Taxable Talk

Proposition 12 would issue $900 million in bonds to provide loans to California veterans to purchase homes and farms. It would cost $59 million a year to repay the debt (for thirty years).

Supporters say that the Cal-Vet Home Loan program has been a huge success; the measure was placed on the ballot by a unanimous vote in both the State Assembly and State Senate. Opponents say that the bond measure would cost the state money and the screening in the program needs to be tightened.

That's the end of the propositions on the state ballot. Next week I'll look at Orange County Measure J and Irvine Measures R and S.

If you're a California resident you know that we have a dysfunctional legislature. One of the main reasons for this is that back in 2001 the Democrats and Republicans in the legislature drew up new districts. They made a deal, and made all but a couple of seats "safe." That's called gerrymandering, and almost every legislative district in the state is gerrymandered.

For example, my Assembly, State Senate, and Congressional seats are extremely safe Republican districts. While there's a Democratic candidate for each office, it's not going to matter--all the Republican candidates will win in a cakewalk. Similarly, almost every Democratic candidate will win easily. When the districts aren't competitive you tend to get legislators who are highly partisan and don't compromise.

Proposition 11 would change how redistricting is done in California. There would be a commission to handle redistricting for the state legislature. While this measure has almost no direct fiscal impact, eliminating the dysfunctional legislature can only be a boon to California.

Remember to vote on November 4th.

Proposition 10 would issue $5 billion in bonds. These bonds would then be used to provide $3.425 billion to aid consumers purchase high fuel economy or alternative fuel vehicles. Another $1.25 billion would be used for research and development of renewable, solar, and win energy. There would also be grants to cities.

Like any measure with bonds there is a cost. For this measure it's $335 million a year. Given the current credit market it's likely that's an understatement of the expense.

Proponents argue that Proposition 10 would help lead California to energy independence. Proposition 10 is supported by the AQMD. Opponents, including some consumer groups and the California Federation of Teachers, argue that this measure would remove money from other programs.

No matter where you stand on this remember to vote on November 4th.

There's a scandal in New York involving the Governor's Chief of Staff. Charles O'Byrne is Chief of Staff to New York Governor David Paterson. He makes a good salary ($178,500 a year). He also owes $200,000 in back taxes—he didn't file tax returns from 2001 through 2005 (from the news story it appears the unpaid taxes are New York state income taxes).

Mr. O'Byrne blames bouts of clinical depression for the failure to file tax returns. Republicans in the state senate are trying to make hay on this, and are starting an investigation. Governor Paterson (who succeeded to office after the Eliot Spitzer scandal) promises to soon disclose Mr. O'Byrne's tax records.

In any case, if you are an elected government official, or if you are a high staff member of such an official, make sure you pay your taxes. You can be that if you don't the opposition—be it Republicans or Democrats—will use this against you politically.

Proposition 7 has done something this election cycle that I would have thought was impossible: It is opposed by almost everyone. The opponents include the Republican Party, the Democratic Party, the United Farm Workers Union, the California Chamber of Commerce, and the California Taxpayers' Association.

What would Proposition 7 do? It would require utilities to generate 20% of their power from renewable sources by 2010 (with that percentage increasing to 40% by 2020 and 50% by 2025).

Proponents argue that Proposition 7 would help solve global warming, increase renewable energy use, and wouldn't cost much to California. Opponents argue that it would cut small wind and solar companies out of the market, would dramatically increase rates for everyone, and would dramatically hurt the economy.

Remember to vote on November 4th.

Proposition 6 requires specific funding for police and law enforcement, and adds several new crimes (mainly gang-related) to the penal code. It also changes sentencing, generally tightening (lengthening) sentences, especially for gang-related offenses. It is also estimated to cost at least $500 million annually, and potentially could have a one-time cost of $1 billion.

Proponents argue that it fights gangs, and helps crime victims. Opponents argue that it spends money needlessly.

No matter how you feel make sure you vote on November 4th.

Proposition 5 is one of the few non-bond initiatives that could impact taxes on this year's California ballot. Proposition 5 changes sentencing for drug offenses, which may be good or bad depending on your views.

