California short-term debt deal more than half sold on first day

Yield-hungry individual investors on Tuesday put in orders to buy more than half of the short-term notes that California is selling this week to raise cash.

Brokerages handling the deal for state Treasurer Bill Lockyer said they had orders for $3.05 billion of the notes, or 56.5% of the planned $5.4-billion deal, by late afternoon.

The brokerages will continue to take orders from individual investors on Wednesday. Institutional investors will bid for what’s left on Thursday, which is when final interest rates will be set.

The state is preliminarily estimating that the nine-month notes will pay an annualized tax-free yield of between 0.40% and 0.55%. Because that interest is exempt from state and federal income taxes it’s equivalent to a higher taxable yield, depending on an investor’s tax bracket.

The yield range on the notes also is above what some other state and local borrowers have paid to borrow via short-term securities recently. Last month, Texas sold $9.8 billion of notes at an average annualized tax-free interest rate of just 0.27%.

Still, California is paying much less than it did on the $10 billion of notes it sold last November, when the muni bond market nationwide was rocked by worries about state and local governments’ finances. The state paid an annualized 1.75% on the notes that matured in June.

This time around the muni bond market is relatively calm, and short-term interest rates in general are well below their levels of last fall. One-year U.S. Treasury bills pay a yield of less than 0.10%.

California and many other state and local governments issue so-called revenue anticipation notes, or RANs, at this time of year to bridge the gap between their cash needs and the arrival of tax revenue later in the fiscal year. California's notes will mature on June 26, 2012.

Lockyer had planned to sell RANs in August. But fearing that the debate in Washington over the federal debt ceiling might rile financial markets, he chose to borrow first from major banks to have the money in hand, and sell notes later to retire the bank loan.

The state on Tuesday also launched a sale of $432 million in longer-term muni bonds for the California State University system. Individual investors put in orders to brokerages for $208 million of the bonds, or 48%, Lockyer said. Institutional orders will be taken on Wednesday. Preliminary tax-free yields on the bonds range from 0.32% on one-year debt to 4.56% on 31-year bonds.

On Friday the state will begin offering $2.6 billion in general obligation bonds to investors, the first such sale since November. Proceeds will be used to refinance debt previously issued to finance voter-approved infrastructure projects.

Because of its protracted budget woes, California has the lowest bond ratings of any state, at A1 from Moody’s Investors Service (tied for last place with Illinois) and A- from Standard & Poor’s.

But both Moody’s and S&P gave the state’s short-term notes their highest possible ratings. Credit rating firms typically grade short-term debt based on the amount of cash the borrowers are expected to have on hand when the securities mature.

Lockyer’s website, buycaliforniabonds, has more investor information on the state’s debt sales.

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-- Tom Petruno

Target stores, website swarmed on first day of Missoni launch

Hordes of shoppers swarmed Target stores and heavy traffic temporarily crashed the company's website Tuesday for the launch of its new Missoni line, the retailer's largest limited-time designer collection ever.

The fashion line from the famed Italian luxury brand features more than 400 items in home, beauty, men's, women's, kids' and baby. Prices range from $2.99 for a piece of stationery to $599.99 for an online-only four-piece patio set.

Almost immediately, Target's website was shut down with a message that said: "Woof! We are suddenly extremely popular. You may not be able to access our site momentarily due to unusually high traffic. Please stay here and we'll try to get you in as soon as we can!"

Joshua Thomas, a spokesman for Target, called the launch "Missoni mayhem."

"The buzz surrounding the collection has been unprecedented and the response today has been overwhelming," he said. "It was very Black Friday-esque."

By Tuesday afternoon, dozens of items were already sold out online, including toss pillows featuring Missoni's signature zigzag designs; women's multicolor rain boots and a black-and-white luggage collection.

Thomas said brick-and-mortar stores would replenish some of the sold-out items throughout the week.

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Photo: A Target store in Vista on the first day that the company's Missoni collection launched. Credit: Reuters 

Energy Department expects solar energy project to create 900 jobs

The U.S. Energy Department hopes that a new solar energy project will result in about 900 construction and permanent operations jobs.

Energy Secretary Steven Chu said today that his department had finalized a $1.2-billion loan guarantee to Mojave Solar for the development of the Mojave Solar Project. When complete, the 250-megawatt solar generation project in San Bernardino County will increase the nation’s currently installed concentrating solar power capacity by approximately 50%. 

