http://thehill.com/blogs/blog-briefing-room/news/61783-pelosi-says-new-tax-is-on-the-table

My colleague Ron Vargo forwarded the above article to me. Please take a look at it, and then read the slightly wonkish reply I sent to Ron:

Quite interesting. Enacting a VAT in the U.S. would mean creating new compliance systems, and since in Europe the VAT passes through as a tax to the consumer, I think that a VAT will increase the burden on the working and middle classes more than it would increase the burden on the wealthy (the wealthy simply can afford to pay more for their goods and services, so it won't hurt as much). A few things about the VAT: In the U.K., where I have some clients, there is an income tax that's higher than the U.S. income tax. Do you remember the George Harrison song "Tax Man?" It has the line "nineteen for you and one for me..." In the 1960s, the U.K. tax was 95% (it's since gone down quite a bit). So the VAT cannot completely replace the income tax, at least not in the countries that currently use the VAT.

 

Also note: the European VAT doesn't apply to sales to foreigners who are taking the goods out of Europe. It may be that our tax treaties will require the U.S. to do the same. This means that goods sold to tourists at duty-free shops, or sold overseas through the Internet, won't be taxed by the U.S. I see a potential for revenue loss.

If time permits, I'll expand on this in a future posting.

http://www.lowtax.net/asp/story/front/California_Tax_Panel_Calls_For_Overhaul_Of_State_Laws_xxxx39407.html

A government commission in California issued recommendations for revising the CA tax laws. The plan includes lower personal income taxes and elimination of the corporate income tax (including elimination of the $800 minimum tax). This will be offset by a business net receipts tax of up to 4% (small businesses with less than $500,000 gross receipts would be exempt).

This is, in my opinion, a fairly radical proposal. For example, reducing taxable income by paying management fees to a related company would no longer reduce taxes. Instead, since it would increase net receipts for the management company without reducing net receipts for the other company, overall state tax would increase. Thus, it would adversely affect tax planning and structures that work well for federal taxes and the taxes of most other states.

The commission recommends implementing the plan over a five-year phase in, beginning in 2012.

I discussed this with my graduate students last night, and one of them (thank you, Mr. Vail!) pointed out that the commissioners appointed by Governor Schwartznegger supported the proposal and the other commissioners opposed it. Another student opined that the proposal is reminiscent of Texas tax law--which brings to mind Molly Ivin's comment that Texas is the laboratory for bad government.

One of my colleagues, Ron Vargo, a CPA in NJ, told me today that he heard that part of the proposal included eliminating sales taxes. Perhaps this was meant to reduce the burden on the middle class, but Ron pointed out that the corporations will likely pass their tax burden through to customers in higher taxes.

Overall, it seems that this proposal does not consider which taxpayers bear the greatest burden--or maybe it does, and the proponents know that it keeps the burden off the wealthy.

A

This article caught my eye. It's published by an organization that disseminates information on international tax issues.The main point is that when the Bush-era tax cuts expire, the real cost to Americans will be more than just the increased taxes: there will be less income.

http://www.lowtax.net/asp/story/front/Study_Calculates_Economic_Cost_Of_US_Health_Surtax_xxxx38565.html

The problem with the article is that it doesn't consider where this alleged burden falls. I believe that the economic burden falls on the same people who pay higher taxes. In other words, high-income taxpayers. Therefore, the author's conclusion should be that the very wealthy will become less wealthy, reducing the income disparity in this country. That's the correct result.

I hope to start a discussion about tax policy on the local level--county and city/town/village. My first few posts concerned this topic, and I think it should get more play. After all, "all politics is local [attributed Thomas O'Neill, Sr., Tip O'Neill's father]."

I have been teaching a course on tax ethics (no giggling, please), to graduate students for a few years now. One unit deals with how a professional's public expounding of any particular tax policy impacts his or her ethical requirements to the client. While thinking about this topic, I distilled tax policy to this formula--not particularly insightful, but nevertheless ignored by many politicians:

Public Expenditures = revenue + deficit.

I review some elementary algebra, to the effect that one equation with three variables has an infinite number of solutions. Then I break down the variables as follows:

• The deficit equals the amount politically expedient at the time. For state and local situations, the deficit is set by law to equal zero.
• Revenue equals the sum of tax revenue plus fees (and federal or state aid).

I break down tax revenue in terms of public policy regarding the allocation of the tax burden over society.

• Finally, public expenditures are a matter of political compromise and expediency.

Applying these rules, local expenditures must equal local revenues. That's so simple that it seems like a waste of time to type it all out, but it's ignored by politician after politician. I will resume from this point in the next day or so.

