This month President Obama released a budget plan that emphasizes new spending freezes and fiscal accountability but comes with an extraordinary price tag.   Overall, the budget reveals federal spending will grow to $3.72 trillion dollars in the 2010 fiscal year and will increase to $3.83 trillion in 2011.  The Obama Administration plans to add $25 billion in new state spending for Medicaid.  Also in the works is another jobs stimulus spending, but this time targeting low-income family programs such as health research, heating, and education.  An extension of entitlements to future generations can be seen in a small budget shift that puts the Pell Grant program, used to aid college students, into the mandatory spending column.  This transition will cost $307 billion over 10 years, which makes it an entitlement similar to social security.

Here is a sample of 19 tax changes and increased complaince costs in the president’s budget.

1.  Taxes on high-income earners will rise by nearly $1 trillion over the next 10 years.

2.  The top two income-tax rates, which affects people earning more than $200,000 a year, or $250,000 for married couples, will be  rise from 33% and 35% to 36% and 39.6%.

3.  The budget raises capital gains and dividends from 15% to 20% for people at higher income levels.

4.  The budget limits upper-income taxpayers’ ability to claim personal exemptions and itemized deductions will increase.

5.  The budget decreases the value of benefits from deductions for mortgage interest and some charitable contributions from 39.6% to 28%.

6.  $122.2 billion budgeted in new revenue via a reform of the U.S. international tax system, which is a giant tax increase on American companies that operate overseas.

7.  Fund managers will see their partnership profits taxed at ordinary income rates, rather than the lower capital-gains rate, under President Obama’s proposals.

8.  The budget permanently reinstates the estate tax.

9.  The budget places new limits on the use of family trusts that help higher income families lower their estate-tax liabilities.

10.  Obama’s budget will phase out the payroll tax credit he campaigned on that increased worker paychecks by $400 per person in 2010 by the year 2012. 

11.  The Obama budget projects new compliance “reforms” that will raise $13.8 billion to close the so-called “tax gap” over the 10-year budget window.

12.  $7.4 billion budgeted to improve compliance by businesses.

13.  $4.4 billion budgeted to strengthen tax administration.

14.  $36 million budgeted in increased penalties.

15.  $23.7 billion budgeted in backdoor death tax increases. 

16.  Corporate Information Reporting requires all corporations must file 1099-MISC statements — estimated to cost $9.2 billion.

17.  Landlord Information Reporting forces owners of rental properties must also file 1099-MISC forms costing them an estimated $3.1 billion.

18.  Independent Contractor Discrimination enforces new regulations that will permit the IRS to re-classify independent contractors, which will cost an estimated at $7.3 billion.

19.  The Economic Substance Doctrine gives more power to the IRS to determine that a transaction used to lower a tax bill “lacks economic substance.”  This arbitrary standard, and will subject every small business decision to the discretion of an IRS auditor and could raise by estimates $4.2 billion.

By Oregon Tax News,

New regulations, taxes, and fees and even some interesting new tax credits may be in store for this year.  Federal agencies and Congress will consider numerous policy proposals that will increase regulatory action, increase taxation, and even provide a tax breaks.  Currently, dogs, cats, and other household pets are the winners while tax consultants and tanners are the losers.

The Internal Revenue Service (IRS) is looking at increasing regulations on tax preparers by 2011.  According to the IRS, approximately 60 % of taxpayers have someone handle their taxes for them.  “This is something that is long overdue,” IRS Commissioner Doug Schulman said, adding that there are “no national, professional standards for one of the largest financial transactions individuals have each year.” 

Proposed rule changes would require tax preparers to pay a registration fee to the IRS and employees would need to pass a competency test and take 15 hours of education a year.  Preparers would have three years to pass the test.  Among those to be regulated are larger tax preparation firms such as H&R Block and Jack Hewitt tax Service Inc.  Changes would also apply to thousands of independent preparers as well, but certified public accountants that are already regulated by professional standards would be exempt.

Another industry facing increased regulation is the tanning industry.  Congress in its attempt to expand health care coverage for millions has agreed to place a 10 percent tax on indoor tanning services.  The Congressional Joint Committee on Taxation estimates that the new tax will raise $2.7 billion over 10 years.  Proponents of the plan hope efforts will also reduce skin cancer and future health care costs through preventative measures.  According to research done by the International Agency for Research on Cancer, indoor tanning before the age of 30 has been associated with a 75 percent increase in the risk of melanoma.  Opponents of the tax argue that the tax is discriminating against women because most tanning salon clients are women.

