Draining the Swamp

[Haggis@wk]

Thanks to Sen. Christopher Dodd, Rep. Barney Frank and others, the lending industry spent years issuing mortgages to millions of Americans who had no hope of repaying. Sen. Dodd and Rep. Frank believe homeownership is a right unfettered by income or credit history, and over time, they were instrumental in forcing the industry to lend to some of the least creditworthy Americans.

As everyone knows, the results were disastrous. The housing bubble they helped create and inflate has burst, driving the economy into recession, the lending industry into chaos and millions of Americans into foreclosure, bankruptcy or both. (But at least Sen. Dodd got his millions in campaign cash from the financial industry and special rates on his mortgages from Countrywide Financial.)

Lesson learned? Don’t be silly. In December, GMAC got $5 billion from the government’s $17.9 billion bailout of the domestic auto industry, which Sen. Dodd supported, and immediately lowered its lending standards. No longer would buyers need a credit rating of 700 or higher. Now, people qualify with scores as low as 621, which is 2 points above “poor” and 102 points below America’s median. As columnist George Will put it, GMAC is using taxpayers’ dollars (more accurately, money borrowed against tax receipts far into the future) to issue subprime loans.

How in the heck can we keep these idiots from bankrupting the country? Or is it already too late?

[Shapley]

Or is it already too late?

It's too late. They have two years before we can turn the direction of Congress. (You can write to your Congressmen and Senators, forcefully and often, and it may have some issue, but they know who signs the checques that go into their coffers, and that's who they'll listen to in the end.)

The deficit, and the debt, will balloon to the point that our economy is seriously threatened (>100% GDP), at which point the governmen will be forced to drastically cut spending (specifically entitlement spending, which has been considered untouchable) in order to reduce debt and allow GDP to grow sufficiently to make the debt sustainable again.

Here is the diagram of the 2007 budget:


As you can see, social security, medicare, medicaid, interest on the debt, and other entitlements make up about 55% of the budget. (a larger version is available here, if you can't read this one.) It is worth noting that, despite the claims that President Bush' military spending is bankrupting us, as a percentage of the overall budget, military spending has not grown drastically over the long-term average since World War II. Entitlements are where the money is going, and entitlements are where the cuts are going to have to happen in order to reign in the monster. The sooner, the better, IMHO. Unfortunately, those on the receiving end of those entitlements vote, and usually vote in favour of retaining them.

As far as I can see, the only solution is for the people to get so mad that they toss out the whole bunch and demand fiscal responsibility. I think that's coming but, unfortunately, not soon enough.

V/R
Shapley

[barfle]

I never used the M-16 for anything other than training.

I never used any of them for anything but training. And even that was about 40 years ago.

Some of the training was supposed to simulate combat conditions. I'm unable to comment on the accuracy of the simulation, because I never saw combat. Can't say I regret that situation.

[barfle]

Why would anyone neglect to pay taxes? Forgot? Not a good sign. Procrastination? Not good. Didn’t know about it? Maybe o.k. for a plumber, but… Above it all? Won’t get caught? Didn’t have the money? (I’m self-employed, too, and I make sure I have the money). Doesn’t believe in taxes? Can you think of one good reason for not paying taxes that portends well for a Secretary of the Treasury?

I’m sorry but if you do your own taxes and don’t use one of simple, cheap and easy programs available then you are too ignorant to be the Treasury Secretary. And if you did use one it would have prompted you to calculate those SS and Medicare contributions. Only by ignoring them could you have “forgotten” to pay them … for 4 years in a row. Doesn’t pass the smell test. These are not complicated calculations like actual income tax, they are straight percentages.

It appears that the tax codes are too complex for financial professionals, so it's pretty clear they are too complex for those of us who only occasionally concern ourselves with the topic.

Bar and I were discussing this situation, and we're hopeful that the new Secretary will lead a tax simplification movement.

[Shapley]

Bar and I were discussing this situation, and we're hopeful that the new Secretary will lead a tax simplification movement.

The taxes he failed to pay were Social Security and Medicare on a person in his employ. Both are pretty simple to compute, and there are cheap software programs that do that work for you. If you employ people, you have to pay the employment taxes.

Of course, a simple solution is to hire your housekeeper through an agency. The agency takes care of the paperwork, and you merely send them a checque.

As I noted, the period of failure to pay taxes seems to have coincided with the period during which her immigration status had lapsed. It was illegal for him to hire her under those conditions. I suspect this is another 'nannygate' episode, but they are focusing on the tax aspects of it because of the nature of the job he is applying for.

V/R
Shapley

[barfle]

The taxes he failed to pay were Social Security and Medicare on a person in his employ. Both are pretty simple to compute, and there are cheap software programs that do that work for you. If you employ people, you have to pay the employment taxes.

Looks like your source and mine disagree.

