GOVERNMENT ACTIONS AFFECTING COMMERCE









 

                1999:   OCTOBER:

  •      An article appearing in the New York Times on Friday, October 22, 1999 states that the U. S. Treasury Department has established new regulations that are designed to crack down on the newest version of a tax-avoidance scheme called a "chutzpah trust". This plan is an abusive extension of a normal charitable remainder trust. In the normal remainder trust an individual makes a donation of such property as some highly appreciated stock shares to a trust which will pass the property through to a charity when the donor dies. There are no capital gains taxes charged to the donor because he or she no longer actually owns the stock or other property; in addition, the former owner receives an immemdiate deduction on his or her income taxes for the value of the donated property. Finally, the former owner also receives an annual income stream of approximately 7% annually. Under Federal income tax rules, the donor of this property must pay taxes on the investment earnings that are used for these payments, and these taxes are assessed in a structured system that counts first earned income, then capital gains, tax-exempt income from municipal bonds, any other income and lastly return of principal.

        In the tax-avoidance scheme, the assets which are the subject of the trust are invested in situations in which no taxable income will accrue to the former owner, and the trustee borrows against those assets to provide income for the donor.

        In the New York Times article, U. S. Secretary of the Treasury Lawrence H. Summers in President Clinton's cabinet is reported to have announced that the new, anti-abuse regulations are intended to put an end to such plans by making them subject to taxation. "Shutting down schemes like this helps us build a culture of compliance," he is reported to have said. However, Jonathan G. Blattmachr, who is a tax specialist partner in the Milbank, Tweed, Hadley & McCloy legal firm of Manhattan, was reported in the article as saying that the trusts complied with the rules that Congress had created at the Treasury Department's request, to set levels of income for taxing the stream of payments from charitable remainder trusts. "You wrote the rules and now you have to live with them," he said. "You can't change the rules in the middle of a card game."

  •     According to an article appearing in the New York Times on Friday, October 22, 1999, the Federal Communications Commission agreed on October 21 to provide greater subsidies to large telephone companies, such as the regional Bell companies and GTE, so as to help make phone service more affordable for people living in rural and expensive-to-serve areas.

        The new subsidies will  more than double the  amount available to these firms; the new amount will be US$437 million. It had been US$207 million before the commission's approval vote on the 21st.

        This increase in aid to help people in rural or high-service-cost markets will most likely result in increases in service charges for other telephone customers, but the amount of these fee increases is unknown at this time.

        The increased costs for other consumers is brought about because of the way in which the subsidies are funded by the commission. Funds are generated, for the most part, from assessments levied by the commission upon AT&T, MCI Worldcom, Sprint and other long-distance companies. These firms, in turn, usually obtain the required sums from their customers by passing the charges along to them in their monthly bills.

        This action to increase subsidies to companies serving rural or other expensive customers is part of a broader initiative by the F.C.C. to change the nation's telecommunications system in preparation for the advent of widespread competition in local phone markets.

       

        America's largest long-distance carrier, AT&T, complained that the commission has made the subsidies too large, and that it would now have to raise the present US$0.99 fee that it charges each month to its customers, called the "universal service connectivity charge". MCI Worldcom and Sprint have both said that they would recover the increased assessments in some way from their customers. Both companies charge their customers a percentage of their long-distance calling bills to pay for the commission's assessment.

        The commission has not yet taken up the question of subsidies that are part of the so-called access fees charged by local telephone companies to long-distance carriers for connecting calls to their local networks. A group of large telecommunications carriers estimates that US$650 million of these connection charges also go toward making local phone service affordable to more customers.

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  •     According to an article appearing in the New York Times on Friday, October 22, 1999, the U. S. Securities and Exchange Commission has announced this week that it had reached a settlement of charges against three men who had tried to sell stock on the Ebay Internet auction site.

         The S.E.C. says that this is the first case of its kind, in which the Commission had brought charges against anyone for selling securities in an on-line auction, and that it has now issued cease-and-desist orders against the three men: Richard Davis, 28, of Duncanville, Texas; John R. Hoff, 24, of Hudson, Wisconsin; and Louis Sitaras, 37, of Jupiter, Florida.

        According to the Commission, the three have agreed to settle the case without admitting or denying the charges.  The auction site, Ebay, was not accused of any wrongful acts in the case.

        The S.E.C. said that such on-line stock auctions are illegal. Helane Morrison, the S.E.C.'s district administrator in San Francisco, issued a statement in which she said that securities laws "apply in cyberspace, just as they do elsewhere."

  •     In Washington, D. C., U.S.A. on Thursday, October 21, 1999 Republican Senator Phil Gramm of Texas, the head of the Senate Banking Committee, blocks passage of a bill designed to overhaul the nation's financial system. This is a repeat of his actions last October, when he, acting alone and using some clever parliamentary maneuvers, sent a similar bill to a quiet oblivion just when it had seemed that it would gain approval in the Senate and be signed into law.

        Senator Gramm's opposition both last year and now has been sparked by his strong antipathy towards anything which could be even remotely thought of as stretching the provisions of the Community Reinvestment Act, which calls for greater lending by banks to their inner-city neighborhoods.

        Senator Gramm has once again  placed himself head-to-head against the President and Congressional Democrats, who believe that laws are needed to stop discxriminatory lending practices by the banking community. Many bank lobbyists are upset at his opposition, preferring instead to have the overall bill passed rather than to have its prospects blocked by debate over lending practices that they have learned to get along with.

        Senator Gram, who has a reputation as a stern negotiator, is opposing the measure for purely personal reasons. Banks, securities firms and insurance companies have by now worked out and largely eliminated their former mutual antagonisms, and they now feel that a bill to permit them to work in each other's fields should be passed.

        Senator Gramm says that he supports that general principle, but that his opposition is directed  towards the bill's section concerning inner-city lending. His goal is to have a bill passed which would replace the historic Glass-Steagall Act with one that could be called the Gramm-Leach Act, for himself and the chairman of the House Banking Committee, Jim Leach, an Iowa Republican.

        Some of his personal opposition to the inner-city lending provisions has been fueled by the actions of the measure's proponents. Some of them have demonstrated right on his front lawn in suburban Washington. They went heavy-footed over his flower beds and ripped up his tulips.

        Senator Gramm is a strong supporter of Governor George W. Bush of Texas, who he expects to be the next President, and he feels that there could be a new bill introduced next year by a new administration, a bill which he could fully support.

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