Tuesday, November 25, 2008

The Pros and Cons of an Auto Industry Bailout

With the economy what it is and our country in the middle of a presidential transition, another huge bailout request is a lot for the average American to take in. It is hard to decipher fact from fiction at a time like this, let alone make an objectionable opinion from all the bias political statements being made. For this reason, I decided to do some research of my own and compile a list of the pro’s and con’s of an auto industry bailout.

Pro 1: Eco Cars

If the bailout money works the way it is supposed to and pulls the big three out of the hole, good things could potentially come of it. One proposal is that after being saved the automakers could be pushed to manufacture and sell cars that are both good for the environment and economy. As Jeffrey D. Sachs of the Washington Post states, "Washington should seize the opportunity to begin a new era of U.S. technological leadership in the global auto industry, starting with an immediate loan. This is an opportunity to embark on a major industry restructuring to position the United States to lead the world in producing cars that get 100 miles or more per gallon".

Con 1: Taxpayer Cash

Perhaps the most obvious con, it is no secret that we will all be helping bail these companies out. Although it is still unknown where the money may or may not come from, taxpayer cash will be included for sure. Bloggers, business leaders, and experts are expressing their frustration about this all over the Internet. Mark J. Perry, an economics professor at the University of Michigan, questions, “should U.S. taxpayers really be providing billions of dollars to bailout companies that compensate their workers 52.5% more than the market (assuming Toyota wages and benefits are market), 54% more than management and professional workers, 132% more than the average manufacturing wage, and 157% more than the average compensation of all American workers?” However, many still concede to the bailout because they feel it is the only feasible option, and claim that the effects of a bankrupt auto industry would cost more to taxpayers then a bailout would.

Pro 2: Recession Woes

While most are already feeling the effects of a recession on their wallets and gas tanks, it could be a lot worse if something else “big” happens. Some experts feel not bailing out the big three could result in a much deeper and more severe recession then we are already in. With thousands of jobs connected to the auto companies and stocks across the board, their downfall could have a large effect on our economy.

Con 2: Bankruptcy

One of the only other options for GM and the rest of the big three is to file bankruptcy under chapter 11. It is true that we have already assisted these companies financially this year and it helped them for few months. For this reason, some economists feel another bailout would just be like bailing out a sinking ship that is going to sink no matter what we do. Bankruptcy however, could be their only salvation, and many experts claim that it could be their best option. Michael Levine of the Wall Street Journal claims, “the cost of terminating dealers is only a fraction of what it would cost to rebuild GM to become a company sized and marketed appropriately for its market share. Contracts would have to be bought out. The company would have to shed many of its fixed obligations. Some obligations will be impossible to cut by voluntary agreement. GM will run out of cash and out of time.”

Pro 3: Chrysler Bailout

As history tends to repeat itself, I think it important to consider the Chrysler bailout of 1979. In the mid 70's while our country was going through a gas crisis, Chrysler refused to stop making their biggest most gas guzzling luxury cars. This mistake led them to requesting a bailout in late ‘79. However, to the surprise of the watching country, Chrysler came out with the "K-car" that sold like hot cakes and pulled the company out of a financial crisis. Chrysler then paid off their debt to the government 7 years early, and the government made over $660 million in profit from the bailout when all was said and done. Many people claim that if given another bailout, the auto companies could pull themselves out from near bankruptcy, and the federal government could generate revenue as well.

Con 3: Private Jet-setting

Unfortunately, when the CEO's of the big three traveled to Washington D.C. to request billions from taxpayers early this week, all three CEO's took private jets with round trip travel costs totaling of over $40,000 per CEO. This ostentatious show of wealth was considered highly disrespectful to the taxpayers about to consider bailing them out and created tons of bad publicity for the potential bailout. If companies are going to get taxpayer’s money, then we need to know that they are being frugal with it.

End-of-Year Tax Planning Takes Election Year Twist

Earlier in the week, I was quoted in an article released by the Associated Press about end of the year tax planning. Below is a quote form the article, including my tip!

Heading into the holidays it's likely that you're going to be thinking a lot about money. And this time of year tax advisers like to remind us that there are ways to minimize our tax bill next April. But with an economic downturn in full swing and a new president waiting in the wings, that typical advice is coming up against a range of uncertainties this year.

Since President-elect Barack Obama has pledged to raise taxes for families making more than $250,000 and increase capital gains taxes, for instance, she said some of the usual year-end planning advice might soon be reversed. As 2008 draws to a close, here are some step you can take to minimize your taxes.

GET ORGANIZED

The first step in the planning process is to make sure that your records are organized and up to date, said Roni Deutch, a California-based tax adviser. "Without records and without substantiating your deductions, you have no deductions," she warned.

Read the rest of the article at Forbes.com

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Another Tax Issue Surfaces for Rangel

From NY Times.com:

Representative Charles B. Rangel’s legal team is reviewing his tax records to determine whether the congressman received a homestead exemption on a house he owned in Washington while living in several rent-stabilized apartments in New York City.

The situation is potentially troublesome for Mr. Rangel, a Harlem Democrat who is already the subject of a wide-ranging internal House investigation stemming from an assortment of ethical concerns.

Rent laws in New York City and the state require that tenants occupying rent-stabilized apartments use those units as their primary residences. At the same time, the District of Columbia’s Office of Tax and Revenue extends the homestead tax deduction only to properties that are primary residences.

The internal review by Mr. Rangel’s legal team was prompted by a report in Sunday’s edition of The New York Post quoting a District of Columbia tax official as saying that Mr. Rangel received a homestead tax exemption for a four-bedroom home he owned in Washington. The official told the newspaper that the congressman received the tax exemptions from 1995 through 2000, when he also had the use of rent-stabilized apartments in his district in Harlem.

In a statement released on Sunday night, Emile Milne, a Rangel spokesman, said: “The New York Post has raised a question about the tax treatment of a property the Rangels once owned. The property was sold more than eight years ago and we have asked Congressman Rangel’s accountant to retrieve the records about it.”