The Los Angeles Times

Tax experts said that the issues that tripped up Geithner were complex enough to befuddle many taxpayers. If Geithner's job for the International Monetary Fund had been conducted in another country, the income he earned would not have been subject to tax -- that's a break in U.S. tax law for many American citizens who hold posts overseas. But because he worked for the IMF in the U.S., the taxes needed to be paid.
...
Yet the idea that someone of Geithner's economic savvy would be unable to accurately file his own return -- even with professional help in some years -- was seen as an indictment of the U.S. tax system.

[Shapley]

No, our sources seem to be in agreement. The LA Times, however, does not mention the legal status of the housekeeper.

Geithner appeared to heed this notification when it came to paying his income taxes, but he didn't when it came to employment taxes, which are paid into the Social Security and Medicare systems.

"That makes it look more negligent than it would have otherwise," Holthouse said.

edit

Here is an AP story on it, a little more detailed than my earlier link:

At issue is Geithner's failure to pay appropriate Social Security and Medicare taxes when he worked for the International Monetary Fund between 2001 and 2003. He had paid some of the back taxes in 2006 after the IRS sent him a bill. When the Obama transition team discovered he owed even more back taxes, Geithner paid those additional taxes days before Obama announced his choice in November, according to the Senate Finance Committee considering his nomination.

Obama's staff told senators about the tax issues on Dec. 5.

Geithner also didn't realize a housekeeper he paid in 2004 and 2005 did not have current employment documentation as an immigrant for the final three months she worked for him, according to the materials released by the committee.

This would seem to indicate that the two are unrelated, as the employment tax isssue predates the problems with the housekeeper's immigration status. My apologies.

[barfle]

I hadn't heard about the housekeeper. Isn't that what kept Linda Chavez from being approved eight years ago?

What I had heard was his confusion regarding taxation of income earned from foreign sources.

So, maybe that tax code IS TOO FREAKING COMPLICATED. Maybe?

[Shapley]

I hadn't heard about the housekeeper. Isn't that what kept Linda Chavez from being approved eight years ago?

What I had heard was his confusion regarding taxation of income earned from foreign sources.

So, maybe that tax code IS TOO FREAKING COMPLICATED. Maybe?

It is too complicated, but the things that tripped him up appear to be relatively common-sense issues. If you employ a person in the U.S., you have to pay employment taxes.

Al Franken, possibly the next senator from Minnesota, was also befuddled by common-sense issues: if you earn wages in any given State, you have to file a tax return for that State, regardless of which State you call home. Franken even hired a 'tax professional' to do his taxes, which was his excuse for his failure (just following orders, so to speak). Surely a 'tax professional' knows that simple bit of tax law. States credit taxes paid to other States, so you don't get a 'double whammy' when you do this. I pay taxes to Missouri (where I work), and to Illinois (where I live), but Illinois credits me for the Missouri taxes, so I really only Illionis the rate difference between the two States. (I don't earn any income from Illionis sources.)

I would love a simpler tax. Given the number of political figures tripped up by tax issues, you would think they would be clamouring for one, as well. Not so, it seems, since complicated tax schedules seem to benefit them, somehow, despite the occassional embarassment.

V/R
Shapley

[barfle]

The housekeeper has nothing to do with the issue I heard about. It was wages earned from a foreign employer, and even the LA Times says tax experts say it's confusing to them.

And again, the point was my hope that this would lead to simplification of the tax laws.

And regarding the filing of tax returns in a state you earned them in, even if you didn't live in that state, it's not that simple, either. Do long-haul truck drivers have to file returns in every state they drive through? I wonder why there aren't warrants for my arrest in about 20 states I went to on business trips.

[piqaboo]

I used to live and work out of state, for a CA employer.
Both years I was relocated (to the non-CA location and back to CA), the company hired tax professionals to prepare my taxes. Both of them screwed up, acc the tax professional I currently use.
We relocatees had to tell the OOS guy to file us for CA as well. He had no idea.
"Professional" means someone pays you. It doesnt mean you know your hind end from your elbow.

Not that I am apologizing for the candidate for Secty Treasury. I'd say the mere issue should recuse him.

[Shapley]

And regarding the filing of tax returns in a state you earned them in, even if you didn't live in that state, it's not that simple, either. Do long-haul truck drivers have to file returns in every state they drive through? I wonder why there aren't warrants for my arrest in about 20 states I went to on business trips.

The State of Idaho did at one time claim it was entitled to taxes on that portion of the wages that was earned by long-haul truckers and railroad crews that passed through their State, but the Supreme Court tossed that one out.

You pay the taxes to the State in which your paycheque is written. If you are a performer that travels to various States, you pay taxes in each State you perform in, if you the venue that hired you is based in that State, and pays you directly. A lot of performers work through 'booking agencies'. The hiring venue pays the agency, and the agency pays you. In those cases, you only pay taxes to your home State (or the State in which the booking agency is located).

