Corporate lobbyists prepares to push harder for tax holiday bill

WIN America prepares to push harder for congress to pass a corporate tax holiday bill, authored by GOP Rep. Kevin Brady and backed by 15 republicans and 8 democrats in the House. Repatriating foreign cash will generate 80 billion over the next decade. Democrat Sen. Kay Hagan is considering introducing a similar bill in the Senate.

Super committee and white house are unlikely to support tax holiday without it being a part of a comprehensive tax reform. They are using the tax holiday as leverage.

WIN members have been strong supporters of President Obama.
Baucus played a key role in killing the last attempt for a tax holiday when the bill was last offered by Barbara Boxer in 2009.

Obama rallies to extend payroll tax cut for employees while GOP argue for cuts for employers

Obama rallies to extend payroll tax cut to help 46% of Americans reduce $1000 from their payroll tax this year, according to Charles Babington. Normally, employees pay 6.2% of their wages towards a tax designated for social security; employers match that amount for a total of 12.4%. The extension, expires Jan. 2012, would lower employees contribution down to 4.2% for another year. The 12- month extension will cost the government $120 billion. Some GOP argue that the economy would be better served if the tax cut went to employers.

State slashed $650M from UC system

For the first time, the total amount that University of California students pay in tuition this year will surpass the funding from the state, according to Larry Gordon of LA Times on Aug. 22, 2011.  The State slashed $650 million from each of the UC and the California State University system, forcing in-state UC undergrads to pay 18.3% (nearly $1,900) more in tuition and fees than last year.  UC schools are looking to make up revenue loss by enrolling more out-of-state students, also at historic high, a model that schools such as University of Michigan-Ann Arbor uses, where 30% of students come from another state. UC system consists of 10 campus and enroll 230,000. According to UC leaders, UC tuition for state residents is on a par with other top public research schools (University of Michigan at Ann Arbor, $14,000 this year; University of Virginia, $11,600; and University of Texas at Austin, $10,000). But living costs are much higher in California.

Generating revenue in CA: Collecting use tax and fixing Prop. 13

Only 0.42 percent of personal income tax filers in California paid use tax on their 2009 out-of-state purchases, according to state Board of Equalization in a four-page review of use tax behavior in 2009. The report, mentioned in The Sacramento Bee on 8/19/2011, also mentioned that the state collected $10.4 million in use tax payments from personal-income tax returns in 2009. This means that the state could stand to gain much revenue if companies like Amazon.com were required to collect use taxes.

L.A. mayor Villaraigosa proposes to remove business property owners from some provisions of Prop. 13, which he says has become a 'corporate tax giveaway,' writes Anthony York of Los Angeles Times on 8/17/2011. Villaraigosa also suggests eliminating the corporate tax, lowering the income tax and expanding the sales tax to include services.

Businesses and Bank of America cutting jobs

Bank of America will cut 3,500 jobs nationally by the end of September 2011, more than 1 percent of the bank's workforce of roughly 288,000, according to Associate Press on August 19, 2011. This year alone, it already cut 2,500 employees from its payroll.  U.S. banks employ about 2.09 million people, down from 2.21 million people in early 2008, according to data compiled by the Federal Deposit Insurance Corp. The finance and insurance industry made up about 8 percent of the country's gross domestic product last year, according to the Federal Bureau of Economic Analysis. Bank of America's latest cuts came at a time when many banks are actually posting improved profits.

Businesses in Los Angeles County announced 5,700 layoffs in this summer, according to Good Jobs LA, as reported by the LA Times on 8/21/2011. The recession has slammed the County, where 1 in 4 workers are jobless or underemployed. At the same time, "corporations are hoarding almost $2 trillion in cash but failing to invest in jobs, the advocacy group said. The group also cited skyrocketing bonuses for many chief executives and big tax breaks for some of the nation's largest companies."

Warren Buffet supports tax increase on the rich

Mr. Warren Buffet writes he paid just under $7 million in federal payroll and income taxes last year in an op-ed in the New York Times on 8/14/2011. That is about 17 percent of his income, a lower percentage than anyone else in his office. 

Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

Mr. Buffet also rebut the higher taxes on capital gains and dividends hurt job creation.