Charles Rangel Uses Campaign Funds for Legal Muscle in Tax Mess

From the Boston Herald:

A newspaper says New York Rep. Charles Rangel paid more than $100,000 in campaign funds to a law firm to represent him as he continues to face ethical questions over his tax records.

The New York Post reported Sunday that the powerful chairman of the tax-writing House Ways and Means Committee had hired the law firm though his Rangel for Congress fund.

Federal election rules prohibit elected officials from using campaign funds for personal legal expenses.

Rangel spokesman George Dalley said the congressman had a "prior ruling" from the Federal Election Commission that "this is a legitimate campaign expense."

But the chairman of an ethics-watchdog group was skeptical. National Legal and Policy Center chairman Ken Boehm said the questions Rangel faces over his taxes appear to be personal in nature.

Monday, November 24, 2008

Lawyer Pleads to Tax Misdemeanors - Didn’t File Since ‘94

From ABA Journal.com:

A Mississippi attorney who allegedly hasn't filed a federal tax return since 1994 has avoided a trial in the felony tax evasion case he initially faced by pleading guilty today to two misdemeanor counts of failing to file.

Marshall Sanders, 57, who practices in Vicksburg, agreed to cooperate with the Internal Revenue Service in determining his past-due taxes and pay restitution and penalties, reports the Fort Mills Times.

"Under Mississippi Bar Association rules, a felony conviction would have resulted in the loss of a state license to practice law," the newspaper notes.

The government says Sanders grossed more than $2.3 million in 2001 and nearly $500,000 in 2002, reports the Clarion Ledger.

Sanders reportedly is a civil practitioner who earned an economics degree from Harvard University and graduated from Emory University School of Law.

No sentencing date has been set in the case, which is in the U.S. District Court in Jackson.

The Effect of Changing Work Patterns on Income Tax Progressivity

Chris Sanchirico has published this very interesting paper titled Progressivity and Potential Income: Measuring the Effect of Changing Work Patterns on Income Tax Progressivity. You can download the full PDF by clicking here, but I have listed the abstract from the paper below.

The income tax taxes the proceeds from market work, but not the proceeds from time otherwise allocated - whether enjoyed as self-provided goods and services or leisure time per se. A two-earner couple that out-sources household and child care services, for instance, pays for these services with after tax earnings, while a single-earner couple that self-provides such services pays no tax on their provision. This article uses data from the Panel Study of Income Dynamics to measure the distributive impact of the implicit exclusion for non-market activity. Viewing the exclusion as a kind of tax benefit, it asks: how is such tax benefit distributed across the income spectrum? The article finds that variation across income levels in the labor-income realization ratio - the portion of potential labor income that is realized as actual labor income -- has played a decisive role in shaping the real progressivity of the Federal income tax. On paper, the Federal income tax became more progressive during the 1990s. When average tax rates are measured in terms of potential rather than actual income, however, the income tax shows a decline in progressivity during that decade. The discrepancy arises from a change in work patterns. At the start of the decade, tax units with higher income were realizing a greater proportion of their potential earnings than were tax units with lower income. By the end of the decade, the realization ratio was greater at the lower end of the potential income spectrum. This reversal in labor income realization patterns was substantial enough to overpower the increase in statutory progressivity.

Let's Have a Real Middle-Class Tax Cut

From the Wall Street Journal:

President-elect Barack Obama is right: America needs a real and meaningful middle-class tax cut. Unfortunately, despite the rhetoric, that is not what his proposals offer.

Mr. Obama's tax plan includes creating or expanding nine or more federal income tax credits mostly focused on low- and moderate-income earners, with an estimated cost of $1.3 trillion over 10 years. These tax credits are provided for certain social purposes, such as child care, health care, education, housing and retirement. Buried amid these is Mr. Obama's purported tax cut for the middle class.

For the bottom 40% of income earners, who pay no federal income taxes on net today, these refundable income tax credits will not reduce tax liability but instead result in new checks from the federal government for the targeted social purposes. That's not a tax cut. It's welfare.

These tax credits will do little or nothing to promote economic growth because they do not reduce marginal tax rates -- the rate on the next dollar of income -- to provide powerful, meaningful incentives for productive activities such as investment, entrepreneurship and work. A tax credit is effectively a cash grant that can only affect incentives up to the amount of the grant. Indeed, such tax credits would likely reduce economic growth because the credits are phased out as income rises, and so effectively impose higher marginal tax rates over those income levels.

For a real middle-class tax cut, we should cut the 25% income tax rate that now applies to single workers earning $32,550 to $78,850, and married couples earning $65,100 to $131,450. We should reduce that rate down to the 15% rate paid by workers below these income levels. That would, in effect, establish a flat-rate tax of 15% for close to 90% of American workers.

Marginal tax rates for middle-income families in the 25% tax bracket are too high. Add in effective payroll tax rates of 15% and state income taxes, and these workers are laboring under marginal tax rates of close to 50%. No wonder middle-income wage growth has slowed sharply. Reducing the marginal tax rates for these middle-income earners would lead to income increases for middle-income workers, just as reducing excessive marginal tax rates for higher-income workers did, going all the way back to the Kennedy tax cuts of the 1960s.

This 40% cut in middle-class income tax rates would provide a powerful boost to the economy, greatly expanding incentives for savings, investment and work. This would be much more effective than Mr. Obama's tax plan with it's $1.3 trillion in redistributive tax credits, as well as yet another so-called stimulus package based on another $300 billion or more in increased government spending.

Obama to Delay Repeal of Bush Tax Cuts

President Elect Barack Obama has not yet even taken office, and yet he is already looking to break some of his campaign promises. According to Washington Wire, “A senior adviser to Obama confirmed that New York Federal Reserve President Timothy Geithner would be the administration’s nominee for Treasury secretary, and added that the Obama team was gratified by the late rally on Wall Street on Friday after news of the pick leaked out.”

During an appearance on NBC’s “Meet the Press,” Obama economic adviser William Daley suggested that the incoming administration would reconsider whether to quickly increase taxes for Americans earning more than $250,000 per year.

