As our economy worsens, individuals are becoming more and more creative in ways to cheat the IRS system in order to obtain large, yet fraudulent refunds. It is interesting that although the IRS is aware that this problem exists, it has yet to find a way to prevent the issuance of these fraudulent refunds, and instead has to take measures yearly in order to regain the funds that it had issued on these fraudulent tax returns.
Here are some examples:
In September, CNN reported that, a Los Angeles woman pleaded guilty to filing tax deductions for at least 20 fictitious children, which she claimed were all born on the exact same day, in order to land a $300,000 refund. Now I have heard of "Octo Mom" but 20 children is an obvious fiction. So why was this error not caught from the beginning. Why issue such a lavish refund first, then try to obtain the funds later? By then all of the funds will be disbursed, and it will be too late.
It has also been reported by the IRS, that one of the more popular tax scams is one in which individuals are convincing taxpayers that they will obtain a large refund if they follow the instructions of these unnamed individuals. First, these unnamed individuals will provide the taxpayers with the income documents needed in order to exaggerate their income, such as W-2s, 1099s, etc. Second, The individual will then use these forms to have their income tax prepared by a tax preparer that they will recommend. Lastly, the taxpayers must agree to donate some of the funds to charity or to humanitarian efforts, such as giving money to anyone less fortunate. What these taxpayers fail to realize, is that employers are required to report the W-2s, 1099s, and other income reporting documents to the IRS and/or Social Security Administration. As a result, if the income documents are fictitious, it won't be long before the IRS is notified.
The problem with our current system is that it realizes the fraud after the refund had already been issued. According to CNN, the IRS reported that its fraud investigations jumped 14% year over year to 4,706 in fiscal 2010. Meanwhile, cases that the IRS believes should be brought to court and prosecuted climbed 18% and convictions rose 4%. My suggestion would be to not issue tax refunds until after the allotted time when the IRS expects to receive all income documents from the employers, financial institutions, or other companies required to report to the IRS. The issuance of refunds should be postponed until after April 15th which is the IRS filing deadline for all income tax returns. This would give the IRS sufficient time to flag any suspicious returns prior to paying out the funds. The IRS may also automatically review all returns claiming a refund in excess of a given number that should be determined from the average return that were found to be fraudulent. There is just no justification for paying an individual $300,000 in refunds, and then ask for the money back. The chances of getting that money back is slim to none.
It makes you wonder how much of our current deficit may be due to erroneous refunds issued by the IRS doesn't it?
Reference:
http://money.cnn.com/2011/09/07/pf/tax_fraud/index.htm?iid=SF_PF_LN
Wednesday, November 16, 2011
Monday, November 7, 2011
Should a Non-Profit Organization be Sanctioned by the IRS for Donating to a Presidential Campaign?
A very hot and well debated topic is the allegation that Republican Candidate Herman Cain has received Forty Thousand Dollars in donation from a non-profit organization. It is also alleged that these funds were used to pay for chartered flights and Ipads. Activists are requesting that the Internal Revenue Service step in and sanction any non-profit organization or deny them of their exempt status for donating to a presidential campaign. The question becomes what powers does the IRS have under these circumstances, and should such measures be taken?
Under the Internal Revenue Code (IRC), "all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office." As a result, contributions made to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity. The IRC holds that violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes.
However, some political activities or expenditures may not be prohibited depending on the facts and circumstances. For example, voter education activities, including presenting public forums and publishing voter education guides, conducted in a non-partisan manner do not constitute prohibited political campaign activity. In addition, other activities intended to encourage people to participate in the electoral process, such as voter registration and get-out-the-vote drives, would not be prohibited political campaign activity if conducted in a non-partisan manner.
On the other hand, voter education or registration activities with evidence of bias that (a) would favor one candidate over another; (b) oppose a candidate in some manner; or (c) have the effect of favoring a candidate or group of candidates, would constitute prohibited participation or intervention.
As a result, it appears that the IRS does have the power to sanction these charitable organizations and also has the ability to strip them of their non-exempt status. Any non-profit organization that receives donations from others should not donate such funds to political campaigns. Rather, the funds should be used for the benefit and well being of society. The belief that a certain candidate can better the economy for the benefit and well being of others is insufficient, and is more like a game of Russian Roulette that is not worth undertaking. The IRS would be well in its right to step in and sanction these organizations.
What do you think, do you believe that the IRS should step in and discipline these non-profit organizations?
Reference: http://www.irs.gov/charities/charitable/article/0,,id=163395,00.html
Under the Internal Revenue Code (IRC), "all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office." As a result, contributions made to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity. The IRC holds that violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes.
However, some political activities or expenditures may not be prohibited depending on the facts and circumstances. For example, voter education activities, including presenting public forums and publishing voter education guides, conducted in a non-partisan manner do not constitute prohibited political campaign activity. In addition, other activities intended to encourage people to participate in the electoral process, such as voter registration and get-out-the-vote drives, would not be prohibited political campaign activity if conducted in a non-partisan manner.
On the other hand, voter education or registration activities with evidence of bias that (a) would favor one candidate over another; (b) oppose a candidate in some manner; or (c) have the effect of favoring a candidate or group of candidates, would constitute prohibited participation or intervention.
As a result, it appears that the IRS does have the power to sanction these charitable organizations and also has the ability to strip them of their non-exempt status. Any non-profit organization that receives donations from others should not donate such funds to political campaigns. Rather, the funds should be used for the benefit and well being of society. The belief that a certain candidate can better the economy for the benefit and well being of others is insufficient, and is more like a game of Russian Roulette that is not worth undertaking. The IRS would be well in its right to step in and sanction these organizations.
What do you think, do you believe that the IRS should step in and discipline these non-profit organizations?
Reference: http://www.irs.gov/charities/charitable/article/0,,id=163395,00.html
Wednesday, October 26, 2011
How Effective Will the Health Insurance Premium Tax Credit be at Providing Affordable Health Care?