The country could generate as much as $500 billion in revenue over the next decade if Congress roll back the Bush tax cuts on people who earn more than $1 million a year and on income from capital gains and dividends, and close loopholes allowing hedge fund managers to be taxed at a lower rate, writes David Kocieniewski of the New York Times on 8/15/2011. The figures came from the Joint Committee on Taxation, the Congressional Budget Office, and the Treasury. This amount is a third of what Congressional committee is mandated to cut from the deficit. 

Eliminating “carried interest,” the money paid to hedge fund managers and private equity investors, alone would raise $21 billion over 10 years, according to the Congressional Budget Office.

Restoring capital gains and dividend rates to the level before the Bush tax cuts – when capital gains were taxed at a top rate of 20 percent and dividends were treated as ordinary income – would bring the Treasury an additional $340 billion over the next decade.

According to the Tax Policy Center, a 50 percent tax rate on income over $1 million would raise $48 billion over the next decade.

Mr. Buffet is the third-richest person with net worth at $50 billion.

The government could receive $350 billion if U.S. companies repatriate the $1 trillion in foreign earnings back to the U.S. General Electric has the most profits overseas, according to Daniel Gross at Yahoo! Finance.

The Stop Tax Haven Abuse Act seeks sunlight on offshore activities of corporations

Senator Carl Levin's bill, Stop Tax Haven Abuse Act, does not seek to limit business activity but rather "simply seeks sunlight," according to Tom Cardamone. The bill requires corporations listed with the U.S. Securities and Exchange Commission to "report their sales, profits, taxes and number of employees for each jurisdiction where the firm operates. Known as country-by-country reporting, this provision would provide far better information on the activities of a company than does an annual consolidated financial statement."

The bill also requires "financial institutions to report to the Internal Revenue Service (IRS) bank accounts opened by offshore entities controlled by U.S. corporations and [requires] reporting to Congress of information related to tax exempt status provided by the IRS. In all, the bill would provide far more transparency than is currently required on the offshore activities of corporations.

Super Committee Members

Members of the Super committee:

Democrats:

• Patty Murray (D-Wash.) (Co-Chair)
• Rep. Jim Clyburn (D-S.C.)
• Rep. Xavier Becerra (D-Calif.)
• Rep. Chris Van Hollen (D-Md.)
• Sens. Max Baucus (D-Mont.)
• John Kerry (D-Mass.)

Republicans:

• Sens. Jon Kyl (R-Ariz.)
• Pat Toomey (R-Pa.)
• Rob Portman (R-Ohio)
• Reps. Jeb Hensarling (R-Texas) (Co-chair)
• Dave Camp (R-Mich.)
• Fred Upton (R-Mich.)

Analysis

Toomey is probably the most right wing of the Republican committee members, having once led the vehemently anti-tax Club for Growth.

In Camp, Upton, Kyl and Portman, the lobbyist saw chances for compromise.

Many liberals see Baucus as most likely to side with Republicans, but one Senate leadership aide suggested instead that Baucus would be a tough advocate for the Democratic position. The Medicare lobbyist noted that Baucus is likely to be protective of both Social Security and the health insurance reform law that he was instrumental in writing.

JPMorgan Chase has already estimated the initial deal to raise the debt limit will shave a point and a half off the GDP.

Analysis provided by Center for American Progress

Co-Chairman Rep. Jeb Hensarling (TX):

• Repeatedly making false claims about the deficit and debt
• “Falsely characteriz[ing] the debt limit fight as a consequence of spending policies enacted by President Obama and past Democratic congresses”
• Called Social Security, Medicare, and Medicaid “cruel Ponzi schemes”
• Believes that recessions are just “a part of freedom”
• Has said corporate tax dodging is a good reason to cut the corporate tax rate
• Consistently carries water for Wall Street’s biggest banks, saying that bank profits should trump consumer protection

Sen. Jon Kyl (AZ):

• Number two Republican in the Senate and takes a hard line on taxes
• Member on: Committee on Finance and Ranking Member on the Subcommittee on Taxation and IRS Oversight
• Member on the Subcommittees on Health Care and Social Security, Pensions, and Family Policy
• Walked away from debt ceiling negotiations because Democrats wanted to raise taxes on those who make more than $500,000/year; insisted there should not be a dime of increased revenues
• Strongly defended tax subsidies for oil companies
• Opposed ending an accounting gimmick that deprives the Treasury of up to $72 billion over the next five years in corporate taxes
• Staunch defender of military spending and is not afraid to twist arms to get it. He held up the START treaty and extension of the Bush tax cuts late last year to extract more money for nuclear weapons
• Voted to privatize Social Security and supported the House Republican budget, which would effectively end Medicare.
• To his credit, he said he did not support tying an increase in the debt ceiling to a Balanced Budget Amendment.

