Sunday, July 31, 2016

Whistleblower v Commissioner

I am making the effort to study for the US Tax Court exam for non-attorneys for the second time. My test date is in 2018. As part of my study regimen, I ready daily decisions off of the US Tax Court website.

There is one this week involving a whistleblower who is pursuing the reward of 15-30% of collected tax revenue based on information he provided to the IRS. I love the opinion, because the whistleblower successfully compelled the IRS to release IDR's the IRS claimed was irrelevant. It has long been my suspicion that the IRS will do all that they can to avoid paying rewards, an I love seeing a taxpayer come after them for his piece.


Saturday, July 30, 2016

Romney is Trump's excuse for not releasing his tax returns

In an interview on Meet the Press, Trump asserts that Mitt Romney lost because he released his tax returns. Therefore, this is why Trump will not release his returns.

While he is correct that some people used Mitt Romney's income against him, this is rather lame excuse for Trump's hard line against providing his tax returns. The position that people voted against Mitt Romney because he has been too successful in business and finance flies against all logic and sensibility. Looking at exit polling data and other information from 2012 points to many other issues, most of which include comments the were portrayed as Romney saying, "I think 47% of American's are free-loaders". As a free-loader, I think that was actually a correct observation, but alot of people found that offensive.

Trump's assertion that the tax return was too damning for Romney's campaign is a red herring. There must be other issues in play.

Early on in the primaries, Trump mentioned that his personal tax return is under audit and has been under audit every year. Contrary to Trump's assertions, the IRS doesn't have a policy of auditing people on an annual basis simply because they are rich. They audit people annually because they see smoke (you know the old saying, "where there is smoke, there is fire") in the individuals financial behavior and record keeping.

This website (despite possible political leanings) makes some good observations about possible reasons why the Donald cannot get off the IRS radar.  Long story short, the IRS audits Donald each year because his business and personal conduct have major badges (red flags) of concealment, under-reported income, and over-inflated deductions. The IRS is run in a business like manner, IRS audits against Mr. Trump would cease if he managed to go through an audit without having major adjustments in the governments favor. However, as IRS revenue agents find concealed income and illegitimate deductions on an annual basis, the IRS (like any business with a new revenue stream) opens up each successive year.

Here is another article by a corporate tax lawyer that theorizes what we might find on Trump'a return.

I admit that all of this is speculation from (at least) a pair of tax professionals, and maybe there is some weight to a "Obama orders the IRS to audit Trump" conspiracy that tin-foil hat wearing Trump supporters would love to believe. However, the fact is that unless he releases his returns, the theories are going to continue with greater intensity. What will the orange man do?

Trump Positions "Tax Reform"

In my on going series that I meant to finish before the end of the RNC, I am going to take a look at Trump's tax reform plans. This is coming from his "Positions" page on his website. In Trump fashion, he provides alot of vauge assertions with alot of missing details.

What I Like

The Trump plan reduces the number of brackets from 7 to 4. The highest bracket is 25%. Here is how they look:

Income Tax RateLong Term Cap Gains/ Dividends RateSingle FilersMarried FilersHeads of Household
0%0%$0 to $25,000$0 to $50,000$0 to $37,500
10%0%$25,001 to $50,000$50,001 to $100,000$37,501 to $75,000
20%15%$50,001 to $150,000$100,001 to $300,000$75,001 to $225,000
25%20%$150,001 and up$300,001 and up$225,001 and up
Married filers that make under  50k will no longer have a filing requirement, and taxpayers making under 100k will enjoy a 10% rate. This is definitely a tax break for the middle class. Right now the 10% bracket ends at around 70k in taxable income.

The next items is good. Although, I can't imagine how he intends to circumvent social security and Medicare tax, he claims that business income (corporate, partnership, and sole proprietors) will be taxed at 15%.

  1. No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15% of their business income in taxes. This lower rate makes corporate inversions unnecessary by making America’s tax rate one of the best in the world.
For sole-proprietors, who pay income and SE tax with high combined actual tax rates, a change to a flat 15% would be a very helpful change.

The Trump tax proposals also claim to plan an end to the Death tax and AMT.

All of these items are great, and if they are revenue neutral, they should be  very helpful to the economy.

