to small firms and low-incomers in a bid to extend health care to all.
        A half dozen states want residents to be able to import Rx drugs
from Canada, defying federal regulators and the pharmaceutical industry.
Kan. will soon join Minn., Wis., N.H. and Ill. in passing legislation.
Vt. is suing to get Bush officials to reverse their policy on imports.

        Eleven northeastern states will limit emissions of carbon dioxide
and other greenhouse gases beginning this spring. The multistate accord
allows pollution credit trading, paralleling the approach that is taken
in the global Kyoto pact, which the federal government did not ratify.
        And Calif. is tightening vehicle emissions standards for CO2,
a step the Bush administration has been reluctant to take. Automakers
have taken the state to court over the requirement to cut emissions 30% 
over 12 years, saying only the federal government can set fuel standards.
        
        Consumer protections are getting attention from attorneys general
in states where they believe that Uncle Sam’s regulators are too lax.
Targets include predatory mortgage lending, credit card fees, car leases,
online fraud, gasoline pricing, medical privacy and cell phone spam.
        Fourteen states will soon have a minimum wage over $5.15 an hour,
the federal rate since 1997. Wash. state’s minimum will go to $7.35/hour.

        Maine will override overtime rules issued by the U.S. Labor Dept.
this year. The federal regs require that low-paid managers get overtime
but also curb eligibility for workers who make more than $100,000 a year.
        Medical malpractice reform is moving since Congress hasn’t acted.
Fla. will cap punitive damages. Nev., Wash. and Wyo. will follow suit.
        Other states will mimic Calif.'s bid for stem cell research,
though few can match the Golden State’s juicy offer. N.J., Fla. and Wis.
are dangling incentives to scientists who can’t get federal funding.

 IRS rules dilute the appeal of Health Savings Accounts (HSAs).
 The tax agency says starting in 2006, plan owners must pay 100%
of Rx drug costs until they meet their insurance deductible...no copays.
For those with costly prescriptions, that will make HSAs less attractive.
And employers can’t stop workers from using employer HSA contributions
for nonmedical items, though IRS penalties and taxes would be incurred.
        Look for employer groups and others to seek changes in the rules.

        Prospects for small-business health insurance pools are slim,
despite Republicans’ gains in Congress. Too many senators will hold out,
fearing that Bush’s proposal would let associations circumvent state regs.
        There should be plenty of flu vaccine next fall. Two new makers
are jumping into the underserved market, and current vaccine makers
will produce more. That’ll double the supply available this season.

 Odds of being audited climb next year, especially for taxpayers
 with annual incomes that top $200,000. The overall audit rate
has been inching higher for a few years, though it’s still only one in 130
for individual taxpayers. Next year, IRS will focus more of its resources
on a much smaller pool of high-incomers, hoping to net a bigger catch.
        Some salve for taxpayers involved in arguments with the IRS:
Uncle Sam must pay interest on deposits to cover disputed back taxes.
If you made such a deposit before Oct. 23, 2004, you must ask the IRS
to credit interest. For deposits made after then, interest is automatic.

 Good news for the tourism industry: Foreign visitors are back.
 Travelers from Europe, Japan and elsewhere will top 45 million
by year end, about 10% more than in 2003 and the most since before 9/11.
Even bigger numbers of international visitors are expected next year.
        The weak dollar is a huge incentive. The greenback’s slide comes
as fewer people avoid traveling because of fears of terrorism or SARS.
        That’s positive for retailers as well. Foreign travelers
snap up jeans, iPods and other American goods at discounted prices.
Foreign tourists here spend four times as much as American tourists.
        Top spots: Fla., Hawaii and Calif. plus NYC and Washington, D.C.

        Visa delays will continue to plague foreign business visitors.
        But moves by the State Dept. and in Congress offer some hope
for faster visa processing. State’s Non-Immigrant Travel Initiative
aims to accelerate all applications. Rep. Donald Manzullo (R-IL)
is focusing on helping Chinese nationals, who face the most difficulties.
        Visa problems cost U.S. companies money. Potential export deals
can fall through if foreigners miss out on going to U.S. trade shows
because they cannot get a visa in time. To avoid U.S. visa hassles,
some multinationals hold shows overseas, hurting U.S. hospitality firms.
        Why the hard line on visa applications? It’s to guard technology,
for the most part. Uncle Sam frets about foreign nationals getting access
to restricted technologies with both military and civilian applications.
        The irony is that it may actually promote technology transfers
as frustration over visas drives some firms to build more plants abroad.

        Already-low business airfares are going even lower next year,
thanks to continuing battles between the no-frills and the big airlines.
        Leisure fares will also be cheaper, but because they’re less
than business fares to begin with, reductions won’t be as noticeable.