Sen. Pat Tommey (PA):

• Believes that tax cuts don’t actually cost anything, telling Fox News that “it’s not clear” that extending the Bush tax cuts and cutting corporate taxes would decrease revenues.
• Favors of privatizing Social Security because he believes that “personal [Social Security] accounts lead to personal prosperity”
• Supports the budget passed by House Republicans (which would effectively eliminate Medicare) and released his own budget proposal that would turn Medicaid into a block grant, severely slash domestic discretionary spending, and likely result in a big tax increase on the middle-class that would fund tax reductions for the rich and corporations
• Supports cuts to defense spending

Sen. Rob Portman (OH):

• President Bush put Portman in charge of his Office of Management and Budget to meet “our goal to cutting the budget deficit in half by 2009.” Under Portman’s watch, the deficit nearly tripled.
• Entertained defaulting as an “opportunity to get our fiscal house in order”
• Supports privatizing Social Security to bail out bad investors and voted in 2005 to divert Social Security dollars to create private accounts.
• Believes that “spending, not tax cuts, causes future deficits”
• “Any tax increase would hurt the fragile economy.”
• Continually advocated to make the Bush tax cuts permanent and is pushing to balance the budget in 10 years without a single tax increase.
• Stated he would support defense cuts as “the Pentagon has to be part of the discussion”
• Chief architect of GOP’s Job Plan: more cuts for capital gains and dividends
• Open to some “revenue enhancements” (code work for raising taxes on middle class)

Rep. Dave Camp (MI):

• Lower chamber’s chief tax writer and House Ways & Means Committee Chairman
• Declared that he’d rather have a bigger deficit than see taxes go up on “rich people”
• Believes the poor could pay more taxes.
• Believes preserving or pursuing tax cuts — like the Bush tax cuts — will further increase the deficit
• Wary of a tax repatriation holiday
• Declared tax increases “off the table” on Obama’s previous debt commission
• Likely to push a balanced budget amendment and the other disastrous cuts he backed in the House Republican “Cut, Cap, and Balance” plan
• For entitlement programs, Camp wavered and then voted in support of Rep. Paul Ryan’s (R-WI) plan to end Medicare

Rep. Fred Upton (MI):

• Backed the radical House Republican budget, the even more radical “Cut, Cap, and Balance” plan (which would take spending to a level not seen since the 1960s), and a balanced budget constitutional amendment.
• Position on revenues is a bit wishy-washy: He has said tax increases are “just not going to be part of the equation,” but has not ruled out tax reform that lowers rates but brings in more revenue through the elimination of tax loopholes and credits

Rep. Xavier Becerra (D-CA)

• Member of tax-writing Ways and Means Committee
• Was a member of last year's Bowles-Simpson deficit reduction panel but dissented from the panel's final recommendations, arguing they hurt social programs too much.

Senator Patty Murray (D-WA)

• Second-ranking Democrat on the Budget Committee
• Long-time member of the Appropriations Committee
• Chair of the Democratic Senatorial Campaign Committee

Census Data Show Large Jump in Poverty and the Ranks of the Uninsured in 2009

Poverty rose by a large amount in 2009, as 3.7 million more people fell into poverty, according to Arloc Sherman, Danilo Trisi, Robert Greenstein and Matt Broaddus. 3.3 million more people would have become poor had it not been for unemployment insurance benefits, which expanded substantially in response to the increased need. In other words, unemployment benefits kept 3.3 million people out of poverty in 2009.

Article was originally published in Center for Budget and Policy Priorities on 9/17/2010.

