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SATURDAY, AUGUST 28, 2010
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DIGEST MERGERS&ACQUISITIONS
Regulators to scrutinize Google’s bid for ITA Federal regulators are taking a closer look at Google’s plans to buy
travel technologycompany ITASoftware in a $700 million all-cash deal announced last month. In a blog post Friday, Google said the Justice Department has asked
it for more information about the proposed acquisition, which could position the search giant to compete with popular travel sites such as Expedia, Travelocity and Orbitz. ITASoftware, a 500-employeecompany started in 1996 by computer
scientists at the Massachusetts Institute of Technology, provides technology that helps run the reservations systems of several airlines. Google says the acquisition will provide it with tools to help consumers search for flights, compare fares and book tickets.
—Associated Press EARNINGS TAMMY BRYNGELSON/ASSOCIATED PRESS/CONTINENTAL AIRLINES/UNITED AIRLINES This could be the newface of the combinedUnited and Continental airlines. The companies’ shareholders must still vote on the deal. United-Continental deal taking off
Airport slot switches end regulators’ fear of insufficient competition
BY JIA LYNN YANG The Justice Department green-
lighted the planned merger of United Airlines and Continental Airlines on Friday, paving theway for the creation of theworld’s big- gest airline. In a statement, the Justice De-
partment said itwas satisfied that the airlines did not have somuch overlap in their routes that con- sumerswould be harmed by high- er prices and limited flight choic- es.
The combination of the coun-
try’s third- and fourth-biggest air- linesmeans the number of indus- tryplayers—andoptions for fliers —continues to shrink.Upon com- pletion, the $3.17 billion merger will leave just four traditional car- riers in the United States, and possibly three if American Air- lines responds by bidding for US
Airways, as some analystspredict. But the United-Continental
deal, first announced in May, should not significantly affect travel for Washington area resi- dents, who still have other airline options, according toRick Seaney, chief executive of the Web site FareCompare.He saidUSAirways still has a big presence at Reagan NationalAirport,whileBWIThur- goodMarshallAirport has several low-costairlines, includingSouth- west,AirTranandJetBlue. Antitrust regulators said their
chief concern about the deal was that there could be too little com- petition at Newark Liberty Air- port,whereContinentalhasahub. On Friday, the two airlines agreed to transfer their takeoff and land- ing slots at Newark to Southwest Airlines, allaying the govern- ment’s concerns and prompting thedepartment tocloseits investi- gation. “Southwest is the type of firm
that all antitrust regulators and consumer both adore, because they are very aggressive at lower- ing prices and providing better
service,” saidDavidBalto, a senior fellow at the Center for American Progress who has practiced as an antitrust lawyer formore than 20 years. Despite the planned airline’s
size, few analysts were surprised at the deal’s approval. The two carriers hadmade a strong case to regulators that there was little overlapbetweentheir routes. Still, the transaction is likely to
face resistance from lawmakers who have already expressed con- cern that the merger will be bad for consumers. At a hearing in June, Rep. James L. Oberstar (D- Minn.), chairman of the House Transportation and Infrastruc- ture Committee, had harshwords for United chief executive Glenn Tilton andContinental chief exec- utive Jeff Smisek, who were testi- fying before thepanel. “You guys hate competition,”
said Oberstar, who opposes the merger. “You want to be the com- petitor that dominates the mar- ket.” Oberstar vowed afterward that if the JusticeDepartment ap- provedthedeal,hewoulddemand
re-regulation of the airline indus- try.
During the hearing, Smisek de-
fended the deal, saying, “This is a brutally competitive industry. It is today and will be after thismerg- er.”
The companies’ shareholders
still have to vote on the deal in separate meetings set for next month. The new airline, which would
use United’s name, is expected to have roughly $30 billion in reve- nue a year and carry about 144 millionpassengers to 370 destina- tions in59 countries.
ThelastbigmergerofU.S.carri-
ers was the combination of Delta andNorthwest in 2008. That deal created the biggest airline in the world—a perch that nowlooks to be short-lived. “Airlines used to live by the
strategy of grow or die,” said Se- aney. “Now, basically, they’re liv- ing on the strategy of survive and merge.”
