Former NFL punter Joseph Prokop pleaded not guilty to tax evasion charges this past week in Las Vegas. Mr. Prokop and two co-defendants are accused of causing $324 million in income tax underpayments to the IRS. Mr. Prokop faces up to 150 years at ClubFed if found guilty on all counts.
The trial is likely to be many months from now.
The tiny principality of Liechtenstein has been in the news ever since an employee at one of the country’s banks sold customer data to German tax authorities. Now, the brother of Crown Prince Alois, Prince Max von und zu Liechtenstein is being investigated by Germany for tax evasion.
Prince Max is the chief executive of LGT Group, the bank controlled by the ruling family of Liechtenstein. Prince Max works in Germany, and the alleged tax evasion stems from a foundation that may or may not be paying Prince Max.
Prince Max pledged to pay his taxes. In a statement released by LGT Group, Prince Max said, “I have always fulfilled my tax duties in Germany to the best of my knowledge. If, contrary to my conviction, it turns out that I owe taxes to the German state, I will meet my obligations promptly.”
News Story: International Herald Tribune
State Senator Abel Maldonado (R-Santa Maria) broke ranks with the rest of the California Senate Republican Caucus and voted for the bad budget bill. With his vote, the 2/3 majority was obtained and the budget was sent to the State Assembly. It passed the Assembly early this morning.
A few changes were made in order to buy persuade Maldonado to change his vote. First, the state will hold open primaries for state offices. Rather than the Republican and Democratic parties holding their own primaries with the winners facing off in the general election, the top two vote-getters will face a run-off in November. There are, though, major constitutional issues regarding an open primary in California. An open primary law for presidential elections was thrown out by the State Supreme Court a few years ago. This law will undoubtedly face similar challenges.
Second, the gasoline tax increase ($0.12/gallon) has been removed from the measure. However, gasoline prices will increase as the sales tax, which does apply to gasoline, will be going up by 1%.
Third, the legislature agreed to stop itself from getting a pay raise if the budget is late. The legislature refused to stop itself from being paid—just the pay increase was put on hold.
As I’ve said before this budget is the equivalent of putting a Band-Aid on a patient needing open heart surgery. California needs to drastically cut its spending. The $15.4 billion in budget cuts in this bill are superficial and will not fix the systemic state deficit. Come June, I believe the legislature will have to deal with a $6 to $10 billion shortfall. The new tax increases will not raise what is projected (tax increases never raise the intended amounts). Will California’s legislature have the guts to address the systemic issues (a bloated bureaucracy, duplicative programs with the federal government, and programs that a state should not be running) that cause the budget deficit?
I think we’ve seen the answer. Unfortunately, pigs don’t fly.
Republican legislative leaders and Democratic Governor Kathleen Sebelius reached agreement on a package of legislation that ends the Sunflower State’s budget crisis. Governor Sebelius signed legislation that cut $300 million in the current budget year; once that was signed, Republican legislative leaders allowed interbudget borrowing that allowed the current payroll and tax refunds to be issued. All sides believe the budget issues for the fiscal year ending in June have been resolved.
But next year looks tight, and everyone agrees that the 2009-201 budget will be challenging. Governor Sebelius red-penciled the current year education cut (from $32 million to $7 million). It’s likely that there will be significant cuts in education in next year’s budget.
Meanwhile, no change here in California—just a lot of bickering in Sacramento.
UBS, the Swiss Bank accused by the IRS and Department of Justice of hiding taxpayers’ bank accounts from the IRS, has admitted to the act in a deferred prosecution agreement. UBS will provide a list of account holders to the DOJ and will pay $780 million in fines (including penalties and restitution).
Of the $780 million, $380 million is for a disgorgement of profits (on the US activity from 2001-2008), and $400 million is backup withholding tax on the accounts for 2001-2008. The SEC will receive $200 million of the $380 million of disgorged profits.
The IRS budget for 2008-2009 is $11.4 billion, so the total backup withholding recouped ($400 million) represents 3.5% of the IRS budget.
Last night I attended my monthly continuing education meeting. Lynn Freer, the head of Spidell, believes that sooner or later the bad budget bill being debated in Sacramento will be approved. I’m hopeful that they’ll throw it in the trash can, because what we need to do is very clear: real spending cuts.