State Budget Cuts in the New Fiscal Year Are Unnecessarily Harmful

States’ budget-cutting will hit education, health care, and other state-funded services harder in the 2012 fiscal year – which started July 1, 2011 – than in any year since the recession began, according to Erica Williams, Michael Leachman and Nicholas Johnson of Center on Budget & Policy Priorities.

Higher Education: California is increasing fees at community colleges starting this fall by 38 percent; for the average student, this is an annual fee increase of $300. The state also is reducing funding for the University of California (UC) and the California State University (CSU) systems by $1.3 billion ($650 million each). Since FY2008 California has cut funding for the UC system by 27 percent and has cut funding for the CSU system by almost 28 percent. In response to cuts in funding, the CSU will increase annual tuition by 29 percent, or $1,242 for full time undergraduate students (relative to the tuition rate that was in place at the beginning of last school year). UC will increase annual tuition by 18 percent, or over $1,800 for resident undergraduate students. UC tuition has grown by more than 80 percent since the 2007-08 academic year.

Health care: California is cutting state funding for Medi-Cal (the state’s Medicaid program) by over $1.6 billion. The state will impose co-pays on Medicaid recipients ranging from $3 for generic prescriptions to $100 per day for hospital stays, cut provider payments by 10 percent, and limit doctor’s visits for MediCal patients to 7 per year unless they are deemed medically necessary by a physician, among other measures. The state will also scale back its Healthy Families (CHIP) program by almost doubling premiums for families with incomes between 151 and 250 percent of poverty (a change affecting an estimated 565,000 children), and increasing co-payments, among other cuts.

Other Services: California is cutting CalWORKs (TANF) grants. For instance, the maximum monthly CalWORKs grant for a family of three in high-cost counties will drop from $694 to $638, an 8 percent cut. The state also reduced the lifetime limit on the number of months that a needy adult can receive CalWORKs cash assistance from 60 to 48 months. The budget also cut funding for services that counties provide to help parents transition from welfare to work, such as job training, job search assistance, and subsidized child care, by $369 million.

California also cut Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants for individuals to the minimum allowed by federal law. These grants provide cash assistance to low-income elderly and disabled residents to help them meet their basic needs. This cut drops the maximum SSI/SSP grant for individuals to $830, down 8.5 percent from the $907 maximum grant provided in January 2009.

California is allowing temporary tax increases to expire, thereby giving individuals and corporations reductions in their tax liability at a time when families and communities are facing large budget cuts. The state also allowed major tax measures to expire or phase out, losing significant revenue and causing further cuts in spending.

Article was originally published in Center on Budget and Policy Priorities on 7/28/2011.

Contrary to Speaker Boehner’s Claim, Budget Deal’s “Supercommittee” Can Consider Revenue Increases

The Joint Committee could consider increases in revenues to achieve its deficit-reduction target, according to James R. Horney of Center on Budget & Policy Priorities. The Committee, Congress, and President are free to determine that savings should be calculated relative to a current-policy or plausible baseline, which would show tax reform of the sort proposed by the Gang of Six as reducing rather than increasing the deficit.

Article was originally published in Center on Budget & Policy Priorities on 8/1/2011.

Debt deal leaves Americans living in rural & low-income communities behind

Cuts to discretionary spending will have a profound impact on low-income and minority communities, according to Melissa Boteach & Desmond Brown of Center for American Progress. Botech and Brown write on 8/8/2011 that these cuts will squeeze funding for employment programs, housing assistance, heating and cooling assistance to low-income seniors, and child care services that allow mothers to enter the workforce. The deal lacked any provision to continue federal jobless benefits for the unemployed who were laid off after July 1. Unemployment is nearly twice that rate for African-Americans.

The next round of cuts will disproportionately hurt communities of color, who comprise 56 percent of the Medicaid population. Data from 2008 shows that 44 percent and 23 percent of public housing recipients are African American and Hispanic, respectively, and more than 40 percent of Women, Infants and Children program recipients are Latino.

