a disproportionate number of Democrats to pay the so-called alternative minimum tax.
Under U.S. law, taxpayers each year must pay the greater of regular federal income tax, or the AMT. The latter requires taxpayers to give up certain tax breaks, typically exemptions and deductions for state and local taxes and medical costs.
Only about 4 million taxpayers pay the AMT because Congress routinely passes a law to adjust for inflation, to spare middle-income and upper-middle income taxpayers. Without this legislative fix, called a "patch" by lawmakers, up to 33 million taxpayers will have to pay an AMT liability for 2012, according to the Internal Revenue Service.
That is one in five taxpayers.
The number of taxpayers affected by the AMT would jump because the AMT exemption amounts and income brackets do not automatically rise with inflation and also because across-the-board individual tax cuts a decade ago did not cut AMT rates.
States with the wealthiest taxpayers and the steepest state taxes, which typically cannot be deducted under the AMT, include New York, California and Illinois - Democratic strongholds.
That may make the threat of a lapse one of the Republicans' strongest cards after Obama's re-election last month on a theme of tax fairness.
"The AMT is one of the more significant pieces of leverage that the Republicans have," said Evan Liddiard, a former tax adviser to Orrin Hatch, the top Republican on the Senate Finance Committee. "It will pinch harder in the blue states."
That may make Republicans less likely to agree to a bill that addresses only the AMT.
Obama's Democrats and Republicans, led by House of Representatives Speaker John Boehner, have been battling while trying to keep from falling over a $600 billion "fiscal cliff" - a combination of tax increases and spending cuts due to be implemented early next year.
Now at a standstill, talks on how to avert the fiscal cliff have been largely focused on whether to renew low tax rates for the wealthiest taxpayers along with everyone else.
In a brief interview in the Capitol, Hatch said voters in the Democratic-leaning states will not be amused if their taxes go up unexpectedly.
"When they find out they are going to get hammered because of the AMT and the lack of plan by this administration to resolve that problem, yes, I think that will cost them (the Democrats) a few votes," Hatch said.
Because the latest AMT patch expired in 2011, it is in some ways more urgent to address the AMT than the Bush-era tax cuts expiring at the end of December.
Congress last patched the AMT in the lame-duck session in 2010. A bipartisan bill passed by the Senate finance committee to patch AMT for 2012 and 2013 was estimated to cost $132.2 billion.
The cost is one reason the AMT never gets patched permanently. Republicans generally want to scrap the AMT altogether; Obama's latest budget calls for adjusting it for inflation.
IRS WARNINGS
Further complicating the AMT picture is the chaos predicted for the tax-filing season due to begin on January 22, the first working day after Obama's inauguration ceremony in Washington.
A letter from the tax-collecting IRS Commissioner Steve Miller on potential agency problems related to the fiscal cliff focuses almost exclusively on the AMT.
Failure to "patch" the AMT could lead to 60 million taxpayers not being able to file tax returns or get a refund, in addition to a software nightmare for the IRS computer systems.
Miller wrote lawmakers on November 13 warning them of serious repercussions for taxpayers, including 28 million with a "very large unexpected tax liability," and delays in refunds for millions.
"Consistent with past practice, I have instructed IRS staff again this year to leave our core systems "as-is" with respect to the AMT, and hold off on the substantial design and engineering work" required otherwise, he wrote.
Miller last briefed the Senate Finance Committee about the need for action late last month, according to a Senate source.
Representative Richard Neal, a senior Democrat on the Ways and Means Committee who represents parts of Massachusetts, said fixing the AMT was an absolute must.
"It has to be done. It reaches too many people if it's not," Neal said. "I think it is again being used as (a) bargaining (chip)."
Republicans say they are holding out for a bigger deal.
"That is not going to solve the fiscal cliff," said Republican Representative Pat Tiberi, who leads the revenue sub-panel of the tax-writing House Ways and Means Committee.
"It is a very important part of the tax code but once you start picking winners and losers in the tax code, how do you get ... the big deal done?