The Affordable Care Act was enacted on March 23, 2010. The act states that starting in 2014, individuals and families can take a new Health Insurance Premium Tax Credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange. Exchanges are expected to operate in every state and the District of Columbia. The premium tax credit will be refundable so that taxpayers who have little or no income tax liability can still benefit. The credit also can be paid in advance to the taxpayer’s insurance company to help cover the cost of premiums. To be eligible for the premium tax credit, an individual must be an applicable tax payer, defined as: (1) a taxpayer or lawfully present alien with a household income between 100 percent and 400 percent of the federal poverty line for the taxpayer's family size, (2) who may not be claimed as a dependeant by another taxpayer, and (3) who files a joint return if married.
The Government believes that Exchanges will offer Americans competition and choice as insurance companies compete for business on a level playing field, which is expected to reduce costs. It is also believed that the exchanges will give small businesses the same purchasing power as big businesses. But will this actually be the result of this government initiative?
There are several reasons why government intervention to create a universal health care system may fail. First, we are already operating in an economy based on capitalism, so introducing socialistic measures my prove to be ineffective. Health insurance providers are already competing with each other in order to attract consumers. As a result, if we do not already have affordable health insurance, then by placing these companies in a bubble so that they can compete against each other, health insurance is not likely to somehow become more affordable. Second, it appears that the decision to enter into the exchange is going to be voluntary, and not mandated by law. As a result, the options of health insurance providers to choose from may also be very limited. Lastly, the government seek to exclude anyone who does not fall within the poverty levels established by the government, this would exclude most taxpayers in the middle and upper class. As a result, this plan would only work for low income individuals, and these are the individuals who are already receiving some form of governmental health insurance from welfare assistance.
On the other hand, this initiative may be successful if all businesses, both large and small, make the decision to switch to companies that are apart of the exchange because the health insurance providers would then have no choice but to either offer a better deal, or become a part of the exchange themselves. Then perhaps the middle class employees would stand a chance of benefiting from this initiative through the efforts of their employers as they bargain for the lowest rates. So while they may not be able to claim the premium tax credit, they may be able to receive affordable health insurance.
I would like to see the cost of health care be dramatically reduced in the United States. The overall health awareness and rating of the United States could imporove if more individuals were able to afford health insurance so that they may visit medical facilities on a regular basis, instead of on an as needed basis. I think that the premium tax credit is a good start in the right direction, but the government needs to stop assuming that it is the poor who do not have health care and realize that many middle class individuals also cannot afford health insurance. By choosing to base the premium tax credit on poverty lines, it makes it difficult for these individuals to obtain health care, and they would still have to rely on their employers to bargain for the lowest possible rates.
What do you think about the Health Insurance Premium Tax Credit? You have the right to be heard, and your suggestions are welcomed by the IRS. A public hearing is scheduled for November 17, 2011 at 10 a.m., in the auditorium of the Internal Revenue Building located at 1111 Constitution Avenue, NW., Washington DC. The government encourages comments and suggestions but me be submitted by October 31, 2011. Please visit http://www.irs.gov/newsroom/article/0,,id=220809,00.html for more information.
The Government believes that Exchanges will offer Americans competition and choice as insurance companies compete for business on a level playing field, which is expected to reduce costs. It is also believed that the exchanges will give small businesses the same purchasing power as big businesses. But will this actually be the result of this government initiative?
There are several reasons why government intervention to create a universal health care system may fail. First, we are already operating in an economy based on capitalism, so introducing socialistic measures my prove to be ineffective. Health insurance providers are already competing with each other in order to attract consumers. As a result, if we do not already have affordable health insurance, then by placing these companies in a bubble so that they can compete against each other, health insurance is not likely to somehow become more affordable. Second, it appears that the decision to enter into the exchange is going to be voluntary, and not mandated by law. As a result, the options of health insurance providers to choose from may also be very limited. Lastly, the government seek to exclude anyone who does not fall within the poverty levels established by the government, this would exclude most taxpayers in the middle and upper class. As a result, this plan would only work for low income individuals, and these are the individuals who are already receiving some form of governmental health insurance from welfare assistance.
On the other hand, this initiative may be successful if all businesses, both large and small, make the decision to switch to companies that are apart of the exchange because the health insurance providers would then have no choice but to either offer a better deal, or become a part of the exchange themselves. Then perhaps the middle class employees would stand a chance of benefiting from this initiative through the efforts of their employers as they bargain for the lowest rates. So while they may not be able to claim the premium tax credit, they may be able to receive affordable health insurance.
I would like to see the cost of health care be dramatically reduced in the United States. The overall health awareness and rating of the United States could imporove if more individuals were able to afford health insurance so that they may visit medical facilities on a regular basis, instead of on an as needed basis. I think that the premium tax credit is a good start in the right direction, but the government needs to stop assuming that it is the poor who do not have health care and realize that many middle class individuals also cannot afford health insurance. By choosing to base the premium tax credit on poverty lines, it makes it difficult for these individuals to obtain health care, and they would still have to rely on their employers to bargain for the lowest possible rates.
What do you think about the Health Insurance Premium Tax Credit? You have the right to be heard, and your suggestions are welcomed by the IRS. A public hearing is scheduled for November 17, 2011 at 10 a.m., in the auditorium of the Internal Revenue Building located at 1111 Constitution Avenue, NW., Washington DC. The government encourages comments and suggestions but me be submitted by October 31, 2011. Please visit http://www.irs.gov/newsroom/article/0,,id=220809,00.html for more information.
Thursday, October 6, 2011
Should the Wealth in America be Redistributed?
There is great concern throughout the United States concerning the inequality of the distribution of wealth. One study shows that the top 20% of the wealthiest individuals in America controls 80% of the nations wealth. It has been argued that the Republicans are to blame for this result because of their partiality to taxing the rich. While Republicans argue against socialistic reforms, they are in essence committing a socialistic act by refusing to impose higher taxes on the rich. As a result, the bulk of the wealth remains with the top 20% of the wealthiest individuals in America. Today there are people protesting on Wall Street in hopes of ending the greed of executives, in hopes of helping the poor, and in hopes of having the wealth of our nation redistributed.