The deficit deal is also likely to negatively affect Americans living in rural communities. In 2009, 17 percent of Americans living in rural areas lived in poverty, topping the poverty rate in metro areas by nearly 3 percentage points, writes Katie Wright of Center for American Progress. In the South, where rural poverty is concentrated among communities of color, more than one in five people in rural areas were living below the poverty line. Seniors and children in rural areas struggle the most. Nearly half of all children in rural areas live in households with incomes of less than twice the poverty level. And more than 40 percent of seniors in rural areas struggle to get by on low incomes compared to 32 percent of seniors in metro areas. A staggering 76 percent of rural part-time workers lack access to paid sick days, as compared to 60 percent of all part-time workers.

Nascar Tracks, Railroads, American Samoa Bid to Keep Federal Tax Breaks

Bloomberg reporter Andrew Zajac writes that lobbyists are fighting to renew 33 tax breaks (also known as extenders), which if pass, would cost the federal government to $30 billion for 2012, according to the Joint Committee on Taxation.

That doesn’t count a $6 billion ethanol tax credit that the Senate in June voted to end.

The 50 percent tax credit for track maintenance would cost the Treasury about $166 million in forgone revenue next year.

Daniel Houser, chief financial officer of the International Speedway Corp. (ISCA) of Daytona Beach, which operates 12 Nascar tracks, said shortened depreciation of track construction projects -- expected to cost the Treasury about $29 million if extended in 2012 -- is an economic stimulus.

The speedway group is lobbying to make its 7-year-old tax benefit permanent, Houser said.

The government of American Samoa is pushing for at least a five-year extension for an economic development tax credit, expected to cost $19 million next year.

Article was originally published in Bloomberg on 8/10/2011.

What's next in debt crisis? Economist says U.S. woes 'much worse than Greece'

Former economist for Comerica Bank David Littmann said the country is on pace to have around $100 trillion in unfunded liability to entitlement programs such as Medicare, Social Security and Medicaid, as well as student loans and health care reform costs, by 2080. He said that debt will grow at a much faster rate than the country's tax base.

Article was originally published in Livingston Daily on 8/11/2011.

Tax Flight is a Myth: Higher State Taxes Bring More Revenue, Not More Migration

Three reports show compelling evidence that taxes alone do not determine where a business decides to locate.

A report by the Center on Budget & Policy Priorities shows that the “effects of tax increases on migration are, at most, small — so small that states that raise income taxes on the most affluent households can be assured of a substantial net gain in revenue.” The basic facts, as the report explains, are as follows:

• Migration is not common and on average, just 1.7 percent of U.S. residents moved from one state to another per year between 2001 and 2010. And “when people do relocate, a large body of scholarly evidence shows that they do so primarily for new jobs, cheaper housing, or a better climate, among others."
• The migration that’s occurring is much more likely to be driven by cheaper housing than by lower taxes. Florida, for example, had no corporate tax but in the latter half of the 2000s, “the previously rapid influx of U.S. migrants into Florida slowed and then reversed — Florida actually started losing population. The state enacted no tax policy change that can explain this reversal. What did change was housing prices.”
• Recent research shows income tax increases cause little or no interstate migration. A study of the potential migration impact is of New Jersey’s 2004 tax increase on filers with incomes exceeding $500,000. The authors estimated, while those who left NJ cost the state an estimated $16.4 million in tax revenue, the revenue gain from the tax increase over those years was an estimated $3.77 billion, meaning that out-migration reduced the estimated revenue gain from the tax increase by a mere 0.4 percent.
• Low taxes can prevent a state from maintaining the kinds of high-quality public services that potential migrants value. Studies show that such amenities as cultural facilities, recreational opportunities, and good public services are powerful attractions for potential migrants. Many of those services are financed with tax dollars. Therefore, while low taxes decrease the cost of living, they might also prevent states from preserving or improving valued public services, which would discourage potential migrants.

Reports by Ernst & Young (Total state and local business taxes (2010), and Competitiveness of state and local business taxes on new investment (2010)) suggest that when it comes to attracting business, taxes alone do not determine where businesses locate. Businesses also factors in a skilled and educated workforce, a temperate climate, a high level of public services and recreational opportunities.

Debt ceiling deal threathens jobs, economic growth

According to a recent a policy brief by Economic Policy Institute, "spending cuts, along with the failure to extend the payroll tax holiday and emergency unemployment insurance, will cost the economy 1.8 million jobs through 2012.” Co-authors Andrew Fieldhouse & Ethan Pollack of the brief write that the deficit deal "disproportionately cuts the non-security discretionary (NSD) part of the federal budget to the lowest level in more than 50 years, potentially halving investments in education, transportation infrastructure, housing, health and infant nutrition over the next decade.”

