Health Care for All…But at What Cost?

The Governator announced his health care vision yesterday. You can find a good summary of it here. The plan would mandate that all Californians have health insurance, and the state would mandate what would and wouldn’t be covered. The plan would be funded by a 4% payroll tax, a 4% tax on hospital revenues, and a 2% tax on physician’s income.

Excuse me, they’re user fees, not taxes. Of course, that’s to get around the California constitution, which mandates that new taxes pass by a 2/3 vote of the legislature. So if when this passes the legislature (and it will pass) by a simple majority, someone will file a lawsuit, and this will be in court for a couple of years.

Last week I wrote,

“The Governator has been hinting that he’d like to see some sort of mandated health coverage for Californians. I’d like to see it, too, but in a way that is not government run, government mandated, and government funded. I think that Californians—the same Californians that voted down a mandatory health care initiative—need to let their Assemblymen and State Senators (and the Governator) know how they feel.”

What did the Governator propose? A government mandated, government funded system. It’s not run by the government; however, it might as well be. The government will decide what will and won’t be covered.

This proposal is a recipe for economic disaster in California. The payroll tax falls on employers who have ten or more employees. That’s a lot of small businesses. If I were the Nevada Development Authority, I’d be getting my advertisements ready.

A second problem is what will happen with this proposal after it emerges from the legislature. California’s legislature leans to the left…well, that’s an understatement. It’s very liberal. I expect this legislation to be added to like a Christmas tree, with all sorts of pet mandates being added to it.

Other major problems with this proposal include mandated coverage for illegal aliens, a new state bureaucracy to enforce the legislation (part of the Christmas tree), and, as Ed Morrissey notes, the strong likelihood that prospective doctors will either choose other professions or other states to practice in.

There is at least one good point about this proposal: I won’t have to worry about health insurance any more….

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Bah, Humbug

You own a Christmas tree lot, and it’s December 26th. What do you do with your leftover trees?

Well, it’s time to throw them away…but not for one lot owner near Fresno. No, they’re not hazardous waste. Rather, the Board of Equalization wants to make sure that the lucky owner has paid all of his taxes.

What taxes? Well, the owner bought the trees for resale, and didn’t pay any sales tax on the trees. His customers paid sales tax when they bought the trees. However, the leftover trees (which are being destroyed) have never been taxed. Before they’re destroyed, the lot owner must pay sales tax on the soon to be composted trees.

As this brief story notes, the Board of Equalization wants to make sure that sales tax is paid on every single tree.

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Prosecutors to Court: Reject Hatch’s Appeal

The U.S. Attorney’s Office replied to Richard Hatch’s appeal on Friday. Hatch, the former Survivor winner who didn’t pay his taxes on his $1 million prize, recently filed an appeal of his conviction. Hatch, in his appeal, alleged that he caught the producers cheating, and that’s why they reneged on paying his taxes; further, he never got a chance to testify about that at his trial. Hatch is currently serving his prison sentence in Morgantown, West Virginia.

The U.S. Attorney’s Office, though, has a different view. According to the Associated Press, Hatch had plenty of opportunity to bring the issue up during his trial. Hatch and his attorney were told that they could present evidence that CBS and the Survivor producers agreed to pay his taxes. CBS, by the way, denies Hatch’s claims.

The AP quotes the prosecution brief, “What the court was unwilling to tolerate was a sideshow concerning whether the producers helped other contestants cheat, divorced from the key defense predicate: that this had all led to the alleged promise…Counsel’s failure [to present evidence] cannot be transformed into an abuse of discretion by the court….”

For bloggers like me, I do hope that the Hatch case lasts as long as his sentence. It sure is amusing, but there is a salient point that can be gleemed from this case. No matter what others may promise to do, you are responsible for the paying of your taxes.

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A Big Whoops in Wisconsin

Within a couple of weeks, taxpayers around the country will be receiving their tax packages in the mail from the IRS and their state (and local) tax agencies. Taxpayers in Wisconsin will get a special surprise: their social security numbers will be printed on the mailing labels of their tax packages (for those receiving Form 1 packages).

Don’t Mess with Taxes has all the details.

