18 Tax Changes in Senate Healthcare Bill

Posted on November 20, 2009 by Russ

Senator Harry Reid’s (D-NV) healthcare legislation has 18 tax changes according to Americans for Tax Reform. Here’s a list of the taxes and their impacts (note: Dollar figures are single/single 2+ (S2) or MFJ):

1. Individual Mandate Tax. For those who don’t purchase health insurance, this will start at $95/$285 (S2) in 2014 and rise in 2016 and future years to $750/$2250.

2. Employer Mandate Tax. On businesses with 50+ employees that do not offer health care, and at least one employee qualifies for a tax credit, $750/employee. This will cause many small businesses to stop growing once they reach 49 employees.

3. Excise Tax on Health Insurance Plans. Beginning in 2013, 40% tax on plans costing $8500/$23,000. Is indexed to CPI. In high premium states such as California, many plans would pay this tax. My health insurance would likely pay this tax…and it’s not a Cadillac plan.

4. Health Insurance would be reported on W-2s. Another mandate that increases costs for business.

5. “Medicine Cabinet Tax.” Limitation on HSAs, FSAs, and MSAs to purchase non-prescription medication except insulin. Note that this is also in the House healthcare bill.

6. HSA Withdrawal Tax Increased. The tax would increase to 20% from 10%. This is also in the House legislation.

7. FSAs capped at a maximum of $2500. They are now uncapped.

8. 1099 Reporting for corporations. Requires businesses to send 1099-MISCs to corporations. This is another cost for businesses.

9. Tax on Charitable Hospitals. This excise tax of $50,000 per hospital impacts hospitals that don’t meet new Department of Health and Human Services regulations.

10. Tax on Drug Companies. The tax would be $2.3 billion based on sales percentage.

11. Tax on Medical Device Manufacturers. The $2 billion tax is also based on sales percentage.

12. Tax on Health Insurers. A $6.7 billion tax based on percentage of health insurance premiums collected.

13. Elimination of tax deduction for employer provided retirement prescription drug coverage.

14. Increase of percentage of AGI required to deduct medical expenses from 7.5% to 10%. Few can deduct medical expenses today; fewer will be able to deduct them tomorrow.

15. Compensation Limitation for Health Insurance Executives. If you work in that industry, you will be limited to a salary of $500,000.

16. Medicare Payroll Tax Hikes. Once your income exceeds $200,000/$250,000 (MFJ), you will pay an additonal 0.5% tax. Note that the employer will only collect (and be responsible for this tax) if you earn $200,000/$250,000 or more. This also impacts the self-employed. And the law is written so that the self-employed cannot deduct half of the new tax as a deduction to income tax.

17. Blue Cross Tax. There is a tax deduction available today for Blue Cross and Blue Shield companies; this tax deduction will vanish if they don’t spend 85% (or more) of premiums on clinical services.

18. Excise Tax on Cosmetic Medical Procedures. A new 5% excise tax on these procedures.

Remember, all tax increases are passed to consumers. There is no free lunch. If this legislation passes, you and I will be paying more for less.

Additionally, when government takes more, businesses either have to increase prices, cut wages, or do something else to still make a profit. If this legislation passes businesses will cut staffing. That’s basic economics, something sorely lacking in Washington.

Businesses will increase prices, but the law of supply and demand dictates that their revenues will likely decrease because of the higher prices.

I haven’t seen a tax professional speak in favor of this legislation. And I doubt I will; this measure will increase costs for businesses, lead to higher cots for consumers, and will almost certainly lead to a single-payer system. Peversely, this measure would likely lead to more business for me…for all the wrong reasons. As Joe Kristan says, “It’s unpopular, unworkable, and insane, so naturally they’re in a hurry to pass it.” Truer words have never been spoken.

Other coverage:
Roth Tax Updates
Don’t Mess With Taxes
Tax Lawyer’s Blog

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Snipes Appeal Heard Today

Posted on November 20, 2009 by Russ

Wesley Snipes had another day in court today. Oral arguments were heard in his appeal of his conviction on three misdemeanor tax evasion charges. Mr. Snipes’ attorneys argued that the trial should have been moved from Ocala, Florida to protect Mr. Snipes’ rights and that the sentence was harsh. The government argued that the trial was held in the proper venue and that Mr. Snipes received an appropriate sentence.

Mr. Snipes is free on bail while his appeal is being heard. It will likely be the Spring before the 11th Circuit Court of Appeals rules on Mr. Snipes’ appeal.

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What’s $21 Billion Among Friends?

Posted on November 18, 2009 by Russ

Earlier this week I wrote that California might be facing a $20 Billion Deficit. You’ll be happy to know I was wrong. The Legislative Analyst (LAO) released his official forecast today; he projects a $20.7 Billion deficit for the next 18 months.