Daly, who was commerce secretary under former President Bill Clinton and is the brother of Chicago Mayor Richard Daly, said it looks “more likely than not” that Obama would not seek legislation to repeal President George W. Bush’s cut in the tax rate for the wealthiest Americans before it is scheduled to expire after the 2010 tax year. Bush cut the top rate to 35% from 39.6% in 2001.

Obama had promised to restore the top tax rate to its earlier level, while cutting taxes for the middle class.

Friday, November 21, 2008

Tax Law to the Rescue: 6 Ways the IRS is Giving Relief to Taxpayers

ABA Law Journal has put together a very well thought, and informative article on how the IRS is giving more relief to taxpayers this year than they have in the past. The author examines recent tax law changes over the past year and put together a list of ways the federal government is helping taxpayers. Below is a short list of the recent changes, but to read the full list click here.

1. A break for first-time homebuyers

2. Standard deduction increases

3. More help for hurricane victims

4. A break for military personnel

5. Some relief from the AMT

6. Simplifying low-income housing credits

NYC Mayor Fights $400 Property Tax Rebates in Court

From Reuters:

New York City Mayor Michael Bloomberg said he was fighting the city council in court over whether he has the authority to withhold $400 property tax rebates that he says the city cannot afford.

"We are in court right now," the independent mayor told reporters on Thursday. If the court sides with the Democratic-led council, Bloomberg said the checks would be mailed to homeowners.

"We will always obey the law," he said. If the tax rebates are granted, the city will have to make other spending cuts, he said.

New York is under pressure to close a $1.3 billion deficit in 2009. The mayor's fight with the council is unusual and underscores the severity of the budget problems.

The battle may also test Bloomberg's financial expertise, the cornerstone of his campaign to win a third term.

"We will work with the city council to try to get the right balance" of measures, he said.

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10 Ways to Get Free Money from the Government

One of my favorite business blogs, GetEntrepreneural.com, posted this very informative entry titled “How to Get Free Government Money 101.” In the entry the blogger gives advice on how business owners can get money form the government to help make ends meet during times of economic uncertainty. Listed below is the author’s advice broken down into 10 tips.

1) Only 12% of Gov't Money goes to the poor

Most Americans think that government money programs are for everyone else... for instance only the poor, minorities or friends of the president.

But, only 12% of Government Handouts go to the poor. And only 25% of Government Programs have income requirements

The rich and famous, including Donald Trump, H. Ross Perot, Dick Cheney and George W. Bush, all made millions as private citizens with the help of government money programs. If they're eligible, you certainly should be too.

2) Only 20% of Free Money is called "Grants"

Most free money programs are not called “grants” by the government, they’re called “direct payments.” It is very easy for someone not to know all about government jargon, but just a little research can clear up quite a few misconceptions. Don't discourage yourself by focusing only on "grants" and dismissing the other 80%.

3) 50 Million people don't even know they're eligible

This is one of the most important points to keep in mind: The Government cannot and does not advertise programs that offer free money. But it's out there, lots of it. You just have to invest time finding the programs.

4) You can't make one phone call and just get a check in the mail

Getting government money is like looking for a job. When you knock on one door and ask about a job, and they tell you that you are not qualified, you don’t go home and wait for them to change their mind.

No Way. You would never hear back. You have to be persistent and go from one office to the next until you find a good fit.

5) Free Money keeps growing no matter who is sitting in the White House

We constantly hear about government budget cuts and that makes people believe that government money is going away or will soon be gone. But every year for the past 30 years the amount of free government money given out to individuals keeps growing. It keeps increasing no matter if it’s the republicans or the democrats who are in charge. With the new Obama administration especially, we will be seeing more offered to small business and entrepreneurs in the form of government money programs.

6) You certainly don't need a professional grant writer

Nine out of ten times you will not need help in filling out an application. Most free money programs to pay for your bills, education, health care, housing and even business require just a few pages of blanks to fill in.

If you have trouble filling out an application for money, don’t hire a consultant. Go to the office that is handing out the money. The are obligated to help you fill out your application and they are in the best position to know what should be included.

7) You can apply for as many programs as you like

Don’t worry about how many programs you can apply for. If you see a program that you think might work for you, apply to it. Sure there are some programs that give money for specific reasons and if you get accepted from 2 separate places you will have to refuse one of the offers, but that's still a nice position to be in.

8) It doesn't always matter if it sounds like you don't qualify

Here's an example: “All the money is given out by August 30th”: The end of the accounting year for most government agencies September 30, but the agency can start giving out more money beginning October 1, and you can be the first in line.

In all likelihood, you can wait another 30 days for your money.

9) Information can often times be out-of-date

Every day programs come and go. Every day people change their address, phone number and websites. It is just a fact that these things happen in our modern society.

But remember, if a listing leads you to a non-working number or website, it does not necessarily mean that the program is gone. Call the agency listed in the program description and ask.

10) Don't be intimidated by the idea that the applications are all long and confusing

Getting an application that is only one-page long is not unreasonable at all. Many of the government programs that give our grants really don’t need a lot of financial information because unlike a bank they are not worried if you don’t pay the money back. They don’t want it back. It’s free money.

Wednesday, November 19, 2008

Obama's Planned Increase in Top Tax Rate Contrary to International Trend

From Tax Prof:

As the United States awaits to see how President-elect Obama implements his campaign promise to increase the tax burden on those earning more than $250,000 per year, KPMG has released a new study (Individual Income Tax Rate Survey 2008) documenting a downward trend in the highest tax rates in 87 countries over the past six years, from 31.3% in 2003 to 28.8% in 2008:

We have concentrated on the highest rates of tax payable to central government in each country, and for ease of comparison we have, where possible, excluded other taxes like social security contributions, municipal taxes and employment taxes.

The picture that emerges is of a slow global decline in top rate personal income taxes, from an average of 31.3% in 2003 to 28.8% in 2008. But this conceals some very different tax histories at a regional and country level.

City Wants her Cent

From the Sun Chronicle:

A 74-year-old blind woman has been told a lien will be put on her South Attleboro home if she doesn't come up with a penny she owes on an outstanding utility bill.

Eileen Wilbur, of Glenn Street, said she discovered the notice of the potential lien after her daughter, Rose Brederson, came over to read her mail.

