European Stars And Stripes (Newspaper) - April 6, 1986, Darmstadt, Hesse                                Sunday april 6, 1986 the stars and stripes Page 19 budget deficit appears to be shrinking by Tom Raum a economics writer Washington almost exactly a year ago David a. Stockman then the nation s budget director warned of $200 Bil lion deficits stretching As far As the Eye can see if Congress did t Start making drastic cuts in government spending. But slowing inflation plunging Oil prices declining interest rates and signs that the nation s budget deficit is beginning to shrink on its own Are reshaping the nation s economic debate. No longer does deficit reduction occupy Center stage. And recent Public opinion sur Veys suggest that declining numbers of americans View the deficit As an immediate threat. I Don t think it s As critical an Issue now. That s because Oil prices have allowed in Terest rates to come Down faster than expected and because the deficit is being Cut said David Wyss senior economist at data resources inc., a Lexington mass., eco nomic forecasting service. But Wyss like Many other economists and congressional budget leaders warns that the current complacency Over the Defi Cit could spell trouble ahead. It s going to require some sustained Effort by Congress and the administration to keep the deficit on its downward path Wyss said. Still a year after Stockman issued his warning to a congressional budget panel even the most pessimistic of economists no longer Are projecting deficits above $200 billion beyond the current fiscal year which investor s guide by William Doyle q. I owned 2,000 shares of Utility com Pany preferred Stock for More than two years. The company called that Stock for redemption at a Price $2 per share below my average Purchase Price. Must i report this As a Long term capital loss can t i treat it As an involuntary conversion after All it was an involuntary conversion on my part. A. Although you May feel you suffered an involuntary conversion you la have the internal Revenue service All Over your Back if you report this As anything other than a $4,000 Long term capital loss on your Feder Al income tax return. The involuntary conversion rules come into play Only As the result of loss of prop erty from destruction theft seizure requisition or condemnation or the Sale or Exchange of property under threat of any of those conditions. You knew at least you should have known that the company had the right to Call in that Stock and pay it off at a specified Price. The terms of the Call provision were set at the time that Stock was issued. It s Wise to Check the Call provision before buying. Many preferred stocks As Well As Bonds and other debt securities have Call provi Sions which can vary from one Security to another. Typically the Price at which a Security can be called is equal to or higher than the Security s Par or face value. When you buy a preferred Stock or debt Security at a Price higher than its Call Price you run the risk that there will be a Call and you will lose Money As happened in your Case. There have been an increased number of Calls lately and we can expect More in the near future. Because interest rates have come Way Down Many companies now can Issue new securities at relatively Low costs and use the Money to Call in and pay off preferred stocks and debt securities issued when interest rates were sky High. Q. We have a $5,000 bearer Bond that defaulted four years ago. How can we take this As a loss on our income tax return when we try to sell it through brokers or now Lillei Vyp 6&j1l�kand who triv Klutt ends sept. 30. And the More optimistic Are suggesting that the deficit will drop to half that level within the next five years even if con Gress takes no further action and manages to sidestep the new Gramm Rudman Bud get balancing Law which requires a balanced budget by 1991. That s because of revised More upbeat economic assumptions by both government and private analysts a Ripple effect on government spending from the first round of Gramm Rudman spending cuts and con Gressional action restraining president Rea Gan s military buildup. The More optimistic budget Outlook May Banks they turn thumbs Down the minute we mention the Bond s name. A. If the thumbs Down Means that Bond has become worthless you can report the Price you paid for it As a capital loss on schedule d of your Federal income tax re turn. You do that by listing the Bond As having a