Republicans vow no new taxes. Democrats vow no spending cuts. The LAO says that increasing taxes in a recession isn’t a good idea, but that revenue enhancements are needed:

Just as the Legislature will have to prioritize its spending commitments, we continue to recommend that it do the same on the revenue side. Through tax expenditure programs—special credits, deductions, and exemptions—the state provides subsidies to certain groups or individuals in ways that often have not been shown to be cost-effective. Their modification or elimination raises revenues without having to increase marginal tax rates. The Legislature should also look to increasing fees in those cases where the costs of state programs currently supported by the General Fund can appropriately be shifted to specific beneficiaries.

The LAO also notes that expenditures will need to be cut, and that long-term solutions are needed:

The budget problems we predict are long-term in nature. They will not go away quickly. Accordingly, long-term solutions are needed. The Legislature should focus on actions that have ongoing impacts.

Of course, most of the solutions the Legislature has recently enacted have been gimmicks, smoke and mirrors that look good until the numbers have to be tallied again.

Yesterday, I heard Orange County Register columnist Mark Landsbaum talk about California’s ongoing budget fiasco. I joked to him that the Legislature would be forcing Californians to pay their 2017 taxes in 2015 in order to balance the budget. Not so strangely, Mr. Landsbaum thought that might actually happen.

What’s needed is the elimination of programs that the state can’t afford. California needs to match spending to revenues, and eliminate pork barrel government spending. Mr. Landsbaum noted in a recent op-ed piece that the proposed fix to the California water crisis would only make things work. He concludes,

Admittedly, at this stage cutting the knot of government involvement and special-interest payoffs is a monumental task. It’s something that requires men and women of principle, rather than compromisers. As a society obsessed with consensus, we may be beyond making such a hard decision, conditioned as we are to living at the expense of someone else.

The reality of taxes is that all of the money being spent by Sacramento (and by Washington D.C.) is our money. Yet in Sacramento the politicians and bureaucrats treat the tax revenues as their money. That attitude needs to change. Once it does, I believe solutions to the budget crisis will quickly be found. Unfortunately, the chance of that changing in Sacramento in the next few months is somewhere between slim and nil.

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Knocked Out From New York

Posted on November 18, 2009 by Russ

I’m not a boxing fan. For those of you who are, you’ll recognize Manny Pacquiao and Floyd Mayweather Jr. as big names in the sport. Those two boxers will fight in the Spring of 2010.

Newsday asked boxing promoter Bob Arum if Yankee Stadium was being looked at for the fight. “No chance,” Arum told Newsday. “Nothing would please me more than to have it at Yankee Stadium, but the way the tax structure in New York is set up, it’s impossible.”

Taxes matter. Apparently the prime candidate for the match is the new Cowboys Stadium in Arlington, Texas. Texas, of course, doesn’t have a state income tax.

Posted in New York, Texas | Tagged | 1 Comment

A Front-Runner for Tax Offender of the Year

Posted on November 16, 2009 by Russ

We’re just six weeks away from the end of 2009, and it’s almost time for me to scour the news of the year to find the Tax Offender of the Year. It takes a lot to win this award; the tax offense must be on the Bozo side of things.

Well, a news story from Sausalito grabbed my attention this evening. Mark Anderson had a wine storage business called “Sausalito Cellars.” He offered his clients safekeeping for their wines. He utilized a warehouse on Mare Island, a former US Navy base. So far, so good.

But Mr. Anderson, a former city commissioner in Sausalito, wanted to live the good life. He allegedly embezzled some of the pricey bottles of wine he was supposedly safekeeping. Eventually, he was charged in early 2005 by the Marin County District Attorney of committing fraud and embezzlement; that case is still pending. He allegedly sold bottles of wine he was safekeeping to raise $800,000.

While that case was pending he was evicted from the warehouse on Mare Island. How could he get back at the warehouse? And how could he stave off an investigation into tax evasion? Hiring an attorney and working with the IRS is too mundane; instead, let’s burn down the warehouse (arson), and cover the tracks.

Yes, that’s exactly what he did. The fire, on October 12, 2005, destroyed an estimated $200 million worth of wine, put some wineries permanently out of business, and destroyed several collections of wine. And while some of the evidence of the alleged fraud might have been burned, plenty of evidence apparently existed for the arson and the tax evasion. Earlier today, Mr. Anderson pleaded guilty to 19 counts in federal court in Sacramento (including arson, tax evasion, and embezzlement). In return for the plea the US Attorney has agreed to a sentence of 15 years, 8 months. Mr. Anderson, who has already served three years, is unlikely to see anything but prison bars until he’s 70. He will also likely be ordered to make restitution of $200 million.

This is a crime that did nothing but destroy the livelihoods of others, and did nothing to divert suspicion from the original alleged crime of embezzlement. While Mr. Anderson’s attorney is hopeful that the District Attorney won’t prosecute him for embezzlement, it’s not clear whether he’ll be back in court in the future. Still, all the arson did was gain him time at ClubFed while still facing the original charges.