"It's so upsetting," Wilbur said. "It sent my blood pressure up so high."

The city sent Wilbur a letter dated Nov. 10 stating that if the 1 cent balance is not paid by Dec. 10, the city will assess a lien of up to $48 on Wilbur's next property tax bill.

"They wasted taxpayer money on the letter," Wilbur said, noting the 42-cent charge for a stamp.

City Collector Debora Marcoccio said the bill was sent out along with more than 2,000 others as the city tries to recoup outstanding balances before resorting to putting liens on property.

A computer automatically printed the letters for any account with a balance remaining, and they were not reviewed by staff before being sent out, Marcoccio said.

"It would be fiscally irresponsible for me to have staff weed through the bills and pull out any below a certain amount," Marcoccio said. " And what would that amount be?"

National Association of Women Lawyers Published Findings

A few days ago the National Association of Women Lawyers published their third annual National Survey on the Status of Women in Law Firms. You can download a PDF of the study by clicking here, but I have listed out some of their most important findings below.

  • 48% of associates, 27% of non-equity partners, and 16% of equity partners, are women
  • At 99% of the firms, the highest-paid partner is a man
  • Women earn less than their male counterparts at the associate ($7,000), of-counsel ($14,000), nonequity partner ($23,000), and equity partner ($87,000) levels.
These reports have gotten massive attention in the blogging community. The Wall Street Journal’s law blog spoke with Lisa Horowitz, the president of the Association, and she claimed this is because women lawyers are less likely to brag about their accomplishments. “Research has found that women don’t self promote,” stated Horowitz.

5 Problems to Check for Before Buying a Foreclosed Home

Hundreds of families, and real estate investors, are purchasing more and more foreclosed homes as they can typically be purchased for a fraction of their value. However, you want to make sure to pay close attention to the following 5 potential problems thanks to Popular Mechanics.

1. MOLD

These organisms love water—so they love humid places like Florida, says Lee County property inspector and field services supervisor John Heaphy. Lee Country, home to Ft. Myers, has been one of the three counties in the U.S. hardest hit by foreclosures after the housing market collapse. When he goes in to inspect those homes, Heaphy said, mold is the number one enemy he finds. "We see walls black from ceiling to floor with mold."

Foreclosed or not, mold affects homes in muggy Florida or even arid Arizona, Grant said, though it is less common or severe in the desert. And not all mold cases are as drastic as the whole-wall growths in Florida. Sometimes, Grant said, the problem is hidden behind a wall or has just begun—that's why inspectors are so preoccupied with looking for leaks, the source of most mold infiltrations. Once mold takes hold on drywall, Heaphy said, there's usually no hope to slow it down; the new buyer would have to replace all the infested drywall.

2. VANDALISM & BREAK-INS

One of the reasons mold is such a problem in Florida foreclosures, Heaphy said, is that vandals steal air conditioning units so they can sell the copper tubing for scrap. With no air conditioning to keep down the humidity (and a gaping hole letting in humid air), mold flourishes. A/C window units aren't the only target, Lee County property inspector Ken Wilkinson said—thieves would grab dishwashers and other large appliances before banks and realtors got smart and pulled those expensive items out of unoccupied homes. Piping and electrical wire are also popular targets, according to realtor Jeff Staub, who works in foreclosure-ridden Riverside, Calif.

Abandoned homes are ripe for random acts of vandalism as well. But, Heaphy said, some of the worst damage comes from the former homeowners, who deface their own house when they know they're going to lose it. Grant has seen the same thing—some people trash the house, or even punch holes in the walls. Staub said he once entered a home in which someone had taken a baseball bat to the walls. But what may have shocked him more, he said, was the time he entered a house where the old owners had left their home perfectly clean, even vacuuming the floors on their way out. "You never know what you're going to see when you walk through that door," he said.

3. PARTING GIFTS

Besides damaging the house in frustration, Grant said, some foreclosed homeowners try to take whatever they can along with them. He said that he and other inspectors have gone into houses where the former owners grabbed anything they could get loose—light fixtures, ceiling fans, even kitchen cabinets and entire toilets taken from the house. Staub said he found a foreclosure where the former owners had ripped out all the carpeting. And while some foreclosed homeowners loot their own home, Riverside, Calif., realtor Mike Novak-Smith told PM they often leave things behind, too—usually lots of trash and junk. So if you're looking for a foreclosed home, anticipate that extra costs for appliance replacement or trash removal might cut into the savings from buying an inexpensive property.

4. WILD ANIMALS

Nature abhors a vacuum, and often wild animals will find an abandoned house and make it their home. Heaphy said that all kinds of Florida wildlife like to take over in the absence of a homeowner—when the grass gets hip-high at an abandoned house, it's a haven for snakes. And he and his agents have stumbled into other animals, including panthers and wild boars. Typically, Heaphy said, those big mammals are more scared of us than we of them, but that's not always the case. "If you find a mother boar with piglets, you don't want to get in her way," he said.

Grant said he'd seen hundreds of bats in an attic before, and a beehive so well developed that honey was dripping off and coming out of the bottom of a wall. Inspectors in Arizona sometimes run into skunks living in ventilation systems. He said probably not all of those instances happened in foreclosures, but they show how a neglected home can become host to just about anything. You can get rid of larger mammals, Heaphy said, at least once you get over the shock of finding a panther in the living room. But some infestations—like the fire ants he sees often in Florida—are harder to exterminate.

5. NEGLECTED MAINTENANCE

"Most maintenance stops when the payments are no longer being made," Novak-Smith told PM. Grant said people who know they're losing their house don't typically care whether they keep a fresh coat of paint on the walls or if tiny roof leaks are sealed. Mechanical systems frequently suffer in a foreclosed home because they need a fair amount of care, he said—foreclosures frequently have heating systems at the end of their lives, often prematurely so because the homeowner neglected routine maintenance, like cleaning the filters or bleeding the radiators. The ventilation systems are often forgotten, too, he said, which can lead to mold problems. Home buyers looking at foreclosures need to bear these facts in mind, Grant said—they could be inheriting a much larger and costlier repair job than they first expect.