While it is alarming that there is such a great disparity in the distribution of wealth amongst our nation, I do not believe that redistribution of wealth is the answer. Redistribution of wealth will not encourage the poor to aspire to work nor will it eliminate the current welfare system. It is also very unfair to take money earned from individuals who were financially savvy, ambitious, hardworking, or lucky enough to be the descendants of individuals who were financially savvy, ambitious or hardworking, and distribute to others. The wealthy individuals in America donate money to the charitable organizations in an effort to help the poor, feed the homeless, provide medication, and many more. Is it really fair to demand that they start distributing their wealth so that everyone can be on the same level financially?
Do you remember the story of the three little pigs? Lets use them as an example. Now lets assume that the three little pigs were each given the same amount of money and were told to use it to build a home so that they would not be eaten by the big bad wolf. One built his house out of straw, the other out of wood, and the other out of bricks. When the wolf came, only one house was sturdy enough to withstand his huffing and puffing, the house made of bricks. So the third little pig was the wisest of the three. Now because he was wise enough to build a house that will last, his children will likely inherit that house. Now he allowed the other two little pigs to dwell in the house with him so that they would not get eaten by the wolf. Should he do more? Under redistribution of wealth, he would be forced to give a share of his home to the other two little pigs that were afforded the same opportunity to build a similar home, but chose a cheaper alternative due to either laziness or lack of aptitude. Is that really fair? This example shows that even when you give the same amount of money to individuals, if you do not control how and where the money is spent, there are some who will squander their wealth away, and others who will make wise investment decisions. As a result, disparity in wealth will always exist, and redistribution of wealth will not work in the United States. It will not cure our economic problems.
I believe that the United States is a place where the opportunities are limitless. However, many Americans have become dependent on a welfare system, and not enough on a system that should be based on capitalism. The focus of the United States government should be focused on how can the economy be stimulated in order to create jobs? Not in order to reduce the disparity in wealth. Americans must also become dedicated to learning and obtaining the skills for the jobs that are actually on demand. These are the jobs that American companies hire foreigners to perform because there are few Americans who possess the knowledge and skill to perform. The real beauty about America is that if you cannot find a job, it is really easy to create one of your own, and become your own boss. The question is are you willing to take that risk and invest in yourself, rather than wait around for others to invest in you?
While it is alarming that there is such a great disparity in the distribution of wealth amongst our nation, I do not believe that redistribution of wealth is the answer. Redistribution of wealth will not encourage the poor to aspire to work nor will it eliminate the current welfare system. It is also very unfair to take money earned from individuals who were financially savvy, ambitious, hardworking, or lucky enough to be the descendants of individuals who were financially savvy, ambitious or hardworking, and distribute to others. The wealthy individuals in America donate money to the charitable organizations in an effort to help the poor, feed the homeless, provide medication, and many more. Is it really fair to demand that they start distributing their wealth so that everyone can be on the same level financially?
Do you remember the story of the three little pigs? Lets use them as an example. Now lets assume that the three little pigs were each given the same amount of money and were told to use it to build a home so that they would not be eaten by the big bad wolf. One built his house out of straw, the other out of wood, and the other out of bricks. When the wolf came, only one house was sturdy enough to withstand his huffing and puffing, the house made of bricks. So the third little pig was the wisest of the three. Now because he was wise enough to build a house that will last, his children will likely inherit that house. Now he allowed the other two little pigs to dwell in the house with him so that they would not get eaten by the wolf. Should he do more? Under redistribution of wealth, he would be forced to give a share of his home to the other two little pigs that were afforded the same opportunity to build a similar home, but chose a cheaper alternative due to either laziness or lack of aptitude. Is that really fair? This example shows that even when you give the same amount of money to individuals, if you do not control how and where the money is spent, there are some who will squander their wealth away, and others who will make wise investment decisions. As a result, disparity in wealth will always exist, and redistribution of wealth will not work in the United States. It will not cure our economic problems.
I believe that the United States is a place where the opportunities are limitless. However, many Americans have become dependent on a welfare system, and not enough on a system that should be based on capitalism. The focus of the United States government should be focused on how can the economy be stimulated in order to create jobs? Not in order to reduce the disparity in wealth. Americans must also become dedicated to learning and obtaining the skills for the jobs that are actually on demand. These are the jobs that American companies hire foreigners to perform because there are few Americans who possess the knowledge and skill to perform. The real beauty about America is that if you cannot find a job, it is really easy to create one of your own, and become your own boss. The question is are you willing to take that risk and invest in yourself, rather than wait around for others to invest in you?
Tuesday, September 27, 2011
How Effective is Obama's Plan to Tax the Rich?
President Obama proposes to tax anyone earning over one million dollars per year at the middle-class tax rate of about 20 percent. This implies that the rich are currently paying less than the middle-class who earns an average of about $50,000 per year. Why is the president not attempting to tax the rich more than the middle-class? It was suggested that the president is fearful that the rich would not create jobs, and invest their money off shore rather than here in the United States.
Are the Rich Creating Jobs Recently?
The belief that the rich are the job creators in the United States is misguided. According to Professor Robert Reich, 99 percent of small business owners account for the new jobs created (robertreich.org). According to Reich, the rich are sitting on two trillion dollars and are not creating new jobs (robertreich.org). Due to the state of the current economy, more and more individuals are becoming self-employed due to the lack of job creation. So if the rich are not creating new jobs, why is the president attempting to give them the benefit of being taxed like the middle class? In fact, it would be more beneficial to tax the rich at the bracket intended because it would create a greater incentive to actually create jobs, as there are numerous tax benefits to creating corporations.
What if the Rich Take Their Money out of the US and Invest Off Shore?
If you recall from my previous blog on the IRS attempt locate funds held in off shore accounts, the IRS has the authority to tax the income of all United States citizens whether it was earned in the United States or abroad. Not only that, anyone who fails to report their off shore accounts are subject to additional penalties. So should the president fear the rich investing their funds elsewhere? The answer is very clear. Even if the rich does decide to do this, the income that they earn off shore would be taxable.
The real problem exists with the Tax Codes that are currently in place. There are too many loopholes and credits given to the rich that they end up paying a lower percentage in taxes than the middle class. If the president is going to attempt to tax the rich, he should approach this matter based on fairness. The lower and middle class are taxed based on their earnings, and the rich should be also. The various tax brackets were created for a reason, and it is time that they are implemented on everyone. By taxing the rich at the same rate as the middle class, the president implies that the rich now pays less than the middle class. As a middle class individual, I find this to be quite disturbing. I pay my taxes based on my respective tax bracket, and I see no reason why everyone should not be required to do the same.
