Category: Taxes

Charles Rangel Unveils Massive Tax Overhaul

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Truth be told, this tax proposal is clearly more of an opening salvo than anything else. It serves a number of purposes:

  • It is a revenue neutral proposal which lowers taxes on over half the polulation, which is good politics.
  • It will reinforce the meme that the current tax system is broken.
  • It shows how many tax loopholes the fat cats get.
  • It puts the Republicans on defense, so now they can’t just mindlessly parrot “keep Bush’s tax cuts”.

This is probably the most important single bill we will see this session (Yes, I know about the war, and the warrentless wiretaps). To the degree that we increase the cost of obscene remuneration, we make it occur less frequently, and this reshapes our society.

The new gilded age we live in is largely an artifact of the social repercussions of the tax plans enacted by Reagan, Bush, and Bush.

Blackwater: Tax Cheats and Mercenaries Security Contractors

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Well, it appears that Blackwater is both more crooked, and more stupid, than I had previously thought. They have been classifying their mercenaries as independent contractors for tax purposes.

The rules on this are pretty strict. To be an independent contract, you have to be indepndent, you have to set your own hours, place of works, not be subject to company supervisors, etc. Mercenaries don’t qualify. They are told when and where and with what to fight, and Blackwater supplied them with uniforms, flak jackets, weapons, etc.

These were not freelance illustrators.

Henry Waxman has noticed this discrepancy, and that this does not correspond to the standard practices of other firms, like Triple Canopy and Dyncorp, and further noticed that his testimony did not jibe with direction from the IRS.

They are looking at huge fines. It may not be as satisfying as getting them for being mercs and war criminals, but it worked to get Al Capone.

Here is the first part of Waxman’s letter to Blackwater, which implies tax evasion and perjury before congress:

I have received documents which suggest that Blackwater may have engaged in significant tax evasion. According to an IRS ruling in March 2007, Blackwater violated federal tax laws by treating an armed guard as an “independent contractor.” The implication of this ruling is that Blackwater may have avoided paying millions of dollars in Social Security, Medicare, unemployment, and related taxes for which it is legally responsible.

Unlike DynCorp and Triple Canopy, the two other major private military contractors providing security services to the State Department in lraq, Blackwater classifies its armed guards as independent contractors rather than as employees. Under federal tax laws, this classification has important ramifications. Businesses must pay Social Security, Medicare, and unemployment taxes for their employees. They must also withhold federal income taxes on their salaries. By classifying its armed guards and other personnel as independent contractors instead of employees, Blackwater has apparently evaded withholding and paying these taxes.

When you testified before our Committee on October 2,2007, Congresswoman Norton asked you why Blackwater treats its security personnel as independent contractors, while your competitors treat their guards as employees. You responded that Blackwater treats its guards as contractors because you found “it is a model that works” and because your guards prefer the “flexibility” of an independent contractor relationship.

Since the hearing, I have learned that the IRS determined in March – six months prior to your testimony – that your classification of a security guard working in Afghanistan as an independent contractor was “without merit.” The IRS advised that “[y]ou are responsible for satisfying the employment tax reporting, filing, and payment obligations that result from this determination.” By its terms, the IRS ruling applied only to the individual security guard who protested his classification, but the IRS warned that its ruling “may be applicable to any other individuals engaged by the fum.” The logic of the ruling would appear to apply to your entire workforce in Iraq and Afghanistan.

There is also evidence that Blackwater has tried to conceal the IRS ruling and the evasion of taxes from Congress and law enforcement officials. The IRS determination was issued in response to an inquiry by an individual security guard who questioned his classification as an independent contractor. In June, Blackwater required this employee to sign a nondisclosure agreement before it agreed to pay the back pay and other compensation that he was owed. The terms of this agreement explicitly prohibited the guard from disclosing any information about Blackwater to “any politician” or “public official.” The agreement further provided: “THE UTMOST PROTECTION AND NONDISCLOSURE OF CONFIDENTIAL INFORMATION IS OF CRITICAL IMPORTANCE AND IS THE ESSENCE OF THIS AGREEMENT.“

It is difficult to read the IRS ruling and the nondisclosure agreement and not question Blackwater’s intent and actions. When the IRS issued an alert in 2004 warning employers not to “incorrectly treat employees as independent contractors,” the IRS Commissioner described the “[f]ailure to pay employment taxes” as “stealing from the employees of the business” and said that “those who embrace these schemes face civil or criminal sanctions.” Yet it now appears that Blackwater used this illegal scheme to avoid millions of dollars in taxes and then prevented the security guard who discovered the tax evasion from contacting members of Congress or law enforcement officials.

