government

You are currently browsing articles tagged government.

The Tax Code: More Welfare for the Well Off

May 26, 2011 in Tax Issues by DJ | No comments

Dan4th Nicholas image

A tax client asks,

“Our income for the 1st quarter dropped dramatically. Can I base my estimated payment for the 2nd quarter on actual income, and if so what is the formula?”

The short answer is, yes.  The law requires that a taxpayer pay in 90% of the tax due for the year, or 110% of the tax due for the previous year; either amount will satisfy the requirement.  Except that if the taxpayer earned $150,000 or more, he/she must pay in 100% of the tax due this year.  This is all covered in IRS Publication 505, which for 2011 contains 69 pages explaining how to calculate what you need to pay.

In this taxpayer’s situation, where income is expected to be significantly less than last year, possibly as much as 75% less.  Obviously he wants to pay in based on this year’s tax, whihc will be dramatically less than last year’s.  That means he has to know how much this year’s tax will be.  The first challenge is that both he and his wife are currently unemployed.  He expects to start work again this summer.  He has no idea whether or not his wife will find work.  So he has to make a ballpark guess as to what their income will be before they have made it.

The second challenge is even more formidable: assuming X dollars in income, what will their tax be?  All he has to do is start with his best-guess taxable income, deduct his itemized deductions, and figure in any credits.  Except that last year his itemized deductions were phased out and he was ineligible for any credits.  Looking at last year’s tax return will not help him.  His itemized deductions are likely to be d=significantly different, and he may or may not be eligible for the Child Tax Credit, Higher Education Credits, and/or the Retirement Savings Credit.

In effect, he’s going to have to pay me to prepare a tax return based on fictitious numbers in order to have any idea what his tax liability will be.  Then he’ll have to pay me again when the year is over to prepare a tax return based on the actual numbers.  This by a couple that is currently unemployed.

How can we live with a tax code under which a reasonably intelligent taxpayer has no idea how much he will owe?  We talk about corporate welfare; the tax code is a form of welfare for accountants and lawyers who would otherwise have to find gainful, productive employment.  As an accountant, I am embarrassed to make my living this way.  It isn’t right, and it needs to change.

Of course, with Congress full of lawyers as usual, change isn’t very likely.

Tags: ,

The Oddities of Food Labeling

April 26, 2011 in local food by DJ | No comments

Cross-posted from JackrabbitCheese.com

A few months ago, one of our customers asked why we use rennet that contains the preservative sodium benzoate.  The answer, as we posted then, was that we couldn’t find rennet that didn’t have it.  Our cheese contains so little of the preservative that you would have to eat 3,000 pounds of it to ingest the amount of sodium benzoate permitted in a single serving of soft drink.  (And if you ate 3,000 pounds of cheese at a sitting, your problem wouldn’t be sodium benzoate!)

Still, this led us to ask what rennet the industrial cheese makers use, since their labels don’t report any sodium benzoate.  Our search led to the discovery that almost all rennet contains sodium benzoate.  Unless specifically labeled organic, sodium benzoate seems to be universally added as a preservative.  And the difference is striking: organic rennet has a shelf life of only a few months, while non-organic rennet may be good for two years or more.

So why don’t those industrial cheese makers report rennet as an ingredient in their cheese?  Because the law says they don’t have to.  (And, it turns out, neither do we.  Our dairy inspector had been a tad overzealous.)  CFR101.100(3)(1) allows an exemption from food labeling for

substances that have no technical or functional effect but are present in a food by reason of having been incorporated into the food as an ingredient of another food, in which the substance did have a functional or technical effect.

Rennet acts as a preservative in the rennet, but not in the cheese, so it need not be mentioned on the ingredient label of the cheese.  Similarly, if a cheese recipe includes sun dried tomatoes that contain sulfur dioxide as a preservative, the sulfur dioxide has no functional purpose in the cheese and is treated as an incidental ingredient that need not be mentioned.