yangjl@washpost.com
ALSOINBUSINESS l Ford to recall Windstar
Panel to Congress: Make tax time easier
tax code is overwrought BY LORI MONTGOMERY
American taxpayers spend
7.6 billion hours and roughly $140 billion a year to comply with the bewildering thicket of requirements in the federal tax code, according to a report re- leased Friday by a White House advisory board whose members urged Congress to adopt their ideas for simplifying people’s lives at tax time. In an exhaustive 18-month
review, the President’s Economic Recovery Advisory Board found that the complexity of the na- tion’s tax laws has increased dramatically in recent years. Lawmakers have changed the code more than 15,000 times since the last major overhaul in 1986. Meanwhile, instruction booklets for the standard Form 1040 have swelled from 14 pages to 44 pages last year. The board also found that the
profusion of credits, deductions, phaseouts and conflicting eligi- bility requirements frays the san- ity of ordinary taxpayers just as surely as it complicates the cal- culations ofwealthy families and business owners. Tax provisions affecting families and children were among the most frequently cited sources of confusion, the report said. “What the report makes clear
is the enormous complexity of the tax law . . . for an ordinary family trying to figure out and make sure they are complying with the laws and taking advan- tage of benefits offered,” said Harvard economist and former Reagan administration econom- ic adviser Martin Feldstein, who led the board’s effort to develop a series of options for disentan- gling the code. “If those kinds of changes
were accepted by the Congress in a revenue-neutralway,” Feldstein said, “we would have a much better tax system.” The board—a group of econo-
mists, policymakers and busi- ness leaders led by former Feder- al Reserve chairman Paul A.
In long-awaited report, Volcker-led team says
Te burden of filing
Over 80 percent of taxpayers use soſtware or pay someone to prepare their returns, a reflection of the tax code’s complexity.
Number of taxpayers who filed using each method (in millions)
100 80 60 40 20 0
Preparer (computer)
Average cost of completing return (estimated)
ALL TAXPAYERS $225 PRIMARY
FORM FILED 1040
Self (computer) Self (paper)
Preparer (paper)
’97 ’99 ’01 ’03 ’05 ’07
*Tese forms are simpler than the 1040, but filers may use them only if they have taxable income less than $100,000, do not itemize deductions or claim various credits, and meet other qualifications.
SOURCE: Internal Revenue Service
Volcker — was established soon after President Obama took of- fice last year and was charged with developing a series of op- tions for simplifying the tax code, improving compliance and bringing down a corporate tax rate that, at 35 percent, is the second highest in the industrial world, after Japan’s. Its report initially was due in
Topic: national economy
Run Date: 08 / 28 / 2010 Size: 23p2 x 4”
Artist: alicia parlapiano
December, but the board chose to delay its release to studymore than “600 serious submissions of tax reform ideas from the pub- lic,” according to Austan Gools- bee, a member of the president's Council of Economic Advisers who serves as the board’s staff director. The board’s charge did not
FPO
include deficit reduction; a sepa- rate, bipartisan panel has been appointed by Obama to tackle that task. Despite recent statements by
Volcker in favor of a European- style sales tax known as a value- added tax, the board did not consider that or any other “over- arching tax reform,” the report said. The board also was prohibited
from considering ideas that would break Obama’s pledge not to raise taxes on families earning
tax28-g.AAA PROOF1
THE WASHINGTON POST
less than $250,000 a year. The resulting 118-page report
nonetheless offers dozens of ideas for improving the code, starting with simplification for average people. For example, the report cites
more than 20 tax laws that provide incentives to save for retirement and other purposes, such as education and medical expenses, and that together de- prive the Treasury of an estimat- ed $118 billion year. But their sheer number and conflicting rules leave taxpayers confused and intimidated, the report says, raising doubts about their effec- tiveness. At least 18 provisions benefit
taxpayers with educational ex- penses, the report says, requiring families to fill out endless work sheets to determine which ones are available and most benefi- cial. Meanwhile, families with children face myriad additional calculations to claim an array of credits and deductions. The report suggests consoli-
dating many of these provisions. One option would replace the dependent exemption, standard deduction and child tax credit with a single “family credit” available to all taxpayers. Tax
1040A & 1040E*
$96 $280 TYPE OF TAXPAYER
Non-business $129
Business $434
benefits for higher education could be replaced by “a similarly generous extended family credit for full-time students under age 22,” the report says. The report also proposes a
“simple return” that could be pre-filled by the Internal Reve- nue Service and mailed to as many as 60 million taxpayers who don't itemize deductions and receive all their income from employers who report to the IRS directly. People could simply check it for accuracy, sign it and send it back in. “As we looked into the taxes
that affect the average American, the moderate-income individual and households, we discovered that we have loaded into our tax code a plethora of different op- tions and approaches, each one of which probably made sense when it was adopted” but that now “looks to be very much an untended garden,” said Roger Ferguson, who served with Feld- stein on the tax subcommittee. Ferguson, chief executive of
Teachers Insurance and Annuity Association and a former vice chairman of the Federal Reserve, urged lawmakers to view simpli- fication for individuals “as an area that really does need to be addressed.” The report nowgoes toObama
and the deficit commission, as well as to congressional policy- makers. It is unclear how much influence it will have. A 2005 panel developed detailed recom- mendations for changes to the tax system that were quickly shelved by President George W. Bush. Tax experts said the latest report at least outlines a series of sensible trade-offs that may be useful as the tax debate advances before the deficit commission and in Congress. “It does more than I expected,
given the constraints under which the board had to operate,” said Roberton Williams, senior fellow at the nonpartisan Tax Policy Center. “The report is more than a simple laundry list of options but rather a coherent set of options that really would simplify the income tax” for individuals, he said. To read the report, go to
http://wapo.st/b67U2u.