Perhaps Congress is hoping that more women will become pet owners to help defray new potential costs associated with the tanning.  In Washington, Congress is considering a bill that would cut taxes for pet owners.  The Humanity and Pets Partnered Through the Years or (HAPPY ACT) would give pet owners the ability to deduct pet expenses for food, veterinarian care and other related expenses up to $3,500 a year.  Rep. Thaddeus McCotter (R-MI) stated that he sponsored the legislation because the responsibility of pet ownership is costly, and defraying the costs would help ease the strain on animal shelters.

If the government gets its way, tax preparers will be trained to answer individual’s questions on new taxes associated with tanning beds and new tax breaks for puppy chow.

Due to the ongoing economic crisis, Oregon’s Indian gaming industry suffered a 1.2 percent decline in revenue last year, placing the state No. 24 among the 31 Indian gaming states. According to economist Alan Meister and his recently released annual Indian Gaming Industry Report, no new tribes entered the gaming business and existing players did not open any new facilities in Oregon during the year.

Nationally, the gaming industry, once thought to be recession-proof, has been hit hard, according to the News-Register.  Many casinos reported declining visitor traffic and spending per visit, resulting in declining revenue.  There has also been a delay or downsizing of casino development projects and employee layoffs and furloughs.

Although Indian gaming experienced the slowest revenue growth in its history, it still managed to post a 1.5 percent increase over 2008, Meister told the News-Register.  The revenue growth slowdown is part of a larger trend in declining Indian gaming revenue, from a 20 percent decline in 2001 to the current 1.2 percent decline.

The slowdown in the gaming industry hasn’t stopped local businessmen Matt Rossman and Bruce Studer from generating a ballot initiative which would allow for the construction of Oregon’s first non-tribal casino and resort at the former Multnomah Greyhound Park.  According to the Daily Journal of Commerce Oregon, they hope to gain approval from the secretary of state to begin gathering the needed 100,000 signatures for the ballot initiative this spring.  The two believe Oregon’s high unemployment rate provides ideal conditions for their project to move forward.

Spectrum Gaming Group, an independent research and professional services firm, has recently listed 21 of the most important trends that the global casino industry needs to monitor in 2010.  Among those trends:

- Consumers continue to “deleverage” their personal balance sheets, paying down debt and increasing savings, making it more difficult for casinos to reach pre-recession revenue levels.

- Continued conversion of racetracks to racinos.

- Increasing reliance on non-traditional sources of financing, such as private equity, as traditional lenders and investors shy away from gaming.

- Major tribal operators will seek new opportunities in commercial gaming to boost their brands and leverage their loyalty programs and the low tax rates at their home properties.

- Off-reservation gaming becomes an increasingly heated issue in Washington and in state capitals, with existing tribal operators staking out positions on both sides, seeking to lobby the Obama Administration to either retain or amend the Bush policies limiting such casinos to within 50 miles of the reservation.

- States seeking new sources of revenue in continued fiscal crisis look to new forms of gaming.

- Demographics of gaming in major markets, particularly Las Vegas, shifts as lower-income adults step in to take advantage of continued downward pressure on room rates and packages.
For the full list of gaming trends, visit http://www.spectrumgaming.com/trends/

Americans for Tax Reform did a calculation of what each state’s top income tax rate would be ifthe Bush 2001 tax cuts expire. The results are ranked from best to worst with nine states being tied ofr the first spot as these states have no income tax. Oregon was noted for being the highest income tax state (including the District of Columbia). The method does not compare other taxes such as sales taxes where Oregon has none and Washington is among the highest. The chart is useful for those businesses and individuals consider moving into or out of a state.

See full chart here: http://www.atr.org/userfiles/Word%20final.pdf

On December 8th, U.S. Senator Tom Coburn and Senator John McCain released their Stimulus Checkup Report.  The report lists 100 projects as part of the $700 billion stimulus program targeted as waste.  Four Oregon projects made the list are listed below;

Recovering Crab Pots Lost At Sea ($700,000)
A $700,000 grant will pay for 48 people to help Oregon crabbers recover crab pots they have lost at sea.  The two-year project expects to yield 2,000 lost pots a year. Oregon crabbers reportedly lose an estimated 15,000 crab pots a year. The effort will use 10 boats, planes, and a telephone hotline for people to phone in crab pot sightings.  If all 4,000 pots are recovered as expected, the grantees will spend an average of $175 per crab pot, though John‘s Sporting Goods in nearby Everett, Washington sells new crab pots online for as little as $19.95.  At that price, crabbers could purchase nearly ten times as many crab pots as this program is expected to reclaim.