However, if the president really wants to be effective in creating jobs in the United States, he should focus on offering some sort of tax credit or tax deduction to individuals for creating jobs, whether rich or poor. This credit should be similar to the tax credit or tax deduction given for donations made to charity. Individuals are always seeking tax write-offs, and this would be a great way to incentivize job creation. When the First-Time Home Owner's Tax Credit was introduced, there was a major boom in the real estate industry. By introducing a Business Owner Credit, the president may realize the same results.
Reich, R. (2011). "Taxing the Rich, The Obama Way." Retrieved on September 27, 2011 from: http://robertreich.org/post/10360054909.
Are the Rich Creating Jobs Recently?
The belief that the rich are the job creators in the United States is misguided. According to Professor Robert Reich, 99 percent of small business owners account for the new jobs created (robertreich.org). According to Reich, the rich are sitting on two trillion dollars and are not creating new jobs (robertreich.org). Due to the state of the current economy, more and more individuals are becoming self-employed due to the lack of job creation. So if the rich are not creating new jobs, why is the president attempting to give them the benefit of being taxed like the middle class? In fact, it would be more beneficial to tax the rich at the bracket intended because it would create a greater incentive to actually create jobs, as there are numerous tax benefits to creating corporations.
What if the Rich Take Their Money out of the US and Invest Off Shore?
If you recall from my previous blog on the IRS attempt locate funds held in off shore accounts, the IRS has the authority to tax the income of all United States citizens whether it was earned in the United States or abroad. Not only that, anyone who fails to report their off shore accounts are subject to additional penalties. So should the president fear the rich investing their funds elsewhere? The answer is very clear. Even if the rich does decide to do this, the income that they earn off shore would be taxable.
The real problem exists with the Tax Codes that are currently in place. There are too many loopholes and credits given to the rich that they end up paying a lower percentage in taxes than the middle class. If the president is going to attempt to tax the rich, he should approach this matter based on fairness. The lower and middle class are taxed based on their earnings, and the rich should be also. The various tax brackets were created for a reason, and it is time that they are implemented on everyone. By taxing the rich at the same rate as the middle class, the president implies that the rich now pays less than the middle class. As a middle class individual, I find this to be quite disturbing. I pay my taxes based on my respective tax bracket, and I see no reason why everyone should not be required to do the same.
However, if the president really wants to be effective in creating jobs in the United States, he should focus on offering some sort of tax credit or tax deduction to individuals for creating jobs, whether rich or poor. This credit should be similar to the tax credit or tax deduction given for donations made to charity. Individuals are always seeking tax write-offs, and this would be a great way to incentivize job creation. When the First-Time Home Owner's Tax Credit was introduced, there was a major boom in the real estate industry. By introducing a Business Owner Credit, the president may realize the same results.
Reference
Reich, R. (2011). "Taxing the Rich, The Obama Way." Retrieved on September 27, 2011 from: http://robertreich.org/post/10360054909.
Monday, September 19, 2011
How Much Taxation is Too Much Taxation?
Many citizens of the United States may have been wondering why do we pay taxes on our income, and then have to pay taxes on items that we purchase with that income? At what point will the Federal and State Governments determine that the people have been taxed enough? Is there even such a thing as being over-taxed?
We are Taxed on Airline Tickets
On August 5, 2011, the IRS announced that Congress has reinstated the Airline Ticket Taxes and apparently there was a lapse in the Federal Aviation Administration ("FAA") authorization because it states that this authorization will apply "retroactively" to the airline ticket taxes for passengers who traveled during the lapse of the FAA's authorization. As a result of the bill Congress passed, passengers who purchased tickets prior to July 23, 2011 and traveled between July 23 and August 5, 2011, are not entitled to a refund of the airline ticket excise tax. Additionally, the IRS intends to provide relief for passengers and airlines with respect to ticket taxes that were not paid or collected because of the lapse. Makes you wonder how many people actually noticed the additional fee labeled as "federal taxes" on their receipts. As if airline tickets were not expensive enough. So not only do we have to pay to check in our bags, we pay more federal taxes.
We Pay Taxes on Goods and Services
Now not only do we pay taxes to the federal government, but some of us pay income taxes to the state. Well if that was not enough, some states also imposed a sales or use tax on goods purchased by consumers. At least 45 states impose sales and use taxes on the retail sale, lease and rental of many goods, as well as some services. Many cities, counties, transit authorities and special purpose districts impose additional local sales or use taxes. A sales tax is collected by the seller at the time of sale, while a use tax is self-assessed by a buyer who has not paid sales tax on a taxable purchase. Luckily for consumers, there is no Federal sales or use tax.
We Pay Estate and Gift Taxes (Also called Inheritance Tax)
The Estate Tax is a tax imposed by the Federal Government and states against the "taxable estate" of a deceased individual. A Gift Tax is a tax placed on taxable gifts such as a transfer of an estate as a gift from one individual to another. So individuals who receive an inheritance, proceeds from a life insurance, or property, etc, from a living or deceased person is subject to this form of taxation. So not only will the Federal Government tax the estate or gift, so will the state. Is this form of double taxation fair?
We Also Pay Property Taxes
So not only do individuals pay taxes on the income they receive, they in turn must use that income to pay taxes on any taxable property owned as determined by most states. Property includes both real and personal property. So we are subject to taxes for the houses, land, and vehicles, etc. that we may own even though we likely paid taxes on the items when we first purchased them. These taxes are often paid annually.
These are just a few examples of the type of taxes that citizens of the United States may face, and there may be others not listed. At what point will the Federal Government and states realize that individuals are over-taxed? We are taxed on our income, then taxed on the items we purchase with that income. Is this the type of power we gave to our government, and if so, how do we take it back? The Federal and State Governments may issue refunds each year to those who may qualify, but it hardly compensates us for the taxes that we pay on a daily and annual basis. Yet despite paying these taxes, our economy is still declining. How much more would consumers purchase and revive this economy if their income were left untaxed?