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Did John Doe Lead to California’s Budget Surplus?

Dan Waters, columnist for the Sacramento Bee, reports today that he’s been told that one individual paid the Franchise Tax Board $200 million in back taxes under California’s amnesty program last year.

An examination of California’s budget shows that the $200 million paid by Mr. (or Ms.) Doe represents 10% of California’s budget “reserve.” As Mr. Waters accurately notes, the top 3% (by income) taxpayers in California pay half of California’s personal income taxes. Waters notes that the tax revenues to the state are now largely determined by the capital gains of these taxpayers. And he’s right.

Furthermore, California has a structural budget deficit. The California Taxpayers Association pegs this at $5 billion. That’s a huge amount of money to overcome on an annual basis.

So with the legislature about to go into session, are we seeing proposals to fix this? Is the Governator proposing fixes? Do we hear from the Democrat majority in the State Senate or Assembly about this?

No.

Instead, I’m reading about new projects, proposals that will take money. In other words, our legislative leaders haven’t learned a thing. Samuel Johnson put it well: “Whatever you make, spend less.”

Assuming that these new proposals pass (and if both Democrats and Republicans are pushing them, they will pass), then the structural deficit will grow. And the problem will get deeper. And taxes will go up.

However, what happens if the top taxpayers decide to move to, say, Nevada? Or they don’t cash in on their investments? This scenario may be frightening to the legislative leaders and the Governator, but I think that sooner or later—sooner if this path is followed—very high income taxpayers will say “enough is enough” and move to a lower tax state.

So we’ll see if California’s legislators and governor have learned anything about budgets. I’m not hopeful.

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Hello, 2007

Happy New Year, everyone. Hopefully this year will see at least one of the following: (a) no tax rate increase [1]; (b) simplification of the Tax Code [2]; (c) no mandatory California health care coverage for all [3]; and/or (d) an IRS and FTB that are easy to deal with, and honest and open to all [4].

Later this month I’m going to run a series of posts on business entities. Recently, I’ve been dealing with a number of individuals who formed their business first, and then got tax and legal advice on what kind of entity they should use. It’s much easier to do it the other way: Get professional advice and then form your business. I’ll be discussing some of the pluses and minuses of the various entity types available.

Notes:

[1] With the Democrats in charge of Congress, watch your pocketbooks. President Bush is apparently whispering words like “I’ll accept a tax increase if you give me….” I strongly believe that everyone needs to let your Representatives and Senators know your feelings about a tax increase.

[2] The chances of tax simplification passing this Congress and of it being signed by President Bush are the same as it snowing this week in Irvine: 0.

[3] The Governator has been hinting that he’d like to see some sort of mandated health coverage for Californians. I’d like to see it, too, but in a way that is not government run, government mandated, and government funded. I think that Californians—the same Californians that voted down a mandatory health care initiative—need to let their Assemblymen and State Senators (and the Governator) know how they feel.

[4] We can all dream, can’t we?

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Murphy Undone

Thanks to Paul Caron of the TaxProf Blog for letting us know that the D.C. Circuit has vacated the Murphy decision. The Murphy case was the one that said that the 16th Amendment made unconstitutional taxes on the recovery of a non-physical personal injury not related to lost wages or earnings (§104(a)(2) of the Internal Revenue Code). That decision was generally criticized at the time it was issued.

So the same panel will look at the issue again in early 2007. We’ll see if they come up with the same answer or not. In the meantime, the government’s request for an en banc panel of the entire D.C. Circuit was thrown out as moot. However, expect appeals no matter which side wins at next year’s rehearing.

There’s a complete set of links available at the TaxProf Blog.

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The IRS Shoots Itself in the Feet

The Tax Court today once again had to look at the case of Raymond Wright. Back in 2002 Mr. Wright’s case had been reviewed by the Tax Court; the case was then appealed to the Second Circuit and remanded back to the Tax Court. Back in 2003 Mr. Wright thought he paid off his tax debt when he sent the IRS $15,550; the payoff amount came from the IRS.