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Why scandal-tinged Berlusconi still beloved of many Italians

ROME (Reuters) - They call themselves "the club". A doctor, a business-owner, pensioners and engineers - united by their support for one of Europe's most controversial politicians, Silvio Berlusconi.
"We are all Berlusconiani. We do not want Monti. We don't want someone who takes orders from Brussels," said teacher Annalisa Lillo, 49, in the Rome antiques shop where the club meets to discuss politics in the evenings.
Outsiders might struggle to understand the continued appeal of the four-time, scandal-ridden prime minister, driven from office a year ago at the height of Italy's economic crisis.
But while support for his People of Freedom party is half what it once was, it still commands 16.5 percent and remains a formidable player as Italy prepares for elections in February.
Fuelled by cake and glasses of sparkling wine, members lobby politicians, attend pro-Berlusconi rallies and scrub off anti-Berlusconi graffiti in the neighborhood where they meet.
On one evening, about 20 men and women between 25 and 75 sat in a circle on assorted antique furniture discussing Berlusconi's return to the leadership of the PDL.
"He knows the pulse of Italians," said 39-year old engineer Alessio Brugnoli. "Berlusconi is the obligatory choice."
THAT OLD MAGIC
One poll showed PDL support rose three points in the week after he announced his candidacy, proving there is life in the old man yet and it would be rash to underestimate him.
"Berlusconi is an unusual politician. He's a businessman. He's not in politics to claim expenses and get an official car. He lives, works to help businesses," pensioner Augusto Senesi said. "You cannot say he damaged the country."
The media mogul's campaign began in earnest this week when he rallied his ample resources to fill the airwaves with the time-worn tenets of his sales pitch: anti-tax, pro-business, and anti-communist.
He is making the most of the fact that on Monday, Italians had to pay a hated property tax re-introduced by Monti's government. Berlusconi has promised to cancel it.
He illustrated what he sees as a communist threat in an interview on Sunday with a story about a Soviet Union family massacred to force them to reveal the whereabouts of a bishop.
This might seem odd to those outside Italy but it emphasized the Marxist origins of much of the country's political left and deftly played on old fears among his conservative voters.
His enormous media control ensures that his point of view - for example, that the many court cases against him stem from a left-wing judicial conspiracy - get substantial airing.
But, as it did in the Arab Spring protests, new media are becoming an unfettered forum for alternative views in Italy.
After a microphone picked up Berlusconi instructing his interviewer what question to ask next, thousands of mocking Tweets kept the journalist's name trending on Twitter.
CONSPIRACIES
On one issue the club is unanimous: that the replacement of Berlusconi with the Monti government was a coup d'etat by nebulous forces in Brussels and possibly orchestrated with the deliberate collusion of financial markets.
"Berlusconi was democratically elected. This has been a dark phase of democracy. Twelve months of horror. Europe set us up," said 34-year-old engineer Marco Ajello.
Berlusconi insists he supports a strong pan-European foreign policy, but he intersperses those claims with tirades against "German-imposed austerity" and the "rigging" of the European Union to favor northern member countries.
"Look, if you add it up, over the last 10 years Italy has lost out from the euro," engineer Ajello said.
Berlusconi had said he would withdraw to support Monti if he ran at the head of coalition of the centre-right and moderates.
Yet this thought horrifies the club, who believe the PDL lost support because it cooperated with Monti - the darling of the international financial community - for too long.
As Italy awaits Monti's decision on whether he will run, expected this weekend, polls show he commands much more support among leftist voters than on the right.
He could split the main centre-left Democratic Party's (PD) dominant voting bloc of more than 30 percent, says James Walston, politics professor at the American University of Rome.
Berlusconi is now on trial on charges of paying for sex with an minor during one of the so-called "Bunga Bunga" parties at his plush residences.
He has denied any wrongdoing in that case and in others where he has been accused of corruption and tax fraud, decrying what he says is a politically motivated war against him by leftist magistrates.
Many Italians do not believe him. But as far as the zealots of "the club" are concerned, he is preaching to the converted.