What do you think, are we over-taxed here in the United States?
We are Taxed on Airline Tickets
On August 5, 2011, the IRS announced that Congress has reinstated the Airline Ticket Taxes and apparently there was a lapse in the Federal Aviation Administration ("FAA") authorization because it states that this authorization will apply "retroactively" to the airline ticket taxes for passengers who traveled during the lapse of the FAA's authorization. As a result of the bill Congress passed, passengers who purchased tickets prior to July 23, 2011 and traveled between July 23 and August 5, 2011, are not entitled to a refund of the airline ticket excise tax. Additionally, the IRS intends to provide relief for passengers and airlines with respect to ticket taxes that were not paid or collected because of the lapse. Makes you wonder how many people actually noticed the additional fee labeled as "federal taxes" on their receipts. As if airline tickets were not expensive enough. So not only do we have to pay to check in our bags, we pay more federal taxes.
We Pay Taxes on Goods and Services
Now not only do we pay taxes to the federal government, but some of us pay income taxes to the state. Well if that was not enough, some states also imposed a sales or use tax on goods purchased by consumers. At least 45 states impose sales and use taxes on the retail sale, lease and rental of many goods, as well as some services. Many cities, counties, transit authorities and special purpose districts impose additional local sales or use taxes. A sales tax is collected by the seller at the time of sale, while a use tax is self-assessed by a buyer who has not paid sales tax on a taxable purchase. Luckily for consumers, there is no Federal sales or use tax.
We Pay Estate and Gift Taxes (Also called Inheritance Tax)
The Estate Tax is a tax imposed by the Federal Government and states against the "taxable estate" of a deceased individual. A Gift Tax is a tax placed on taxable gifts such as a transfer of an estate as a gift from one individual to another. So individuals who receive an inheritance, proceeds from a life insurance, or property, etc, from a living or deceased person is subject to this form of taxation. So not only will the Federal Government tax the estate or gift, so will the state. Is this form of double taxation fair?
We Also Pay Property Taxes
So not only do individuals pay taxes on the income they receive, they in turn must use that income to pay taxes on any taxable property owned as determined by most states. Property includes both real and personal property. So we are subject to taxes for the houses, land, and vehicles, etc. that we may own even though we likely paid taxes on the items when we first purchased them. These taxes are often paid annually.
These are just a few examples of the type of taxes that citizens of the United States may face, and there may be others not listed. At what point will the Federal Government and states realize that individuals are over-taxed? We are taxed on our income, then taxed on the items we purchase with that income. Is this the type of power we gave to our government, and if so, how do we take it back? The Federal and State Governments may issue refunds each year to those who may qualify, but it hardly compensates us for the taxes that we pay on a daily and annual basis. Yet despite paying these taxes, our economy is still declining. How much more would consumers purchase and revive this economy if their income were left untaxed?
What do you think, are we over-taxed here in the United States?
Reference
http://www.irs.gov
Tuesday, September 6, 2011
Top 10 Reasons Taxpayers Use as Support for Not Paying their Income Taxes to the IRS
There are several interesting arguments offered by Taxpayers and Attorneys in support of their opposition to Federal Income Taxes. I have narrowed it down to my favorite ten (10) Arguments:
(10) The Federal Income Tax System is "Voluntary," so a person can choose whether to pay income taxes to the government. - This would explain why the IRS then voluntarily chooses to levy bank accounts and garnish the wages of individuals. If you won't pay your taxes voluntarily, the IRS will voluntarily take it from you. You decide which is preferable.
(9) The only individuals required to pay Federal Income Taxes are Federal Employees. - I think that Federal employees would be the first group to be exempt from Federal Income Taxes because they are already being paid from the taxable income of others by the Federal Reserve.
(8) Only Foreign Income is Taxable. - If the United States were able to track down the money that many individuals have stored in foreign countries, we would not be in a deficit today. It is their inability to tax foreign income that signifies the need to tax the income locally.
(7) Taxpayers can refuse to pay Federal Income Taxes for religious or moral grounds by invoking the First Amendment. - I can hear the United States Attorneys arguing "separation of church and state prevents you from invoking your religious and moral beliefs on the government also."
(6) Wages, Tips and other Compensation received for personal services are not income because there is no personal gain when a person exchanges labor for money. - If this were true, then the only income that's taxable would be income that you did not earn from personal services, like inheritance, gambling, investments, etc. There would be more of an incentive for people to work however, wouldn't it? However, the IRS defines income as compensation received from services. The IRS is not concerned with the nature of the service.
(5) The Internal Revenue Service is not an Agency of the United States. - I found this argument to be rather amusing. If the IRS is not an Agency of the United States, then who are they working for? Is that why we are in a deficit? Where is our hard earned dollars going? Unfortunately, pursuant to section 7801, the Secretary of the Treasury has full authority to administer and enforce the internal revenue laws and has the power to create an agency to enforce such laws. Therefore, the IRS is an agency of the United States.
(4) African Americans can claim a tax credit for reparations for Slavery and other Oppressive Treatment. - Wouldn't this be nice? However, the Federal Government will Prosecute anyone who attempts to claim the "Black Tax Credit." The government essentially argues that a tax credit is a grace, it is not an entitlement.
(3) Compelled compliance with the Federal Income Tax Laws is a form of Servitude in violation of the Thirteenth Amendment. - I was rather amused by this argument. The reason why this argument fails is because if an individual does not want to pay Federal Income Taxes, the solution is simple, "STOP WORKING," or "WORK FOR FREE, or FOR GOODS, or IN EXCHANGE FOR OTHER SERVICES." Go back to the barter system.
(2) Federal Income Tax Constitutes a Taking of Property without Due Process in violation of the Fifth Amendment. - This argument is actually very clever. If we consider our income to be property, then this is a valid argument. The problem with enforcing this law is the forum in which it would be brought. The case would be a Federal Case and your impartial judge would likely not be so impartial because your taxes pays his salary. Also, the same Constitution that granted this right also granted the Government the right to tax. Therefore, the taxpayer is likely to lose this case before a tribunal that is its own judge and jury.