montgomeryl@washpost.com
vans: Ford is recalling 575,000 older model Windstar vans in the United States and Canada over concerns that the rear axles can corrode and potentially break. The recall covers vehicles in
the model years 1998 to 2003 sold or registered in states where the heavy use of road salt can cause more corrosion. That includes Canada, New England, the Mid- Atlantic states and the Great Lakes region. Maryland, West Virginia and the District of Co- lumbia are the affected states. The National Highway Traffic
Safety Administration began an investigation inMay after receiv- ing 234 complaints of rear axle problems. NHTSA said the axle’s design could cause an excess of road salt to collect on the axle. It said that 96 percent of all com- plaints came from states where salt is used to prevent freezing during winter months. Ford said it plans to start
notifying owners later this month.
l UAWchief calls for restoration of benefits:United AutoWorkers President Bob King said Friday that workers’ concessions helped save U.S. automakers and the employees should regain some benefits now that the industry is recovering. “We want workers to share in
the upside just like they did in the downside,” King said outside a Ford plant in Wayne, Mich. “Workers made a lot of sacrifices to help the industry survive.” Workers have called for the
restoration of wages and benefits sacrificed to bolster the industry. UAWmembers who work forU.S. automakers have each given $7,000 to $30,000 in concessions in the past five years, King has said. The union surrendered rais- es, bonuses and cost-of-living ad- justments at GM, Ford and Chrysler. It also agreed to a two- tier wage system in which new hires earn about $14 an hour, half the amount paid to hourly pro- duction workers. —From news services
Political Economy
washingtonpost.com/politicaleconomy
Scholars shed light on recovery from crisis JACKSON,Wyo.—Ben S. Bernanke may have gotten all the
headlines for his Friday morning speech at the Kansas City Fed’s annual economic symposium, but the first paper being presented immediately after his speech offered some dour perspective on why the Fed chairman is in a difficult spot. Carmen Reinhart and Vincent Reinhart have authored a paper
examining the historical record of economies that experienced a major financial crisis over the ensuing decade. The analysis is based on a data set that Carmen Reinhart, aUniversity ofMaryland economist, compiled over the past decade with Kenneth Rogoff of HarvardUniversity. Reinhart authored this paper with her husband, a scholar at the American Enterprise Institute. The results are rather sour news for anyone expecting theU.S.
economy to bounce back from the Great Recession rapidly. Their major takeaway is that the weak, slow recovery theUnited States has experienced over the past year is well within the historical norm for nations that experience a deep crisis. The Reinharts analyzed the economic results that followed three
global financial crises—the aftermath of the 1929 stock market crash, the 1973 oil shock and the current experience—and 15 crises in advanced and emerging nations. The results: Among advanced economies, per capita gross domestic product is about 2 percent lower than it was in 2007, which is comparable to the experience three years after the onset of the 15 severe financial crises studied. A similar story is true on the unemployment rate and home prices.
And the major driver of this cycle is the deleveraging of households in crisis-affected countries. In the decade before a crisis, the ratio of domestic credit to GDP climbs about 38 percent, and a comparable decline happens after the crisis, but that deleveraging is “often delayed and is a lengthy process lasting about seven years.” The Reinharts do not attempt to drawconclusions for public
policy. But a clear subtext is that policy-makers should not assume that there is a magic potion that will accelerate the return to prosperity in the wake of a crisis, however much we would all like to find one.
—Neil Irwin MARK LENNIHAN/ASSOCIATED PRESS Tiffany’s second-quarter profit rose 19 percent from a year earlier.
Overseas sales lift profit at Tiffany Tiffany&Co.’s second-quarter profit rose 19 percent, to$67.7 million,
as shoppers bought more of its high-end jewelry around the world, particularly in Asia and Europe. Revenue rose 9 percent to $668.8 million, below analysts’ estimates of $690.2 million. The luxury industry is recovering from the recession, which spurred
shoppers to spend less as they grappled with uncertain investments and employment prospects. Growth in the Asia-Pacific region, excluding Japan, was the
strongest in the quarter as those economies continue to prosper. Revenue there jumped 21 percent to $111.5 million. Tiffany opened its 12th store in China in the quarter and its fourth in Singapore. —Associated Press
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