Now that the stimulus package has been signed, Congress will be turning its attention to a broad range of healthcare issues, one of which could be unwelcome news for both employers and employees: capping the tax exclusion for employment-based health coverage from workers’ taxable income. more

For years, conventional wisdom, based on reams of academic studies, has held that firms actually take on less debt than is optimal. Because interest payments are tax-deductible, the thinking was, these companies give up tax benefits that would boost their bottom lines. That’s the principle that’s driven leveraged buyouts.

If you’ve wondered about the logic behind taking on large amounts of debt (these days, it’s hard not to, of course), a new study from several researchers at Wharton should confirm your skepticism. The study, which is saddled with the unwieldy title “Improved estimates of marginal tax rates: Implications for the under-leverage puzzle,” finds that much of the earlier research on the topic overstated the tax benefits available to firms using debt. That’s because the researchers failed to account for volatility in cash flows and earnings, which, of course, are magnified as companies leverage up. Read this paper. more

Yesterday’s attention-grabbing headline — “Accounting Firms That Missed Fraud at Madoff May Be Liable” — on the front page of the Journal’s Money & Investing section is a bit misleading.

The article reports that the numerous public accounting firms that inspected the financial statements of Bernard L. Madoff Investment Securities LLC and the investment funds that poured money into the company “could now be legally vulnerable to claims that they should have uncovered red flags.”

The article identifies accounting firms both tiny (a one-person firm) and large (KPMG LLP and PricewaterhouseCoopers) are mentioned in connection with audits that occurred at Madoff’s firm or “feeder funds.” (Both firms defend their positions in the piece.)

Is this news? Not really. more

Despite billions of dollars in taxpayer bailout bucks, banks still seem to have trouble freeing up cash for businesses. This is forcing financial managers to look elsewhere for cash.

One place managers can look is the existing investment in IT, the same investment they have complained about for years. Data centers today are packed with systems that represent hard dollar assets. According to International Data Corp. (IDC), Framingham, MA, IT represents one-third of all capital expenditures for commercial and governmental organizations. That is an attractive piece of change.

The problem is getting to the cash. The business still needs the applications and data that reside on that hardware. It may be an asset, but not a terribly liquid one. Compounding the challenge is the way IT hardware investments are regarded. They typically revolve around a standard amortization schedule of three, five, even seven years for IT hardware investment. Changing that may require an act of God. more