I believe that Blackwater is completely boned.

Democrats Sell Out on Fund Manager Tax Loophole.

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Harry Reid has assured the brokerage people that their commissions will continue to be treated as capital gains, reality be damned.

Reid is apparently arguing that he cannot get it past the Republicans, but making the ‘Phants vote for a ludicrous tax break for people percieved as hyper-rich cheats is a winning political strategy.

Stupid.

One wonders when how long it’s going to take until the voting public demands real reform from the Democrats.

My, guess is that it will be a while, as nary a week passes without some Republicans getting caught soliciting sex, taking bribes, molesting children, etc.

Maryland Politics: Slots

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Ever since before Paris Glendenning left office, Maryland has been in a situation where the state has a structural deficit. Basically, Glendenning beat Ellen Saurbreey in a VERY close race in 1994, and proceeded to implement her cockamamie tax proposals at the height of the dotcom boom in order to score political points, and in so doing left the state with a structural deficit.

The governor following Glendening, Bob “Bad Hair” Ehrlich (R-Cluelessville) who had defeated Glendenning’s Lt. Governor, Kathleen Kennedy Townsend (Possibly the worst candidate in the history of…well…history, and definitely in the history of the Kennedys).

He was a big fan of slots, and it was the central plank of his campaign, as a way to close the deficit, which ignores the mathematical reality of the situation. He also was completely clueless, not having even the remotest plan about how to implement slots, so his first proposal when he was governor was so bad that the racetracks (horse, not NASCAR) who were the primary beneficiaries of his plan were aghast.

So, it went back and forth, between the House Speaker Mike Busch generally being opposed to slots, and Senate Leader Mike Miller generally supporting them.

Both houses passed slots bills in 2005, but they were very different. The Senate provided for gambling at the racetracks, and the house bill had (largely) state owned machines at state owned sites along I-95 towards Delaware (where there are slots) and in Western Maryland towards West Virginia (where there are also slots), the theory being to catch Maryland residents before they spend that money out of state.

Disclosure: I am opposed to slots, not because I oppose gambling, but because I think that an over reliance on “sin” revenue casts taxes as something for bad people to pay, as opposed to dues that everyone pays to be a member of society.

Well, now that Martin O’Malley is governor, both the legislature and the executive are willing to face reality, and as such there are going to be some revenue increases, both taxes and slots.

Truth be told, slots are going to be a pretty small part of the picture revenue wise, but Mike Miller is retiring, and feels the need to get slots implemented as part of his “legacy”.

O’Malley has been in negotiation with the legislature, and his plan includes income tax increases at the higher brackets, increases in the sales taxes, and an increase in the gas tax to take into account Ehrlich’s raiding of the transportation budget.

The funny thing is that his slots plan is largely identical to the house plan of 2005.

Logistically, it makes sense, put the slots on the way to where people are going, and let the state own them so as to get the most revenue (though there is about $100 million to subsidize horse racing annually* and $6 million a year would go to help problem gamblers).

It also ends up placing the slots in largely rural and largely Republican areas. (heh)

The question now is whether O’Malley will submit this on its own, which would get a lot of Republican votes, or as part of a whole revenue package, which forces the Republicans to choose between slots (which they like, since people are already doing it out of state anyway) and the tax increases (which is all they have left to campaign on).

My money is on it coming out together, to shiv the ‘Phants†, though the charitable explanation is that it will be harder to get this through the house, so you go with something that they have already passed.

Amazingly enough there are not yet any allegations of graft, which in Maryland is no small thing.

*I know, kind of silly to prop up a dying business, but horse racing in Maryland has a bizarre attachment to some folks, as leg two of the Triple Crown is at Pimlico, and all.
†Short for Elephants…Republicans that is.

Baltimore Area Lender’s Checks Bounce

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Thankfully, it’s not my lender, but American Home Mortgage Investment Corp. is bouncing property checks in Baltimore City and Baltimore County.