Zero value As of dec. 31 of the year it became worthless. The kicker is that you Are required to take that capital loss on the return you file for the year in which the Bond lost All mar Ket value. With worthless securities you Are allowed to file an amended return form 1040x Back for seven years. Get a letter from one of those brokers or Banks stating that the Bond has no Market value in any Market and that it lost All value in such and such a year. You la need the letter if the irs questions your return. Q. You have repeatedly stated that Only 40 percent of a Long term capital gain is subject to Federal income tax and because the top Federal income tax bracket is 50 percent the maximum Long term capital gains tax is 20 percent. It s True that 50 percent of 40 percent is 20 percent. However in t there a require ment to use the alternative minimum tax form on very Large capital gains and does t the amt raise that percentage quite a bit a. In order the answers to your questions Are yes and  the 60 percent of Long term capital gains profit from the Sale of securities and other capital assets owned More than six months and a Long list of other tax preference items must be added Back in the complicated calculation to determine if an alternative minimum tax is due. However the alternative minimum tax rate is a Fiat 20 percent. And that is applied Only after a deduction of $40,000 for a mar ried couple filing a joint return $30,000 for an individual return and $20,000 for a mar ried person filing a separate return. That keeps the top tax bite on Long term capital gains at 20 percent. King features columnist Doyle welcomes written questions but he can provide answers Only through the column. You can write to him in care of the stars and stripes Apo 09211, . Forces Blunt the drive to reach a balanced budget. Economists Are in Sharp disagreement Over whether a balanced budget is even needed for a continued healthy Economy. The budget deficit the difference be tween what the government takes in and what it spends was a record $212 billion in 1985 and is expected to be slightly Over $200 billion this year. But it is expected to decline to $182 Bil lion next year even if Congress does nothing further to meet the $144 billion 1987 deficit target under the Gramm Rudman Law according to analyses by both the White House office of management and budget and the congressional budget office. Gramm Rudman the product of last year s frustration by Congress to agree on spending Cut priorities Calls for a balanced budget by 1991 in a series of Large annual deficit reduction instalments with Auto Matic cuts to be triggered in years when Congress fails to meet the targets. However the triggering mechanism has been called unconstitutional by a three judge Federal panel in a Case now on Appeal to the supreme court. The High court is expected to Rule on the Case by Midsummer. Drawing a Clear link Between High deficits and economic distress has always been. Difficult for politicians and Many economists even in harsh times. In fact historically deficit spending has been used As a Way to prime the pump and prod a sluggish Economy to end a recession. However since the Era of the Vietnam War the deficit has continued to Rise regardless of business cycles. And now with congressional elections approaching the deficit decreasing and relative Prosperity throughout much of the land the task of balancing the budget has become even More difficult say analysts and lawmakers. The Stock Market is booming interest rates Are coming Down. We be got a great oversupply of food and a glut of Oil. We be been very fortunate. And that makes our Job even harder said sen. Lawton Chiles of Florida senior Democrat on the Senate budget committee. All of this could go away very quickly said Chiles noting that even if Congress reaches the target of $144 billion next year it would still be the third or fourth biggest deficit in the nation s history. It s a terrible terrible  Chiles said his Florida constituents Are still concerned about the deficit even if not with As much urgency As a few months ago. It s not on the front Burner right now he said. A further indication of the lessening of pressure on Congress to balance the Federal budget May be reflected by the Senate s one vote rejection of a proposed constitutional amendment to balance the budget. It had approved a similar measure in 1982 by More than a 2-1 margin. In 1980, Reagan campaigned on a prom ise