Abengoa Solar Inc., the project sponsor, is the source of the estimate on construction and permanent operations jobs. 

“Investments in solar generation facilities like the Mojave Solar Project are critical to our effort to create good, clean energy jobs in America and compete with countries like China in the global clean energy race,” Chu said. “This project will supply local utilities with energy, help drive down the cost of solar power and fund more than 900 American jobs, all at minimal risk to the taxpayer.”

The Department of Energy's Loan Programs Office administers the Title XVII Section 1703 and Section 1705 loan guarantee programs, and the Advanced Technology Vehicle Manufacturing (ATVM) loan program.

The Energy Department said that the Title XVII loan guarantee programs "support the deployment of commercial technologies along with innovative technologies that avoid, reduce or sequester greenhouse gas emissions, while the ATVM loan program supports the development of advanced vehicle technologies."

The Department has issued loans, loan guarantees or offered conditional commitments for loan guarantees totaling nearly $40 billion to support more than 40 clean energy projects across the United States.

Not all of those investments pan out. Federal agents recently executed a search warrant at the Northern California headquarters of solar panel manufacturer Solyndra Inc., which filed for bankruptcy protection last week despite receiving $535 million in federal stimulus loan guarantees.

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Image: Artist's rendering of the Mojave Solar Project. Source: California Energy Commission.

 

Democrats say Solyndra scandal touches Republicans, too

The collapse of solar equipment maker and stimulus loan recipient Solyndra is now officially a political hot potato, tossed first into Democratic hands and today batted by the Democrats over to the Republican side.

Solyndra got a $535-million loan as part of the stimulus package in late 2009 and was held up by the Obama administration as a powerful example of the kind of innovative manufacturing that would revive the economy. But in the last few weeks it has suspended operations, laid off 1,100 workers, filed for Chapter 11 bankruptcy and had its offices and executives’ homes raided by the Federal Bureau of Investigation.   

Republicans have speculated that Solyndra got the loan because its biggest investor has ties to George Kaiser, a major fundraiser for President Obama in 2008. The House Energy and Commerce committee is investigating the loan and will hold a hearing Wednesday.

Administration officials will testify, but Solyndra executives begged off at the last minute and will appear at another hearing by the committee next week, the committee said.    

The company said in a statement that the executives were busy with the bankruptcy and were discussing a new hearing date with the committee. 

“Given that it is in the best interest of all creditors, including the U.S. government, to attempt to gain maximum value for the Solyndra assets, either via sale of the whole company or in parts, including its intellectual property, it is in the best interest of all interested parties for them to remain in California to engage with potential purchasers,” the company said.   

Democrats have found enough information in public records of the Energy Department’s loan approval process and from media reports to try to widen the Solyndra scandal to Republicans.    

Although Solyndra’s biggest private investor was a venture capital fund affiliated with Kaiser, its second largest investor was a fund linked to the Walton family, of Wal-Mart renown, a major donor to Republicans. Kaiser has denied he ever spoke to the Obama administration about the Solyndra loan.    

The chief executive of Solyndra, Brian Harrison, is a registered Republican, according to the San Jose Mercury News.    

The Democrats’ main defense against accusations of administration cronyism is that Solyndra applied for the Energy Department loan as part of a program created by the Bush administration. Memos prepared by the Republican and Democratic staffs of the House Energy and Commerce committee said Solyndra first applied for an Energy Department loan in 2006. Its plan to build a factory to manufacture a new kind of solar technology was one of 16 projects chosen from about 140.    

In January 2009, shortly before President Obama took office, Energy officials reviewed the application. They said that “the project appears to have merit” but did not approve the loan, requesting additional information, including an independent market analysis of the company’s long-term prospects, according to the Republican staff memo.

In March 2009, after the analysis was submitted, Energy Department officials reviewed the application again and gave conditional approval. The March 2009 timetable was set under the Bush administration, according to the Energy department.

Officials from the White House Office of Management and Budget reviewed Solyndra’s application in August 2009 and “questioned whether the risk rating assigned to the Solyndra deal was too high” and how “competitive pressures” in the market for solar cells might affect the company’s ability to repay, the Republican memo said.