The debt ceiling deal will result in more job lost in 2012. “[T]he spending cuts in the deal will reduce GDP by $43 billion in 2012, lowering employment by roughly 323,000 jobs. The failure to extend the payroll tax cut will reduce GDP by $128 billion, resulting in roughly 972,000 fewer jobs, and the failure to continue emergency unemployment benefits will reduce GDP by $70 billion, resulting in roughly 528,000 fewer jobs.”

Over half of the deal’s spending cuts will come from the NSD portion of the budget, which represents only 15% of the total federal budget. The deal’s initial spending cuts reduce NSD from 3.5% to 2% of GDP in 2021, the lowest level in over 50 years. If the committee tasked with producing additional cuts cannot agree to a plan, or if Congress does not pass it, the sequestration mechanism would reduce NSD further, to 1.7% of GDP. At the 1.7% level, NSD spending would be roughly half of what it is right now.

Article was originally published in Economic Policy Institute on 8/4/2011.

S&P's downgrade shows the need for tax reform

Joe Nocera writes in the New York Times' Opinion on 8/8/2011 that the downgrade “was less about economics than politics.” S&P was frightened by the “spectacle of an unyielding minority of Tea Party Republicans ready to push the country into default rather than accept even modest tax increases to help bring down the deficit.” S&P suggested that it did not believe Congress would let the cuts expire at the end of 2012, as they’re supposed to.

Professors Menzie D. Chinn and Jeffry A. Frieden write in New York Times' Op-ed on 8/8/2011 that the deficit deal “sidesteps the fundamental challenge the country now faces: who will pay to fix [for the] irresponsible tax cuts…failures of regulation and the resulting housing and financial booms and busts?” According to them, America needs more spending, not less "with unemployment at 9.1 percent, and long-term joblessness at record levels [and] the S&P decision to downgrade reflects, in large part, the expectation that Republicans will not allow the Bush tax cuts to expire.”

Regulate tax havens to strengthen financial system

Ha-Joon Chang writes that structure reform of the entire financial system is needed to solve the U.S. debt crisis. One of such reform is the need to regulate tax havens, which “not only depriven governments of tax revenues but also make financial regulations more difficult.” Change writes, “we could have eliminated or significantly weakened tax havens by simply declaring that all transactions with companies registered in countries/territories that do not meet the minimum regulatory standards are illegal.”

Article was originally published in The Guardian on 8/8/2011.

American businessman proud to invest in America

Paul Egerman, co-founder and former CEO of eScription, writes in The Hill's blog:

“I have invested by building successful businesses employing thousands of American workers. And I have invested in our country by paying taxes…But our nation loses $100 billion a year to tax dodging by some of our largest corporations and wealthiest people…Instead of reducing our debt by cutting vital services, we need to close two big tax deficits…It’s time for Congress to plug the loopholes that allow our largest corporations to avoid billions of dollars in taxes, and it’s time for Congress to ask our wealthiest individuals, including people like me, to also pay our fair share of taxes.”

Article was originally published in The Hill Blog on 8/5/2011.

Estonian Tax System Haven for Russian Businessmen

An increasing number of Russian businessmen are moving their holding companies to Estonia to take advantage of the country tax system, according to Marko Saag, a fiscal specialist and lawyer at the Glimstedt law firm. Estonia offers three major bonuses that the Russian businessmen appreciate: no immediate taxation on profit the moment it is earned; no taxation on reinvested dividends; and an exemption from tax on interest earned if it's within market value norms, Saag added.

Article was originally published in EER News - Estonian Public Broadcasting on 8/5/2011.

Pending trade deal with Panama, one of the world's worst tax haven

Elaine Hughes and Maple Glen of PhillyBurbs.com criticize a trade deal pending before Congress with Panama, "one of the world's worst tax havens and home to thousands of corporations seeking to evade taxes. These corporations will be empowered to directly challenge future U.S. anti-tax haven policies to demand cash compensation in foreign tribunals. Instead of a constant round of budget cuts that primarily impact working Americans and the elderly, we need to focus on jobs…[end] tax breaks for companies that outsource jobs and rewarding those which keep jobs here."

