Archive for the ‘Illinois’ Category

The Flow of AGI from One State to Another

Saturday, July 20th, 2013

From comes an interesting interactive map showing how money has flowed from state to state. Back when I moved to Nevada from California, I noted this issue. Here’s yet more verification that this is real.

The five biggest losers were:
1. New York ($68.10 billion in annual Adjusted Gross Income (AGI))
2. California ($45.27 billion in annual AGI)
3. Illinois ($29.27 billion in annual AGI)
4. New Jersey ($20.62 billion in annual AGI)
5. Ohio ($18.39 billion in annual AGI)

The five biggest winners were:
1. Florida ($95.61 billion in annual AGI)
2. Arizona ($28.30 billion in annual AGI)
3. North Carolina ($25.12 billion in annual AGI)
4. Texas ($24.94 billion in annual AGI)
5. Nevada ($18.17 billion in annual AGI)

Sure, some of this is retirees moving from the snow belt to the sun belt. But California is anything but part of the snow belt; it’s clear that successful individuals are fleeing high tax states for low tax states. We here in Nevada are appreciative of the $9.59 billion in annual AGI that has moved from the Bronze Golden State to the Silver State.

Interestingly, the interactive map allows you to look county-by-county. The areas that one would think would show AGI growth are losing AGI. The area around Silicon Valley has lost AGI; so have Los Angeles and Orange County. Sure, some of this is retirees moving to the desert (Riverside County, which includes Palm Springs, showed an increase in AGI). However, there is no chance that this is just caused by retirees.

Taxes matter, and individuals absolutely do relocate because of taxes.

Beavers Convicted: Loans Require Payback

Thursday, March 21st, 2013

I’m shocked, just shocked to find out that there’s corruption in Chicago.

Actually, I’m not. I’m just surprised to find out that gambling led to the downfall of a cog in the Democrats’ machine politics in the Windy City. Commissioner Bill Beavers was convicted today of corruptly impeding the IRS and three counts of filing false tax returns. Beavers used his campaign warchest as a personal piggy bank to fund gambling trips to the Horseshoe Casino in Hammond, Indiana.

Beavers and his attorneys alleged that the money he took from the campaign funds were “loans.” There’s one thing about loans that I emphasize to my clients: They require documentation. As Assistant US Attorney Matt Getter said, “He put back [only] what he needed to put back to cover his tracks.” Acting US Attorney was more succinct:

The message that was sent here was that Bill Beavers took a lot of money people gave him to run his campaigns and he stuck it in his pocket, and a lot of it, he gambled…For that, at least, he should have paid his taxes, and he didn’t.

One of Mr. Beavers’ statements is interesting: “There’s no law against what I did…There’s no law against gambling with campaign funds.” I have no idea of the state of Illinois’ campaign finance laws; however, I do know something about the Internal Revenue Code. If you take money from a campaign fund and use it personally, it is almost certainly income to you. And that income is clearly taxable. Further, not reporting all your income on your tax return can be a crime. In Mr. Beavers’ case, it was a crime.

Mr. Beavers may continue to proclaim his innocence, calling the judge “unfair.” From my point of view, it looks like the government did a pretty good job of proving its case.

No sentencing date has been announced.

News Reports: Chicago Tribune, Chicago Sun-Times

It’s 6,219 Miles from Calumet City to Amman

Saturday, March 2nd, 2013

What does Calumet City, Illinois have in common with Amman, Jordan? To be honest, not very much at all. However, this story begins in Calumet City and takes a detour through Amman before ending in Chicago (with a probable side trip to Springfield, Illinois).

Samer Farhan owns a gas station in Calumet City, along with another in Chicago. Gas stations have to collect lots of taxes: State sales tax, state gasoline tax, and federal gasoline tax. Of course, most people would prefer not paying taxes. Mr. Farhan is accused of taking this a bit too far on remitting others’ money that he collected.

Remember, when a business collects sales tax they become the agent of government. Like with employment trust fund taxes, sales tax agencies don’t like it when some of the money doesn’t end up where it belongs. Sales tax agencies regularly audit many businesses.

Mr. Farhan is accused of 28 counts of filing phony sales tax returns, two counts of mail fraud and five of money laundering. Mr. Farhan is alleged to have lowered the amount of sales so he didn’t have to pay nearly $1 million in sales taxes. That’s a lot of gasoline. However, he’s accused of going further–literally. Mr. Farhan allegedly took some of the profits of his scheme and sent them to a bank in Amman, Jordan; that money then supposedly returned to him. If proven, that’s money laundering. The Illinois Department of Revenue had the help of the US Secret Service in that aspect of the case.

Mr. Farhan will have a preliminary hearing later this month. If convicted on all charges, he’s looking at a lengthy term in prison (plus restitution).