The Appeals Court asked the Tax Court to review:

“(a)Whether petitioner’s 1993 tax refund was sent to him by the Internal Revenue Service (IRS) in 1994; (b) if not, whether petitioner timely received notice from the IRS that his refund had not been applied to his 1987 and 1989 tax deficiencies; (c) if not, whether petitioner’s current tax liability should be consequently adjusted by, inter alia, an abatement of interest pursuant to section 6404(e); and (d) in any case, whether the current interest abatement that petitioner had already received was correct in the light of (1) the IRS’s failure to give petitioner the appropriate withholding credits for 1987 and 1989, and (2) his June 21, 1994, payment of $6,681.22.”

The Tax Court then goes into detail about the actions of the two parties. It’s difficult to fight the government. As I’ve commented on before, the burden of proof in Tax Court is generally with the petitioner, not the IRS. Indeed, Mr. Wright was representing himself.

Yet throughout the discussion of the case, the IRS comes off as inept, deceiving, and potentially, evading the Court. Some examples from the opinion: “On December 6, 2005, despite the Court’s statement in the November 7, 2005, order that we would not be inclined to grant any continuances in this case, respondent filed a motion for continuance of trial.” “The extended proceedings of this case recounted supra have brought to light the numerous misstatements and errors made by respondent through the handling of petitioner’s 1987 and 1989 tax years.” And:

“During the appeal and remand, respondent and respondent’s witnesses recounted numerous errors regarding the handling of petitioner’s 1987 and 1989 tax years–and oftentimes neither respondent nor the witness could account for how those errors occurred. As recently as his August 28, 2006, status report, respondent essentially admitted that the IRS made mistakes regarding the computation of petitioner’s interest, including, but not limited to, quoting petitioner an incorrect payoff figure and sending petitioner an allegedly “erroneous” refund on account of respondent’s erroneous calculations and a keystroke error by an IRS employee.”

There’s plenty more in this opinion that damning towards the IRS. Suffice to say,

“Petitioner’s testimony (at both trials) was credible. He consistently testified and averred that he did not receive his 1993 refund. Respondent contended, however, that petitioner received his 1993 refund in 1995. The documentary and testimonial evidence respondent offered was contradictory, contained numerous errors, and lacked credibility. Furthermore, this contention is a concession by respondent that petitioner was correct and that respondent did not send the 1993 refund to petitioner in 1994.

There’s much, much more in this opinion. Most of the time when I read a Tax Court case, the petitioner comes off as someone who has deliberately evaded the law. In this case it appears that it’s the IRS that has had problems with the truth.

Case: Wright v. Commissioner, T.C. Memo 2006-273

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Mandated Health Care in California’s Future?

State Senator Don Perata would like all Californians to have health insurance. Having everyone covered isn’t a bad idea. Senator Perata would do this by mandating that all businesses provide health insurance for their employees (with minimum coverage guarantees), or they would have employees and employers pay into a state fund that would purchase health insurance, with the hope that the state would be able to negotiate low rates. Oh yes, and everyone would have to submit proof of coverage on their tax returns, turning the Franchise Tax Board into the policeman in this effort.

Hmmm, this looks like a tax on employers. And if it walks like a duck, talks like a duck, and looks like a duck, it probably is a duck.

The Orange County Register editorializes on this misguided measure today. And Jon Coupal, head of the Howard Jarvis Taxpayers Association, has an op-ed piece in the Metropolitan News-Enterprise today.

Read them both, and let your legislators and the Governator know your view.

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Fraud in the Swamplands

If you’re going to submit phony tax returns, it’s a good idea to vary the names you use. Even poorly run tax agencies might catch on if they receive several hundred refund checks from the same address.

That bring us to the present, in the swamplands (aka New Jersey). Three individuals were arrested today for allegedly committing the largest tax fraud in the state’s history. The three defendants cashed $826,974 in refund checks, having submitted 540 allegedly fraudulent tax returns. New Jersey officials were able to stop payment on over $1,000,000 in other checks.

What made New Jersey officials suspicious? This news story indicates that the defendants used similar names and employers and common addresses. When arrested, the three defendants were found with $200,000 in cash, blank social security cards, and tax forms (including W-2 forms).

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