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South Africa's soothing Ramaphosa leads ANC charm offensive

BLOEMFONTEIN, South Africa (Reuters) - South Africa's ruling ANC put its new No. 2 Cyril Ramaphosa at the head of a charm offensive on Friday as it sought to reassure both investors and a restless public it would tackle economic inequality without recourse to wholescale nationalization.
Days after his appointment as party deputy to President Jacob Zuma, who was re-elected ANC chief this week, the anti-apartheid hero and businessman laid out the party's strategic priorities.
Appearing at a business breakfast with Zuma and other ANC leaders elected at a conference in Bloemfontein, Ramaphosa stressed the ruling party backed a mixed economy model.
But he added the state would intervene to ensure the country's wealth was better shared.
"Within a mixed economy, the state has a role to play. It intervenes and the private sector also has a role," Ramaphosa said, wearing like Zuma a red tie with his dark business suit.
The return of Ramaphosa to the ANC leadership will allow the party to capitalize on his experience and reputation for integrity. His popularity rests on both his history as an anti-apartheid mineworkers' champion in the 1980s and his current pro-business credentials as South Africa's second wealthiest black entrepreneur.
The ANC had its 100th anniversary this year. But Nelson Mandela's liberation movement has been split by feuding and has faced a groundswell of popular anger against graft, cronyism and widespread poverty and unemployment in Africa's biggest economy.
Deadly strikes swept the mines this year in the worst labor violence since the end of apartheid in 1994. It led to damaging credit downgrades for South Africa and questions whether 70-year-old Zuma, who has faced a slew of corruption and personal scandals, can effectively lead the party and country.
Ramaphosa warmed to his new role on Friday as he finessed the ANC's main economic policy takeaway from Bloemfontein. This was a decision to shun "classic, wholesale nationalization" but for the state to intervene selectively in the economy where necessary in key areas such as mining and infrastructure.
Rejecting charges the ANC was "confused" on nationalization, whose defenders at the conference were soundly defeated, Ramaphosa invoked the party's 1955 Freedom Charter that declares "the people shall share in the wealth of the country".
"Now the ANC's duty is to make sure that is fulfilled, and fulfilling that would mean that in certain areas the state intervenes," he said, giving the examples of a state mining company set up by the government and intervention to ensure that prices of drugs for HIV/AIDS sufferers remain affordably low.
Ramaphosa's elevation was welcomed in business circles.
Moody's, which with another credit rating agency has punished South Africa for its mining and leadership woes, said the ANC platform looked "more investor- and business-friendly than had generally been anticipated prior to the conference".
South Africa's Business Day newspaper said in an editorial: "Mr. Ramaphosa's re-entry into party politics represents a victory for those dealing and negotiating in the real world, rather than in the world of ideological illusion."
WANTED: A PROSPEROUS SOUTH AFRICA
But the Chamber of Mines and Moody's said questions remained about how the government would intervene in the mining sector, and what additional taxes it might levy there. The ANC has also raised the idea of export curbs on minerals.
It also remained to be seen whether Ramaphosa, who has maintained a wealthy lifestyle in recent years far from his origins in the anti-apartheid workers' struggle, can connect with the mass of voters who are poor and unemployed.
His comeback puts him in line for a possible future bid for the South African presidency currently held by Zuma who, if he remains the party candidate, is virtually assured of re-election as head of state in the next national vote in 2014.
At this week's ANC conference, Zuma crushed a half-hearted leadership bid from Deputy President Kgalema Motlanthe, whose challenge grouped a loose alliance of opponents of the Zuma presidency. This included advocates of more radical policies such as nationalization and seizure of white-owned farm land.
Asked about the ANC's future ideological direction, Zuma replied: "Ideologically, we want a prosperous South Africa."
He also made clear he would not immediately replace Deputy President Motlanthe with Ramaphosa in the cabinet.
Zuma, who took the party leadership from former President Thabo Mbeki at a 2007 ANC conference, acknowledged one of the party's biggest tasks was to address the popular clamor for better services, improved livelihoods and more jobs.
"There's a huge backlog there we have to deal with," he said.
Although Zuma denied any internal purge of top figures who had opposed him, some of these, such as Human Settlements Minister Tokyo Sexwale and Sports Minister Fikile Mbalula, were dropped from the new ANC National Executive Committee (NEC).
Re-elected ANC Secretary-General Gwede Mantashe made clear the party took a dim view of attempts to divide it, for example from expelled former Youth League leader Julius Malema. "If you mess up the ANC, the ANC messes you up," he said.