Take a look at this chart from the Tax Foundation:
This is yet another case where a picture tells everything you need to know.
Revenues have been increasing, yet spending has zoomed higher and higher and higher. Spending cuts—deep, real spending cuts—must be made. The budget under consideration contains more borrowing and more bad assumptions. What happens when taxes go up? Tax revenues go down. If this budget is passed come June there will be more debates about the budget because California will be looking at another $6 – $10 billion deficit.
Hopefully the Republicans will stand firm and vote down this bad budget. In what I think is a hopeful sign, Senate Minority Leader Dave Codgill (R-Modesto) has been voted out and replaced by Dennis Hollingsworth (R-Murrieta).
The Sacramento Bee has an online calculator to show you how much the budget will cost (if approved). For a typical family earning $100,000, with two cars worth a total of $20,000, commuting 35 miles a day (total), and with two children, this budget would cost $1,197. That’s about $100 a month—far more than the benefits from the porkulus stimulus that was signed into law yesterday.
Do our legislative leaders in Sacramento have the guts to actually look only at budget cuts? No. Might they be forced down this road? Only time will tell.
New York is another state facing a deficit. New York Governor David Paterson proposed 88 new taxes to fill a $15 billion budget deficit. One of those taxes is on downloading digital entertainment services. Sure, music downloads were the obvious target, but there’s an industry that is even more successful: porn.
Yes, a New York based pornography business (such as some of the stores near Times Square) will be impacted by this new tax. “The last thing any of us need is an additional tax,” said Steven Hirsch to the New York Daily News. Republicans in the New York Legislature oppose the tax.
The reason they state for opposing it isn’t to stop tax increases; rather, they don’t want to legitimize the pornography industry. I’d like to see Republicans look for smaller government. Or Democrats. New York Governor Paterson had said that he was for spending cuts. As the Daily News said, “[Paterson’s] spokesman said the governor’s new comments did not represent a shift in his position.” Yeah, right.
As of this writing there’s no budget in California (doesn’t this sound familiar). That doesn’t mean that when I wake up in the morning that there won’t be a budget but it appears that the Democrats still need one more vote to pass the bad budget.
Jerry Pournelle, the science fiction author, had some cogent thoughts about California’s situation:
It’s not so much that the voters vote themselves largess from the public treasury, although that certainly happens; it is that those with a particular interest, such as civil servant including teachers and prison guards unions will always organize effectively while those who are affected less directly won’t, and the result will go in one direction.
I’ll repeat another learned mind: Whatever you have, spend less. It’s a lesson that California’s elected leaders need to learn.
Kansas has joined California in having a budget crisis. The Sunflower State is out of money to pay income tax refunds, Budget Director Duane Goosen told the Wichita Eagle. Also threatened is the state’s payroll and medicaid payments.
The Kansas crisis appears to have many similarities to California’s, though on a much smaller scale. Kansas appears to be about $330 million in the red (compared to $41 billion in California). Republicans passed a bill that cuts $326 million from the current budget; it’s unclear whether Democratic Governor Kathleen Sebelius will sign the legislation. While there are funds in place in other Kansas accounts that could cover this weeks’ debts, Republicans won’t allow any more ‘IOUs’ to be issued (those IOUs allow money to be lent from one Kansas account to another).
I’ll keep you informed.
Hat Tip: Don’t Mess With Taxes
Let’s head to Corpus Christi, Texas. Stephen and Bryan Lyons operated B&T Rents. The store was profitable. Of course it helps when you don’t send your trust fund taxes to the IRS. As I’ve said before, if you do that you’re guaranteed to face an IRS investigation. They did. The owners had hoped that front companies would hide where the money was from the IRS. That wasn’t successful, and the two owners pleaded guilty to tax fraud. Stephen Lyons received a year and a day at ClubFed; Bryan Lyons received 18 months. Both had to pay $10,000 fines. The two have already made full restitution to the IRS.
If your business is having trouble paying trust fund taxes, get legal and/or tax advice now. This is one area where malfeasance will almost always be discovered and where tax fraud will almost always be prosecuted.