(1) Individuals have the right to refuse to pay Federal Income Taxes and accept the fact that they won't get a refund for that year, thus eliminating the need to file a Federal Income Tax Return. - This argument makes a lot of sense. If someone refuses to pay Federal Income Taxes, they simply would not be entitled to a refund. This would reduce not only the paper work involved with filing income tax returns, but it would reduce the income tax refunds paid out every year. However, the IRS only issues refunds to individuals who have paid taxes beyond their statutory requirements in conjunction to tax credits for which they are eligible. Therefore, if no one pays the statutory requirement, the government would be forced to find alternative means to raise revenue, which is possible. This is the strongest argument I found in support of not paying Federal Income Taxes.
(10) The Federal Income Tax System is "Voluntary," so a person can choose whether to pay income taxes to the government. - This would explain why the IRS then voluntarily chooses to levy bank accounts and garnish the wages of individuals. If you won't pay your taxes voluntarily, the IRS will voluntarily take it from you. You decide which is preferable.
(9) The only individuals required to pay Federal Income Taxes are Federal Employees. - I think that Federal employees would be the first group to be exempt from Federal Income Taxes because they are already being paid from the taxable income of others by the Federal Reserve.
(8) Only Foreign Income is Taxable. - If the United States were able to track down the money that many individuals have stored in foreign countries, we would not be in a deficit today. It is their inability to tax foreign income that signifies the need to tax the income locally.
(7) Taxpayers can refuse to pay Federal Income Taxes for religious or moral grounds by invoking the First Amendment. - I can hear the United States Attorneys arguing "separation of church and state prevents you from invoking your religious and moral beliefs on the government also."
(6) Wages, Tips and other Compensation received for personal services are not income because there is no personal gain when a person exchanges labor for money. - If this were true, then the only income that's taxable would be income that you did not earn from personal services, like inheritance, gambling, investments, etc. There would be more of an incentive for people to work however, wouldn't it? However, the IRS defines income as compensation received from services. The IRS is not concerned with the nature of the service.
(5) The Internal Revenue Service is not an Agency of the United States. - I found this argument to be rather amusing. If the IRS is not an Agency of the United States, then who are they working for? Is that why we are in a deficit? Where is our hard earned dollars going? Unfortunately, pursuant to section 7801, the Secretary of the Treasury has full authority to administer and enforce the internal revenue laws and has the power to create an agency to enforce such laws. Therefore, the IRS is an agency of the United States.
(4) African Americans can claim a tax credit for reparations for Slavery and other Oppressive Treatment. - Wouldn't this be nice? However, the Federal Government will Prosecute anyone who attempts to claim the "Black Tax Credit." The government essentially argues that a tax credit is a grace, it is not an entitlement.
(3) Compelled compliance with the Federal Income Tax Laws is a form of Servitude in violation of the Thirteenth Amendment. - I was rather amused by this argument. The reason why this argument fails is because if an individual does not want to pay Federal Income Taxes, the solution is simple, "STOP WORKING," or "WORK FOR FREE, or FOR GOODS, or IN EXCHANGE FOR OTHER SERVICES." Go back to the barter system.
(2) Federal Income Tax Constitutes a Taking of Property without Due Process in violation of the Fifth Amendment. - This argument is actually very clever. If we consider our income to be property, then this is a valid argument. The problem with enforcing this law is the forum in which it would be brought. The case would be a Federal Case and your impartial judge would likely not be so impartial because your taxes pays his salary. Also, the same Constitution that granted this right also granted the Government the right to tax. Therefore, the taxpayer is likely to lose this case before a tribunal that is its own judge and jury.
(1) Individuals have the right to refuse to pay Federal Income Taxes and accept the fact that they won't get a refund for that year, thus eliminating the need to file a Federal Income Tax Return. - This argument makes a lot of sense. If someone refuses to pay Federal Income Taxes, they simply would not be entitled to a refund. This would reduce not only the paper work involved with filing income tax returns, but it would reduce the income tax refunds paid out every year. However, the IRS only issues refunds to individuals who have paid taxes beyond their statutory requirements in conjunction to tax credits for which they are eligible. Therefore, if no one pays the statutory requirement, the government would be forced to find alternative means to raise revenue, which is possible. This is the strongest argument I found in support of not paying Federal Income Taxes.
Friday, August 26, 2011
How Effective is the IRS Voluntary Disclosure Initiative of Offshore Accounts?
Today, the IRS has issued a press release informing taxpayers that the deadline for the second special Voluntary Disclosure Initiative of Offshore Accounts has been extended from August 31, 2011 to September 9, 2011, due to the presence of Hurricane Irene on the east coast. According to the IRS, those who come forward voluntarily will get a better deal than those who wait for the IRS to find their undisclosed accounts and income. This initiative requires that individuals report any funds being held in foreign accounts. The 2011 initiative, proposes a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in their foreign bank accounts in the year with the highest aggregate account balance from 2003 to 2010. Some taxpayers will be eligible for 5 or 12.5 percent penalties in certain narrow circumstances. Individuals will also be required to pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties. Lastly, all original and amended tax returns must be filed by the deadline. There are several pressing questions that come to mind: (1) Is it even legal for the US Government to tax individuals on income held offshore, (2) What about income earned offshore that is held offshore, and (3) Who would consider coming forward only to be taxed and penalized?
Is This Initiative Legal?
Article I, Section 8, Clause 1 of the US Constitution gives Congress the power to Tax and it certainly has exercised that power. According to IRS Publication 525, "if you are a US citizen or resident alien, you must report income from sources outside the US on your tax return unless it has been deemed exempt under US law. This is true whether you reside inside or outside the US and whether or not you receive a Form W-2, Wage and Tax Statement, or 1099 from the foreign taxpayer. This applies to earned income as well as unearned income such as dividends, capital gains, pensions, rents, and royalties.
What About Income Earned Offshore and held Offshore?
Publication 54 holds that "If you are a US citizen or resident alien, your WORLDWIDE income generally is subject to US income tax, regardless of where you are living." However, taxpayers may be able to exclude $91,500 of their income as not taxable by the US, deduct part of their housing expenses from their income, or treat a limited amount of income used for housing expenses as not taxable under the Foreign Earned Income Exclusion and the Housing Deduction and Exclusion. However, they must meet the specified qualifications. So evidently, the US gave itself the right to tax US citizens and resident aliens no matter where they may reside or work.