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S.Africa's soothing Ramaphosa leads ANC charm offensive

BLOEMFONTEIN, South Africa (Reuters) - South Africa's ruling ANC put its new No. 2 Cyril Ramaphosa at the head of a charm offensive on Friday as it sought to reassure both investors and a restless public it would tackle economic inequality without recourse to wholescale nationalisation.
Days after his appointment as party deputy to President Jacob Zuma, who was re-elected ANC chief this week, the anti-apartheid hero and businessman laid out the party's strategic priorities.
Appearing at a business breakfast with Zuma and other ANC leaders elected at a conference in Bloemfontein, Ramaphosa stressed the ruling party backed a mixed economy model.
But he added the state would intervene to ensure the country's wealth was better shared.
"Within a mixed economy, the state has a role to play. It intervenes and the private sector also has a role," Ramaphosa said, wearing like Zuma a red tie with his dark business suit.
The return of Ramaphosa to the ANC leadership will allow the party to capitalise on his experience and reputation for integrity. His popularity rests on both his history as an anti-apartheid mineworkers' champion in the 1980s and his current pro-business credentials as South Africa's second wealthiest black entrepreneur.
The ANC had its 100th anniversary this year. But Nelson Mandela's liberation movement has been split by feuding and has faced a groundswell of popular anger against graft, cronyism and widespread poverty and unemployment in Africa's biggest economy.
Deadly strikes swept the mines this year in the worst labour violence since the end of apartheid in 1994. It led to damaging credit downgrades for South Africa and questions whether 70-year-old Zuma, who has faced a slew of corruption and personal scandals, can effectively lead the party and country.
Ramaphosa warmed to his new role on Friday as he finessed the ANC's main economic policy takeaway from Bloemfontein. This was a decision to shun "classic, wholesale nationalisation" but for the state to intervene selectively in the economy where necessary in key areas such as mining and infrastructure.
Rejecting charges the ANC was "confused" on nationalisation, whose defenders at the conference were soundly defeated, Ramaphosa invoked the party's 1955 Freedom Charter that declares "the people shall share in the wealth of the country".
"Now the ANC's duty is to make sure that is fulfilled, and fulfilling that would mean that in certain areas the state intervenes," he said, giving the examples of a state mining company set up by the government and intervention to ensure that prices of drugs for HIV/AIDS sufferers remain affordably low.
Ramaphosa's elevation was welcomed in business circles.
Moody's, which with another credit rating agency has punished South Africa for its mining and leadership woes, said the ANC platform looked "more investor- and business-friendly than had generally been anticipated prior to the conference".
South Africa's Business Day newspaper said in an editorial: "Mr. Ramaphosa's re-entry into party politics represents a victory for those dealing and negotiating in the real world, rather than in the world of ideological illusion."
WANTED: A PROSPEROUS SOUTH AFRICA
But the Chamber of Mines and Moody's said questions remained about how the government would intervene in the mining sector, and what additional taxes it might levy there. The ANC has also raised the idea of export curbs on minerals.
It also remained to be seen whether Ramaphosa, who has maintained a wealthy lifestyle in recent years far from his origins in the anti-apartheid workers' struggle, can connect with the mass of voters who are poor and unemployed.
His comeback puts him in line for a possible future bid for the South African presidency currently held by Zuma who, if he remains the party candidate, is virtually assured of re-election as head of state in the next national vote in 2014.
At this week's ANC conference, Zuma crushed a half-hearted leadership bid from Deputy President Kgalema Motlanthe, whose challenge grouped a loose alliance of opponents of the Zuma presidency. This included advocates of more radical policies such as nationalisation and seizure of white-owned farm land.
Asked about the ANC's future ideological direction, Zuma replied: "Ideologically, we want a prosperous South Africa."
He also made clear he would not immediately replace Deputy President Motlanthe with Ramaphosa in the cabinet.
Zuma, who took the party leadership from former President Thabo Mbeki at a 2007 ANC conference, acknowledged one of the party's biggest tasks was to address the popular clamour for better services, improved livelihoods and more jobs.
"There's a huge backlog there we have to deal with," he said.
Although Zuma denied any internal purge of top figures who had opposed him, some of these, such as Human Settlements Minister Tokyo Sexwale and Sports Minister Fikile Mbalula, were dropped from the new ANC National Executive Committee (NEC).
Re-elected ANC Secretary-General Gwede Mantashe made clear the party took a dim view of attempts to divide it, for example from expelled former Youth League leader Julius Malema. "If you mess up the ANC, the ANC messes you up," he said.

