Oil tax loses in Congress
At the federal level, Senator Bernie Sanders, an Independent Senator from Vermont, led the unsuccessful Congressional effort to pass legislation to repeal oil tax breaks.  Senator Sanders argued that big oil companies make billions in profits and do not deserve the tax breaks at a time when the nation faces a record-breaking $13 trillion in national debt and an unsustainable federal deficit.   The successful opponents to the legislation argued that removing the breaks for oil and gas drilling would hurt small producers as well as big oil companies.

Income tax fails in New Jersey
Democrats in the New Jersey State Legislature failed to override Republican Governor Chris Christie’s veto of the proposed tax increase on individual annual incomes above $1 million.  The 47 to 33 vote did not give Democrats the two-thirds majority needed to override the bill.  The proposal would have tapped an additional $600 million out of New Jersey’s economy by increasing the income tax rate by nearly 2 percent (8.97 percent to 10.75 percent) on the state’s 16,000 highest wage earners.  Senate President Stephen Sweeney and other Democrats supported the bill because they planned to use the money for seniors and the disabled, and restore property tax rebates.  However, opponents to the bill successfully argued the tax would stifle economic activity and growth and chase residents from New Jersey to more tax-friendly states.

Soda tax fails in Maryland
In Maryland, a proposed $11 million tax on bottled beverages, including beer and soft drinks, failed in the Baltimore City Council.  Baltimore’s Mayor Stephanie Rawlings-Blake proposed the tax as a means to help close a $121 million budget gap.  If passed, the proposed bottle tax would combine with existing state and local sales taxes to increase the price charged on bottled beverages.  A four-cent per container tax would increase the cost of a 30-pack of beer $1.20.   Opponents argued that the tax would heavily burden convenience stores, restaurants, and other small businesses, because beverages make up a significant portion of their sales.  The tax failed by one vote.

Parcel tax fails in L.A.
The Los Angeles Unified School District faces difficult budget cuts after residents defeated its proposed parcel tax on the primary ballot.  Measure E sought a $100-per-parcel tax that would provide $92.5 million annually for four years, easing some of the pain from next year’s budget crisis.  The district hoped to rely on the parents of nearly 618,000 students.  However, a lackluster campaign with little advertising could not bring out the desired numbers.  Officials must now cut arts programs in half in elementary schools and eliminate library aides to deal with the $640-million deficit.  These cuts will come amidst the already crowded high school classrooms and increasing anticipated layoffs.

Oregon is one of a few states that dedicates funds, paid by Oregon employers, to cover unpaid wages when a company fails and does not have money for payroll. Last year, the average payout was about $1,048 per worker. The fund pays amounts equal to unpaid wages up to a maximum of $4,000. Several incidents in the mid-1980s, when employees of distressed companies learned that banks were ahead of them in collecting debts, led to legislation that established a fund to protect workers. Since its inception, Oregon’s Wage Security Fund has paid more than $16 million in benefits to more than 16,000 workers.

Despite the tally of companies that went under in the past few years, Oregon has not seen a large increase in workers getting payouts from the fund. “We were expecting that we might see a real spike in claims, and it hasn’t happened. It might be because Oregon workers don’t know the fund exists,” said State Labor Commissioner Brad Avakian in a special report from the Statesman Journal..

During the 2009 Session, the Oregon State Legislature swept about $3 million from the fund and placed it in the general fund. The transfer was a part of the $89.9 million in funding that was shuffled from state funds and accounts to help plug holes in the budget, according to the Oregon Legislative Fiscal Office.

The balance in the Wage Security Fund, as of June 30, was more than $2.3 million down from about $3.9 million a year ago.

See also Oregon BOLI Q&A here

Thanks to the IRS, successful gamblers may become losers. Those gamblers who win $600 from racetracks and state lotteries, $1,200 or more from slots or bingo, $1,500 from keno, or $5,000 from poker will receive a Form W-2G from the IRS to report their winnings. Federal tax law acknowledges wins as income but only acknowledges losses in relation to the wins in the same year. For example, if a person wins $10,000 this year and loses $9,000 next year, his two-year total of taxable gambling income is going to be $10,000, not $1,000. Individuals who win $10,000 at poker in June, lose $10,000 in July could wind up significantly boosting their taxes.