Changes I dislike:

The first problem I see if that he makes a vague claim that some exemptions and deductions will become obsolete with his new tax plan:

With this huge reduction in rates, many of the current exemptions and deductions will become unnecessary or redundant. Those within the 10% bracket will keep all or most of their current deductions. Those within the 20% bracket will keep more than half of their current deductions. Those within the 25% bracket will keep fewer deductions. Charitable giving and mortgage interest deductions will remain unchanged for all taxpayers.
The paragraph is rather vague. He could be discussed eliminating the state income tax deduction or some lesser used miscellaneous deductions, or he could be discussing an elimination of a vast number of deductions that could lead to a virtual flat tax (which I have renounced many times in the past on this blog).

The second problem with the item above is that he is only promising to protect the home mortgage and charitable deduction. I believe charitable giving is the most sacred of all deductions, and so I completely agree with that option. However, the mortgage interest deduction is a special interest gift to the banking industry. It rewards taxpayers who for making purchase and for getting in debt for the remainder of their lives, There are deductions that should be given greater deference like...I don't know... the purchase of health insurance forced on us by our government. This something he claimed would happen as part of his better-than-Obamacare health plan.

.....will now file a one page form saving them time, stress, uncertainty and an average of $110 in preparation costs. Over 31 million households get the same simplification and keep on average nearly $1,000 of their hard-earned money.
Whenever Congress floats the idea of a simplified tax form, or a postcard tax return, you need to be wary. This will turn into a grift by the Treasury to catch the unwary into paying more in income tax than they should. A simplification in tax forms will end up in a un-official income tax hike to you the taxpayer.

The last issue I have with his plan, is that is narrow focuses on corporate tax loopholes and un-utilized tax breaks for the rich. There a lot of other ways that the government can increase revenue. Honestly, one way is simply funding the IRS sufficiently. During the Bush years, the IRS had the funding provide proper enforcement and tax revenues were through the roof. This is simply because the IRS had the man-power to collect the taxes owed.

One Thing Missing

I'm not sure if he should have addressed social security and Medicare tax here. However, an increase in Social Security and Medicare tax is extremely necessary if Social Security is going to be saved or viable for the many millions of Americans now retiring from the baby-boomer era. Whether the rates increase, more items of income are subject to it, or the earned income ceiling is eliminated, Social security tax revenue must rise drastically.


Sunday, July 24, 2016

The Anti-Trump and Anti-Hilary Strategy

I have (in vain most times) been trying to promote a strategy to defeat Hilary and Trump at the same time.

Most people I know are not fond of either of the two candidates running for president. They general fall into one of three camps. "I am going to write-in Mitt Romney or Ted Cruz" or "I will vote for Trump or Hilary because they are better than the alternative" or last and most certainly least, "I love Trump or Hilary because of ridiculous reason A, B, and/or C". This is addressed the former two groups. The latter group is usually full of myopic idiots that have lost the ability to reason.

The only way to avoid both candidates as president is if they are denied 270 electoral votes. The only way for both candidates to be denied 270 electoral votes is if another third-party candidate wins enough states to slim the pool of available Electoral College votes to under 270 electoral college votes. If this doesn't happen, we are guaranteed with Hilary or Trump.

The most common argument both the GOP and the Democratic party make against voting third party is that a vote for anyone other than Trump (Hilary) is a vote for Hilary (Trump). For the nations entire history now that argument has worked. No third party candidate has won even a single state in a general presidential election.

One reason why third party candidates don't win states is that there are always so many. There are 36 minor political parties and 5 minor political parties. In the vast majority of elections, th majority of voters generally pay attention to the first 2 parties. However, a couple to a few million voters always vote third party candidates. This year, given the choices, many people are looking at third party options. This is where the strategy lies.

The anti-Trump and/or anti-Hilary camps need to come together to support one third party candidate. With high unfavorability ratings for both candidates, there are obviously a vast majority of American's that are not happy with their choices from the GOP and Democrats. Sadly, a majority of those will choose one or the other to prevent the less desired choice from winning. However, there may be just enough who just can't bring themselves to fall-in with Hillary and Trump to out-number those that do vote for along GOP and Democrat party lines.

The problem is that they all have differing views and opinions. Many will write in the candidate they liked that conceded in the primaries, many Mormon's plan to write in Mitt Romney, and another group will choose the third party option that they most prefer. This will dilute the effect on the popular vote for an outsiders chance of snatching states and electoral votes from the GOP and Democrats. This would likely leave us with Hilary or Trump even though the winner may actually only win 50+ million votes out of 150 to 200 million votes.