OMB officials recommended unspecified changes to the deal that the Energy Department approved, and it was completed in September 2009.

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-- Neela Banerjee and Jim Puzzanghera

Photo: An FBI agent carries a box from Solyndra's Fremont, Calif., headquarters last week. Credit: Associated Press.

 

Fidelity Magellan fund manager is replaced after weak performance

  The famed Fidelity Magellan mutual fund did Tuesday what it does best: It dumped its manager after years of chronic underperformance.

Colossus fund family Fidelity Investments announced that Jeffrey S. Feingold was replacing Harry Lange at the helm of the fund.

Magellan was one of the best-known and most successful funds in the 1980s under legendary manager Peter Lynch. But it has run through a string of poorly performing skippers since Lynch’s retirement in 1991, and Lange ranked as one of the worst.

During his nearly six years managing Magellan, it ranked in the bottom 10% of large-cap growth funds, according to fund tracker Morningstar Inc. The fund lost 7.2% in that time, compared with a 7% gain for the Standard & Poor’s 500 index, according to data from Bloomberg.

Morningstar, which once gave Magellan its top grade of five stars, dropped the fund to an ignominious one-star rating in 2008.

Magellan’s performance “went from middling to terrible,” under Lange, said Morningstar analyst Christopher Davis.

Lange, who Fidelity spokesman said was unavailable for comment Tuesday, focused on foreign growth stocks, but many of his holdings were in developed markets such as Europe, which have stumbled, not in better-performing emerging markets such as China, said Jim Lowell, editor of the Fidelity Investor newsletter.

Lange also was plagued by some ill-timed bets, including a dive into financial stocks in mid-2008, shortly before the global financial crisis enveloped Wall Street, Davis said. He also bet heavily on Finland’s Nokia Corp., which sank from $41 in late 2007 to less than $6 today.

Magellan’s assets have shriveled to about $17 billion from $55 billion when Lange took over, Davis said. They peaked at $110 billion in early 2000, just before the tech bubble burst.

Feingold, Lange's successor, has a solid track record, including at the Fidelity Trend Fund, which he will continue to manage.

But Fidelity Trend is much smaller than Magellan, so Feingold must prove that he can thrive at a bigger, higher-profile fund, experts said.

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Photo: A Fidelity Investments office. Credit: Matt Campbell / EPA

Data: Underwater homeowners stuck in higher interest rates

The vast majority of Americans with mortgages worth more than their homes are also trapped into high interest rate loans, putting them in precarious financial situations, according to data released Tuesday.

A total of 10.9 million homes with a mortgage were in negative equity positions at the end of the second quarter, comprising 22.5% of all residential properties with a mortgage, according to Santa Ana research firm CoreLogic. That was only a slight decline from 22.7% during the first three months of the year.

Of those underwater homeowners in the second quarter, three out of four had mortgages above the market rate, according to the data.

Economists consider high mortgage payments on underwater homes a dangerous precondition for foreclosure. The reason is, these homeowners can feel hopelessly trapped by the bad decisions made during the boom years and can be more willing to give up paying their mortgages.

"High negative equity is holding back refinancing and sales activity and is a major impediment to the housing market recovery,” CoreLogic Chief Economist Mark Fleming said in a statement.

In Los Angeles County, there were 356,677 homes with a mortgage that were underwater, making up 23.2% of all homes in the county.

Widespread negative equity keeps borrowers from being able to refinance and benefit in the current low-rate environment. Negative equity also restricts home sales as would-be sellers and move-up buyers remain stuck in their homes.

One major contributor to the decline in the share of home equity turning negative is foreclosure. Indeed, the share of negative equity properties in the hardest hit states has improved due to borrowers losing their homes over the last year, CoreLogic said.

President Obama, in his address to Congress last week, said that helping homeowners refinance their loans could free up a considerable chunk of spending each year for families. Mortgage rates have dived to historic lows amid concerns the economy is sinking again. In response, the Federal Housing Finance Agency, which oversees mortgage titans Fannie Mae and Freddie Mac, said last week that it would review its policies to see if more homeowners would qualify for the administration's Home Affordable Refinance Program.

The program covers only mortgages originated before June 2009 and owned or guaranteed by Fannie Mae or Freddie Mac.

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Photo: A street sign lies on the ground in an unfinished housing development site in Victorville, Calif.