Struggling States Let Retailers Keep $1 Billion in Sales Taxes

From Wall Street Journal.com:

Cash-strapped states are forgoing a total of roughly $1 billion annually in tax revenue because of little-noticed laws that permit retailers to keep a slice of the sales taxes they collect for the government, according to a new study.

Laws in 26 states, largely dating to the era before computerized cash registers, allow retailers to keep a small portion of sales-tax revenue they collect to compensate them for the expense of gathering the funds. Thirteen of those states impose no ceiling on the total amount kept by retailers.

Good Jobs First, a Washington, D.C., nonprofit research group that is often critical of tax subsidies for large corporations, examined data on such compensation plans.

The report comes as many states are facing their most severe budget pressure in years. Adjusted for inflation, state tax revenues were down 2.6% in the most recent quarter, according to a report released this month by the Nelson A. Rockefeller Institute of Government. States are looking to fill multibillion-dollar budget gaps through a variety of tax increases and service cuts, including tightening Medicaid eligibility and raising tuition at public colleges.

"There may be times when states are flush, when they can afford to let this leakage happen, but now that the states are facing a squeeze, we think they need to take a closer and harder look at this revenue loss," said Philip Mattera, the report's lead author and research director at Good Jobs First.

Monday, November 17, 2008

U.S. Gasoline Tax Hike Unlikely, Key Senator Says

From Reuters:

The new Congress probably will not approve legislation to raise the federal tax on gasoline, the chairman of the Senate Energy Committee said on Monday.

Democratic Sen. Jeff Bingaman said he was aware of arguments that a "variable tax" should be put on U.S. gasoline to prevent falling pump prices from encouraging Americans to drive more while making alternative fuels less attractive.

Such a tax hike "would be very tough to pass," Bingaman said at the Center for Strategic and International Studies. "I don't think something like that has much prospect of being enacted in my honest opinion."

Americans pay an 18.4-cent federal tax on each gallon of gasoline they buy, plus an extra 29 cents on average in combined state and local taxes.

As the cost of gasoline has declined to half its record $4.11 a gallon set in July, some energy experts have said the United States should levy a tax. These experts point to Europe, where the gasoline tax is much higher, to reduce reliance on imported petroleum. The European tax formula keeps gasoline costs high even when crude oil prices fall.

The average cost of gasoline has dropped below $2 a gallon in 17 U.S. states, raising concerns among some that many Americans will return to driving gas-guzzling sport utility vehicles, hindering efforts to reduce reliance on oil imports.

AIG Seeks IRS Refund for $329 Million

Weeks after getting billions of dollars in federal bailouts, American International Group Inc. (AIG) is seeking over $300 million from the Internal Revenue Service (IRS).

According to the Wall Street Journal, “the clash dates from before the bailout,” and that “the company disclosed in a securities filing this week that it filed a ‘claim for refund’ with the IRS” for $329 million.

However, AIG’s timing of the announcement comes shortly after the company received an estimated $150 billion in multiple bailouts from the Federal government. Additionally, the company also made headlines for lavish weekend conferences costing hundreds of thousands of dollars. WJS.com claims that AIG is in “the peculiar position of effectively using government funding to fight the U.S. government.”

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NYC Pushing Again for Commuter Tax

From News Daily:

Mayor Michael Bloomberg's budget director told a City Council finance hearing Monday that he and the mayor are eager to lobby again for the tax in Albany, particularly in tough economic times for both the state and city.

Republican state lawmakers recently said they oppose any attempt to revive the tax, but a newly Democratic-controlled state Senate might mean the proposal gets another chance in January.

Commuters who live outside New York City had the tax on their city earnings for 33 years.

It generated as much as $360 million a year for the city before it was eliminated in 1999.

Obama's Most Ostentatious Tax Promises

The election is now over and Sen. Barack Obama has assumed the role of the President Elect. The country is now waiting to see how many of his promises he keeps. Both candidates made a lot of ridiculous and—dare I say--ostentatious proposals throughout the election, but it is our job as American citizens to both critique and monitor how our elected officials follow through with said proposals. As such I have put together the following list of Obama’s most ostentatious tax promises that are most unlikely to become reality.

1. To limit tax increases to only those making over $250,000 a year.

Reality: When Obama states no tax increases, he is not including his plans to let the Bush tax cuts expire. Although letting a tax increase continue is not necessarily a "tax increase" it makes no difference to taxpayers expecting a cut. By saying he promises to only increase taxes for those making a quarter million, Obama seemed to be trying to gain votes with misleading information; another red flag of a campaign promise with the potential to flop.

2. Not to raise taxes on 95% of working Americans.

Reality: In addition to selectively expiring the Bush tax cuts, Obama has proposed to increase the cap on income payroll taxes. These tax increases could be huge for those making between $97,000 and $250,000, and the perfect candidate for this bracket is the small business owner. Therefore Obama is likely to raise taxes on much more than 5% of Americans.

3. To increase the capital gains tax rate from 15% to high 20%.

Reality: We all appreciate Obama’s efforts to make taxes fairer, but raising capital gains is not the way to do it. While 1 percent or less of Americans make over $250,000, nearly half of all Americans hold stock one way or another. Remember, the stocks in IRAs and 401(k)’s have capital gains taxes and many Americans use these to plan for retirement. That being said, raising the capital gains tax rate clearly does not target only the "fat cats" of our country.

4. To raise taxes on businesses and oil companies.

Reality: When corporate taxes go up, so do prices. This goes for oil, groceries, and motor vehicles alike. By drastically raising business taxes all Obama would be doing is passing our taxes through another outlet and right back to us. In addition, Obama has had some curious views on what constitutes as “big business” and what constitutes as “small business”, making small business owners weary of his tax policies.