However, if the voters that hate the power party choices vote for a single candidate, the third-party candidate could win some states and those states' electoral votes. Neither of the power party candidates will win the election outright. If this happens the House of Representatives chooses the Pres from the top three candidates and the Senate picks the VP from the top two candidates. If the House of Representatives cannot come to a winner the VP chosen by the Senate acts as President until Congress votes a winner and escapes the deadlock.

Monday, July 18, 2016

RNC - Trump Positions "Healthcare Reforms"

In this series of posts regarding Donald Trump's actual positions, this one will be one where I actually find a lot of common ground with the orange man.

The biggest item that I applaud is making health insurance fully deductible under the US tax code for all individuals. This is an idea that will provide meaningful tax savings, especially for employees of companies that refuse to provide healthcare benefits. Due to the vagueness of many Trump positions, I am left to speculate how this would happen. I hope he would make health insurance an adjustment from income like health insurance is for the self-employed. However, even making it an unlimited itemized deduction would be a great change.

Other items I agree with include:
  1. Completely repeal Obamacare. Our elected representatives must eliminate the individual mandate. No person should be required to buy insurance unless he or she wants to.
  2. Modify existing law that inhibits the sale of health insurance across state lines. As long as the plan purchased complies with state requirements, any vendor ought to be able to offer insurance in any state. By allowing full competition in this market, insurance costs will go down and consumer satisfaction will go up.
  3. Allow individuals to use Health Savings Accounts (HSAs). Contributions into HSAs should be tax-free and should be allowed to accumulate. These accounts would become part of the estate of the individual and could be passed on to heirs without fear of any death penalty. These plans should be particularly attractive to young people who are healthy and can afford high-deductible insurance plans. These funds can be used by any member of a family without penalty. The flexibility and security provided by HSAs will be of great benefit to all who participate.
 The individual mandate is something that was reprehensible. There are many American's who know their annual health care costs and are quite capable of budgeting accordingly. Granted, emergencies arise. However, that should only mandate cheaper catastrophic coverage requirements at most instead of the more expensive plans required by ACA. The power of the purse for healthcare decisions should be with individuals (with a possibly a catastrophic individual mandate at most).

I'm not sure if this will make all the difference, but removing interstate barriers for health insurance purchases can only help reduce costs. Last but not least, HSA's were a wonderful tax savings device created in the Bush years that was all but destroyed with Obamacare. I love the idea of making them effective tax savings engines again.

The items I don't care for include:
  1. Require price transparency from all healthcare providers, especially doctors and healthcare organizations like clinics and hospitals. Individuals should be able to shop to find the best prices for procedures, exams or any other medical-related procedure.
  2. Block-grant Medicaid to the states. Nearly every state already offers benefits beyond what is required in the current Medicaid structure. The state governments know their people best and can manage the administration of Medicaid far better without federal overhead. States will have the incentives to seek out and eliminate fraud, waste and abuse to preserve our precious resources.
  3. Remove barriers to entry into free markets for drug providers that offer safe, reliable and cheaper products. Congress will need the courage to step away from the special interests and do what is right for America. Though the pharmaceutical industry is in the private sector, drug companies provide a public service. Allowing consumers access to imported, safe and dependable drugs from overseas will bring more options to consumers.
The first item seems to be a hint at keeping some of the bureaucracy that opponents of Obamacare hate. Many MD's and mid-level providers will complain that the over-reach of Obamacare into their work has reduced their ability to focus on the patient in order to satisfy bureaucratic requirements of the ACA. This price transparency requirement seems like more of the same overreach.

Medicaid before Obamacare had a sharp-cliff where recipients lose all benefits if there income exceeded a very small sum of income. I believe sharp benefit cut offs are a disincentive to work for many welfare recipients and that the current system gives recipients some breathing room to get into the work-force, gain experience, and increase their income until they can get jobs with solid benefits and income.

That last item that I disagree with is the idea of removing barriers for drug providers. Barriers in the pharmaceutical industry keep drugs safe. Even with the barriers we now have, drug providers have the guarantee of suits and paying damages for issues with side effects. Considering who is making this recommendation, gives me pause as well. "Who wants Trump chemo?"