Over 100 Grand so far, and this is the camel’s nose under the tent.

In addition to everything else, there is going to be a lot of unpaid property tax at the local level, and falling assessments, putting cities and counties in a cash crunch.

Thank you Alan Greenspan.

Nice Take Down of the National Sales Tax

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And it’s in the WSJ of all places. This editorial shows how the numbers are bogus, and deliberately so.
Bruce Bartlett’s basic points:

  • This idea originally sprung from the head of Scientology, because of their clashes with the IRS¹.
  • It assumes growth rates in the US economy that appear to come from the planet Skaro.
  • They use very bad math to misquote the percentage of tax².
  • It has the federal government paying the tax to artificially inflate revenues.
  • It applies the tax to everything, including education and health care.
  • It creates a de facto national welfare program.³
  • It understates the rate needed to balance the budget.

It should be noted that this Mr. Bartlett was senior economic staff under Bush I, this is no Democratic partisan here.

¹Basically they claim that a 30% tax is a 23% tax by figuring it backward. If you take $1.00 and add 30%, you have $1.30, but $0.30 is only 23% of 1.30.
²The required tax rate for this to replace revenues 57%, it goes up to 64% if it exempts things like food, education, and health care, and 89% if there are problems with evasion.
³It creates a transfer payment system in which people get money back on a weekly basis depending on wages.

Private Equity is Not Trying Blackmail Over Tax Code

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It appears that the managers of private firms are threatening to stop doing deals if they don’t get to keep their tax loophole.

This is bulls%$#. A private equity firm that does not do deals is shut down. Furthermore, they make a lot of money now.

While I do not support the capital gains tax break, I don’t see why we should favor unearned income over that created by honest work, the theory is that you reward people for risking their own money. Here, their fees are for managing someone else’s money. It’s normal income period.

Relative Taxes, Which Country has More Money in Pocket.

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Facing South has a a good analysis of how our real earnings compare to those of Europe:

Going back to the previous example of combined employer and employee income and “social security” taxes, here’s the same example with only the employee’s portion, i.e. take-home pay after payroll deductions:

Take-home pay, $50,000 income (USD)
US France UK
Payroll Tax $3750 $4500 $4352
Income Tax $6945 $7915 $8156
Take-home $39,305 $37,585 $37,492

So the British and the French take home a little less and pay a little more in VAT, but their health care is fully covered (the French employee is still paying the 8% for 100% coverage). The American employee still has to pay for health insurance (anywhere from $600 to $3000 per year in payroll deductions depending on the type of policy and company size), and most also pay additional state and local income taxes (for example, approx. $2500 in Georgia, $3000 in North Carolina, or $3900 in NYC).

Not only is he missing the whole safety net, but also the fact that a car is a luxury in places like the UK and France, where a good mass transit system exists, but a necessity in the US.

Additionally, you have far fewer worker protections here.

We spend more, but that’s because we are in debt up to our eyeballs.

Tax Fairness on Private Equity Will Define the Democrats in This Congress

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Seriously, this is a defining issue for Democrats.

The idea that the commissions that people get for investing other people’s money should be taxed as capital gains is a disgrace.,

Bill Is Offered to Increase Tax on Private Equity

By JENNY ANDERSON and ANDREW ROSS SORKIN

Interest on Capitol Hill in raising taxes on private equity and hedge fund managers reached a peak yesterday as leading Democrats introduced a bill that would more than double taxes on most of the income earned by partnerships, including private equity managers, venture capitalists and some hedge funds.

Representatives Charles B. Rangel of New York, the chairman of the House Ways and Means Committee, and Sander M. Levin of Michigan joined 12 other Democrats in introducing the legislation to tax the performance income earned by many partnerships, including private equity firms, at ordinary income tax rates of 35 percent instead of the current 15 percent capital gains rate.

“Congress must ensure our tax code is fair,” said Mr. Levin, who has been looking at the measure since a friend of his, a retired tax lawyer, brought the issue to his attention a few months ago. The congressman insisted the bill was meant to address equitable tax treatment and was not an attempt to penalize success. “Some Republicans have attacked us for trying to soak the rich,” he said. “I am not trying to soak the rich; I am trying to find tax equity.”

Exactly the point.