The theory behind this exemption is that it would be “burdensome” for manufacturers to list every sub-ingredient of every ingredient. Having tried to squeeze a large number of ingredients onto a label, while still complying with minimum font size regulations, I can understand their concerns.

On the other hand, people want to know what’s in their food.  Our customers are concerned with natural food, and want to know whether there are any added chemicals.  This (very informative) article from Kashrut.com points out that those who keep kosher have similar concerns, since non-kosher ingredients are not necessarily listed on the label.  Presumably the same would be true for those concerned with halal food, or vegetarian.  (The label need not specify whether the rennet in a cheese came from animal or vegetable sources; ours is vegetarian but most rennet used in industrial cheeses comes from calves’ stomachs.)

As a manufacturer and a consumer, I can see both sides of the issue.  Personally, I’d prefer the regulations to require more information rather than less.  I don’t mind listing sodium benzoate on my cheese label, so long as everyone else has to do the same.  It’s worth it to me for my customers (and myself) to know what we’re putting in their mouths.

Tags:

Californio Absurdum

April 23, 2011 in Tax Issues by DJ | No comments

That California is in deep financial crisis is not news.  However, the desperate measures to which the state is stopping to collect money have passed into the realm of the absurd.

One of my clients has an old tax debt to California that she acknowledges she owes and on which she has been making payments for a number of years.  Recently, the State reviewed her account and assessed her more than $1,000 in retroactive penalties because she failed to make electronic payments.  This is on a balance of about $7,000 – and despite the fact that her payment agreement did not require her to make e-payments.

Another of my clients has me do an annual payroll for him as president of the corporation.  Generally we do this in December, but in 2010 we did it in November.  For federal purposes, he was required to file and pay quarterly.  But for State purposes, he was required to file and pay monthly.  It doesn’t say that on any of the forms involved, one would only know that if they read the entire California Guide to Employers.  Still, the client was assessed a 10% penalty for failing to file monthly.  In most instances, an oversight by a paid professional is reasonable cause for the abatement of any penalty, so I wrote a letter on his behalf arguing that the penalty should be abated because the fault was mine.  Request denied.  The reason?

The employer had a responsibility to select a responsible accountant but did not so so.

Uh-huh. So the employer should have known in advance that the accountant might make a mistake.

(In this instance, I am responsible to pay the penalty.  However, I will be informing the client that I no longer do payroll taxes for California clients.)

California businesses might also wish to be aware that an Annual Statement of Information must be filed for each corporation or LLC.  There is a fee of $25 for filing.  However, the State no longer sends reminder cards, and if you fail to file on time you will be assessed a $200 penalty.

These are policies of a state so desperate for money that it can no longer afford to be reasonable to its taxpayers.  I wonder how long the taxpayers will stand for it.

Tags:

Sen. Hatch Trumpets Major Spending Cut

April 20, 2011 in US Politics by DJ | No comments

“Forcing Washington to live within its means like Utah families do every day won’t be easy, but cutting $5 billion in redundant federal programs is a no-brainer. We need to do even more to cut wasteful government programs, but this is a  good start.”

So says Sen. Orrin hatch (R-UT) in a press release.  By my math, that proposed $5 billion cut represents a massive 0.13% of the 2012 federal budget.  Bravo, Senator!

Tags: ,

The Budget Train Wreck

April 13, 2011 in capitalism, Economics, US Politics by DJ | No comments

Celeste Hutchins photo.

You can download the gory details of the 2012 federal budget here in all its $3.7 trillion glory.  Projected revenues?  $2.6 trillion, for a deficit of $1.1 trillion.  Yes, 42% of expenditures are unfunded.  And if you look closely, personal income taxes are projected to rise 20% over 2011 levels, a neat trick without raising tax rates.  I suspect that they’re counting on a Hail Mary economic recovery that isn’t likely to happen.

