Grading the Republican candidates new tax proposals: Cain's 999 plan

Per my earlier promise, lets try and get our minds wrapped around the tax proposals the Republican hopefuls are trying to champion. 


"Our tax code is the 21st century version of slavery" ~ Herman Cain


Good place to start. Lets start with how Cain describes it, per his website.


The basics:


Cain's plan hopes to replace the complex system of the tax code with a 9% rate for corporate tax, income, and sales tax. In addition, he eliminates capital gains, estate tax, and most deductions from the current code. The idea is to get rid of loopholes and kickbacks for certain individuals and businesses, cut taxes for most people, and pave the way for an ultimate transition to the  "fair tax," which is a true, flat, consumption tax. 

Real world analysis:

The tax policy center has taken pen to paper, and the plan would provide tax breaks, as long as your not in the 84% of Americans who would see their taxes increase. This is bad. It is even worse when you are in the $10,000 - $20,000 range, as you will see your taxes increased by, wait for it, 950%. Robin Hood he is not. 

Getting rid of the estate tax is also a tax break for the rich, and would have to be paid for somewhere else. The national sales tax, which he claims is not a pure consumption tax, is a pure consumption tax, and unless I am missing something would hike the prices of goods and services and be a nightmare to coordinate with the various state and national sales taxes already in place. 

The ideas to get rid of taxes on capital gains are positive. Incentives to invest and save are the cornerstones of many tax policies, and these can have staying power. 

Cain's rebuttal:

After the release of this study, Cain has responded with tweaks. 


Now, Cain says he would exempt those below the poverty line (~$22,00 in income), and have exemptions for "opportunity zones," defined by high unemployment and poverty. 

Color me crazy, but isn't an "opportunity zone," which no doubt will provide breaks for some who don't deserve and take away breaks for those who need them, creating the same disparities and inconsistencies Cain is fighting to remove? Further, even if you exempt the poor from the income tax, the poor spend a higher percentage of their income on goods and services, which under the 999 plan will be more expensive. Doesn't get you there. 

The verdict:

I don't think consumption taxes work. This plan is just that, and what you don't see are the 9% that will hit every piece of a supply chain: there is no way goods and services do not increase in price under this plan, which is not what America needs. The ideas to cut corporate and capital gains are solid, but the rest of the plan only works if you are wealthy. While this plan could have some legs in certain countries under certain economic times, I do not believe it is the answer for America's tax and economic future, due to its previously listed shortcomings. 

The simplicity is great, but our economy is not: I give the 999 plan a D+, passing only because it is simple and cuts taxes on savings and investments. America can do better. 

Warren Buffet's Secretary

Warren Buffett's secretary just became Joe the Plumber.  (I don't endorse the video or Moveon.org in any way, its just kind of funny.)


Maybe this is a good thing, a positive step for middle class Americans and a rally cry to balance the budget, but in reality, all she really wants is to be left alone.

Either way, Mr. Buffett's op-ed in the New York Times started all this mess, when he claimed he payed less taxes than the others in his office, and the President decided to use it as a talking point.

It does sound bad, in theory, when Warren and his "super rich friends" can pay less tax than their underlings. Buffett clarifies the real issue, which is the "effective tax rate," not the amount of tax actually paid (Buffett claims he paid millions in actual taxes).

The math is pretty clear: if you work for someone, you are probably going to pay more "effective tax", as you are paying into the income tax system that has graduate rates up to 35%, and the payroll tax systems which fund your medicare and social security.

If you make money from trading stocks or other securities, capital investments, rents, and some dividends, you are mostly operating under the capital gains tax regime, which has variable rates starting as low as 15%.

15 < 35, so the bankers beat the wage-earning middle class in effective rates.

Even if you are anti-tax, its hard to argue with Buffett, a billionaire who not only pledges to give away his wealth in the end, but who advocates to pay more taxes NOW.

A balanced budget proposal will likely propose changes to the upper reaches of the income tax and could potentially affect capital gains rates, but a system where capital gains rates change based upon how much you earn would be very difficult to put in place, let alone enforce.

This brings us to the recent GOP presidential hopefuls, who many claim will "throw out the tax code" and offer a consumption tax, flat tax, fair tax, 9/9/9 plan, etc. Some of these ideas could work, others just don't, and others only work in certain environments.

We will analyze these in the coming weeks, but for now, enjoy watching the  AL West champion Texas Rangers attempted run to another improbable spot in the World Series.