Credit: Associated Press

Pollution from cargo ships drops in wake of new California rules

At some point in the journey from factory to store shelves, as much as 90% of the world's shipped goods  spends time on board a ship. For places like Los Angeles and Long Beach, the good news about this supply chain reality is that the biggest seaports handle the most cargo and get the greatest number of generally well paying jobs.

The bad news is also sizeable. Cargo ships at sea burn what can only be described as the -- in the words of one research chemist -- "bottom of the barrel" grade of fuel, also known as bunker.

"Bottom of the barrel is literally what bunker fuel is. It's what the refineries have left after all of the cleaner burning fuels -- aviation, gasoline, diesel -- has been produced. It's the sludge at the bottom where all of the bad stuff concentrates, all of the sulfur and the heavy-metal compounds," said chemist Dan Lack, who works with with the National Oceanic and Atmospheric Administration’s Earth System Research Laboratory and the Cooperative Institute for Research in Environmental Sciences.

But Lack and his associates have some data that might literally help those who live near California's major seaports breathe a little easier: When cargo ships slow down and switch to a cleaner-burning fuel as they approach shore, the reduction in pollution levels is startling.

Their study of a Maersk cargo container ship operating under California's 2009 near-shore, low-sulfur fuels regulation and the state's voluntary slowdown policy found that emissions of several health-damaging pollutants, including sulfur dioxide and particulate matter, fell dramatically. The ship was the Margrethe Maersk.

Sulfur dioxide levels fell 91%. Sulfur dioxide emissions can lead to the formation of particulate matter in the atmosphere that poses serious public health concerns. Particulate matter pollution, which can damage people’s lungs and hearts, dropped 90%.

Lack said the study was important because it involved a case in which a regulation wasn't ignored after it was enacted.

"It’s important to know that the imposed regulations have the expected impacts. The regulators want to know, the shipping companies want to know, and so do the people,” Lack said.

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-- Ronald D. White

Photo: The container ship Margrethe Maersk steams toward California in May 2010. Credit: National Oceanic and Atmospheric Administration and Cooperative Institute for Research in Environmental Sciences

 

Labor talks between Ralphs, Vons, Albertsons and workers put on hold

 
The labor negotiations between Ralphs, Vons and Albertsons, and the seven United Food and Commercial Workers union area locals were temporarily put on hold Tuesday because the federal mediator responsible for overseeing the talks had to leave Southern California to deal with a family emergency.

The negotiations are expected to resume Thursday afternoon.

The labor negotiations, which have grown increasingly tense in recent weeks, are focused on hashing out deep divisions over healthcare benefits, worker scheduling and future staffing levels, according to sources familiar with the talks.

Officials from the UFCW and the three grocers have been meeting every day, and well into the night, for more than a week after a recent strike-authorization vote by union members that won strong support.

The labor contract that was approved in 2007 expired March 6. It has been extended day to day.

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Photo: Grocery workers protest outside the corporate headquarters of Albertsons in Fullerton in June. Credit: Mark Boster / Los Angeles Times

Consumer Confidential: Target down, Whole Foods discount, minivan probe

Here's your to-hell-and-back Tuesday roundup of consumer news from around the Web:

--Apparently Target shoppers can't get enough of designer Angela Missoni. Target's website crashed on the same day that the retailer launched a new fashion line called "Missoni for Target." The company's Twitter account has been apologizing to customers for hours for the difficulties with its website. Target has been working with Italian luxury knitwear design house Missoni for the past year to develop the line of 400 items. Missoni's hallmark, colorful zigzag stripes, appear on everything from melamine appetizer plates (starting at $2.99) to a four-piece sectional furniture set ($599.99.) Most items are less than $40 and include knit dresses, tights, cardigans, rain boots, bedding, luggage, dinner ware, even iPad and iPod covers.

--Meanwhile, over at the LivingSocial site, people are flocking to a sweet offer from Whole Foods. The high-end grocer is offering 50% off, giving LivingSocial users $20 worth of groceries for $10. As part of the deal, 5% of proceeds will go to the Whole Kids Foundation, which supports schools and aims to inspire families to improve children's nutrition and wellness. There's a limit of one voucher per person. This is the highest-profile deal on LivingSocial to date following a similar discount with Amazon earlier in the year. The Whole Foods deal is poised to surpass the more than 1 million vouchers it sold for the Amazon deal. Anything that makes shopping at Whole Foods cheaper is OK by me.