Elsewhere, CNN reported yesterday that the fine print of Rep. Paul Ryan’s Medicare proposal makes permanent the Bush tax cuts for the super wealthy. Meanwhile, the Hatch-Cornyn balanced budget amendment being proposed would require a supermajority to raise any taxes, yet require the budget to be balanced.  The jist of the GOP agenda is to balance the budget without raising taxes – and without trimming defense.

What would that look like?  In 2011 we have $2.1 trillion in income. If you cut everything but security-related expenses (defense, law enforcement, and veterans benefits), basic infrastructure maintenance, mandatory liabilities, general government (i.e. congressional salaries), Social Security, the Postal Service, and interest on the national debt, that’s $1.9 trillion in outlays. That’s pretty much what can’t be cut.  I’ve left in Social Security because it currently contributes $221 billion more than it costs; cut it and we’re in even worse shape.  But if Medicare goes, we have to cut $209 billion in Medicare taxes.  Unless of course we’re going to pay taxes for a program that no longer exists, which seems unlikely.  That would drop revenue to $1.9 trillion, the same amount as the bare-bones budget items listed above.

Everything else gets cut. Everything.  That includes:

  • Non-military foreign aid, from food to business development to disaster relief
  • Departments of Agriculture, Commerce, Education, Energy, Health, HUD, Interior, Labor, and Transportation
  • Medicare & Medicaid
  • Environmental Protection Agency
  • Food and Drug Administration
  • Federal Housing Authority
  • Fannie Mae and Freddie Mac
  • Library of Congress
  • NASA
  • Small Business Administration
  • The Smithsonian
  • Welfare

No student loans, school lunches, farm subsidies, NPR, public school support, new highways, disaster relief, FDIC, small business loans, nuclear power plants, national parks, unemployment insurance, farm loans, food safety enforcement, pharmaceutical regulation, pollution controls, automobile safety, meat inspections, energy research — nothing but the bare minimum.

That’s what our current level of taxation funds: security and mandatory obligations.   And while I would quibble with the necessity of many of the things the federal government spends money on, I really don’t understand this minimalist vision of the federal government. Taxes stay the same, and the benefit we get from it is… what exactly?

Let’s be clear: no one wants to pay more taxes.  But we can’t borrow or cut our way out of this mess, unless we’re willing to return to a society without safety nets or consumer protection, and without a leg up for those who need it. This approach says those with money get to make more money, while politely screwing those who don’t.

That isn’t libertarianism, or even anarchy – it’s feudalism.  Welcome to the new Dark Ages.

Tags: ,

Economists: Shutdown Would Prolong Recession

April 8, 2011 in US Politics by DJ | No comments

AP quotes a number of economists who believe that a government shutdown could prolong the recession.  With concerns about inflation and disruptions in the oil supply, forecasters are already dropping expectations.  Says an economist from Moody’s:

“”I think the economic damage from a government shutdown would mount very quickly.”

Generally one can tell why something is happening by who benefits.  But it’s difficult to see that anyone benefits from a shutdown… which suggests that it may be averted by a last minute deal.  Commentator Jaimie Dupree cites rumors to the effect that a deal has been settled for days, though even he has doubts.  If so, we’re being treated to a show that has no basis in reality.

Tags: ,

Furlough Facts

April 8, 2011 in US Politics by DJ | No comments

If a budget agreement is not reached in time to avoid it, a government shutdown will idle many federal workers at midnight tonight.  Here are some interesting facts about the impending shutdown:

  • Roughly 800,000 federal workers would be furloughed, or about 18% of the federal workforce.
  • Some 82% of the federal workforce would continue to work, though no paychecks will be issued until the shutdown is over.
  • In 1995, furloughed employees spent 27 days out of work – and were later paid for that time, making the furlough essentially a paid vacation.  But the decision on whether to pay employees for furlough days is up to Congress– it’s not guaranteed.
  • It’s not guaranteed that those workers who aren’t furloughed would be paid for their work, either.  Obama says yes, but it’s Congress that has to appropriate the funds.
  • One union of federal workers has filed suit, claiming that it is a violation of the Constitution to force federal employees to work without a guarantee of pay.
  • Federal employees idled by the furlough can collect unemployment if the shutdown lasts for more than a few days.
  • A shutdown would also mean that federal funds would stop flowing into state treasuries, in effect stopping some federally-funded programs.