2. Renovations for Federal Building as Expensive as New Building ($133 million)
Taxpayers in Oregon may be surprised to learn that the largest stimulus project in their state is not a new road or bridge, but a $133 million makeover for the federal building in downtown Portland. The money will go toward greening  the Edith Green/Wendell Wyatt Federal Building in the hope of making it a model for energy efficient government offices in the Northwest. That said, for $133 million some may wonder why they did not simply tear it down and start over.

It is not yet clear how all of the money will be spent—those decisions will largely be made by a contractor to be hired by the General Services Administration. For now, agency officials expect to construct a type of vegetative skin—made of plants—on the exterior of the building, to help with heating and cooling costs.  Vegetative facades on buildings, however, are a little studied field according to some experts.  In 2007, a new federal building was constructed in downtown San Francisco with similar state-of-the-art energy efficiency features for $144 million—nearly the same cost to merely renovate the Portland Federal Building. Both buildings are eighteen stories tall, built with energy efficient technologies, and house federal agency offices. The major difference is that the San Francisco building is much larger, with an additional 100,000 usable square feet in comparison with its counterpart in Portland.

Removing Lead Paint from a Pedestrian Bridge ($3.5 million)
A historic bridge in Salem, Oregon is about to get a paint job and some security cameras with a $3.5 million stimulus grant from the Department of Transportation.  Through the years, the bridge has been painted with lead-based materials, which local officials would now like to remove. The Union Street Railroad Bridge, built in the early 20th Century, has been closed to trains for decades and has recently been converted to a pedestrian thoroughfare over the Willamette River. Attempting to underscore the importance of the bridge to local economic growth, Todd Klocke with the City of Salem, told a reporter, ?There have been talks about half marathons or other events using the bridge, we have also heard about a couple that want to get married on the bridge in the spring.

Wastewater Treatment Center with “Talking Water Gardens” ($8 million)
Oregon will use $8 million in stimulus loans for a wastewater treatment project featuring a tourist-friendly ?Talking Water Gardens.  According to news reports, the spectacle would ?funnel effluent from the city‘s wastewater treatment plant into wetlands…where it would be naturally cleansed and cooled down? before flowing into the Willamette River.  In order to spend the money as fast as possible, the city of Albany will issue a non-competitive contract for work on the project.  According to the city‘s planning document, ?the waterfall component is expected to have an important acoustical impact that is the driver for the name ?Talking Water Gardens.‘  Local residents will also be facing an increase in sewer rates to pay for the new water treatment system.

Read full report here -Stimulus Checkup Report

Holiday shoppers will get an early start this year whether they are ready or not.  Retail giants have embarked on an advertising spending spree in an attempt to lure bargain shoppers to their stores earlier this year, signaling the economy may be on the rebound.

Target, Wal-Mart, Kmart, and Gap all plan to boost advertising spending over last year’s level in an attempt to get this seasons holiday shopping started early.  According to John Swallen, the senior vice president of research at TNS Media Intelligence, “We are seeing increases across a large number of retail advertisers. Clearly they are trying to jump-start their sales efforts.”

Already, we’ve seen the holiday season kick into gear, and retailers are trying to relate to the tough economic times.  “Frugal is the new cool,” says Bob Thacker, the senior vice president for advertising and marketing at OfficeMax  “Consumers may see as many Ebenezer Scrooges in ads this year as they see Santa Clauses.”  Kmart began their media blitz 30 to 40 days ahead of last year’s in an attempt to entice shoppers with their thrifty new slogan, “There’s Smart and there’s Kmart Smart.”

Wal-Mart, the world’s largest retailer kicked their spending spree off during the 2009 World Series. Gap, which also operates Banana Republic and Old Navy, plans to increase advertising spending by $25 million in the third quarter and $45 million in the fourth quarter.

Marketers and different media outlets are hoping to profit from retail spending. Online giant Google posted new profits and is among those who may benefit from the retail battle.  Viacom, which owns MTV, Nickelodeon and Comedy Central, and Discovery posted profits for the third quarter.

“The market does feel more robust” said David Zaslav, Discovery’s chief executive, said on Discovery’s earnings call.  “We can’t predict where it will be in three weeks or four weeks, but it feels much stronger over the last few weeks.”

While it’s still too early to declare a recovery, industries and household alike are hoping the holiday season will spread good cheer.