--Heads up: Auto-safety regulators are opening an investigation into complaints that Chrysler minivan headlights can go out unexpectedly. The National Highway Traffic Safety Administration has received more than 1,500 complaints from consumers about the problem, including two reports of crashes, one of which caused a minor injury. Drivers have reported that the headlights turn off and stay off indefinitely. Toggling the headlight switch can sometimes get them to come back on, but not always. Additionally, vehicle owners have complained that the lights sometimes blink and flicker. Vehicles included in the investigation are the Chrysler Town and Country, the Chrysler Voyager, the Dodge Caravan and the Dodge Grand Caravan.

-- David Lazarus

Photo: Target's website is having a dog day. Credit: Jose Carlos Fajardo/MCT

GDP grows in metro areas, including a turnaround in Indiana

Metropolitan areas across the country began to bounce back in 2010, producing more goods and services than they had in 2009, but areas across the West, including some in California, continued to stagnate, according to the Bureau of Labor Statistics. Real gross domestic product by metropolitan area increased by 2.5% last year, after declining 2.5% the year before, the bureau said. It grew in 304 of 366 metro areas.

The Los Angeles metro area had the second-highest GDP in the nation last year, $670 billion, a 2.5% increase from the previous year. The New York metropolitan area still leads the nation in GDP at $1.3 trillion.

Information and professional and business services led GDP growth in Los Angeles in 2010, the bureau said, while government, construction and transportation slowed it down. Areas where construction was a heavier burden on the economy saw GDP drop last year, especially in the West. In Las Vegas, GDP fell 1.9%, mostly due to construction. In the Riverside-San Bernardino metro area, GDP slipped 0.6% because of declines in construction and manufacturing.

Of the country's largest metro areas, the three with the fastest GDP growth in 2010 were Boston-Cambridge-Quincy, which grew 4.8%, New York-northern New Jersey-Long Island, which grew 4.7%, and Washington-Arlington-Alexandria, which rose 3.6%. The Boston area's growth was led by strength in information, financial activities and professional and business services. New York saw huge growth in financial activities.

Contributing to GDP growth, manufacturing returned in many metropolitan areas in 2010, notably including portions of Indiana. Manufacturing boosted GDP in Elkhart-Goshen by 11.4 percentage points, leading to a whopping 13% rise in GDP. GDP in Columbus, Ind., grew by 10.1% over the year.

The Elkhart-Goshen area could be considered a positive story in the economic recovery. Elkhart County had an unemployment rate of 20.3% in March 2009, and was visited by President Obama that year as he pushed his stimulus bill. The unemployment rate has since fallen to 10.6%. Growing demand for Humvees and RVs helped put some people back to work, economists say.

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Photo: President Obama in Elkhart, Ind., in 2009. Credit: Charles Dharapak / Associated Press

Census: Nearly 1 in 5 Californians lack health insurance

 
New U.S. Census figures paint a grim picture of California when it comes to health insurance: Nearly one in five residents lacked coverage on average during the last three years, one of the highest rates in the nation.

On average from 2008 to 2010, 18.9% of Californians had no insurance, the census reported. That equates to nearly 7 million people.

Nationally, 15.8% of Americans -– or nearly 48 million people -– went without health insurance on average during the three-year period, the census reported.

California was among the top seven states with the highest average rates.

It fell behind Texas (24.8%), New Mexico (21.8%), Florida (20.7%), Nevada (20.0%), Arizona (19.1%) and Georgia (19.0%).

The census also showed that the absence of insurance is a growing problem in California and nationally, largely the result of employers laying off workers and cutting health benefits during the recession.

In California, 19.4% of people on average had no insurance in 2009-2010. That was up from 17.8% in 2007-2008.

Nationally, the figures were 16.2% in 2009-10 and 14.8% in 2007-08.

“The depth of the problem has gotten worse,” said Shana Alex Lavarreda, director of health insurance studies at the UCLA Center for Health Policy Research. “The private sector is not able to cover this population.”

Lavarreda and other healthcare analysts said the figures underscore the need for healthcare reform. They point out that the federal healthcare overhaul will require millions of Americans to buy insurance, starting in 2014, and will provide subsidies for those who can’t afford it.