Sunday, July 17, 2016

RNC -- Trumps Positions "Pay for the Wall".

In anticipation of the RNC tomorrow (frankly this may be one of the more exciting RNCs in my lifetime) I am going to post about each of Donald Trump's campaign positions. This should be helpful to anyone considering Trump's candidacy. To be clear, I do not advocate voting for DJT or HRC. I am voting Libertarian this year. Not because I believe in the party's platform, but because neither DJT and HRC are worthy of the office.

The material is coming directly from Trump's website:

Introduction: The provision of the Patriot Act, Section 326 - the "know your customer" provision, compelling financial institutions to demand identity documents before opening accounts or conducting financial transactions is a fundamental element of the outline below. That section authorized the executive branch to issue detailed regulations on the subject, found at 31 CFR 130.120-121. It's an easy decision for Mexico: make a one-time payment of $5-10 billion to ensure that $24 billion continues to flow into their country year after year. There are several ways to compel Mexico to pay for the wall including the following:
  • On day 1 promulgate a "proposed rule" (regulation) amending 31 CFR 130.121 to redefine applicable financial institutions to include money transfer companies like Western Union, and redefine "account" to include wire transfers. Also include in the proposed rule a requirement that no alien may wire money outside of the United States unless the alien first provides a document establishing his lawful presence in the United States.
  • On day 2 Mexico will immediately protest. They receive approximately $24 billion a year in remittances from Mexican nationals working in the United States. The majority of that amount comes from illegal aliens. It serves as de facto welfare for poor families in Mexico. There is no significant social safety net provided by the state in Mexico.
  • On day 3 tell Mexico that if the Mexican government will contribute the funds needed to the United States to pay for the wall, the Trump Administration will not promulgate the final rule, and the regulation will not go into effect.
  • Trade tariffs, or enforcement of existing trade rules: There is no doubt that Mexico is engaging in unfair subsidy behavior that has eliminated thousands of U.S. jobs, and which we are obligated to respond to; the impact of any tariffs on the price imports will be more than offset by the economic and income gains of increased production in the United States, in addition to revenue from any tariffs themselves. Mexico needs access to our markets much more than the reverse, so we have all the leverage and will win the negotiation. By definition, if you have a large trade deficit with a nation, it means they are selling far more to you than the reverse - thus they, not you, stand to lose from enforcing trade rules through tariffs (as has been done to save many U.S. industries in the past).
  • Cancelling visas: Immigration is a privilege, not a right. Mexico is totally dependent on the United States as a release valve for its own poverty - our approvals of hundreds of thousands of visas to their nationals every year is one of our greatest leverage points. We also have leverage through business and tourist visas for important people in the Mexican economy. Keep in mind, the United States has already taken in 4X more migrants than any other country on planet earth, producing lower wages and higher unemployment for our own citizens and recent migrants.
  • Visa fees: Even a small increase in visa fees would pay for the wall. This includes fees on border crossing cards, of which more than 1 million are issued a year. The border-crossing card is also one of the greatest sources of illegal immigration into the United States, via overstays. Mexico is also the single largest recipient of U.S. green cards, which confer a path to U.S. citizenship. Again, we have the leverage so Mexico will back down.
Conclusion: Mexico has taken advantage of us in another way as well: gangs, drug traffickers and cartels have freely exploited our open borders and committed vast numbers of crimes inside the United States. The United States has borne the extraordinary daily cost of this criminal activity, including the cost of trials and incarcerations. Not to mention the even greater human cost. We have the moral high ground here, and all the leverage. It is time we use it in order to Make America Great Again."

So, to sum up, on the first day of a Donald Trump presidency he will start a trade war, damage diplomatic ties, and massively increase the size of government by adding new bureaucratic red tape and confiscating the earnings for/of millions of Mexicans living in the US legally and illegally. 

Personally, I find this position to be one of the more short-sighted and oppressive positions. First off, he will be burdening the already over-burdened, and under-funded Treasury department with the burden of enforcing this policy. Second, he will be garnishing the wages of hard-working individuals in an attempt to extort the Mexican government to pay for his fence. That's like me stealing my neighbors mail in order to extort him into paying for my fence. Sure, his dog pees on my yard, but it is my yard and my responsibility.