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Bondage Breakers Heading to Bondage

Posted on November 16, 2009 by Russ

Back in March I reported on the founders of the Bondage Breakers Ministry. This ministry was different…quite different than the church or synagogue you may worship in. The founders, Lindsey Springer and Oscar Stilley, were praying for the elimination of the IRS, and to further that aim they decided not to file tax returns.

Well, they were charged with tax evasion and they were convicted today of Conspiracy to defraud the United States. They were doing the usual things to avoid taxes: trusts, cash, and the like.

It was all for naught. It would have been far simpler to just have paid their taxes…but that rarely occurs to tax evaders.

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$20 Billion Deficit a Possibility

Posted on November 15, 2009 by Russ

After the three budget battles during the past 18 months, are Californians ready for the fourth installment of the state budget crunch next Spring? Like it or not, it’s coming.

This report notes that a $20 Billion is possible for next year. Democrats are already saying that nothing else can be cut; Republicans vow no new taxes.

The past few budgets have been balanced with smoke and mirrors. While there were some real spending cuts in the last budget, there were also the usual budgetary shenanigans. Several one-time moves (such as the increase in state withholding that began on November first) can’t be repeated. Or maybe they can; perhaps Democrats in Sacramento will propose that during 2010 we prepay our 2011 California income tax?

As long as we have state agencies trying to implement ridiculous regulations (such as the proposed regulations on LCD televisions), I’m certain there’s waste in Sacramento.

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Senator Reid Looking at Increasing Social Security, Medicare Taxes for the Wealthy

Posted on November 15, 2009 by Russ

Senator Harry Reid (D-NV) is looking at increasing the Social Security and Medicare taxes for the wealthy per published reports from last week. Since President Obama has said he won’t increase taxes on those making less than $250,000, this would create the “doughnut” hole for the wealthy and the self-employed.

Consider, though, how stifling such taxes are on economic development. Small businesses are the driver of the economy. Studies show that over 80% of new jobs come from small businesses. Why would a small business expand when the government will just take more money?

The stated reason for the tax would be for health care. Frankly, the current Administration and the current Congressional leadership has little clue about economic development. The best result for the current health care legislation is the circular file. That said, I expect something to pass just so that the Administration can say they passed something.

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The Jock Tax Hits Poker Players

Posted on November 15, 2009 by Russ

Back in 1991, the Chicago Bulls beat the Los Angeles Lakers in the NBA Finals. The Franchise Tax Board (California’s income tax agency) didn’t like the idea that the Bulls took the money and ran, so they implemented the first Jock Tax. This tax impacts non-resident entertainers and athletes. Illinois didn’t like the idea of California getting money without getting some of its own, so they retaliated with a Jock Tax of its own. Today, most states which have an income tax have a Jock Tax.

So where does poker fit in? Poker players who win $5,000 or more receive a W-2G. Suppose a resident of say, Ohio, goes to Iowa and wins $50,000 in a poker tournament? The lucky winner will receive his cash, and a W-2G noting his winnings. The IRS will get a copy of the record, the winner will include the winnings on his Ohio (and city, if applicable) income tax returns, and all will be well. Right?

Well, the IRS has data-sharing agreements with every state but Nevada. So the Iowa Department of Revenue will also get a copy of the lucky winner’s W-2G information. One, two, or three years down the road the lucky winner will get a notice from the Iowa Department of Revenue noting his requirement to file an Iowa tax return. With penalties and interest, of course!

Is Iowa correct about the need to file the return? Under current law, yes. The income was sourced from Iowa and, according to the Supreme Court, Iowa has a right to tax it. But I’m a resident of Ohio and this is double taxation, you think. Well, it isn’t fair but you can avoid double taxation. All states (with a state income tax) have a credit available for when you pay income tax to another state on income also taxed by your home state. In that way, you pay the higher of the two states’ income tax rates. (Note: Sometimes the credit is taken on the other state’s tax return.)

I’ve recently received a couple of inquiries from poker players hit by the Jock Tax. In both cases, the individuals received the notices years after the win. The Tax Foundation has an excellent study on this issue. Until the Jock Tax goes the way of the dinosaur, poker players who win a tournament outside of their home state may have to pay additional state income taxes.

Posted in Gambling | 2 Comments

Comment Policy

Posted on November 15, 2009 by Russ

Since the move to WordPress, the number of comments submitted has ballooned. However, almost all of these comments have been spam.

All comments are moderated. If you submit a spam comment, you won’t be able to comment.

The only comments that will be posted are comments that add to the discussion. This includes other ideas that are on-topic, disagreements (with valid reasoning), etc. Comments that say, “I like this site” and then give a link to sellspamstuff.com will be spammed.

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