The federal government spends about the same amount of money funding environmental lawyers as it does to protect endangered species according to an investigation conducted by a Wyoming lawyer who defends farmers and ranchers involved in environmental lawsuits.

According to the Capital Press, Karen Budd-Falen was curious how much money the federal government paid the lawyers who initiated cases against her clients and uncovered more than $4.7 billion in taxpayer money that the government paid to environmental law firms between 2003 and 2007.  That represents an average of $940 million a year, compared to $922 million spent directly on the 986 endangered and threatened species, according to the U.S. Fish and Wildlife Service’s annual report.

According to her research, Budd-Falen found that three environmental groups—Western Watersheds Council, Forest Guardians and the Center for Biological Diversity—filed more than 700 lawsuits against the U.S. government between 2000 and 2009.

“That money is not going into programs to protect people, wildlife, plants and animals,” Budd-Falen told the Capital Press, “but to fund more lawsuits.”

According to Budd-Falen, environmental groups are eligible for government funds under the Equal Access to Justice Act, which provides for the award of attorney fees to “prevailing parties” in cases against the government.  The firms also are accessing government funds through the Judgment Fund, which is a line-item appropriation in the federal budget used for paying claims against the government.

“We tried to track the fees paid to environmental groups in certain federal courts. These guys are charging between $350 and $450 an hour in legal fees.” Budd-Falen told Now Public.

“If you just look at the raw number and say ‘why in the world is the United States paying a million dollars bankrolling them to sue us,’ well that’s what congress set up through EAJA. That’s the law, we’re bound by it,” Assistant U.S. Attorney Mark Haws of Boise told Now Public.

Budd-Falen found in one 15-month-long case that Earthjustice Legal Foundation and the Western Environmental Law Center filed for $479,242 in attorneys’ fees.

Brian Smith, a spokesman for Earthjustice, told the Capital Press that the foundation counts on those fees because it represents groups free of charge and that if the government had been doing its job under the Bush administration, the foundation wouldn’t be so active.  He believes the current Obama administration will reduce the need for environmental lawsuits.

However, Budd-Falen doubts the steady stream of lawsuits will stop, or even slow.  “Why would you stop filing litigation when you can get that kind of money?  They are not filing these suits to try and protect the environment.  They are filing these suits to make money.”

– Often overlooked, smaller tax increases will be facing thousands of Oregon homeowners, in addition to possible new taxes in Multnomah County, Hood River and Ashland. 

Recent local proposals include an extension of the Ashland meals tax, along with increased driver registration fees and higher property taxes in Multnomah County.   Some local cities, like Hood River, will be wrestling with a local gas tax increase. These smaller taxes have lost attention in light of the much larger $733 million Oregon tax referendum measures approaching the January ballot.

Property Tax Increases despite recession, home value drop

Despite a recession and declining property values, homeowners will see property tax bills rise.  In Multnomah County property owners will see their property taxes jump six percent, allowing the county to collect $1.2 billion in new revenue.  The bulk of the money will go toward Portland’s public schools, city services, and county programs.  Metro, the region’s planning agency, will receive $21 million.  Following suit with Multnomah County, taxpayers in Linn County will see about a four percent hike from last year according to Linn County Assessor Mark Noakes.

Multnomah County Registration Fee

In addition to higher property taxes, Multnomah County also established a new county registration fee of $19 a year.  The fee will be tacked onto the state fee that drivers in Oregon pay every two years.  In total, the tax will raise $127 million over 20 years and be used to rebuild the Multnomah Bridge.  While commissioners worried about proposing a new fee during difficult economic times, they successfully lobbied the state legislature for approval.  Clackamas County will consider a five dollar local motor vehicle fee next year in an effort to help finance the project.  If they are successful Clackamas County would contribute roughly $22 million toward the project even though their residents account for nearly 75 percent of the bridge’s traffic.

Ashland Meals Tax extension

Vehicles are not the only means of raising revenue.  In November, Ashland residents will decide on extending Ashland’s five percent food and beverage tax until 2030.  Eighty percent of the funds collected are used to pay the existing debt on the city’s wastewater treatment plant.  The remaining 20 percent is used to acquire open space to build city parks.  If voters choose not to extend the tax residents would likely see higher sewer bills in order to meet the cities debt obligations.

What is the big tax measures explained?

The State Legislature approved two tax measures that would raise $733 million to fund state services.  However, business leaders and citizen advocates have organized a group called Oregonians Against Job-Killing Taxes and have succeeded in submitting enough valid signatures in order to refer the tax increases to Oregon voters during a special statewide election that will be held on January 26, 2010.
  