Tags:

Why I Don’t Offer E-Filing

March 26, 2011 in Tax Issues by DJ | No comments

The IRS wants us to e-file our tax returns.  In fact, starting this year, a preparer who does more than 100 tax returns is required to e-file.  Next year, a preparer who does more than eleven tax returns will be required to e-file.  But most of my clients could care less about e-filing.  Paper feels much more secure to them, as it does also to me.

Two years ago, I submitted my application to become an e-file provider, complete with fingerprints and background information.  Yes, you have to submit fingerprints to e-file a tax return!

I’m still not set up to e-file.  Every time I try to log into the system (about once a year), I get locked out and have to start over.

Today was a perfect example.  I had two (out of my 93) tax clients ask me about e-filing.  So called to find out what I still had to do to become an e-file preparer.  I need a copy of my acceptance letter, which (because I got it two years ago and don’t know where it is), I can only obtain by logging into the IRS E-Services website.  This requires a username, password, and PIN.  But not just any PIN, this requires a special 5-digit PIN, so it’s not one of the normal numbers I use for my bank or for other IRS websites.

I don’t remember my pin.  After 3 permutations of likely numbers, I got a message telling me I was locked out of their site for an hour.  Brilliant.

An hour later, I was back on the website.  This time I decided to get smart: there’s a link to reset the PIN.  Okay, I can do that.  All I need to provide is my name, social security number, username, and AGI for one of the three previous tax years.  I can do that.

Rather, I thought I could do that.  A cryptic message told me my name did not match my social security  number.  Excuse me?  I tried again… and again.  Then I called the helpline for assistance.  The rep wasn’t able to tell me why I couldn’t log in, but she was able to tell me that I’d been locked out of the site again – this time for 48 hours.

“It didn’t tell me I was locked out,” I complained.  “It just told me there was an error.”

“I don’t know why it does that,” she said.  “But you’re locked out and there’s nothing we can do about it.  Call back on Monday and we’ll help you.”

Monday?  There are 20 days left until April 15.  I won’t come up for air again for another three weeks.

“I’ll try again next year,” I told her.

Now I remember: This is exactly what happened last year, I got locked out for 48 hours and gave up.   For something the IRS mandates must be done, they sure don’t make it easy!  This is a very unfriendly system.

Tags: ,

Utah Legislators to Restrict Access to Government Information

March 5, 2011 in Security or Freedom by DJ | No comments

Like a freight train rolling through the halls of government, Utah’s HB477 has gone from introduction, through the House, to the floor of the Senate in two short weeks.  The bill would restrict public access to certain government records, including emails by legislators and various types of information pertaining to the Governor’s Office.

Utahns overwhelmingly oppose the measure.  Deseret News cites a poll showing that 90% of Utahns oppose restricting government acess.  Comments on the newspaper’s article were (at the time I read them) 100% against the measure.  One self-described conservative commented,

“Darkness is Satan’s realm, light is Christ’s realm.”

Legislators appear to support the measure because it shields them from the discovery of embarrassing faux-pas.  The Senate President was quoted as saying,

““It will complicate matters if it has a weekend to fester.”

In other words, vote quickly before people realize what’s going on!

Tags: ,

The Absurdity of Our Tax Code

March 1, 2011 in Tax Issues by DJ | No comments

The taxpayer owns a business, converted an IRA to a Roth-IRA, has two children, a mortgage, is subject to the AMT, and lives in a state that also collects income tax.  Still, I can think of no reason an individual ought to have a tax return that is over 3/4″ thick.  Our tax code is absurd.

Tags: ,

« Older entries