As fiscal cliff looms, Americans face hefty tax hike

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(MoneyWatch) Taxes for nearly 9 of 10 Americans will rise by an average of $3,500 a year if Congress and the White House fail to reach a deal that avoids the so-called fiscal cliff.The Brookings-Urban Institute Tax Policy Center, a Washington research group, said in a new report that the planned elimination of tax breaks at the end of the year would affect 88 percent of U.S. taxpayers, with most seeing tax hike in 2013 of 5 percent. It would also boost federal tax receipts by a total of $536 billion next, or 20 percent. Most of the increase would come from the scheduled expiration of tax cuts enacted in 2001 and 2003 during the George W. Bush administration. The expiration of President Obama's payroll tax holiday, which shaves 2 percentage points off payments to Social Security, would also contribute to the rise.The study's authors said the size of the increase surprised them. "It's just a huge, huge number," said Eric Toder, an Urban Institute scholar, in a conference call to discuss the report.

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What is the "fiscal cliff?"

The top 20 percent of income-earners -- those with mean annual earnings of more than $170,000 -- would experience the highest tax increase, at 5.8 percent (see chart at bottom). That would push the average federal income tax rate for taxpayers in this bracket to 30.9 percent. As a result, they would end up paying 60 percent, or $300 billion, of the additional revenue from the rise in rates. A middle-class household, with income between $40,000 and $64,000, would see its taxes rise by about $2,000. The bottom 20 percent of earners -- those with mean income of less than $15,900 -- would pay the least in total dollars, at $16.1 billion. But low-income earners would see the largest increase in the percent of their income they pay in taxes, with that figure slated to rise to 4.3 percent, from the current average of 0.6 percent. Specifically, they would feel the greatest financial impact of expiring tax breaks that were part of Obama's 2009 economic stimulus package, the Institute found. They would lose an expansion of the earned income tax credit and the child tax credit for working families. A $2,500 credit for college tuition also would shrink to $1,800 and be available for only two years, instead of the current four.http://www.cbsnews.com/8301-505123_162-57523641/as-fiscal-cliff-looms-americans-face-hefty-tax-hike/?tag=categoryDoorLead;catDoorHero

September didn't act like worst stock month

(MoneyWatch) Like clockwork, we get headlines at the end of each August about how September has been the worst month for stocks. One article from this year noted that "it's easily the worst month for equities," with the Dow Jones industrial average falling nearly 60 percent of the time. One can only wonder how many investors acted on this information.So how did this September turn out? The S&P 500 Index closed August at 1,407 and ended September at 1,441, a gain of about 2.4 percent. It has now risen in seven of the past nine years, including four in a row:

• Up 3.7 percent in September 2009
• Up 8.9 percent in September 2010
• Up 7.3 percent in September 2011

Identifying patterns that worked in the past doesn't necessarily provide you with any useful information about stock price movements in the future. Unless there's a logical explanation for cause and effect (and there's none in this case), it's likely the finding is nothing more than a random outcome with no predictive value. As Andrew Lo, a finance professor at MIT, points out, "Given enough time, enough attempts, and enough imagination, almost any pattern can be teased out of any data set."

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JPMorgan Chase sued over Bear Stearns securities

NEW YORKThe New York attorney general's office has hit JPMorgan Chase (JPM) with a civil lawsuit, alleging that Bear Stearns perpetrated massive fraud related to billions in residential mortgage-backed securities that it sold prior to its 2008 collapse and subsequent sale to the New York bank.The lawsuit is the first to be filed under the auspices of the RMBS Working Group, which was set up by President Barack Obama to investigate and prosecute alleged misconduct that contributed to the financial crisis.Subprime mortgages were sold to people with less-than-ideal credit. Many of them began defaulting on their loans when the housing bubble burst and their introductory "teaser" interest rates shot up, making their payments unaffordable. Because many of those mortgages were sliced and repackaged as securities that could be bought and sold - known as RMBS - the mass defaults led to huge losses at large U.S. banks and other financial firms, helping fuel the global economic meltdown.
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New York Attorney General Eric T. Schneiderman is alleging that Bear Stearns led its investors to believe that the loans in its RMBS portfolio had been carefully evaluated and would be continuously monitored. Schneiderman alleges that Bear Stearns failed to do either, resulting in investors buying securities backed by mortgages that borrowers couldn't repay and defaulted on in huge numbers.The complaint further alleges that even when Bear Stearns executives were made aware of these problems, the firm failed to correct its practices or disclose material information to investors. The executives routinely overlooked negative findings and continued to package the loans into securities for sale to investors, it says.Investors have so far lost $22.5 billion on more than 100 subprime securities that Bear Stearns issued in 2006 and 2007, according to the complaint. That's over one-quarter of the original principal balance of $87 billion. The lawsuit seeks injunctive relief, damages and payment of restitution to investors for "fraudulent and deceptive acts."http://www.cbsnews.com/8301-505123_162-57524057/jpmorgan-chase-sued-over-bear-stearns-securities/?tag=categoryDoorTopNews;catDoorTopNews