Illinois’ Pension Problems Get Worse; Lottery Checks Bounce

Wednesday, February 27th, 2013

Two stories out of Illinois that are, perhaps, linked. First, the Illinois Lottery forgot to send some money to their bank. While a spokesperson for the Illinois Lottery said it was a mistake, one would think that balancing the checkbook is a high priority. While only $159,000 of checks bounced, and the Illinois Lottery will make good on the bounced check fees, it certainly can’t be considered good planning. (I do believe that this was an oversight.)

A far more serious issue for the Land of Lincoln is the growing backlog of bills. The Chicago-based Civic Federation says that unless pensions and Medicaid are cut, Illinois’ backlog of bills will triple to $22 billion in five years. The annual budget in Illinois is currently $24.3 billion. To put this in perspective, the total budget for the most recent fiscal year for Nevada is $4.9 billion.

Unlike the federal government which can print money, states can’t. Sooner or later Illinois will have to balance its books. The pension costs are not sustainable. So, do you increase taxes further, which drives business out of state, or do you cut pensions? Democrats control most offices in Illinois, and they don’t want to cut pensions. Yet tax increases won’t work in the long run, so cuts to entitlements on the state level will occur…sooner or later.

In the end, spending more money than you take in is a good way to go broke. If I were offered a government contract by the state of Illinois, I’d turn them down unless they’d pay me up-front. That’s the level that I think Illinois has fallen to.

Jackson’s Fall Includes Tax Charge

Sunday, February 17th, 2013

I was going to put in a line in this post, “Will the first Chicago politician who is honest, forthright, and not corrupt please stand up?” However, I realized that there must be some politician in the Windy City who is honest (at least some of the time). The last three governors of Illinois all went to prison (and it’s equal opportunity corruption: both Republicans and Democrats). Joining them will be former Congressman Jesse Jackson, Jr. and his wife, Sandi (a former Alderman in Chicago).

Mr. Jackson resigned last November from Congress; Ms. Jackson resigned in January from the Chicago City Council. Both are pleading guilty: Mr. Jackson to conspiracy and Ms. Jackson to filing a false tax return. They pleaded guilty on Friday.

The scheme apparently had them using “business” credit cards (here, business is their re-election campaign) for personal expenses. As this blog has highlighted numerous times in the past (and will likely do numerous times in the future), you can’t put personal expenses on a business return. And we’re not talking nickel and dime purchases; the total is $582,772.58. Add in filing false campaign reports and you have problems.

There’s even a tie to Las Vegas. Mr. Jackson has a greed to forfeit $750,000 plus a host of memorabilia; much of that memorabilia was purchased from Antiquities of Nevada, a store here in Las Vegas. If you follow US Treasury auctions, you soon will be able to buy a football signed by several presidents, an Eddie Van Halen guitar, Bruce Lee memorabilia, and a lot more. But I digress….

I’m a native of Chicago and love the city. I’m a fan of the Blackhawks and Cubs. That said, the corruption in Chicago is something I don’t miss.

What Happens When Cigarette Taxes go Through the Roof?

Sunday, December 16th, 2012

While Alan Greenspan noted, “Whatever you tax, you get less of,” the New York legislature seems to not understand. In one of the least shocking reports I’ve seen, the New York Association of Convenience Stores (NYACS) noted that the state is losing $1.7 billion of tax revenue each year and 6,700 jobs because of cigarette tax evasion. Why would this be?

New Yorkers who can buy cigarettes elsewhere. The study found that many are buying cigarettes from surrounding states, military bases, Indian reservations, and duty free shops. Add in smuggling from low-tax states (there’s undoubtedly a black market) and you have tax avoidance.

Meanwhile, Cook County, Illinois (Chicago) is conducting cigarette raids to enforce the $2 county cigarette tax. A picture is coming into my mind, that of prohibition, where organized crime prospered when alcohol was banned. I’m sure the similarities are just superficial…or maybe they’re not.

Of course, the NYACS would like New York to begin raids like those in Chicago; after all, convenience stores that are obeying the law stand to sell more cigarettes than most other locations. Still, the unintended consequences of increased taxes are obvious to most of us.

Squeezy and Illinois

Monday, November 19th, 2012

Sometimes you can’t make this stuff up. The video (below) is a real video from Governor Quinn of Illinois:

Governor Quinn gives an excellent history of pensions but I notice there’s something missing from the video: solutions. Perhaps it’s because Illinois legislators and Governor Quinn promised that the 66% tax increase of 2011 would solve the problem. It didn’t. Illinois had $8 billion of unpaid bills when the tax increase was passed; there are $8 billion of unpaid bills today. Pensions ate up the tax increase.

There’s an editorial in the Chicago Tribune that notes that some Illinois legislators want to borrow money to pay for pensions. That’s a great solution: Let’s eliminate one debt problem by substituting another debt problem!