The low U.S. savings rate threatens long-term economic health, since it limits the funds available for businesses to expand and boost productivity. Without enough savings from individuals and/or the government, companies must rely on foreign investment in U.S. financial assets. That’s likely to slow in coming years, and interest rates will rise, curbing investment and consumption. But short term, a jump in savings would be a mixed blessing. Modest job and wage gains provide little impetus for the economy, so it’s spending by consumers and businesses that’s fueling the growth that we have. Thus, a sharp shift in Americans’ spendthrift habits, which also have pushed consumer debt to a near record, would hurt. Fortunately, the slender 0.2% U.S. savings rate is understated because it doesn’t account for home equity or appreciation in assets. And over time, the rate will climb a bit. Rising interest rates and baby boomers’ growing awareness of the approach of retirement age will coax a few more dollars into savings. Partial privatization of Social Security would also encourage consumers to sock more away. Meanwhile, though, the dilemma is making investors uneasy.

 The government wants to prime the pump for nuclear energy plants.
 So it’ll pay half the tab for studies required to get approval
for facilities planned for sites near existing plants in Va. and Ill.
Regulators also plan to streamline approvals, halving the time needed.
        Recent Energy Dept. moves are meant to end a financing logjam
that’s blocking construction of new plants, including the two planned
for the Va. and Ill. sites. Lenders have balked at the 10-year lead time
and the $50 million to $100 million needed to meet requirements imposed
by DOE, EPA and a variety of other federal, state and local agencies.
        By 2010, the two plants will come on line, launching a 50% hike
in nuclear energy output expected by 2020 as even more plants are built.
DOE doesn’t plan to continue picking up study costs for other facilities.
It figures once streamlined regs are in place, financing will be easier.

        Also by 2010, enough wind-powered electricity for a million homes
is likely. A federal tax credit specifically for wind-generated power
plus $300 million a year in state grants for all renewable energy sources
are sparking rapid growth. That, plus new breakthroughs in turbine blades,
conversion technology, software controls and more, will increase output
to nearly 13,000 megawatts, 4% of anticipated U.S. energy needs in 2010.
        Chances are that federal energy legislation will speed progress.
It will offer millions in grants for research on renewable energy sources
of all sorts...solar, biomass, fuel cells, etc., as well as wind power.

 Is it possible to profit by reducing carbon dioxide emissions?
 Some firms are counting on it. Among them: Temple-Inland,
a Texas wood products manufacturer, Interface Inc., a Ga. carpet maker,
as well as such big names as DuPont, Bayer and International Paper Co.
        Odds are they’re right. By the end of the decade, Uncle Sam
is likely to follow the lead of states that are limiting CO2 emissions.
        A futures market for pollution credits will facilitate trading.
Futures contracts on credits for sulfur dioxide, which has been regulated
for two decades, debuted today. CO2 contracts will follow in a year or so.

 Look for a sharp slowdown in business spending growth come Jan.,
 as companies lie low following a late-2004 buying spree. 
Firms are accelerating purchases of computers,
software, vehicles and various other equipment
to make use of a tax break that expires Dec. 31.
Look for Jan.-March spending to climb just 5%,
after jumping 12% this quarter and 17% last.

Next spring...a modest rebound. All told,
we see business spending up 6%-7% next year.
A similar pattern in overall economic growth
is likely, with GDP increasing by about 2½%
in the first quarter, then improving slightly.

Expect a pause in interest rate hikes as well
following a quarter-point increase when the Fed meets next on Dec. 14.
        But the Fed should resume increases by March. The monetary gurus
remain determined to push interest rates to a less stimulative level.
That means a federal funds rate around 3½% by late 2005, from 2% now.
Prime rates, which track fed funds rates, will be 6½% by year-end 2005.

 An inter-Asian free-trade deal is a worry for U.S. businesses.
 It’s a big boon for Chinese competitors in IT, autos, appliances,
cell phones, etc., providing them tariff-free access to the 10 countries
of ASEAN, the Association of Southeast Asian Nations. That gives China
a huge captive market to achieve economies of scale and to test products
in English-speaking markets other than the U.S. About 6% of U.S. exports
head to ASEAN markets, nearly as many as to Japan and more than to China.
        Strong Chinese firms will also be aggressive in the U.S. market.
Expect more deals like the purchase of IBM's PC unit by China's Lenovo.

        Japan's GDP growth is poised to decelerate to about 1½%
in 2005 from 3% this year. The rise of the yen, dependence on costly oil
and the slowing U.S. economy will trim Japan’s exports and consumption.
        U.S. sectors most likely to suffer from weaker economic growth
in our third-largest export market: Electronic components, software,
travel and tourism (notably Hawaii and Calif.). It's tough on exporters
of lifestyle goods...housewares, home appliances, furniture and carpets.

 OPEC needn’t have worried about arresting a dramatic price slide.
 Prices were already about to bottom out in the mid- to low $40s,
where we still expect them to remain on average in the coming year.
Fear of a late-1990s-like collapse spurred the decision to cut output.
        But the cartel’s move may introduce a new risk. With oil supplies
likely to remain tight for years, manipulation can easily go too far.

        P.S. Next week, as the holidays approach, you'll get two Letters
at once, in a single envelope, allowing some family time for our staff.
We'll be back to our regular weekly publishing schedule on Dec. 30.

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©2004 The Kiplinger Washington Editors