to balance the Federal budget by 1984, a goal dropped fairly Early in his presidency. Congressional democratic critics who Are fond of pointing out that since Reagan took office the National debt has increased from a trillion to $2 trillion contend that the administration has never put its full weight behind deficit reduction efforts. After All the nation is still enjoying the benefits of one of the longest recoveries since the end of world War ii. Still administration officials claim that the High deficit has always been and continues to be a Central administration con Cern. High deficits require continued Federal borrowing to enable the government to pay its Bills so that proportionately More and More government revenues must be diverted to pay interest on the National debt. Last year 15 cents of every Federal Dollar went into servicing this debt. That keeps interest rates High soaks up private savings that could be used More productively elsewhere shifts the Burden of paying for today s government services to future generations encourages inflation and sets the stage for tax increases. But economists Are in disagreement among themselves Over How big a deficit. Can be tolerated and the Economy remain healthy although nearly All agree that deficits of $200 billion equivalent to about 6 percent of the nation s present Gross National product cannot be sustained. The collapse of world Oil prices was an unexpected gift from the organization of Petroleum exporting countries to the Rea Gan administration s efforts to reduce the deficit. In the Wake of tumbling Oil prices both interest rates and inflation have come Down dramatically. Lowering inflation trims bit Lions from the amount the government has to pay out in benefits tied to Cost of living Levels. And lower interest rates mean lower fed eral dollars Are spent on paying interest. Each 1 percent drop in interest rates Lowers the Federal budget deficit by $5 billion according to administration estimates. The drop in Oil prices is the equivalent to a drop in taxes in its stimulative effect on the Economy says James r. Schlesinger who was Energy Secretary during the Carter administration. Unfortunately Schlesinger says there is a possibility the Oil Market could turn around very  generally budget deficits have dwindled during economic recoveries giving the government flexibility to drive up the Defi Cit to prod economic growth when a recession hits. However with the current recovery now in its 41st month the budget deficit re Mains huge in proportion to its relative size this late in an economic expansion despite the recent signs that it is beginning to de Cline. Analysts say that Means that if the econ omy slips into a recession the budget deficit could really mushroom posing a serious Hazard to the Economy. Stock nose Milf  ii Julock -. /. -. I -. 1 by United press International c 1986 Friday april 4, 1986 composite most actives by volume Stock div vol close earns be old Wlker Gen Star Phillipsp Chrysler at Tim Merrlyn Al half Beatrce k Mart 4,275,500 26 5.7 2,749,300 40 /2 3.4 2,368,900 10 /4 $1.44 7.0 9.8 s 2,184,100 40 /4 9.38 4.0 2.5 2,069,000 22 1.37 16.0 5.5 1,793,800 148 /4 10.67 14.0 3.0 1,417,900 38 2.26 17.0 2.1 x 1,404, 100 63 a 3.84 16.0 4.2 1,360,600 49 /2 3.94 13.0 3.6 1,322,500 45% 1.73 26.0 3.1 nose composite largest net changes Stock Merck Norflus Romh lbs Martch close Cage earns be old 164 /2 6 $ 7.58 22.0 2.2 88 5 7.64 12.0 3.9 98 4 /4 6.02 16.0 2.2 135 /4 4 /4 0.81 167.0 2.2 112 /4 4 /4 11.02 10.0 6.3 Chi Milakee 143 a 4 Capiti Tel Edyne Squibb Nacial 223v2 4 10.87 21.0 0.1 335% 37/a 46.66 7.0 93 37/s 4.20 22.0 1.9 75va 3% 9.79 8.0 1.5 amex composite most actives by volume Stock div vol close earns be old Wickes 950,900 5 /2 $ 0.11 50.0 wangle 848,200 18% 0.9 Bat x426,600 Svi 0.66 8.0 2.7 Lorimar Tel 377,600 26 pizza inn 294,500 9% 0.8 dome Petro 254,400 1 9-16 Ste rugs 207,600 17 /2 0.61 29.0 0.6 first Capell 201,300 127 0.15 87.0 Texas air 180,000 30% 2.49 12.0 key pharm 178,800 167/a amex composite largest net changes Stock close Cage earns be old Kapost 149 4 s 7.73 19.0 0.8 forded 1223/4 2 /4 11.4 Fla Rock 55 2 /4 5.23 11.0 1.6 Frantz of 457/a 2 a 2.2 anytime 58 /2 a 2.90 20.0 1.0 att e 99 /4 3/4 Wescoff 47 v/2 7.24 6.0 1.4 Texas air 30% v/2 2.49 12.0 Panta sote 10 /2 v/2 Claros 46 v/2 4.03 11.0 2.0 be Price to earnings ratio old dividend yield def deficit St yield in Stock x sex dividend earnings latest 12 months unaudited