5. To reform the IRS and make the way American’s file their tax returns easier.

Reality: Very early in Obama’s campaign he announced a desire to drastically simplify the way Americans file their tax returns. He even claimed that under his simplified tax code would allow anyone to complete his or her taxes in minutes as long as they take the standard deduction and have a bank account. Part of his plan includes using pre-filled out tax forms. Although his plan is more realistic then completely eliminating the IRS, it still has tribulations. In a perfect world, people could easily file their returns, as the IRS would send pre-filled tax returns. However, we do not live in a perfect world. Implementing a plan to simplify tax returns could create large problems for the IRS. Additionally, this program would open the floodgates for large-scale identity theft problems. Information contained in a taxpayers return is highly sensitive and we all know standard mail is not the most secure way to send something.

6. To eliminate income taxes on low-income senior citizens.

Reality: Although many claimed it was only an attempt to get the attention of the “senior voters” and the AARP, Obama promised massive amounts of tax relief to millions of seniors struggling to make ends meet. He planned to completely eliminate federal taxes on seniors making less then $50,000.00 per year, which would generate about $7 million dollars in total relief for seniors. However, I find it very unlikely that the country would get behind a tax break aimed specifically at one age group.

Wednesday, November 12, 2008

California's Car Tax may be on the Road Again

From LA Times.com:

Gov. Arnold Schwarzenegger has shown he's capable of learning. Not every governor who rode into office on a no-new-taxes pledge would propose a sales-tax increase of 1.5%. He's right to insist that every solution to the state's fiscal crisis be on the table, so we're happy to pitch in with a suggestion -- bring back the car tax.

There, we said it. Again. California's leaders took a wrong turn in 1999 when they slashed the vehicle license fee, or car tax. The move frittered away a rare revenue surplus that should have been used instead to fix the state's structural deficit. The plan supposedly called for the rate to go back up during fiscal crises to the same level it had been since 1948 – 2% of vehicle value. But when then-Gov. Gray Davis tried to do just that, Schwarzenegger fanned voter anger and booted Davis from office.

It's not out of a sense of mischief that we now call on Schwarzenegger to bring the tax back to its historical level. Not solely, anyway. The car tax is a smarter choice than a sales tax for digging out of the current budget hole. Asking Californians to pitch in through their vehicle registration fees rather than at the cash register would have fewer negative effects on sales, which we can expect to be diminished too much already in the coming months.

Banks to Receive Billions in Tax Breaks

According to the Associated Press, the big banks in this country are about to receive pretty huge tax breaks in addition to the money they will receive from the Federal government’s $700 billion bailout program. Specifically, the tax breaks will go to companies that acquire struggling financial intuitions that are struggling to get by. However, interestingly some experts claim that the tax breaks they get could exceed the cost of acquiring the struggling banks.

“The change could cost the Treasury as much as $140 billion by enabling firms that acquire struggling banks to use more losses incurred by those banks to offset their own taxable profits.

Wells Fargo & Co., which made a bid to acquire Wachovia Corp., just days after the notice was issued, stands to reap about $20 billion in additional tax savings because of the change, according to the analyses. Wells Fargo paid $14.8 billion in a stock deal to buy Wachovia.

The notice was issued Sept. 30 as Congress debated the $700 billion bailout plan. Some members of Congress are upset that such a sweeping tax change was issued with no public hearings or congressional input.

‘I am concerned that the notice, which was never debated by Congress, could end up costing taxpayers tens of billions of more dollars on top of the hundreds of billions of dollars already approved by Congress in the financial rescue plan,’ Sen. Charles Schumer, D-N.Y., said in a letter last week to Treasury Secretary Henry Paulson.

Treasury Department spokesman Andrew DeSouza said the notice was issued to provide tax guidance to firms involved in bank takeovers at a time when numerous financial institutions are struggling and their value can be difficult to determine. He said it wasn't aimed at any one specific taxpayer or transaction.”

The 50 Women to Watch 2008

From the Wall Street Journal:

In her concession speech in June, Hillary Clinton lamented that she wasn't able to "shatter that highest, hardest glass ceiling," but she said it now has "about 18 million cracks in it."

Indeed, women played a defining role in this year's historic election, whether as candidates, spouses or comedians.

But in the corporate world, the notion of "18 million cracks" remains something of a pipe dream. While women have made great strides professionally in the past two decades, their numbers in the upper echelons of corporate America have stagnated in the past few years.

On Wall Street -- possibly the toughest ceiling to crack -- two of the most high-profile women made an exit in the past year: Citigroup's Sallie Krawcheck and Morgan Stanley's Zoe Cruz.

But out of the ashes of the economic meltdown, some new stars have emerged -- most notably Sheila Bair, No. 1 on this year's Women to Watch list, who has been thrust into the spotlight in her bank-rescue role as a hard-charging regulator at the Federal Deposit Insurance Corp.

Barbara Desoer, No. 3 on this year's list, has risen to a pivotal role at Bank of America as president of mortgage, home equity and insurance services.

IRS Increases Deductions & Exemptions Due to Inflation

According to their newest press release, the IRS is making adjustments to more then tree dozen tax benefits for the tax 2009 tax year. Due to inflation adjustments personal exemptions and standard deductions will change and are likely to affect virtually every single taxpayer. According to the release, “key changes affecting 2009 returns, filed by most taxpayers in early 2010, include the following:

  • The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008.
  • The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350). Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
  • Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
  • The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.
  • The annual gift exclusion rises to $13,000, up from $12,000 in 2008.”

Tuesday, November 11, 2008

Top 10 Places to Visit in Hawaii

Over the past few weeks leading up to the election, I have been extremely busy doing media appearances about the candidate’s tax policies. Combined with the October filing extension, and a busy franchise-selling season, it has made for a very hectic few months. Fortunately, things should be slowing down over the next few weeks and I should be able to visit one of my favorite places in the world – Hawaii. As much as I love to go to the islands, I really love talking about them and telling those who are just about to make the trek on where they must go. So, below, please find my list of the top 10 places to visit in Hawaii.

1. Lanikai Beach

Translated into English Lanikai means "heavenly sea," which is exactly what it is. Locals and visitors alike marvel at the picture perfect white sandy beaches and clear turquoise waters. The beach is perfect for photography, swimming, canoeing, kayaking, sailing, or just relaxing and enjoying the magnificent view.