It definitely impacts taxes, though. The initiative allocates $460 million to expand treatment programs for drug offenders; it increases costs by over $1 billion for expanding drug treatment and rehabilitation programs. It may also save over $1 billion by decreasing prison and/or parole operating costs.

Proponents argue that it will increase treatment programs, decrease prison overcrowding, and save money. Opponents argue that it shortens parole for some violent drug offenders, would cause damage to schools, sets up two new bureaucracies, and increases social costs.

This is a very complex proposition that deserves perusal before you vote.

These three propositions do not directly impact taxes. Proposition 4 would mandate a waiting period for 48 hours before a minor could have an abortion. Proposition 8 would ban same-sex marriage. Proposition 9 adds victims rights to matters relating to parole.

None of these three initiatives directly impact taxes. They are, though, important matters that you should review (if you're a Californian). Remember to vote on November 4th.

Irwin Schiff has about twelve more years left on his sentence. He's 79, so the chance of him promoting his illegal tax reduction schemes was slight. It's now zero.

From Las Vegas comes the news that a federal court has issued a permanent injunction against Mr. Schiff and Cynthia Neun, a former associate. Mr. Schiff and Ms. Neun have been barred from ever preparing tax returns as a professional and from promoting "...tax-fraud schemes from within prison or when they are released from prison."

I think we have now finally heard the end of Irwin Schiff.

Yet another bond proposal. This one would raise $980 million in bonds to help children's hospitals. The downside is that it would cost taxpayers $2 billion per year over $30 years to repay the bonds.

The bonds would be used at msot of the children's hospitals in the state. Proponents argue that children's hospitals could use the money to expand and help more children. Opponents argue that the state is in debt, and that hundreds of millions from an earlier version of this proposition (Proposition 61) remain unspent.

Remember to vote on November 4th.

Proposition 2 would change animal agriculture, a major industry in California. It would impact not only cattle and chickens but eggs and some other industries.

Proposition 2 would require more "humane" handling of animals. This sounds innocuous, but it's not. I worked in agriculture (citrus, not animals) for many years. Should this measure pass it would increase prices for eggs, would likely increase prices for beef, chicken, and veal, and would eliminate any expansion of those industries in California. In fact, the most likely result would be a movement of jobs from California to nearby states (and perhaps to Baja California).

Proponents of the measure state that this would be more humane to the animals, improve safety, and help family farmers. Opponents believe that this measure could negatively impact public health, would increase costs, and would decrease jobs.

It's time to begin our study of the ballot measures on California's ballot in two weeks. I will be continuing my series on the presidential candidates—my article on John McCain will be up later this week. For now, let's look at Proposition 1A, the Safe Reliable High-Speed Passenger Train Bond Act.

If this measure passes $9.95 billion of bonds would be sold by the state, costing about $19.4 billion over thirty years (or around $667 million a year). The bonds would be used to construct a high speed train from Los Angeles to San Francisco.

Proponents argue that passage would lead to a safe, high-speed train system to link the state. Opponents argue that this would be a huge cost to the state, and would run in red ink. The Legislative Analyst estimates that annual operating costs would exceed $1 billion, so that too must be figured in.

After the arguments were written the financial credit crisis occurred. That's not mentioned by either the proponents or opponents, but you need to consider it. The ability of any government to issue bonds has been reduced; it's likely that borrowing costs would be higher—potentially much higher—than estimated. I am very unconvinced about ridership claims; train service in the United States has to be supported by the government in order to continue.

No matter what you think, do make sure to vote on November 4th.

Note: Proposition 1 (listed in the original Voter's Guide) was removed from the ballot and replaced by Proposition 1A (listed in the supplemental Voter's Guide).

I counted over thirty interesting tax evasion stories from the last few days. There's no way I'm going to put them all in a post so here are the highlights.

First, let's head to Gallatin County, Montana. Ruth Amande knew that having children would give her a tax deduction. So she decided to have twins—Victor and Victoria, "born" on December 28, 1995. She applied for social security numbers for her twins in 1997. There was only one problem...well, two problems: neither child really existed. Unlike the disk jockey in Wyoming who successfully deducted his dog Ms. Amande will be making restitution.