If you are traveling salesman, you are usually paid a commission by the company that hires you, regardless of which State the sale was made in. In that case, you only pay to the State you are hired in. On the other hand, if you receive a commission direct from the customer, you have to pay taxes on that commission to the State it was earned in.

There may be some hazy areas in some of this, but generally, that is the rule of thumb.

Regarding foreign employment, there are residency requirements associated with that. If you reside in the States for more than a certain amount of time, you have to pay taxes on some or all of your earnings, regardless of your paycheque's nation of origin.

That's the general rule, but I'm sure there are 'clause A's and 'subsection B's that confuse the issue a bit.

One of the problems with the growth of casinos in this nation is the fact that your winnings are taxable in the State of origin. This wasn't a problem when Vegas was the only place to gamble, since they have no State income tax. Other States do, and the are entitled to (and expect) their cut of your winnings. If you win over a certain amount, they take your personal information and issue a form W-2g on the spot. This has to be declared as income. (You can deduct provable losses up to the amount of the win. I'm not sure how you prove losses, though.) One of the more popular gaming spots around here is Northern Mississippi. They take their cut (3%) off the top if you win over the base amount ($200, I think).

V/R
Shapley

[Haggis@wk]

More on Geithner and Congress:

Senators who will vote to confirm his Cabinet appointment do not appear overly concerned by either of these “honest mistakes,” even though one of his larger responsibilities at Treasury will be oversight of the Internal Revenue Service.

Neither do they seem likely to do more than gently slap the wrist of one of their own, Connecticut Sen. Christopher Dodd, chairman of the Banking Committee.
Dodd, readers may recall, received a sweetheart mortgage deal from Countrywide, as one of that financial firm’s more prominent “Friends of Angelo.” Countrywide, incidentally, has since been acquired by Bank of America.

Meanwhile, over on the House side, Speaker Nancy Pelosi, who took up the gavel two years ago with a promise to “drain the swamp” and clear up ethical abuses ignored by her Republican predecessor, has a festering problem of her own — what to do with New York Rep. Charles Rangel, chairman of the House Ways and Means committee. That’s the panel that writes the tax laws all the rest of us are required to follow

The Democrats have made it clear that they don’t give a tinker’s damn about any of these ethical/legal lapses and the MSM will give them the cover they need to permanently ignore them.

Hopeandchange™ indeed

[piqaboo]

That is a darned shame. He should be so far out of the running at this point. <sigh>

Shap, you also pay taxes in your state of residence, even if its not where you are paid, as I recall.

[Shapley]

Shap, you also pay taxes in your state of residence, even if its not where you are paid, as I recall.

I thought I said that. I have little or no Illinois income, but I pay taxes to Illinois because I live there. They do give credit for the taxes paid to other States, so I only pay the difference between the Missouri rate and the Illinois rate, as well as the taxes on the income (if any) earned in Illinois.

[Shapley]

Sales of TurboTax® will probably drop significantly:

Geithner Links Woes to Tax Software Used by 18 Million Americans

Rival software firms may want to use his testimony in this tax season's advertising...

[Haggis@wk]

“RANGEL RULE:”

All U.S. taxpayers would enjoy the same immunity from IRS penalties and interest as House Ways and Means Chairman Charles Rangel (D-NY) and Obama Administration Treasury Secretary Timothy Geithner, if a bill introduced today by Congressman John Carter (R-TX) becomes law.

Carter, a former longtime Texas judge, today introduced the Rangel Rule Act of 2009, HR 735, which would prohibit the Internal Revenue Service from charging penalties and interest on back taxes against U.S. citizens. Under the proposed law, any taxpayer who wrote “Rangel Rule” on their return when paying back taxes would be immune from penalties and interest.

[Selma in Sandy Eggo]

Ooohh! I like the Rangel Rule! I can see where it's fair, and equitable, and right, and just! I like it a lot! Thanks for posting that, Haggis. I'm taking notes.

[barfle]

I've often wanted to say "I can't do it, it's too hard." Now maybe I'll get that chance.

[Haggis@wk]

Tom Daschle’s tax fraud.
There is no ambiguity in the law, or no theory that he did not know that he owed the money. It is obviously an in-kind payment for services. Of course he knew he owed the taxes. Finally, there is no tedious extra bureaucratic obstacle to paying this tax. You just drop a number right on to the 1040. You know, that document that you signed under penalty of perjury.

Daschle supported Obama, eventually opposed the war after falling victim to Bush’s lies in 2002, and has been reliably pro-choice and in favor of legislating higher taxes on high earners (despite a more flexible attitude about actually paying them), so I assume he will get a pass on this. Obviously, if he were a greedy Republican this would be disqualifying

“Make no mistake, tax cheaters cheat us all, and the IRS should enforce our laws to the letter. ” Sen. Tom Daschle, Congressional Record, May 7, 1998, p. S4507.

I’m starting to wonder if anybody in this crew is paying all their taxes.