2. Hilo

Hilo is a coastal Hawaiian town with something for everyone. This town features multiple museums, a beautiful historic theatre, and downtown area filled with shops and attractions. The area also has dazzling waterfalls, and the only United States zoo situated within an actual rainforest (the Pana'ewa Rainforest Zoo).

3. Hawaii Volcanoes National Park

The Hawaii Volcanoes National Park, situated on Big Island, is one of the most visited spot in the entire state of Hawaii. It has trails for hiking, beautiful sights to photograph, and two record holding volcanoes. Kilauea is the world’s most active volcano and Mauna Loa is the world’s largest volcano.

4. Kilauea National Wildlife Refuge

In a comfortable 203 acres of land on the North shore of Kilauea, the Kilauea National wildlife refuge is the place to go when you want to see and learn about Hawaii's exotic wildlife. You might see Hawaii’s state bird (the nene), or even catch a glimpse of a humpback whale off the shore.

5. Molokini

The Molokini island is widely known for having the clearest waters in Hawaii, and offers from 80 to 200 feet of crystal clear waters. This also makes Molokini the location for Hawaii's best and most beautiful snorkeling. You can either rent a boat to take you further out, or you can just snorkel off the coast. Either way you are likely to witness a beautiful display of sea life.

6. Waimea Canyon

Mark Twain once called this beautiful canyon in Koke's State Park the "Grand Canyon of the Pacific". Over 3,600 feet depth, a mile wide, and 10 miles long, this canyon is both inspiring and stunning in its mass and beauty. Besides the obvious size, the canyon also has brilliantly colored inner walls that play in the sunlight creating a truly spectacular view.

7. Waikiki

With beautiful beaches, waterfalls, and trails, Waikiki offers all the grander of nature that other Hawaiian islands boast. It also has great shopping opportunities including fine art, custom jewelry, designer clothing, and local music. Waikiki is the perfect place to find souvenirs for your friends back home, or to purchase beautiful Hawaiian d├ęcor for yourself.

8. Gardens of Kauai

The island of Kauai, known as the garden island, will leave you breathless from the moment you set eyes on it. Hundreds of flowers, trees, streams and water falls will all catch your attention simultaneously, making the visit a true experience of the beauty and spirit of Hawaii.

9. Haleakala

Haleakala is not only one of the largest mountains in the world, but it is also a massive dormant volcano. Seen from miles away, Haleakala is hard to miss, and even harder to look away from. Many locals suggest taking a sunset bike ride, or power walk, down the mountain for a healthy and stunning evening activity.

10. Polynesian Cultural Center

It should be no surprise that the Polynesian Cultural Center makes the list. Every visitor of Hawaii should visit this culture-rich center to not only learn about the island and local inhabitants, but the center also hosts one of most authentic luaus in Hawaii.

Monday, November 10, 2008

The Thom Hartmann Program

I am happy to announce that I will once again be featured as a guest on The Thom Hartmann Program on Tuesday November 11th, at 10 am PST. From what I have heard, Thom would like to discuss taxes and investments during the interview. So be sure to tune in and listen to my advice!

Jobless Rate Bolts to 14-year High of 6.5 Percent

From Yahoo Business News:

The nation's unemployment rate bolted to a 14-year high of 6.5 percent in October as another 240,000 jobs were cut, far worse than economists expected and stark proof the economy is deteriorating at an alarmingly rapid pace.

The new snapshot, released Friday by the Labor Department, showed the crucial jobs market quickly eroding. The jobless rate zoomed to 6.5 percent in October from 6.1 percent in September, matching the rate in March 1994.

Unemployment has now surpassed the high seen after the last recession in 2001. The jobless rate peaked at 6.3 percent in June 2003.

October's decline marked the 10th straight month of payroll reductions, and government revisions showed that job losses in August and September turned out to be much deeper. Employers cut 127,000 positions in August, compared with 73,000 previously reported. A whopping 284,000 jobs were axed in September, compared with the 159,000 jobs first reported.

So far this year, a staggering 1.2 million jobs have disappeared. Over half of the decrease occurred in the past three months alone.

Although the unemployment report was worse than expected, and Ford Motor Co. reported dismal third-quarter results and announced plans to cut more than 2,000 additional white-collar jobs, Wall Street investors appeared to take it all in stride. The Dow Jones industrial average was up more than 190 points in morning trading.

About 10.1 million people were unemployed in October, an increase of 2.8 million over the past year. A year ago, the unemployment rate stood at 4.8 percent.

President Bush said the dismal employment figures reflect "the difficult challenges confronting the economy" and urged the country to have patience, saying a flurry of unprecedented government measures -- including a $700 billion financial bailout package -- will take time to work.

"I understand that Americans deeply concerned about the challenges facing our economy, but our economy has overcome great challenges before, and we can be confident that it will do so again," Bush said.

More California Budget Problems

Just weeks after the California legislature passed a budget for this year, Governor Arnold Schwarzenegger is calling out for tax increases, and drastic spending cuts, to help keep the state out of bankruptcy.

According to the San Francisco Business Times, “California Gov. Arnold Schwarzenegger proposed $4.7 billion in new taxes -- including a three-year increase in the state sales tax -- and $4.5 billion in new cuts Thursday to prevent a cash crisis brought on by a projected $11.2 billion hole in the current state budget.

Proposed new taxes include an immediate, three-year increase in the sales tax by 1.5 cents on the dollar; broadening sales and use taxes to items such as car repair, golf and veterinary services; a tax on oil extraction in the state; and an increase in alcohol taxes. The temporary increase would push the state portion of the sales tax to 8.75 percent, before any local sales taxes were considered.”

However, his plans are drawing a lot of criticism, with many claiming that a sales tax increase is not the best option. According to Mercury News, the Governor has plenty of better options to increase revenue.

“Eliminating tax credits for families with children, taxing attorneys' fees and raising business property taxes—these are some of the options Gov. Arnold Schwarzenegger could have proposed before settling on a 1.5 percent temporary sales tax increase.

None are easy choices in a struggling economy.

In laying out a proposal to increase sales tax for three years, the governor stressed an urgent need to raise revenue to maintain police protection and uphold California's education system.