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Fiscal cliff setback rattles shares, euro

LONDON (Reuters) - Global stock markets weakened on Friday and both the euro and gold slipped, as a new setback in talks to avert a U.S. fiscal crisis and evidence of Europe's ongoing economic difficulties stoked investor nerves.

A proposal from Republican leader John Boehner to avoid the so-called fiscal cliff failed to get support from his party on Thursday, casting fresh uncertainty over talks to avoid across-the-board tax hikes and spending cuts that could push the U.S. economy into recession in 2013.

Anxiety was exacerbated by weaker-than-expected data from key corners of Europe, as German consumer morale dropped to its lowest level in more than a year, Britain revised down growth figures and Sweden slashed its economic forecasts.

The combined worries prompted widespread selling in most major stock markets and saw investors head for traditional safe-haven assets.

The dollar and yen and U.S. and German Government bonds all rose as falls on London <.ftse>, Paris <.fchi> and Frankfurt <.gdaxi> equity markets compounded tumbles in Asia to leave MSCI's global index <.miwd00000pus> down 0.4 percent.

Futures prices also pointed to sharp falls when trading resumes on Wall Street later, with the S&P 500 Dow Jones and Nasdaq 100 all seen losing around 1.4 percent.

Nevertheless, European and global share indices remain on course for their fifth straight week of gains. In the U.S., the S&P 500 is up about 1.8 percent so far this week and 14.8 percent on the year.

"Risk assets look vulnerable over the holiday trading period. The recent performance of key benchmarks has priced in a satisfactory outcome to the U.S. fiscal discussions, which is far from a done deal," said Peel Hunt strategist Ian Williams.

Boehner will hold a news conference at 10 a.m. ET (1500 GMT), likely to focus on the budget wrangling.

Bickering U.S. politicians have only 10 days left to resolve their differences and prevent automatic tax hikes and spending cuts worth around $600 billion kicking in in the new year.

Most observers are still assuming the two sides will avert disaster but tensions are likely to intensify over the normally quiet Christmas period as the deadline draws near.

"The markets are likely to interpret this as signaling even tougher negotiations in coming days," Mohamed El-Erian, chief executive of bond giant PIMCO, told Reuters.

CLIFF HANGER

Oil and gold were also caught up in the U.S. disappointment. Brent crude oil fell more than $1 per barrel before clawing back some ground. Bullion pared earlier losses but remained on track for its steepest weekly drop since June.

"The market volume is thin amidst all these uncertainties, and the year is coming to an end. Many of the investors prefer to take profits and just leave the market," said Brian Lan, managing director of GoldSilver Central Pte Ltd in Singapore.

In currency markets, strengthening appetite for safe-haven assets saw the yen firm and the highly liquid U.S. dollar <.dxy> climb 0.2 percent against a basket of key currencies.

At the same time, concerns over the U.S. impasse dented demand for so-called high-beta currencies that tend to rise or fall with the global growth outlook, such as the Australian dollar and euro.

Weaker German data, which saw consumer confidence unexpectedly drop for a fourth month running, kept downward pressure on the euro which retreated further from a 8-1/2 month high hit earlier in the week, to stand at $1.3200.

"This is a classic risk-off trading environment where the yen did best, followed by the dollar, and higher-beta currencies underperformed," said Audrey Childe-Freeman, head of FX strategy at BMO Capital Markets.

"We have had a very good run in the euro and what we are seeing at the moment is a little bit of profit-taking triggered by disappointment in the fiscal cliff discussions."

CAUTION

Caution also prevailed in Europe's bond markets, where German government bonds climbed at the expense of recently resurgent euro zone periphery debt.

Other safe-haven bonds followed the trend, with U.S. 10-year Treasury yields dipping from an 8-week high hit this week to 1.74 percent and 10-year Japanese yields inching down 0.765 percent.

Jim Barnes, senior fixed income manager at National Penn Investors Trust Co. in Wyomissing, Pennsylvania, saw Treasuries continuing to gain once U.S. markets open later, but expected a correction by the end of the day.

"Treasury yields will likely fall Friday morning and will begin to reverse course in the afternoon as investors become more optimistic a deal will be reached," Barnes said.

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