The exception to the rule is the rare taxpayer who claims to be a professional gambler. This elite group does not have a same-year timing problem. They can put both income and losses on a Schedule C.
A 1987 U.S. Supreme Court decision recognized gambling as a profession. Justice Harry Blackmun declared, “If one’s gambling activity is pursued full-time, in good faith and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business.”

Esther K. Chow of San Gabriel, Calif. retired from running her husband’s medical practice and played the slots at Morongo Casino near Palm Springs on 176 days in 2005, wagering $1.23 million and winning $1.08 million. She filed a Schedule C. The IRS objected, but in March, a Tax Court judge gave her pro status. The judge added, however, that Chow “would be prudent to abandon gambling as a potential source of income.”

At the state level, Oregon recognizes the federal status and Oregonians who claim gambling losses as itemized deductions on their federal Schedule A forms will face an addition on their Oregon returns. Oregon does not tax Oregon Lottery winnings of $600 or less from a single ticket or play.

As industry revenue levels recede this year, potential for modest growth in gun and ammunition sales through 2015 may still exist. The National Rifle Association (NRA) held its annual meeting in May in Charlotte, North Carolina.  The general theme outlined the decline in gun sales despite the recent trend of ‘friendliness’ toward gun owners.
 
Gun and ammunition sales grew 8.9 percent in 2009 to $10.4 billion, reports research firm IBISWorld. Although, a good portion of that growth came from huge military ammunition buys to supply troops in Iraq and Afghanistan. However, many NRA activists argue that the recent surge in gun and ammunition sales reflect consumer fear that the Obama administration would restrict sales.  This year, the anxiety over gun control is easing, and industry will experience a 5.7 percent revenue decline according to IBISWorld, a national research firm.

Despite the recent decline in growth of gun and ammunition sales, IBISWorld analyst Nima Samadi predicts the industry will still grow at an annual rate of 3.7 percent from 2011 to 2015.  The growth is down from an estimated annual pace of 6.9 percent for the five-year period ending December 31, 2010.

The Securities and Exchange Council (SEC) produced documents illustrating the net sales for the three months ended March 31, 2010 were $94.7 million, a decrease of $26.3 million, or 21.7%, as compared to the three months ended March 31, 2009. Centerfire rifle sales decreased by $24.2 million, or 27.8%, as compared to the prior-year period, primarily due to reduced sales demand for modern sporting products [assault rifles]. Shotgun sales decreased by $1.2 million, or 4.9%, as compared to the prior-year period. Rimfire rifle sales decreased by $1.0 million, or 14.4%, as compared to the prior-year period.

Although the decline in growth of gun and ammunition sales continues, the industry is thankful that it continues to grow despite the current recession.

This week Canon Beach City Hall will be voting on a 1% lodging tax. This tax hike on tourists is designed to attract new tourists. The logic behind raising taxes on people as a way to attract them seems contradictory.

Here is an important question to ask. Why is there a tourism tax problem in Canon Beach? Oregon passed a tourist tax in 2003 (Hb 2267) and then expanded it in 2005 (Hb 2197). The 2005 expansion made headlines because it covered yurts and tents.

If the tax is needed to help recover from the recession, then is the tax temporary? Consider the fact that since the passage of Measure 67 — every single business in Canon Beach already has a new tax. Now certain ones will be taxed more.

70% of the lodging tax must be used for tourism activities. Why not 100%? IS money being used for other pruposes not related to tourism or not needed altogether? This are the questions that need to be addressed at the tax hearing.

On tax day before the Senate Commerce Committee, the Federal Communications Commission (FCC) proposed the National Broadband Plan that would expand the Universal Service Fund (USF) tax on landline and cell phones to include broadband internet.  The FCC estimates the National Broadband Plan will cost $350 billion to develop, but that the plan will pay for itself.  The goal is to tax all types of telecom service, including Internet service, and use this pool of money to subsidize the cost of broadband.

FCC Chairman Julius Genachowski testified, “It proposes a once-in-a-generation transformation of the Universal Service Fund from yesterday’s technology to tomorrow’s.”

