Joe starts Barco, a new dog food company. Someone tells him he should incorporate to avoid liability. So, he does that under the laws of his state in January. He makes a profit the first year of $100,000. At that point, he goes to his accountant and says, “gee, you should have been a subchapter S corporation. You could have saved $15,000 in taxes”. “How do I do that?” Joe asks. You had to file a Form 2553 within 75 days of when you started your business with the IRS. I can see if I can get relief for that, but, I’m not certain its going to work. Had he filed that one simple form he would have saved $15,000 that first year and been able to plan other things as well. This is Mistake Number 1 of start-up businesses.
IN HONOR OF LABOR DAY – JOBS
How do you create jobs in America. Perhaps a start would be to look at the tax code. Since we have been legislating behavior for years in the Code, we can use it to stimulate the economy by targeting a specific problem, unemployment. So, how do we do that? First, our manufacturing sector is about down to scraps. Add in a targeted jobs tax credit for manufacturers. That gives companies an incentive to hire employees in the manufacturing arena and to potentially expand operations back in the states. Second, we need new products and we have an R&D credit, but lets put a real bounty on these green technology things. You get a bonus R&D credit for develop an automobile engine that does not run on carbons the fuel source is either renewable, perpetual or easily obtainable. Doing this would give the Fords, Chyslers and GMs a bonus incentive to develop engines which really will remove our dependence on oil and reduce carbon emissions. Stimulating the housing market is important. A quick way to do so is to ditch the passive loss rules. That way, if you buy a rental property and have a negative cash flow, you get to reduce your taxes even if you make a lot of money. This will increase available rental properties, effectively lower rental rates and will soak up the foreclosed homes and bank inventories. It will also give people incentive to develop real estate again and perhaps get the housing sector jump started. Will this work? It worked in 1981 when Reagan took office. He then reigned it in in 1989 causing a recession of sorts, but if there was a known sundown date on the benefits, people could choose what to do. Lastly, if you’re really serious about jobs, you cut the corporate tax rate to 5 percent and raise the dividend rate back to normal levels. If you do this, its revenue neutral and companies will have the incentive to repatriate dollars and perhaps jobs to the United States from tax advantaged places like Ireland. I doubt that our President will go that way. But this would be a recipe to increase jobs in America that has worked. The Great Depression ended pretty much only because World War II broke out and all industry was nationalized for the war effort. I don’t think that is an appropriate option at this time to help the economy. All the CCC projects did nothing to really stop the depression except to put a few dollars in a few pockets. Just to put an asterisk on this, consider that during the Great Depression, we also had the Dust Bowl phenomenon. Our midwest is not far from that these days. If our agricultural sector breaks down our economy could sink much further much faster. So, its time for some bold action.
Sin Taxes
I discovered that its against the law in certain Northern Virginia counties to possess more than six cartons of cigarettes without paying taxes on them. So far so good. But what happens when you pay taxes in one county at purchase equal to the taxes to be collected in the county that you live. What do you do? Stay tuned.
America’s Debt Bomb
Back in the 1950’s social policy became tax policy. Things like mortgage interest deductions and real estate tax deductions crept into the Tax Code as home ownership became a national policy. Over the years, special interest groups carved out perks for themselves. R&D, Railroad capital improvements, rapid amortization, and deficits started cropping up. Because all of these things are in the Code, it became a real tough exercise for Congress to balance the budget. There was no simple formula for raising revenue and no simple formula for cutting spending. As a result, deficits grew and grew. And each perk in the Tax Code and each perk in the spending side became part of society in the United States. Now our credit has been downgraded because the President and Congress did not listen to debt ratings services or as it turns out to the Tea Partiers who were villified for raising the question. So, what needs to be done. First with regard to Tax reform, a part of tax policy needs to be a reduction of deductions and credits with a massive rate reduction. That way, when receipts are down, then increasing income comes from increasing rates and its transparent. County governments have to do that all the time with real estate taxes. You can put in a simple Earned income credit for low income workers to deal with their situation, but not a refundable credit for monies not withheld. That’s welfare via Tax Code. On the expenditure side, we need to look at entitlements and delay benefits to a later age. Social Security was built on the theory that people died at age 67. Medical science and medicare have driven that up to 79.5. That means that 12 extra years of benefits are being paid without a corresponding increase in contributions. Increasing contributions is not going to happen since that tax is a regressive tax (a flat tax). So, delaying benefits or needs testing them is the next alternative.
Dan Snyder vs. the publisher of the City Paper
I know this isn’t tax related, but this is a matter of interest that made me want to opine on this. I just finished reading a copy of the complaint filed by Daniel Snyder against the owner of the publisher of the City Paper which ran a negative piece about him. I am not the greatest legal guru that there is, but this case has all the markings of not surviving a motion to dismiss. Why? First, jurisdiction is founded in New York on the fact that the corporation that owns the City Paper is in fact resident in New York. Given that to get to that corporate defendant, he has to first pierce the corporate veil of the City Paper’s own corporation, he has a huge up his climb. To pierce the corporate veil, he has to prove that the city paper is the alter ego of the corporation that owns its publisher. No allegation is made that I saw which did that. Only that each defendant acted as the agent for the other on information and belief. I don’t believe that is a sufficient allegation to create an alto ego claim allowing the corporate veil to be pierced. Given that this defendant is the sole basis for jurisdiction in New York, would be grounds to have the case kicked out of New York.
My other thought is that even if he was libeled, he is going to have a tough time to get damages. He is a public figure and has to also prove malice in addition to an untruth. Even if he succeeds there, he’s going to have to prove that the article damaged his reputation. I am not sure that he will be able to prove that his reputation suffered because of the article. I can imagine if this were to ever get to trial the defendants would produce a parade of witnesses who said that they their opinion of Dan Snyder had not changed due to the publication of the article. I always remind people who want to pursue a libel case that the worst verdict you can get is a dollar. Yes, you were libeled, but your reputation was not damaged. That’s no vindication at all.