An estimated 4.7 million uninsured Californians will be eligible for insurance when the new requirement takes effect, the UCLA center estimated. Many will get subsidies or receive coverage through Medi-Cal, the joint state-federal insurance program for the poor.

“That’s when we’ll see the numbers of uninsured drop,” Lavarreda said.

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Photo: A patient is examined by his doctor in California.

Credit: Mel Melcon / Los Angeles Times

Honda will reveal new CR-V concept at Orange County auto show

The start of the 2012 model year in the auto business also marks the beginning of the auto show season. One of the first will be held in Orange County next week and will offer some of the first test drives of vehicles such as the new-generation Volkswagen Beetle, the Prius station wagon and Hyundai’s sport Veloster compact car.

The Orange County International Auto Show opens at the Anaheim Convention Center on Sept. 22 and runs through Sept. 25.

The biggest reveal will be the unveiling of the concept for the next Honda CR-V sport utility vehicle.

"This will be the first time we have done a debut like this at the Orange County show. It was a matter of timing with the car going on sale by the end of 2011," said Honda spokesman Chris Martin.

Generally, Honda reveals its concepts late in the development cycle and they are a fairly close represenation of the actual production vehicle.

The show also will feature a $595,000 Gumpert Apollo, a supercar with a reported top speed of 203 miles per hour and acceleration from zero to 60 in less than three seconds.

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Photos, from top: The $595,000 Gumpert Apollo, reported to have a top speed of 203 mph; the Honda CR-V concept. Credits: Orange County International Auto Show

Airlines collect $1.38 billion in baggage, reservation fees

The nation's largest airlines collected $1.38 billion for charging passengers to check baggage and change reservations in the first three months of the year, the U.S. Bureau of Transportation Statistics reported Tuesday.

The total represents a 4% increase over the $1.32 billion that the same airlines collected in the same period in 2010.

Airlines are only required to itemize for the federal government fees collected from passengers to check luggage and change reservations.

But a law proposed in July by the Department of Transportation would require airlines to report 16 additional fees, including charges for food, drinks, entertainment, pet transportation, pillows, blankets and on-board Internet access.

The federal agency is accepting public comment on the proposed rule at www.regulations.com.

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Photo credit: Reuters

Wall Street: Gold and stocks are up; European banks are down

Gold: Trading at $1,821.50, up slightly from Monday. Dow Jones industrial average: Up 12 points to 11,073.49, after recovering from an early morning slide.

European woes. Investors are avoiding European banks for fear of exposure to the Greek debt crisis.

AOL blogger leaves. AOL is parting ways with the founder of the popular TechCrunch blog in a protracted spat over journalistic ethics.

New aide for Warren Buffett. The Oracle of Omaha adds a seasoned investment manager at Berkshire Hathaway Inc. as he lays the groundwork for an eventual succession plan.

No go on business schools. Applications to business schools have fallen as the prolonged economic slump makes potential candidates think twice about the time and costs involved.

-- Walter Hamilton

Photo: Stan Honda / Getty Images

Never mind the cost of living; have you seen what it costs to die around here?

"That'll be £1,270, please, sir. Coffins are extra."

Never mind today’s increase in the cost of living – have you seen what it costs to die around here? Inflation does not stop with the last breath, and basic burial costs vary more than house prices from one part of Britain to another.

The cheapest are as low as £50 but the most expensive hit an eye-watering £1,270. Nor is the division on a simple north/south basis, as is the trend with house prices.

Strangely, two of the 10 cheapest places to be buried are in the constituencies of former Chancellors of the Exchequer. Nigel Lawson’s former seat at Blaby, Leicestershire, came in with a rock bottom quote of £50 for a basic interment, while John Major’s former seat at Huntingdonshire, Cambridgeshire, was fourth cheapest of 255 local authorities surveyed with a charge of £115.

By contrast, the most expensive place for a basic burial was Lichfield, Staffordshire, which charged £1,270 – or more than 25 times as much as Blaby – while Elmbridge, Surrey, was not far behind with costs of £1,138 according to funeral plan provider Avalon.