Image from Wikipedia



Here is a picture of the real Warren Buffett's secretary: 

One of them, anyway. Turns out Berkshire Hathaway has more than one secretary (there is another named Debbie).

                                      

Texas declares the "Pole" tax constitutional.

Notice the spelling: P O L E, not P O L L. 

We are not speaking of the POLL tax, or the requirement of a fee to vote in elections, the Jim Crow-era attempts by some states to prevent minority groups from exercising their new 15th Amendment given right, which existed nationwide in federal elections until the 24th Amendment was ratified, and what took the  Harper v. Virginia Board of Elections decision to make the use of such taxes unconstitutional in state elections 1964. 

No, this time its the POLE that is making the news. 

In 2007, the Texas legislature enacted the Sexually Oriented Business Fee Act, of which,  Section 102.052(a) states: “A fee is imposed on a sexually oriented business in an amount equal to $5 for each entry by each customer admitted to the business.”  

 A “sexually oriented business” is specially defined as a nightclub, bar, restaurant, or similar commercial enterprise that:

1. provides for an audience of two or more individuals live nude entertainment or live nude performances; and
2. authorizes on-premises consumption of alcoholic beverages, regardless of whether the consumption of alcoholic beverages is under a license or permit issued under the Alcoholic Beverage Code.

It's only $5, right? Where it gets dicey is that the money goes to something called "the sexual assault victims fund", which seemed to imply that strip clubs cause sexual assault, and more specifically, "rape, sexual assault, prostitution, disorderly conduct, and a variety of other crimes and social ills ."

Naturally, strip clubs were up in arms, and claimed their First Amendment freedom of speech rights were being violated. This issue made national news then, but the fight was still up in the air until last week. 

On August 26, the Texas Supreme Court reversed the Court of Appeals and held that the tax was constitutional. Here is what they reasoned, (paraphrased):

1. We aren't saying you can't dance naked, that would by tyranny, and would limit freedom of expression. Some even call it art. 
2. If you want to dance naked, don't serve booze: that's not expression or art, its conduct, which we can police. If you do it anyway, we are charging you $5. No big deal. 
3. Dancing naked isn't what causes sexual assault, dancing naked and booze causes sexual assault, so we really aren't talking about dancing naked, but what happens AFTER dancing naked is combined with booze. Get it?
4. When you think about it, this isn't politics or religion, its strip clubs. If the law really hurts strip clubs, the intention wasn't too hurt them that bad, just a little. 
5. It's not a tax, it's a "statutory fee," kind of like going to a state park. 

The full text of the opinion can be seen here.

In purely legal terms, I think the argument is a stretch, and does single out a specific class of people or businesses, and the excuse of a "de minimis" impact on protected speech to further the legitimate state interest of limiting the evils of what happens when there is nude dancing and booze just is not a good enough legal argument. 

In reality, the legislature, like many or legislatures, is trying to find money from anywhere it can as states are broke, roads need paving, jails are overflowing, and schools can't pay teachers. So they decided they could pick on strip clubs, a likely unpopular villain in a conservative state. I don't blame them for this, and I can't really blame the Supreme Court for going along with it. However, that's not the Supreme Court's job. 

Also in the opinion, was that "The Comptroller estimates that there are 169 (strip club/erotic dancing clubs that allow alcoholic beverage) businesses in Texas." I honestly thought there would be more, but its the number they named. The New York times claimed that lawmakers hoped to raise some $44 million from the tax.  

If my math is correct, $44 million / $5 = 8,800,000 prospective strip club attendees per year, in Texas.  Divided out between each establishment, amounts to an average of 171,598 patron's per club per year, or just over 142 patrons per club per day. Including Christmas, and Sundays. Maybe I am in the wrong business. 

Either way, 8.8 million is not a majority of the nearly 26 million Texas residents, so even if every strip club attendee, assuming each person only goes one time per year (which is a terrible logical fallacy, but just for illustration's sake) votes against their current state representative, they are all safe to get re-elected. 

From a policy standpoint, I see motivation behind the "statutory fee." I just don't like the way they legally justified it. Lets hope they get certiorari, I'd love to see what Scalia says on this one. 

What do you think about the law? 

So you were adopted?

Question: I was adopted when I was young. My birth and/or adopted parents are millionaires, and both just died, simultaneously, without a will. I might have some other blood or adopted siblings. What do I do?

