While you were sleeping: Obama to tax the rich, dole claims rise

Friday 27th February 2009

President Barack Obama proposed increases in the top US tax rates, under a budget proposal that would reap almost US$1 trillion from the wealthy to fund tax breaks for the poor.

The 2010 budget proposal would lift the top income tax rates to 36% and 39.6% from 33% and 35% currently. It would also increase the tax rate on dividends and capital gains to 20% from 15% for the highest paid. The proposals signal a winding back of tax cuts by the Bush administration.

Obama's budget would set aside US$750 billion in new aid for financial institutions and overhaul the healthcare system under an omnibus spending package that will push the budget deficit in the world's biggest economy to a record US$1.75 trillion and begin creation of up to US$3 million new jobs.

Initial US unemployment benefit claims rose by 36,000 to 667,000s unexpectedly rose last week and the number staying on benefits for more than a week climbed by 114,000 to a record 5.1 million, according to Labor Department figures.

Meantime, Commerce Department figures showed orders for durable goods dropped a higher-than-expected 5.2% last month, adding to evidence of a prolonged recession.

Still, the federal government's economic assumptions behind its budget proposal is for US gross domestic product to shrink 1.2% this year, accelerating to 3.2% in 2010, a more upbeat assessment that some analysts' forecasts.

Shares on Wall Street edged lower, with the Dow Jones Industrial Average falling 0.7% to 7224.31 and the Standard & Poor's 500 Index declining 1% to 757.06. The Nasdaq Composite fell about 1.7% to 1402.3.

JPMorgan Chase climbed 6.4% to US$23.13, leading banks higher on the Dow, after Obama's budget plans showed further aid for lenders. Bank of America rose 2.7% to US$5.31.

Healthcare insurance companies dropped amid speculation the federal government will reduce Medicare payments. Humana slumped 20% to US$23.48, Coventry Health fell 14% to US$11.87 and Aetna declined 13% to US$23.46. General Motors fell 7.8% to US$2.35, leading the Dow lower.

In Europe, business and consumer confidence fell to a record low this month as banks tightened credit criteria and jobless levels rose.

Executive and consumer sentiment dropped to 65.4 from 67.2, according to an index published by the European Commission

The Dow Jones Stoxx 600 index rose 2.2% to 176.14. Royal Bank of Scotland jumped 26% on the lender's plans to pour 325 billion pounds of toxic assets into a state insurance programme. The bank posted a 24.1 billion pound loss, the biggest in UK company history.

The UK Treasury will allow its stake in RBS to reach 84% in return for guaranteeing the investment programme.

Lloyds Banking Group, which is assessing the same programme, gained 31%, leading the Stoxx 600 higher, while Legal & General climbed 28%. UBS AG rose 16% after the Swiss lender hired former Credit Suisse Group chief Oswalk Gruebel to be CEO.

Germany's DAX 30 gained 2.5% to 3942.62, led by a 14% gain for Deutsche Bank and a 12% gain for Allianz. France's CAC 40 rose 1.8% to 2744.84 and in London, the FTSE 100 Index gained 1.7% to 3915.64.

Crude oil rose to its highest in a month after US Energy Department figures showed gasoline inventories dropped last week as lower prices encouraged Americans to fill their tanks.

Crude oil for April delivery rose 6.4% to US$45.23 a barrel on the New York Mercantile Exchange.

Copper rose to a two-week high on optimism US fiscal stimulus plans will stoke demand for the metal used to make pipes and wires, while China steps up imports.

Copper futures for May delivery rose 2.7% to US$1.579 a pound on the New York Mercantile Exchange

Gold futures for April delivery fell 2.4% to US$942.60 an ounce in New York.

The yen weakened above 98 per dollar for the first time in three months amid signs of a worsening recession in the world's second-biggest economy.

The yen weakened to 98.39 per dollar from 97.39 and fell to 125.33 per euro from 123.92. The greenback fell to $1.2739 against the euro.

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