Who Would Consider Coming Forward?
With the additional taxes and penalties involved in this initiative, who would consider coming forward to report themselves? The number of individuals who came forward could not have been that great because the IRS has issued an award to whistle blowers who report these individuals. It would be interesting to see how many of the individuals that actually came forward did so voluntarily versus those who came forward after a close friend or relative (back stabber if you will), informed them that they have reported them to the IRS in exchange for a bounty. There is a popular maxim that individuals will continue to do what the law allows them to get away with, and will not stop until they are caught. So if this is true, I think it is safe to assume that the US needs to make the reward a percentage of the individual's foreign wealth for more whistle blowers to appear. They may find that if high enough, individuals my anonymously report themselves in order to collect a bounty on themselves. Maybe this should be added to the initiative to add a favorable incentive to turning yourself in. If I had money abroad, I would enjoy the freedom of not having my money taxed and this initiative provides no incentive for me to report myself. Maybe if I had a conscience, I would. But then again, my conscience would say "do you really want to pay taxes on money you probably already paid taxes on before you transferred it offshore? And why would you want to pay taxes now, when the US does not know about your money unless you tell them?" I think my conscience would say that I need more of an incentive, and this initiative does not offer one.
Reference
http://www.irs.gov/newsroom/article/0,,id=235695,00.html
Is This Initiative Legal?
Article I, Section 8, Clause 1 of the US Constitution gives Congress the power to Tax and it certainly has exercised that power. According to IRS Publication 525, "if you are a US citizen or resident alien, you must report income from sources outside the US on your tax return unless it has been deemed exempt under US law. This is true whether you reside inside or outside the US and whether or not you receive a Form W-2, Wage and Tax Statement, or 1099 from the foreign taxpayer. This applies to earned income as well as unearned income such as dividends, capital gains, pensions, rents, and royalties.
What About Income Earned Offshore and held Offshore?
Publication 54 holds that "If you are a US citizen or resident alien, your WORLDWIDE income generally is subject to US income tax, regardless of where you are living." However, taxpayers may be able to exclude $91,500 of their income as not taxable by the US, deduct part of their housing expenses from their income, or treat a limited amount of income used for housing expenses as not taxable under the Foreign Earned Income Exclusion and the Housing Deduction and Exclusion. However, they must meet the specified qualifications. So evidently, the US gave itself the right to tax US citizens and resident aliens no matter where they may reside or work.
Who Would Consider Coming Forward?
With the additional taxes and penalties involved in this initiative, who would consider coming forward to report themselves? The number of individuals who came forward could not have been that great because the IRS has issued an award to whistle blowers who report these individuals. It would be interesting to see how many of the individuals that actually came forward did so voluntarily versus those who came forward after a close friend or relative (back stabber if you will), informed them that they have reported them to the IRS in exchange for a bounty. There is a popular maxim that individuals will continue to do what the law allows them to get away with, and will not stop until they are caught. So if this is true, I think it is safe to assume that the US needs to make the reward a percentage of the individual's foreign wealth for more whistle blowers to appear. They may find that if high enough, individuals my anonymously report themselves in order to collect a bounty on themselves. Maybe this should be added to the initiative to add a favorable incentive to turning yourself in. If I had money abroad, I would enjoy the freedom of not having my money taxed and this initiative provides no incentive for me to report myself. Maybe if I had a conscience, I would. But then again, my conscience would say "do you really want to pay taxes on money you probably already paid taxes on before you transferred it offshore? And why would you want to pay taxes now, when the US does not know about your money unless you tell them?" I think my conscience would say that I need more of an incentive, and this initiative does not offer one.
Reference
http://www.irs.gov/newsroom/article/0,,id=235695,00.html
Thursday, August 18, 2011
IS THE WOMAN'S DISAPPEARANCE IN ARUBA AN INSURANCE SCAM OR MURDER?
It is alleged that Ms. Robyn Gardner's disappearance is due to an attempt by Mr. Gary Giordano to collect on an accidental life insurance policy worth approximately $1.5 million. He is now being held in Aruba as a suspect of Ms. Robyn Gardner's disappearance, although no body has been found. Do you believe that this is a case of murder or insurance fraud?
There are several interesting allegations that suggests that the two individuals planned this disappearance prior to the trip. First, it is alleged that the two individuals met on a dating site, and decided to take this trip to Aruba after dating for a very short period of time. Next, it is also alleged that prior to going on the trip, Mr. Giordano took out this policy which was authorized by Ms. Gardner. Now who would authorize that someone take out a policy on their life worth $1.5 million without a fear that they would be killed on that trip? This sounds like a plan to fake a murder, or disappearance if you will, so that the two may become rich and live happily ever after as millionaires. Finally, the two arrived safely in Aruba, and some time later, Ms. Gardner disappears, and there is no trace of her body. Does these allegations suggest murder or do they lean more towards insurance fraud?
I strongly believe that the two planned this disappearance so that they could collect the insurance money. After all, it requires the death to be accidental, and what better way to prove an accidental death, than to fly to an island which is outside of the United States jurisdiction, and have the female disappear as many cases exist where individuals vacation on an island and never return to the United States. I can imagine Mr. Giordano pretending to cry his eyes out, make up a story about himself and Ms. Gardner swimming in the beautiful waters of Aruba, and suddenly, a shark similar to Jazz came along, and devoured her entire body, leaving nothing, not even a drop of blood, and so they will never find her body. Meanwhile, Ms. Gardner had already left the island on a boat, and sailed to Columbia, or even Venezuela where she waits patiently for Mr. Gardner to return with the cash.
The details of this incident really leads me to conclude that Ms. Gardner is not dead, and she will likely not be found unless the Aruba officials search the surrounding shores. It is alleged that the dating site where the two met was "Match.com." If this is the case, they certainly know how to put couples together. The interesting is that of the many Americans who vacation on islands and fail to return to the United States, but were never considered newsworthy, what makes these two individuals worth air time?
