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.
Don’t scrap those formula clauses
As a follow-up to my last posting about combined exclusions of $10 Million, I would not recommend giving up those formula clauses, yet. For one thing, if Spouse A dies in a $5 Million year, the spouse gets the exclusion in that year and it is locked in. The estate can grow for the benefit of the surviving spouse, children and grandchildren for at least two generations (since the GST inclusion ratio is 1.0). If the other spouse dies later having remarried a wealthier new spouse, that would be lost if it were jointly titled. So, its good to keep those formula clauses intact.
Happy New Year
I’m out today, hopefully attending an non-rainy outdoor hockey game. See you on January 2. Have a Happy and prosperous New Year.
Portable Estate Tax Exclusions
One new concept in the 2010 Tax Act is in Section 303 of the Act which specifies that when a spouse dies the surviving spouse can elect to carry over to his or her estate the unused unified credit. Thus if H dies with a $5 Million estate and leaves it all to the wife, the Executor can elect to have it apply to her estate when she dies. But there is a curve ball in here. The act uses the term, “last such deceased spouse of such surviving spouse”. Let’s say that spouse one died and had $4 Million left over and then surviving spouse remarries. Spouse Two dies leaving a $5 Million estate to Spouse two’s children. Suddenly surviving spouse has no portability of that $5 Million. Thus, her estate loses that. And we don’t know the effect if spouse one dies in 2011 or 2012 and then the surviving spouse dies in 2013 with a $1 Million exclusion.