The upcoming trial of attorney James Perdigao is big news in New Orleans. Mr. Perdiago has been accused of stealing $30 million from his old law firm, allegedly sending $20 million of that to Switzerland, and has been facing 59 counts including fraud, tax evasion, and money laundering. Make that 60 counts: Mr. Perdiago has had a charge of computer hacking added. He is alleged to have used his girlfriend's computer to hack into his old law firm's computer network.

Meanwhile, in nearby Vicksburg, Mississippi Marshall Sanders will face tax evasion charges in November. Mr. Sanders is accused of not filing tax returns since 1994 while earning $3.4 million in 2001, 2002, and 2003. He faces three tax evasion charges (one for each of those years) for allegedly using a trust account to hide his personal income.

From the Bozo tax preparation wing we find Raymond Ekpedeme of Laurel, Maryland. Mr. Ekpedeme operated Erikson Tax Service though it could be called Western Tax Service East. He followed the same plan as Western—phony deductions, false credits, and inflated numbers. He had lots of satisfied clients. Unfortunately for Mr. Ekpedeme the undercover IRS investigator wasn't pleased when he got a $1300 refund he didn't deserve. Mr. Ekpedeme pleaded guilty to tax evasion charges and will be sentenced next February; his clients can expect "Dear Valued Taxpayer" letters soon.

Louis Xifaras had an interesting method of attracting business to his former company, Innovative Network Solutions. He used kickbacks to workers at Southern New England Telephone/SBC (now AT&T). He deducted those payments on his corporate tax return as "salary." Unfortunately, kickbacks aren't deductible under federal tax law. And more unfortunately for Mr. Xifaras was that the federal government began investigating the fraud. He pleaded guilty and will have to make restitution, serve a year and a day at ClubFed, and pay a $50,000 fine. The tax owed is only $222,000, but there's now an additional $167,000 in penalties and $164,000 in interest.

Finally, the Hawker 4000 looks like a great business jet though it carries a pricetag of $21 million. But I do know where you may be able to get one for less than retail. The very first Hawker 4000 was delivered to Gary Hall in June. He runs Sunflower Supply Company in Galena, Kansas, a tobacco wholesaler. Mr. Hall and seven associates are accused of avoiding $25 million in cigarette taxes to Oklahoma and several Indian tribes. If Mr. Hall is acquitted (he and his associates face 43 charges) he'll get his plane back.

That's a lot of fraud for just a few days. Can we lighten up for next week?

Surprise, surprise: California's budget, assembled with smoke, mirrors, and lots of hope is already in trouble. Analysts already see a $1 billion deficit and think that $3 billion is a more likely number...and we're still in October. The fiscal year has over eight months to go. Given the probable lowering of income tax collections next year things could get ugly in Sacramento again.

Republicans still pledge no new taxes while State Senate President Pro Tem Don Perata wants to tax goods and services that haven't been taxed in the past. Since tax increases require a 2/3 vote of the legislature (meaning that Republican votes are required) don't expect any substantial tax increases.

Given the rhetoric you should also not expect any meaningful legislation until the very last minute.

News Stories: New York Times, Forbes (AP), Los Angeles Times

Now that 2007 tax returns are complete it's time to begin thinking about 2008 and 2009. The IRS announced this past week inflation adjustments for 2009:

- Personal exemptions will increase from $3350 in 2007 to $3500 in 2008 to $3650 in 2009;

- The standard deduction will increase from $5350/$10,700 (single/married filing jointly) in 2007 to $5450/$10,900 in 2008 to $5700/$11,400 in 2009;

- The maximum foreign earned income exclusion will increase from $85,700 in 2007 to $87,600 in 2008 to $91,400 in 2009; and

- The annual gift tax exclusion will increase in 2009 to $13,000.

Meanwhile, the Social Security Administration announced that the annual wage limitation for social security tax in 2009 will be the first $106,200 in wages (up from $102,000 in 2008). For the self-employed, this means that the self-employment tax will be 15.3% on the first $106,200 in self-employment earnings in 2009 and 2.9% on earnings above that.