‘We feel very comfortable that this is the best tax to use,’ the governor said Thursday while revealing a $11.2 billion hole in this year's budget. ‘This is the best way to go and we have to not delay it. I think now is the time for action.’

Economists recognize that the best form of taxation is the broadest one at the lowest rate. But California's budget fluctuates because it depends on a narrow segment of high-income earners whose fortunes ride with the stock market. About 50 percent of the state's personal income tax revenue comes from the top one percent of wage earners.

To complicate matters, the state's manufacturing-based sales tax has been shrinking proportionately because it hasn't been modified in decades to reflect service sector growth.

And a higher sales tax at a time when overall consumption is down may not do much to grow revenues.”

Use of Refundable Tax Credits Has Grown in Recent Years

From Wall Street Journal.com:

Republican presidential candidate John McCain has taken to calling Democratic rival Barack Obama's tax plan "socialist," because it would give tax cuts to people who currently pay no income taxes.

But such proposals -- known in tax parlance as "refundable tax credits" -- have become increasingly common in recent years, supported by both parties. Sen. McCain himself uses them as the cornerstone of his health-care plan.

"Traditional welfare is frowned upon by the public, and government spending is similarly frowned upon," said Scott Hodge, president of the Tax Foundation, a nonpartisan research group in Washington. "So politicians are looking at new ways to deliver targeted benefits ... and by delivering it through the IRS, it sounds far more palatable to the public."

Refundable tax credits have become increasingly popular over the past two decades, as a series of tax breaks have allowed more households to eliminate their income-tax liability altogether. President Bill Clinton's welfare overhaul relied on expanding the earned-income tax credit, which is for low-income working individuals and families and is designed to provide an incentive to work. President George W. Bush's 2001 tax cuts increased an existing child tax credit, and made it refundable so households that didn't pay taxes could receive it.

Currently, 62% of households pay income taxes, down from 82% in 1984. Some 57 million tax filers don't pay any federal income taxes, according to the Tax Policy Center, a nonpartisan Washington think tank.

Sen. Obama, who says he wants to give 95% of all households tax relief, makes his case by saying that he is offering most Americans tax relief. His plan counts on raising taxes on individuals earning more than $200,000 a year and families who make more than $250,000 a year.

Thursday, November 06, 2008

Tax Policy in the Obama Administration

As I am sure you are all aware, Tuesday night, Americans made history when they elected Sen. Barack Obama as the next president of the United States. We have a few weeks before President-Elect Obama takes office, but millions of people are already wondering what tax policy will be like under President Obama. Fortunately, one of my favorite blogs Tax Prof has collected a dozen or so blogs that have already written up answers to that question. Below are a few snippets, but you can see the full list of articles at Tax Prof Blog.

Tax policy under President Obama will be pragmatic and progressive, and gutsy. President Obama was the only candidate willing to go beyond the usual talking points of rates and base to the important question of how people pay taxes. He proposed a federal version of California’s Ready Return as early as the primary; he refused to pander by calling for a gas tax holiday and he was willing to tell voters a hard and unpopular truth: people at the top of the income distribution should pay more taxes than they are paying now. Although I don’t love his reliance on Clintonesque tax credits to achieve spending objectives, it is pragmatic. President Obama’s tax policy will not be a tax scholar’s dream, but his commitment to taxation based on ability to pay will change the tenor of tax policy debates in significant, and salutary, ways.

Why the Wealthy Voted for Obama

From the Wall Street Journal:

Exit polls show Sen. Obama did best among two main wealth brackets–the bottom and the top. (The middle was split about evenly). According to the polls, Sen. Obama won 60% of the votes of those with family income of less than $50,000.

He also won 52% of the votes of those earning $200,000 or more. That compares with Sen. John McCain’s 46% showing for the same group. Sen. Obama’s showing among the affluent is about 15% better than Sen. Kerry’s did with wealthy voters four years ago.

(Sen. McCain won among voters in 3 of the 4 middle categories of income–or those earning $50,000 to $200,000).

That Sen. Obama did well among the well heeled and well educated is no surprise. Claims that Sen. Obama is an elitist popular with the elite have long been part of the GOP playbook.

But given Sen. Obama’s proposals–which are still just proposals–to raise tax rates on those earning $250,000 or more, it is striking that the affluent came out so strongly in Sen. Obama’s favor. An earlier wealth survey by the Harrison Group showed that voters with incomes of $250,000 or more were leaning strongly toward Sen. McCain, 48% to Sen. Obama’s 29%.

So what gives?

There are several explanations. First, the wealthy, like many voters, may have placed a higher emphasis on the state of the nation than the state of their wallets. Even though their taxes may be going up, their greater priority may be Sen. Obama’s promises to fix the economy, education, health care, the wars in Iraq and Afghanistan and overseas relations.

Another possibility is that the wealthy don’t believe Sen. Obama will go through with his tax increase–at least not right away. With the economy sliding fast into recession, some affluent voters may be betting that any tax increases will be delayed or watered down–and Sen. Obama did signal this possibility on the campaign trail. It is harder to vote against an increase in the capital-gains tax if you don’t expect any capital gains for the next year.

Finally (and perhaps least likely), the wealthy may be responding to Sen. Joe Biden’s argument that paying higher taxes is patriotic. Like Warren Buffett, some of the wealthy may feel it is time to raise their own taxes for the betterment of the country. There may be some voters–more likely those in Upper Richistan rather than those in the $200,000-plus group–who think a shared sacrifice among the rich is necessary to get the American wealth-creation machine moving again. (Among the Upper Richistani’s supporting Sen. Obama, tax policies ranked last in one earlier survey, with only 16% citing them as important. “Social issues” ranked first, with “policies dealing with wars” ranking second, at 67%, and Supreme Court nominations and health-care issues ranking next.)

Talking About Obama on FOX Business News

Last night I was able to participate in FOX Business News’ coverage of the presidential election. Throughout the night I answered questions about the tax policies of the presidential candidates, then I was again featured on the channel’s Money for Breakfast program this morning. In the segment this morning I spoke with hostess Alexis Glick on Obama’s tax plan and the future of this country. Embedded below are two videos from my appearance this morning, enjoy!



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