Get ready for some more bad economic news today. The Obama administration is expected to increase its estimate of the federal deficit over the next ten years by $2 Trillion, a move that will stir political debate and create more economic uncertainty.

The White House’s Office of Management and Budget is expected to forecast $9 trillion in deficits over the next decade, up from a $7 trillion estimate earlier this year.  The increase is largely due to lower-than-expected tax revenues as a result of the recession.

This tax revenue decrease, combined with federal spending on the bank bailout ($700 billion) and the Obama stimulus package ($787 billion) are the main reasons for the enormous deficit.

But government spending is expected to continue with more than $100 billion on unemployment compensation this year.  And if Obama’s proposal to provide health care coverage for more than 47 million uninsured Americans is approved, expect another $1
Trillion over the next 10 years.
sources: google.com, Associated Press, Wall Street Journal

A key government informant and former UBS banker in the U.S. tax evasion case against Swiss bank (UBS AG) was sentenced to more than three years in prison for helping a billionaire hide assets from U.S. tax authorities.

The sentence of Bradley Birkenfeld, by federal Judge William Zloch Bradley Birkenfeld, was tougher than his attorneys and prosecutors anticipated.

Birkenfeld cooperated in the U.S. government tax evasion investigation of UBS, serving as an informant in 2007 for US authorities.  UBS AG has since admitted that its employees helped American clients evade billions of dollars in U.S. taxes.

Prosecutors asked that Birkenfeld’s sentence be reduced to 2 1/2 years from the 5 years he originally faced. His lawyers pleaded  for 5 years probation.

The ex-UBS employee was sentenced for conspiring to defraud the United States by helping a billionaire U.S. real estate developer create sham corporations and entities to hide over $200 million in assets from U.S. tax authorities.

However, he was credited with providing damning information on UBS’s illegal business practices of helping wealthy Americans use their Swiss bank accounts to hide money overseas to evade U.S. taxes.

The sentencing comes just two days after U.S. and Swiss authorities signed a pact in which Switzerland agreed to reveal the names of about 4,450 wealthy American clients of UBS to U.S. tax investigators.

U.S. officials said Birkenfeld’s sentencing would send a powerful message to U.S. tax offenders hiding undisclosed assets in Swiss bank accounts to give themselves up under a voluntary disclosure program.

“To those taxpayers who have illegally hidden their income in foreign bank accounts and to those who have illegally helped clients hide income and assets, today’s sentencing serves as notice: come in and completely come clean,” said John A. DiCicco, Acting Assistant Attorney General of the Justice Department’s Tax Division.

source: Reuters

IRS Internet scams never seem to stop. The latest IRS related scam is an e-mail claiming you’re entitled to a tax credit.

The e-mail, titled “Making Work Pay” features an IRS logo and promises money as part of the federal government’s economic stimulus package. Like all identify theft e-mail scams, it asks for personal information so a tax credit check can be sent. Such a tax break does exist, but IRS officials said the money was not being sent in a lump sum.

“What we called the recovery rebate credit actually was coming in your paychecks. The employers were changing their withholding so you got a little bit more each payday,” said IRS spokeswoman Marian Adams.

Another scam says taxpayers are eligible for a tax refund of more than $300. You are assigned a bogus refund number. To claim the money, you must complete and submit an online form that asks for sensitive information, including your mother’s maiden name and credit card number.

“I think people if they get something that says IRS they’re afraid that maybe it’s something they need to respond to,” said Adams in explaining why the tax agency is frequently mentioned in scams.

Not sure the e-mail is a scam? Here are some red flags:

The IRS communicates to taxpayers via physical mail - NEVER by Internet or e-mail.
Requests for personal information such as social security numbers, credit card or bank information.
Threatening language - the IRS will not threaten you.
Poor grammar or misspellings are a sure give-away. That’s usually a hint it is coming from overseas.

source: KWCH.com

President Obama’s treasury secretary and chief economic adviser admit they cannot rule out raising taxes on middle-class Americans to curb the soaring budget deficit and fund health care reform.

With more federal spending expected on the economic stimulus package, extended unemployment benefits and health care reform, revenue sources to cover these expenses just aren’t available.

The Obama administration is treading lightly on the issue of raising of taxes to calm the public. Both Treasury Secretary Timothy Geithner and National Economic Council Director Larry Summers sidestepped questions on the President’s intentions about taxes. Geithner said the White House was not ready to rule out a tax hike to address the federal deficit; Summers said Obama’s proposed health care overhaul needs funding from somewhere.

President Obama vowed “you will not see any of your taxes increase one single dime” during his presidential campaign. But the simple truth is the federal spending on economic recovery combined with an ambitious plan to revamp American health care - will have to be paid for.

On Friday, the government released a report that suggests the worst U.S. recession since WWII appears to be ending. But President Obama cautioned about a quick turnaround.

“Well, as I’ve said, I think we maybe are beginning to see the end of the recession, but it’s still going to be some time before we are seeing companies hiring again. That’s usually the last thing that happens,” Obama said in an interview with Univision that aired on Sunday.

“So I think we are still going to have a tough remainder of the year — probably until next year — but, you know, at least what we are seeing — we’ve pulled back from the possibility of a depression. That’s not the danger.”

Private economic forecasters suggest that unemployment will come down in the second quarter of 2010 with positive growth in the latter half of 2009.

But at the same time, Geithner and administration officials are pondering how to ask Congress for more funds to extend unemployment benefits for Americans who have recently lost their jobs. The proposal drew some support from Sen. Jim DeMint, R-S.C., as long as the benefits come from the already approved economic stimulus package.

Opponents of the plan question whether the proposal will benefit the country.

Senator John McCain stated, “I think it’s pretty clear, if you pump trillions of dollars into the economy, you will see some recovery,” the Arizona Republican said while giving Obama credit for the improvement. “But the long-term consequences, I think, are going to be, unfortunately, devastating unless we do something about it.”

Geithner and Greenspan appeared on ABC’s “This Week.” Summers appeared on NBC’s “Meet the Press” and CBS’s “Face the Nation.” DeMint was interviewed on “Fox News Sunday.” McCain spoke with CNN’s “State of the Union.”

source: Associate Press