Under the current USF tax rate the Internet tax will be at least 15.3% of your bill. The plan sets a goal of capping the tax at this year’s level to promote fiscal responsibility.  However, critics are skeptical because President Obama has increased the USF tax rate by 61% since he took office.

First, the plan expressly calls for a digital goods tax.  Since state and local governments pursue varying approaches to raising tax revenues, a national framework for digital goods and services taxation would reduce uncertainty and remove one barrier to online entrepreneurship and investment.  In fact, 18 states have already enacted laws to tax digital goods and services.  Such taxes range from downloading music, books, and ringtones within state borders.  The National Broadband Plan would create a national framework and could spread these state laws nationwide, permitting all states to begin taxing digital goods and even allowing states to collect taxes on e-commerce made across their borders.  Critics argue that taxes on e-commerce would be deemed unconstitutional by the U.S. Supreme Court because it violates the Commerce Clause of the U.S. Constitution (Quill v. North Dakota).
 
Secondly, the National Broadband Plan calls for significant expansion of the Universal Service Fund (USF), a tax on urban and suburban consumers redistributed predominantly to rural areas.  The FCC seeks to reform current universal service mechanisms to support deployment of broadband and voice.
 
Third, the plan calls for Congress to consider providing optional public funding.  Some critics are afraid that this proposal is a mere continuation of the Obama spending spree.  However, supporters are confident that this proposal is a way to increase revenue to support access across the country to fast growing and new technology.

Oregon State officials boast more that the 2009 Legislature’s trumpeted economic stimulus package created or retained 7,500, a feat just shy of the 8,000-plus jobs reported for Oregon under the far bigger federal stimulus program. Yet, Oregon reports spending about $93 million so far compared with $1.3 billion.  However, looks can be deceiving.  Harry Esteve, of The Oregonian, reported that the average Oregon jobs created by the state stimulus lasted about two weeks and did little or nothing to dent the state’s bleak employment outlook. Unemployment was at 11.9 percent when the stimulus money started flowing in and still remains stuck at 11.5 percent.  In addition, the state counted anyone working on a stimulus-related project as a job, regardless of whether the worker was already employed and in no danger of being laid off.

Federal stimulus spending requires more rigorous reporting of job numbers. Regardless of how many people are hired for a particular project, only the hours worked are counted, then translated into yearlong, full-time jobs. Hundreds of workers may have gotten a paycheck from a federal stimulus contract, but they’re not each counted as a separate job.

If that formula were applied to the state stimulus, the number of created and retained jobs would be about 600 — fewer than one-thirteenth of the 7,577 claimed in the most recent Go Oregon progress report, released by the Department of Administrative Services. Of those, 1,862 were new hires, and about a quarter of them weren’t from Oregon because some contractors hired out-of-state crews.

An analysis by The Oregonian shows that a disproportionately high amount of the state stimulus money was spent in Marion and Polk counties.  These are two areas of the state favored by Senate President Peter Courtney, D-Salem, who championed the measure. Polk has gotten $3.6 million to date, which translates to about $54 per capita. That compares with $25 per capita spending statewide. Marion got $14.8 million, or about $47 per capita.

The plan was to borrow $172 million, then spend the money on hundreds of long-neglected maintenance projects, from mossy roofs to peeling paint.  However, contractors say the program, which will cost Oregon’s general fund more than $300 million over 20 years because of interest rates, has done little to cushion their industry’s free fall.

“It’s been a huge disappointment,” said John Killin, president of Associated Builders and Contractors, whose members are scraping for every bit of work they can find. Since 2007, the number of construction workers in Oregon has fallen from a peak of 114,000 to fewer than 68,000, he said.

Although university and community college campuses got the bulk of the money from the state stimulus, the federal government stepped in with $17 million in specially-designated stimulus money for OSU.  Kevin Hampton, of the Democrat-Herald, reported that an unnamed source sent an email Oregon State University Athletic Director Bob De Carolis was considering firing their basketball coach, Craig Robinson, Michelle Obama’s brother.  According to the source, when word of this reached Washington, Undersecretary of Education Martha Kanter was dispatched to Corvallis with $17 million in stimulus money for the university. The source now says that Craig Robinson’s job is safe for this year.