Answer: Texas law is actually very favorable to adopted children. Sec. 40 of the Texas Probate Code States in part:

§ 40. INHERITANCE BY AND FROM AN ADOPTED CHILD.  For purposes of inheritance under the laws of descent and distribution, an adopted child shall be regarded as the child of the parent or parents by adoption, such adopted child and its descendants inheriting from and through the parent or parents by adoption and their kin the same as if such child were the natural child of such parent or parents by adoption, and such parent or parents by adoption and their kin inheriting from and through such adopted child the same as if such child were the natural child of such parent or parents by adoption.  The natural parent or parents of such child and their kin shall not inherit from or through said child, but, except as provided by Section 162.507(c), Family Code, the child shall inherit from and through its natural parent or parents.

Nothing herein shall prevent any parent by adoption from
disposing of his property by will according to law.  The presence of this Section specifically relating to the rights of adopted children shall in no way diminish the rights of such children, under the laws of descent and distribution or otherwise, which they acquire by virtue of their inclusion in the definition of "child" which is contained in this Code.

Recap: If there are not any wills, an adopted child inherits from both her natural and adopted parents. The natural parents do not inherit through the child.

The only wrinkle is if the adopted person is an adult, in which case the adopted adult gives up his inheritance rights through his natural birth parents. The relevant Texas family code section states:

§ 162.507. EFFECT OF ADOPTION.  (a) The adopted adult is the son or daughter of the adoptive parents for all purposes.
(b)  The adopted adult is entitled to inherit from and through the adopted adult's adoptive parents as though the adopted adult were the biological child of the adoptive parents.
(c)  The adopted adult may not inherit from or through the adult's biological parent. A biological parent may not inherit from or through an adopted adult.

Takeaway: Adopted kids inherit from their adopted family AND their natural birth parents, assuming there is no will. Adopted adults only inherit through the adopting parents. This makes sense, from a public policy standpoint.  Don't want your kids to inherit anything? Make a will. Are you an adopted child whose parent's passed away without a will? Contact an experienced estate planning attorney before your inheritance goes to someone else. Just because you were adopted, doesn't mean your rights terminate as well.

Congress leaves us hanging, and Tech companies have all the money.

In the days after the crisis of a US default being remedied, the market is still collapsing, and August 4th was one of the worst single days in stock market history. All the hard work Congress put in didn't do much to help the investor or those counting on their retirements to support them in their golden years.

So what do your representatives do, in this time of economic crisis? They go on vacation. Early.

Job numbers are ghastly. When jobs are bad, we try to get more educated. Good luck, seeing as the cost of education has outpaced just about every other comparable sector.

So, in times of crisis, there are no jobs, you can't pay for school, and Congress is on vacation. What to do?

What seems interesting is where the actual money is, and what people are spending it on.
Apple allegedly has more money than the US Government. Or maybe it does not. Either way, tech companies, your Apple/Google/Facebooks of the world have a ton of money, and they take in more than they spend, unlike the U.S. Government. But what, in real terms, are they adding to our economy, except distractions and ipads?

Here is an excerpt from the Founder of Facebook's sister, Randi Zuckerberg, on leaving the most profitable website in history and starting her own new venture:


"My goal is to launch my own innovative programming and work with media companies to develop their programming in new, and more social ways."

What does that even mean? Her brother is one of the world's youngest billionaires, and I have no doubt she is also independently wealthy, and will only become more so as a result of her new venture. But why?

These companies don't make guns or butter. They do not grow corn or pave roads. If your power goes out, your computer crashes, or your internet slows down, they disappear.

However, as much as I despise them, these internet companies and "social media" outlets have become a necessary expenditure for business and commerce. Society now spends the bulk of their waking hours using some form of media. The phone book is becoming obsolete, so now you "google" things or see what sort of review a business has online. If you are invisible in that world, someone else will gladly take what could have been your clients and make them their own (hence why, after years of being anti-website/blog, I made a blog).

Wait, I thought Google and facebook were free? How do you think these companies make money? Advertising, and it isn't cheap.

The story I always heard was the back of the phonebook lawyer gets 80% of the fist calls, the next guy gets 15%, and everybody else picks up the scraps. After reviewing one facet of my own firm's internet advertising, I discovered we were paying about $400 per actual view or click from a potential client, and of those views,  this avenue had generated a grand total of 0 clients since we started using it in 2008.

The takeaway: when thinking of your retirement or how to make your current business grow, there are a slew of new marketing, advertising, and customer feedback mechanism's available. I am very against buying into the hype of Paying a Randi Zuckerberg or the like a king's ransom to develop my company in "new, and more social ways," but maybe that is what is necessary to compete in an internet-driven world. Talk to a professional before you make any decisions, and then talk to a couple more.