The proposed measures would permanently increase taxes on corporate and personal income.  Measure 67 would increase the minimum tax corporations pay annually from $10 to $150.  It also imposes a brand new tax based off a company’s sales in Oregon.  The tax is on a sliding scale that ranges anywhere from $150 to $100,000.  Tax rates on businesses making more than $250,000 would also rise from 6.6 percent to 7.9 percent.  The rate would last for two years, drop to 7.6 percent, then return to 6.6 percent for most corporations.  Beginning in 2013 money collected above the 6.6 percent rate will be set aside in a newly established reserve fund.
 
Oregonians earning $125,000 and joint filers earning between $250,000 and 500,000 will see their tax rate jump from the current nine percent tax rate to 10.8 percent if Ballot Measure 66 is approved.  Those earning more than $500,000 will pay 11 percent.

The proposed taxes and fees across the state demonstrate lawmakers’ reliance on the private sector to solve the budget crisis in Oregon and in some instances voters will have the final say.

Oregon Faces Paycheck Decline

Oregon is near bottom in wage growth and it could get worse. According the United States Census Bureau, Oregon is currently ranked eighth in lowest pay check growth across the country.

The rise of unemployment in Oregon gives employers the opportunity to take advantage of the abundance of labor and lower wages.  Goldman Sachs’s chief United States economist, Jan Hatzius, predicts that average hourly earnings will fall about half a percent from the fourth quarter of 2009 through the fourth quarter of 2010.  Hatzius says his prediction accounts for workers’ strong aversion to wage cuts.  Without that adjustment, the projection would be negative two percent.

Analysts fear that the United States may face a downward debt-deflation spiral like that of the 1930s and Japan in the 1990s.  In such a trend, debt-burdened workers cut back on spending to make their interest payments, which drags the economy down even more.  “Imagine a person who got laid off six months ago,” says Paul Ashworth, senior United States economist for consultants Capital Economics.  “They’re going to get more and more desperate to get a job and more and more willing to take lower wages as time goes on.”

Oregon has some work to do if it intends to escape its declining wage growth.

States across the nation are cutting taxes to boost stagnant economies.  Texas, Arizona, and Maine are all taking steps to lower taxes.  A recent study by former U.S. Treasury economist Robert Carroll shows that states with lower corporate tax rates have higher wage gains and more productivity over time.

Governor Rick Perry announced that Texas created more jobs in 2008 than the rest of the states combined.  Texas does not tax capital gains or income.  In July the state had an unemployment rate of 7.5%, two points below the national average.  Governor Perry has worked to attract businesses to Texas.  Businesses like Medtronic and Caterpillar are moving to Texas to take advantage of the state’s stable budget and low taxes.

Arizona is following suit.  The legislature will vote on tax reform to lure employers and high-income taxpayers to the state.  Republican Governor Jan Brewer’s plan would reduce the state’s corporate income tax rate from 6.97% to 4.86%.  The proposal cuts all personal income tax rates by 6.6%, and abolishes a hated statewide tax on commercial and residential property.  To balance the decreases, the plan temporarily raises the states sales tax.

In Maine the Democratic legislature and Governor John Baldacci enacted sweeping tax reform.  The new law removes the state’s graduated income tax structure with a top rate of 8.5% and replaces it with a simple 6.5% flat tax.  Those with earnings above $250,000 will pay a surtax rate of 0.35%, for a total rate of 6.85%.  Maine plans to finance the tax breaks with $300 million in cuts to the states $5.8 billion budget.  It also proposes to expand the state’s 5% sales tax on services that had been previously been exempt, such as ski lift tickets.

Three states that have raised taxes

New Jersey lawmakers approved a string of 103 tax increases which created a large state debt.  From 2001 to 2008, New Jersey lost a net 25,000 private-sector jobs as public employment grew by 65,000 workers.   New Jersey is now considering adopting a flat tax.

Maryland lost one-third of its millionaires when it created a millionaire tax bracket by raising the top marginal income-tax rate to 6.25%.  As a result, Baltimore and Bethesda have increased income taxes to support city services.  The combined state and local tax rate in Maryland can go as high as 9.45%.  Critics point out that the drop in top wage earners is a reflection of national income trends and not directly related to the tax.

Finally, Oregon raised taxes on incomes over $125,000 and on business by increasing the corporate minimum tax.  Currently, these taxes are being challenged by a state referendum petition effort to bring the issue to the statewide ballot.