Bear in mind these figures do not include additional costs such as having a vicar, priest or other religious representative in attendance and you can see why some chose to save up for the dread event. Recent research by Mintel suggests a basic funeral now costs more than £2,600 but a church service and flowers would push this above £3,000.

Before the Welfare State set out to care for people from cradle to grave, saving up for a decent send off was the basis of many life companies’ business. But soaring taxation and the death of the savings habit put an end to that.

Now former Norwich Union manager Mike Cooper, managing director of Avalon, reckons there may be a gap in the market. Fewer than three in 10 of the people who die in Britain are now buried – and rising costs are a major factor in families choosing cremation.

He said: “As space dwindles and fees grow, the number of burials is expected to decrease rapidly. It seems that dying has become a very expensive business.

“While the traditional funeral is still part of our cultural fabric, burials are now out of reach for many of the population. It’s no surprise that cremation is by far the most popular choice for funerals.”

No wonder more people have started saving again toward paying for one of life’s few certainties. As rising inflation and taxation, coupled with frozen or falling earnings continue to squeeze living standards, relying on the children to do you proud could prove a mistake.

How to Raise Revenue Without Violating the Tax Pledge

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

The biggest barrier to reducing the budget deficit is the Republican insistence that taxes not be increased by so much as a penny. As we saw in the Republican candidates’ debate on Aug. 11, when asked if they would support a plan with $10 of spending cuts for $1 of tax increase, every candidate declined to support that plan.

Today’s Economist

Perspectives from expert contributors.

But with federal revenues at a 60-year low, every serious budget analyst knows that revenues must be increased to stabilize the nation’s finances, not just in dollar terms, but as a share of gross domestic product.

Perspectives from expert contributors.

However, no Republican politician dares to acknowledge this, for fear of excommunication and likely defeat by some Tea Party patriot in the next primary.

Enforcement of Republican tax dogma is handled by Grover Norquist of Americans for Tax Reform, a group that isn’t actually in favor of tax reform because it supports every gimmicky tax cut that comes down the road and likewise opposes eliminating any special-interest tax provision if it would lead to higher taxes on anyone.

For 25 years, Mr. Norquist has demanded that every Republican running for office anywhere sign a no-tax-increase pledge, which every G.O.P. presidential candidate and virtually every Republican member of Congress has done. Allied groups like the Club for Growth will spend whatever it takes to defeat any Republican who violates the pledge or refuses to sign it.

With Republican control of the House of Representatives and enough Republicans in the Senate to filibuster to death any measure deemed by Mr. Norquist to violate the sacred pledge, spending cuts appear to be the only permissible means of reducing the deficit.

There are, however, ways of cutting spending by raising revenue. While this sounds like magic, it is done all the time.

The first thing one needs to know is that not all federal revenues count as revenues. Some are classified as “offsetting receipts” or “offsetting collections.” Such revenues are classified as negative spending rather than as revenues. The classification has no effect on the deficit but does make both federal spending and revenues about $600 billion lower than they actually are.

Details on offsetting receipts can be found in Chapter 16 of the analytical perspectives volume of the federal budget. As it explains, such receipts consist of user fees and other voluntary payments made to the government in exchange for services of various kinds.

There are a wide variety of such receipts, but I want to focus on the one that is probably most familiar to people – premiums paid by beneficiaries for Medicare Part B, which amount to $65 billion this year.

When Medicare was established, it had two parts, A and B. Part A pays for hospitalization and is financed by a payroll tax that all workers pay. Part B pays for doctors’ visits and is voluntary. Its cost is financed by premiums paid by beneficiaries and by general revenues.

Originally, beneficiaries paid for 50 percent of Part B’s benefits. But in 1973, the law was changed and the percentage of benefits covered by premiums fell steadily until 1985, when premiums were fixed at 25 percent of the program’s costs. Thus if beneficiaries still paid as much of Medicare Part B’s costs as they originally were supposed to then federal revenues would be $65 billion higher this year.

And here’s the kicker: higher Part B premiums wouldn’t count as higher revenues, but as lower spending for Medicare. Therefore, it would not be a tax increase, would not violate the sacred pledge and would cut Medicare, which Republicans all say they want to do.

Even libertarians could support higher Part B premiums because the program is voluntary. Anyone who doesn’t want to pay the premiums (or receive the benefits) doesn’t have to. That’s the key reason why Part B premiums aren’t considered to be taxes.