--Dean L. Surkin

I started this blog and then did nothing for a few weeks. My father-in-law, Marvin P. Birnbaum, passed away last week. I consider myself fortunate that I got along so well with my in-laws.

Marvin passed away on June 30, 2009, due to complications from surgery. He entered the hospital 10 weeks ago for hip-replacement surgery and contracted the hospital-borne infection MRSA. The infection settled in his heart, requiring open-heart surgery to replace his previously-installed artificial valve and to clean out an abscess. Massive dosages of antibiotics cleared the MRSA, but he unfortunately developed a different drug-resistant infection. That, too, was conquered, but the antibiotics damaged his kidneys to the point where he needed dialysis. Subsequently, Marvin endured two heart attacks and had been in a persistent vegetative state for the past two weeks.

 

He died, aged 85, at St. Luke's Hospital in NYC, attended by his daughters Jacqueline and Sandy. The funeral was held on July 2nd at Louis Hirsch & Sons in the Bronx. His remains were interred at the New Cedar Park Cemetery in Paramus NJ.  

Marvin retired in 2007 from his position as a court reporter for the U.S. District Court, Southern District of NY. He had been honored as a Fellow in the Academy of Professional Reporters in 1977. He was known among his colleagues for his technical skill and prodigious memory for quotations. Long before the Internet, other court reporters would turn to Marvin to identify quotes delivered by judges and litigators. Judge Kimba Wood spoke at his retirement dinner, and then-Attorney General Mukasey sent a personal letter to be read to the attendants.

Marvin was a life-long progressive, and frequently described himself as a "yellow-dog Democrat." For those of you who do not know the phrase, it means that if the Democrats nominate a yellow dog, he'd still vote for the Democrat over the Republican.

 

Marvin was a veteran of the U.S. Army, having served during WWII in the Pacific theater. His wife Flora Birnbaum died in 2001. He is survived by his daughters Jacqueline Birnbaum and Sandra Birnbaum, and his grandchildren Hilary Clark, Joel Penney, Darren Sullivan, Eric Sullivan and Margo Sullivan.

I am having trouble replying to comments, so I'm posting this as a blog entry. Thanks to Orlando, who pointed this out. The robo-phone call I received referred to "Tea Party," not "tea-bagging."

As I mentioned before, I find this story fascinating, and it hasn't received much press outside of Westchester County.

I assume that those of you reading TPM are familiar with the Tea Party tax protests this past April 15th. In Westchester County, NY, a small mutation occurred: a group called Tax Cuts Now seeks support to cut local taxes while also advocating abolishing county government. One of the leaders of Tax Cuts Now is David Spano, the son of County Executive Andrew J. Spano. For those into pop-psychology, note that the elder Mr. Spano is a retired teacher, union member and Democrat. The younger Mr. Spano has announced that he intends to run against his father for County Executive, and to be the last County Executive while he dismantles county government.

There is another group, Rethinking Westchester Government, that also advocates abolishing county government. While I can quickly dismiss David Spano and his group as a fringe group, Rethinking Wester Government was founded by a number of local politicians, including a few prominant Democrats. The website for Rethinking Westchester Government does not reference the Tea Party movement, unlike the website for Tax Cuts Now. 

I hope to explore this a bit more. I see a tie-in with California's Proposition 13 (1978) , the New Jersey property tax cap of 2007, and the recent plank in the campaign of my neighbor (and I hope, friend), John Murtagh in his unsuccessful bid to unseat NY State Senator Andrea Stewart-Cousins.

"Please allow me to introduce myself, I'm a man of [scant] wealth and [questionable] taste...[apologies to Messrs. Jagger and Richards]"

I'm an attorney/professor with an interest in taxes and tax policy. My opinions are my own, and do not reflect the opinions of my employers.

Late last week, I got a robo-call that started off "are you aware of the tea-bagging tax movement sweeping the country?" At that moment I was waiting for an important call, so I hung up rather than listening to the spiel (I get a perverse pleasure out of listening to willfully ignorant tax rants). I was actually surprised, because I thought the "tea-bagging tax movement" was a dead issue. I reside in Westchester County, New York, and I'm interested in hearing whether anyone else received a similar call.

There was an anti-tax rally scheduled for April 25th or so in Westchester County--one of my neighbors had a lawn sign soliciting support. In large type, the sign said "protest high taxes," and in smaller type it said "abolish county government."  I will comment on this later.

Thanks to TPM for giving me an outlet.