kiplinger connection
Taxes • The States • The Economy

Taxes: Home-office deductions will get less cumbersome.
The States: States are finding privatization the most affordable option.
The Economy: Gasoline is less of a buoy than a rebounding home market.

Taxes
Claiming a tax break for a home office will soon get easier.
The IRS will offer a simplified deduction in a couple of years, letting home workers avoid the complicated, 42-line form required now. Many self-employed taxpayers find the form so cumbersome they skip it.
Details are yet to be worked out, but the deduction will be based on office size, with no need to divvy up utility or mortgage bills.
Qualification rules won’t change. To claim the office deduction, you’ll still need to show that you have a dedicated space in your home used ONLY for business. And you must show that you use it regularly.

The states
More states are getting more help from the private sector.
They’re finding that privatization is cheaper, more efficient, and often gets better results. So instead of just hiring private firms to do the actual work, states are outsourcing entire projects and services, letting companies build, manage, and maintain them.
Transportation is the most popular field. San Diego; Denver; Portland, Ore.; Dallas; and Atlanta will all hire private companies to build and manage toll roads, highway expansions, and special lanes for trucks in congested areas. New York State will use a private firm to replace much of the Tappan Zee Bridge, which spans the Hudson.

But it’s not just road building. North Carolina will let a private firm manage state liquor stores. Virginia and Alabama are likely to follow suit. Philadelphia, Boston, and Kansas City, Mo., will privatize landscaping and park maintenance. Virginia, South Carolina, Kentucky, and Arizona, and several other states will contract out food services in prisons. And Texas will join Florida in privatizing most aspects of child welfare and adoption programs.

The economy
Third-quarter figures for GDP growth will be on the weak side. The gain in gross domestic product is likely to be below 2% ... possibly only 1% or so. It'll show the full weight of the housing slump as builders have rapidly curtailed construction because of less demand. Another drag: Summer production cuts by automakers flush with inventory.
Expect a small comeback this quarter ... GDP up about 2.5%, setting the pace for a rise of about the same amount for all of 2007. Already there are signs that the slide in home building is easing in some regions, although not where construction and prices zoomed.
We see interest rates holding steady for several more months. Though overall inflation is falling, thanks to lower energy prices, the important core rate, which excludes food and energy, remains high ... 2.9% annualized through Sept. The Federal Reserve prefers it around 2%. Inflation won’t fall low enough to bring a rate cut until mid-2007.

Cheaper gasoline won’t charge up holiday sales very much. Spending on gasoline amounts to only about 4% of the average consumer's household budget. And even with the steep price drop since Aug., gas will be on a par with 2005 holiday prices.
Holiday sales will rise 2.8% over 2005, only slightly more than last year’s increase. Lower pump prices will give the biggest boost to Wal-Mart and others favored by low-incomers.
Year-end sales pack a bit less punch for retailers these days ... slowly losing share to the post-holiday period and other months.
One reason: The growth of gift cards. Most of the $36 billion spent on cards this holiday season won’t be used by shoppers until early next year, when sale prices will stretch their dollar value.