Article was originally published in PhillyBurbs.com on 8/5/2011.

U.S. budget ax hangs over California

George Skelton of Los Angeles Times outlined California's current state budget. According to Skelton, California's current state budget is not $85.9 billion. The real state budget includes:

• Special funds ($34.2 billion) (state)
• Bond money ($9.4 billion) (state)
• Federal largesse ($79.2 billion), representing 38% of total state spending.
• Grand total: $208.7 billion

California is getting “a nearly $209-billion spending program while putting up less than $130 billion itself.” According to state Assembly Budget Committee Chairman Bob Blumenfield (D-Woodland Hills), "If it were not for federal spending and the stimulus package, the recession in California would have been dramatically worse. The impact on schools and state services would have been devastating."

Much of the federal funds come with strict rules attached or "pass through" money, where federal money automatically passed on by Sacramento to local entities. The state does take a 2.5% administrative fee.

Where does the federal money go?

• Health and human services receive $41 billion. Of that, about $29 billion —almost twice what the state puts up — goes for Medi-Cal, California's version of Medicaid healthcare for the poor.
• CalWorks welfare program gets $3.2 billion ($1.1 billion more than Sacramento kicks in).
• Employment Development Department receives $19.7, practically all of it for unemployment insurance benefits.
• Department of Education receives $6.9 billion for K-12. Of that, $2.2 billion pays for poor kids' lunches, $1.7 billion provides other services for low-income students and $1.2 billion helps fund special education. There's also $700 million for child care and after-school programs. And there's money to lend to new charter schools.
• University of California pulls in $3.5 billion and the state universities $1 billion, mostly in research grants.
• Caltrans receives ~$4.3 billion, much of it for highway construction. The feds generally pay 88% of an interstate project.
• Emergency Management Agency gets ~$1.1 billion. Virtually all of it is shuffled out to local entities for disaster aid, homeland security, hazard mitigation, public safety and victim services.

All programs are in jeopardy. It's a good bet much of their federal funding will be trimmed or terminated in the future. Already, Sacramento has trimmed down the general fund roughly 6% from from $91.5 billion last year. It's about 17% lower than three years ago.

State Senate Budget Committee Chairman Mark Leno (D-San Francisco) says: "My greatest concern is that [the cutting] may have a recessionary impact on the overall economy and cause more damage…Many economists look back at 1937 when the Great Depression had a second dip and Congress did just what it's doing now. It retrenched on government spending."

Article was originally published in Los Angeles Times on 8/4/2011.

UK corporations pushing to weaken tax authorities

Multinational corporations in the UK are pushing hard behind the scenes to weaken Britain's tax authorities, as part of the Onward March of Tax Haven UK. In his testimony in the parliament about recent corporate tax changes, Tax expert Richard Brooks said, “These are self-evidently very generous moves that encourage tax haven activity in the face of global pronouncements against offshore activity in the wake of the recent financial crisis.”

Article was originally published in Tax Justice Network Blog on 8/1/2011. See a related article.

China uses 'reverse merger' to shortcut to Wall Street

Nanette Byrnes and Lynnley Browning of Reuters reported on how Chinese companies have got themselves listed on U.S. stock exchanges, avoiding the regulatory scrutiny that normally comes with having to go through all the kerfuffle of Initial Public Offerings of shares (IPOs,) by instead buying dormant shell companies already listed on the exchanges in a method called “reverse merger.”

Basic idea of reverse merger: “A reverse merger hinges on a shell company-a firm without meaningful assets or operations, used as a vehicle for transactions-that's already listed on a stock exchange…A so-called shell broker, anyone from a small shop to a larger firm such as Halter’s [a U.S.-based key player.] Brokers acquire shells, often domiciled in a secrecy-friendly state such as Delaware, Utah or Nevada. The broker then sells the U.S. shell to an operating company seeking to trade on a U.S. exchange-a transaction . . . the acquiring firm thus becomes a publicly-traded company, with access to U.S. investors – but without the time, expense and scrutiny of a traditional initial public offering.”

Article was originally published in Reuters on 8/1/2011. See a related

article.