Pimpin' Ain't Easy

In edition to Big Daddy Kane's list of the perils of pimpin' you can add paperwork and payroll compliance.

This should serve as a reminder to all associated with the world's oldest profession that the IRS wants its payroll and income taxes to be paid. In fact, the Internal Revenue Code explicitly states all income from illegal activity is taxable. In the case of prostitution it most probably belongs on Schedule C although it is less clear what the line for 'Principal business or profession' should contain.

The Adulation Is So Loud - It's Like Three Cheerleading Squads

There was a three-for-one special at the Associated Press this week. The following headlines were used to describe the same news story (in order as they appeared):

Obama To Target Tax Evaders

Obama To Close Tax Loopholes

Obama To Raise Taxes On Multinational Companies

The first headline which was changed by mid-morning on Monday is terribly inaccurate. Sure, Obama is going to increase the number of IRS agents by 800 according to the story, but this is nothing more than editorializing in a poorly written manner. Imagine you argue there should be no federal deduction for state income taxes paid, as the Heritage Foundation has. You could base your arguments on the fairness between taxpayers in states with income taxes and those without. (Note: As a result of this argument, Congress began allowing a deduction for either state income tax or state sales tax several years ago.) You could also argue that the federal government should not subsidize state budgets and in this manner force states to be judicious with their residents' money. (Note: Many states actually argue along the lines of 'Well, sure we are taxing you at 10% but for those in the 25% federal bracket it is effectively only 7.5%) What cannot be claimed, however, is that all taxpayers who deduct state income taxes on their federal return are tax evaders. A tax evader is someone who illegally minimizes his income either by unreported income or falsely reporting expenses. See Tim Geithner, Tom Daschle or Charles Rangel for examples.

The second headline isn't quite as bad as the first, but is still misleading. It calls the current tax policy a loophole. Tax loopholes generally discribe ambiguities in the tax code which have unintended consequences. These ambiguities generally occur to the chagrin and embarrassment of lawmakers. An example was found in Arizona around 2000. Due to pressure from environmentalists, the state gave a tax credit for vehicles that ran on alternative type fuels. What the state didn't initially expect was for every golfer in the state (and some non-residents) to purchase golf carts for their hobby and receive the credit. I beleive that loophole has been closed through more specific language. What this AP article describes isn't a 'loophole' because a lawmaker or committee used some vague terminology but a law in which the AP disagrees.

The final headline calls Obama's plan for what it is - an increase of taxes. Did a capitalist infiltrate the AP? By the way, no industrialized nation has a tax on income similar to what Obama is proposing. The article notes that most corporations pay an effective rate of about 25% on domestic activities but only a 4% rate on foreign activities. You have to love the disclaimer that notes this doesn't take into account foreign taxes paid. I suppose the AP is arguing that companies should pay 25% overseas and another 25% to Washington and if the company operates in many nations there could potentially be a greater than 100% tax rate. That would turn the 'loophole' into a noose for most companies.

Tax Increases Aren't the Only Way to Eliminate a Deficit

Kelly McCutchen at the Georgia Public Policy Foundation reminds Georgians that it could be worse; we could be residents of New York or California. McCutchen writes that the state's spending for 2008, 2009 and 2010 is projected to be $38.5 billion, $37.7 billion and $38.8 billion, respectively. At a time when so many are calling for increased government spending, Georgia has been able to avoid uncomfortable tax increases due largely to restricted spending.

Readers are given charts detailing state spending by revenue source, state spending against population and inflation and state education spending per student. A study by the American Legislative Exchange Council is referrenced in which the following conclusion is reached: 'The historical evidence is clear. States that keep spending and taxes low exhibit the best economic results, while states that follow the tax-and-spend path lag far behind.'

Keep that in mind the next time a politician advocates a tax increase as the only solution during a down economy.

You Mean All the Raindrops Aren't Lemondrops and Gumdrops?

The last sentence in this AP dispatch reads as if it's newsworthy if Obama fails to garner 100% support for his agenda. The first seven paragraphs lead one to believe that Obama is some sort of superhero for raising taxes. The final sentence admits that 'Congress is expected to resist significant portions of Obama's plan.'

One probably shouldn't be surprised that acknowledging there may be resistance to a proposal is what passes as 'hard-hitting journalism' with displays such as this. Unfortunately, you can't see Helen Thomas waiving her pom-pons because everyone is standing. But just think what a happy place it will be when Obama makes all the raindrops lemondrops and gumdrops!

Ve Have Vays Ov Making You Talk.

Imagine if George W. Bush during the past eight years had said the following: 'If countries and institutions won't cooperate with us, we will assume that they are harboring terrorists and act accordingly.' If that had been said you would imagine a Keith Olbermann-type to say something like:

We have handed a blank check drawn against our freedom to a man who may now, if he so decides, declare not merely any non-American citizens "Unlawful Enemy Combatants" and ship them somewhere -- anywhere -- but may now, if he so decides, declare you an "Unlawful Enemy Combatant" and ship you somewhere - anywhere.

How long will it be until Olbermann goes on a similar rant now that Barack Obama has said, "If financial institutions won't cooperate with us, we will assume that they are sheltering money in tax havens and act accordingly."

Just remember the burden of proof now falls on you to prove your innocence.

Does Jackson Hewitt's Claim Comply With the Law?

9 out of 10 customers receive a refund, according to Magic Johnson. I'm not sure if that claim is accurate. It may, though, be in violation of the law.

According to Reg. §301.7216, tax return preparers are generally not allowed to disclose tax return information even in a statistically compiled manner that would not identify any taxpayers directly. The limited purposes for which disclosure may be made are compliance with financial accounting or regulatory reporting requirements. It also allows for anonymous disclosure in the attempt to sell the tax return preparation business.

In 2009, there is some temporary guidance that eases some of the restrictions. It still prohibits disclosing information related to refund, credit, or rebate amounts, or a part thereof, for purposes of advertising or marketing.

How does Jackson Hewitt's pitch fit within the guidelines? My guess is the company will be forced to stop airing the ads, but no other sanctions will be imposed.

The only thing I am sure of is this: 9 out of 10 Jackson Hewitt customers are so bad at math they give the government an interest free loan!

If 9 Out Of 10 Jackson Hewitt Customers Receive a Refund, Do 9 out of 10 Jackson Hewitt Preparers Receive an Indictment?

Magic Johnson has been peddling the services of Jackson Hewitt this season. The ads claim 9 out of 10 customers receive a refund. The ad doesn't mention the Department of Justice's investigation into tax fraud of any of its franchise operators.