Todd Simmons, OSU’s director of news and communications, said the e-mail rumor no doubt took root because Robinson is Barack Obama’s brother-in-law and OSU, like many other universities, did receive federal stimulus money.

Federal

Oregon has saved or created more than 9,600 jobs with money from the federal stimulus, but three out of four are government positions.

Oregon’s House Minority Leader, Bruce Hanna says the stimulus has been a failure. The unemployment rate — which was at 11.9 percent when the stimulus money started flowing in — is now at a stubbornly high 11.5 percent. And most of the decrease can be attributed to fewer Oregonians looking for work.

The work is part of a $135 million remodeling, with most of the money from federal stimulus funds. It is the largest single stimulus project announced so far in Oregon. The U.S. General Services Administration says its goal is to create a “landmark high-performance building architects and federal officials plan one of the world’s most extensive vertical gardens in downtown Portland — what amounts to a series of 250-foot-tall trellises designed to shade the west side of an 18-story office building

House Speaker Dave Hunt, D-Gladstone remains a strong supporter of Go Oregon. The program is meant as a rapidly built “bridge” toward more long-term jobs, such as big transportation projects that take longer to get under way, Hunt said.

Oregon ranked as one of the top 10 states with the highest foreclosure rate in the nation according to a recent survey.  Earlier this year, RealtyTrac, the leading online marketplace for foreclosure properties, released its January 2010 U.S. Foreclosure Market Report listing 315,716 default notices, scheduled auctions and bank repossessions on U.S. properties during the month of January alone.  Despite the daunting number, this is actually a decrease of nearly 10 percent from December 2009, but 15 percent above the level reported in January 2009. The report also shows one in every 409 U.S. housing units received a foreclosure filing in January.

Nevada, Arizona, California and Florida are at the top of the foreclosure list.  Despite a year-over-year decrease in foreclosure activity of nearly 18 percent, Nevada’s foreclosure rate remained highest among the states for the 37th straight month. One in every 95 Nevada housing units received a foreclosure filing during January 2010.  This is more than four times the national average.  Oregon is not far behind. [More...]
Oregon cannot blame its high foreclosure rates on homeowner insurance because it is currently ranked 37th in the nation in insurance costs according to the National Association of Insurance Companies.  Oregon averages $496 a year, which is just over half of the national average of  $822. “Oregon’s competitive insurance market helps keep premiums low, as does the lack of hurricanes and tornadoes in the state,” Teresa Miller, administrator of the Oregon Department of Consumer and Business Services’ Insurance Division, said in a statement.

USA Today reported that California, Hawaii, Alabama, North Carolina, Kansas, Idaho and New York are considering delaying issuing refunds because the states did not have the cash on hand to cover the costs.  The delays come as states continue to face deep budget holes.  While some economists say the say the nation as a whole is recovering, a recent report conducted by the National Governors Association said state fiscal conditions continue to worsen, and that state revenues will likely lag one to three years behind a national recovery from recession.

California delayed tax refunds and issued billions of dollars in IOUs to vendors and others who the state owed money because of its massive budget shortfall that exceeded $20 billion last year.

Hawaii’s Department of Taxation says some residents may not see state income tax refunds until the end of August.  Governor Linda Lingle believes this delay will help deal with the revenue drop-off by pushing costs into the next fiscal period, which begins in July.

Last week, New York’s Governor Paterson froze $500 Million in refunds affecting several hundred thousand New York taxpayers.   Taxpayers who filed in late February and early March might have to wait as long as six weeks until the checks are in the mail. It’s likely that New York will not send refund money until April.

Even Oregon found itself delaying tax returns.  The state delayed its refunds by requiring taxpayers to file their 2009 taxes after the January 26 special election, which passed Measures 66 and 67. Measure 66 raised taxes on households with taxable incomes of $250,000 or more and individuals with $125,000 or more. Measure 67 added new taxes for some businesses.

This fiscal year alone, 36 states cut nearly $56 billion in spending, and 30 states have cut funding to public and higher education.

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.