There is really only one good argument against making Medicare beneficiaries pay for more of their benefits – it will be massively unpopular among elderly people. Right now they are getting something for nothing, and they like it. According to a recent Urban Institute study, single people and two-earner couples get back three times as much as they pay into Medicare and single-earner couples get back six times their contributions.

There are many other ways, as well, where the concept of offsetting receipts could be used to reduce federal spending while raising revenues through higher fees and reduced subsidies.

Once upon a time, it was a principle of conservative budget analysis that the federal government ought to impose user fees wherever possible, because it was unfair for taxpayers to subsidize programs that benefited only a limited group of people or businesses.

For example, user fees were a big part of the recommendations put forward by the Grace Commission, established by Ronald Reagan to find ways of reducing federal costs. It published an entire volume detailing opportunities to impose fees and raise those insufficient to cover benefits received by users of government services.

The Wall Street Journal editorial writer Stephen Moore, who was formerly head of the Club for Growth and is a close ally of Mr. Norquist in enforcing the anti-tax orthodoxy among Republicans, once wrote a paper for the conservative Heritage Foundation recommending a variety of new fees to reduce the deficit.

Libertarian groups like the Cato Institute and the Reason Foundation have argued that establishing fees for government services would help make them viable for privatization, which would shrink the size of government.

The Government Accountability Office and the Congressional Budget Office periodically publish reports on user fees that can easily be consulted for ideas on how they can be improved. Budget conventions that treat such fees as reduced spending offer a way out of the budget impasse imposed by the tax pledge. And they could make a major contribution to meeting the $1.5 trillion deficit-reduction target that the Joint Select Committee on Deficit Reduction must meet by Nov. 23.

Wealth rises in China with increasing social cost

Economic conditions around the world may be deteriorating but you couldn’t tell by the headlines in China.

The latest list of the country’s mega-rich was released last week showing tycoons belonging to the property, consumer goods and the Internet industries bursting with cash in another banner year of wealth creation.

Another report says Chinese millionaires will make up half the population of high net worth people in Asia in the coming years.

HSBC is predicting China will overtake Japan this year as the world’s largest consumer of luxury goods; a Chinese investor is trying to buy a chunk of Iceland for $8.8 million; and news reports Tuesday said cash-strapped Rome is cozying-up to Beijing hoping they’ll open their checkbooks to invest in Italian bonds and companies.

Whether its fine wine, yachts, private planes or man bags, growing wealth and conspicuous consumption has been one of the most enduring Chinese storylines in recent years.

But at what price?

There’s a growing unease about the gap between rich and poor in China – a rift that appears to be widening and threatening the government’s motto of stability at all costs.

“Becoming rich through honest work and legal means is glorious. But at the same time, the public is worrying that the widening wealth gap between rich and poor is hurting social harmony,” read an official New China News Agency editorial Friday.

To put the disparity in perspective, the vast majority of China’s 1.3 billion people aren’t even subject to income taxes because they earn too little. Only 24 million people make the minimum $545 monthly income necessary to be taxed, according to the Ministry of Finance.

China's per capita annual income of $7,600 ranks below Angola and Albania. 
 
As food and property prices move higher, populist resentment grows. Take away outrage over privileged elite, corruption and mistresses and there would be a lot less to write about on China’s wildly-popular micro-blog services.

(The scandal du jour is over the beating of a Beijing couple at the hands of 15-year-old driving a BMW without a license. The boy, Li Tianyi, turned out to be the son of a famous People’s Liberation Army singer).

After decades of imploring its people to get rich, China’s communist rulers are now asking citizens to dial the ostentation down a notch. Earlier this year, Beijing banned billboards that promoted “hedonism, lavishness and the worship of foreign things,” Bloomberg reported.

“The government is facing a conflict,” Michael Ouyang, representative of the World Luxury Association in China, told the Washington Post. “They don’t want to promote luxury because they are worried people who cannot afford it will see the advertisements. But they don’t want to limit luxury products because it’s good for the economy. So they’re facing a dilemma.”

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--David Pierson

Twitter.com/dhpierson

Photo: Two men carrying goods to be recycled ride their flatbed tricycles past a red Porsche Cayman parked outside a high end housing complex in Beijing. Credit: Diego Azubel / EPA.