There is only one solution: Fundamental reform of the pension system. It’s going to be politically ugly: Democrats’ major interest group, public employee unions, will not like the results (pensions will be cut; that’s the only way out of the problem). Governor Quinn likens pensions to promises, and that they can’t be changed. Here’s a helpful hint to Illinois politicians: The taxpayers and companies that are resident in your state can leave to a far more friendly tax location. Sure, your income taxes aren’t that high (yet), but you’re sure heading in the wrong direction. If I were an executive with an Illinois-based business, I would be looking at other states. As I noted yesterday, moving a business is disruptive. Unfortunately, if you’re on a ship that’s struck an iceberg it’s time to head to the lifeboats. Illinois struck an iceberg called pensions. There’s still time to fix the hole but it’s now a more than $90 billion problem.

Chicago is a great city, and Illinois was a great place for my childhood. However, there are fifty states in the United States and Illinois appears to be following California into a cycle that will cause businesses that can leave to leave and for taxpayers to be caught in a cycle of ever-increasing taxes.

Bad States for Gamblers

Monday, October 22nd, 2012

It’s been a while since I’ve listed out the bad states for gamblers. Here’s an updated list. Make sure you read the notes because while all of these states have tax systems that are problematic for gamblers, some impact amateurs while others impact professionals. Note that I do not cover the laws that impact gambling here (such as Washington State’s law that makes online gambling a Class C felony).

Connecticut [1]
Hawaii [2]
Illinois [1]
Indiana [1]
Massachusetts [1]
Michigan [1]
Minnesota [3]
Mississippi [4]
New York [5]
Ohio [6]
Washington [7]
West Virginia [1]
Wisconsin [1]


1. CT, IL, IN, MA, MI, WV, and WI do not allow gambling losses as an itemized deduction. These states’ income taxes are written so that taxpayers pay based (generally) on their federal Adjusted Gross Income (AGI). AGI includes gambling winnings but does not include gambling losses. Thus, a taxpayer who has (say) $100,000 of gambling winnings and $100,000 of gambling losses will owe state income tax on the phantom gambling winnings. (Michigan does exempt the first $300 of gambling winnings from state income tax.)

2. Hawaii has an excise tax (the General Excise and Use Tax) that’s thought of as a sales tax. It is, but it is also a tax on various professions. A professional gambler is subject to this 4% tax (an amateur gambler is not).

3. Minnesota’s state Alternative Minimum Tax (AMT) negatively impacts amateur gamblers. Because of the design of the Minnesota AMT, amateur gamblers with significant losses effectively cannot deduct those losses.

4. Mississippi only allows Mississippi gambling losses as an itemized deduction.

5. New York has a limitation on itemized deductions. If your AGI is over $500,000, you lose 50% of your itemized deductions (including gambling losses). You begin to lose itemized deductions at an AGI of $100,000.

6. Ohio currently does not allow gambling losses as an itemized deduction. However, effective January 1, 2013, gambling losses will be allowed as a deduction on state income tax returns. Unfortunately, those gambling losses will not be deductible on city or school district income tax returns, so Ohio will remain a bad state for amateur gamblers.

7. Washington state has no state income tax. However, the state does have a Business & Occupations Tax (B&O Tax). The B&O Tax has not been applied toward professional gamblers, but my reading of the law says that it could be at any time.

Illinois Debt Downgraded

Thursday, August 30th, 2012

S&P cut the rating of Illinois debt by one level yesterday. From the news story:

“The downgrade reflects the state’s weak pension funding levels and lack of action on reform measures intended to improve funding levels and diminish cost pressures associated with annual contributions,” said Robin Prunty, an S&P analyst, in a report today.

Illinois has at least an $83 billion unfunded pension problem. The state is months late in paying its bills. It raised its income tax by 67% last year…and the state continues to spend money like its going out of style.

Governor Quinn says he’d welcome the state legislature to work together on solutions. The problem is that the real solutions involve cutting spending and pension benefits, and that’s anathema for Democrats. The problem is that the other “solution,” raising taxes, was tried and the results were more of the same.

Illinois Casino Expansion Bill Vetoed

Tuesday, August 28th, 2012

Governor Pat Quinn (D) vetoed a casino expansion bill that would have added five casinos, including one in Chicago. His veto message stated that the biggest problem with the bill, “[I]s the absence of strict ethical standards and comprehensive regulatory oversight. Illinois should never settle for a gaming bill that includes loopholes for mobsters.” Governor Quinn promised a veto of a similar bill in 2011; that bill did not pass the Illinois legislature.

Illinois is still facing a massive budget deficit (the state is months behind in paying its bills), so casinos were one of the means that some legislators were looking at for balancing the budget.

An override in Illinois takes a 3/5 vote of both houses of the state legislature. There will be a lame duck session of the Illinois legislature following the November election.