There are several interesting allegations that suggests that the two individuals planned this disappearance prior to the trip. First, it is alleged that the two individuals met on a dating site, and decided to take this trip to Aruba after dating for a very short period of time. Next, it is also alleged that prior to going on the trip, Mr. Giordano took out this policy which was authorized by Ms. Gardner. Now who would authorize that someone take out a policy on their life worth $1.5 million without a fear that they would be killed on that trip? This sounds like a plan to fake a murder, or disappearance if you will, so that the two may become rich and live happily ever after as millionaires. Finally, the two arrived safely in Aruba, and some time later, Ms. Gardner disappears, and there is no trace of her body. Does these allegations suggest murder or do they lean more towards insurance fraud?
I strongly believe that the two planned this disappearance so that they could collect the insurance money. After all, it requires the death to be accidental, and what better way to prove an accidental death, than to fly to an island which is outside of the United States jurisdiction, and have the female disappear as many cases exist where individuals vacation on an island and never return to the United States. I can imagine Mr. Giordano pretending to cry his eyes out, make up a story about himself and Ms. Gardner swimming in the beautiful waters of Aruba, and suddenly, a shark similar to Jazz came along, and devoured her entire body, leaving nothing, not even a drop of blood, and so they will never find her body. Meanwhile, Ms. Gardner had already left the island on a boat, and sailed to Columbia, or even Venezuela where she waits patiently for Mr. Gardner to return with the cash.
The details of this incident really leads me to conclude that Ms. Gardner is not dead, and she will likely not be found unless the Aruba officials search the surrounding shores. It is alleged that the dating site where the two met was "Match.com." If this is the case, they certainly know how to put couples together. The interesting is that of the many Americans who vacation on islands and fail to return to the United States, but were never considered newsworthy, what makes these two individuals worth air time?
Monday, August 8, 2011
Will We Have an NBA Season This Year?
The National Basketball Association (NBA) is facing the possibility that there may not be a basketball season for 2011 as the current lockout is still in place. The lockout began on July 1, 2011 after failing to come to a resolution on the collective bargaining agreement (ESPN, 2011). Team owners are now prohibiting players from accessing the team facilities and trainers (ESPN, 2011). The issues presented for discussion are: (1) Splitting the revenue amongst teams; (2) Obtaining a Competitive Balance; (3) Setting a hard cap versus a soft cap; (4) Increasing revenue sharing for team owners; and (5) New contract terms(ESPN, 2011). The views of the NBA players in comparison to the team owners and the NBA officials are on different ends of the spectrum, and may cause millions of basketball fans disappointment if the NBA season fails to resume this year. The NBA has recently filed an antitrust lawsuit against the players for unfair bargaining (ESPN, 2011). This entire dispute could be resolved if the unions were dissolved, and owners were left in total control of their teams.
Splitting the Revenue Amongst teams
It has been suggested that teams should share the revenue when they play against each other. So there will be a certain percentage of the revenue retained by the home team and a percentage shared with the visiting team. Although on the surface it appears to be a fair proposal, there are other variables not accounted for. Should the NBA allow the least dominant teams (less successful) to benefit from the hard work placed into advertising, promotions, and the commitment to building a successful organization by the most dominant teams? For example, should the Los Angeles Lakers be forced to share its revenue with the Sacramento Kings when the Kings come to play in a sold out Staples Center? And should the Lakers share in the revenue when they play in the Pavilion (formerly known as Arco Arena)? Clearly one team would benefit more than the other from this arrangement. While the Kings would clearly benefit from sharing revenue with the Lakers, the Lakers would not stand to gain the same from sharing its revenue with the Kings. In this example, the Lakers would likely incur a larger profit by keeping the revenue made at home, rather than sharing with the Kings, while the Kings may very well profit more by receiving a share of the revenue that the Lakers made on their home court. This would be unfair to the more successful NBA teams.
Obtaining a Competitive Balance
It has been suggested that in order to obtain a competitive advantage, it is necessary to enter into a new collective bargaining agreement that would reduce the maximum salary paid to NBA players to an amount that would allow the less successful teams to have the ability to compete for superstar athletes. No matter what figure is agreed upon, it will always be to the benefit of some and to the disadvantage of others. A competitive balance can be reached without manipulation of player salaries. The most successful teams are able to attract superstar athletes not simply because they can offer a higher salary, but because they can offer a championship team. The least successful teams may argue that they are not able to compete for superstar athletes because they cannot pay their salary while trying to also surround that player with teammates who are of championship caliber. Although this would be a plausible argument, if the salary cap was lowered so that the least successful teams may compete for superstar athletes, does that not strengthen the bargaining power of the most successful teams? This would allow the most successful teams to have more money to attract an entire team of superstars. And the growing trend is that superstars are willing to incur pay cuts to play with other superstars because the chances of winning a championship is greater. The Dallas Mavericks is a perfect example of this. A salary cap will only increase the ability of the most successful teams to attract an entire squad of superstars. This would lead the NBA to setting a cap on the amount of superstars one team may have, resulting in extremely unhappy team owners, unhappy NBA players, and unhappy fans.
Hard Cap Versus Soft Cap
The owners of NBA teams proposed that the total salary paid should not exceed a certain amount to be agreed upon, and any team who exceeds the cap should pay a penalty for doing so. The players union however would prefer a soft salary cap similar to the salary cap currently in place. The disagreement over hard salary cap versus soft is of the least importance in my opinion. Either way, the fact that the salary cap will likely remain in the millions suggests that team owners, players, and the NBA should all be thankful that it can continue to pay lavish salaries while the rest of the United States are content with making less than six figures annually with hardly any time off from work. The decision on what players should be paid should be left to the owners, the players, and the players attorneys to decide. If some players can't accept it, there are lots of lower paid athletes who will.
Increasing Revenue Sharing for Team Owners
New Contract Terms
There is a debate over the length of new contracts and the age in which individuals should be allowed to enter the NBA. Once again, this is the least of their worries. If an 18 year old has proven his ability to play at a professional level, no one has the right to tell him that he cannot enter the draft. This may work for the NFL but it is a matter of time before this is debated there as well. Also, the length of a player's contract should be left up to the owners and the player's representative. After all is this not the reason why players hire agents and attorneys? If the union could accomplish this better than they could, why are players even paying attorneys?
In the end a lot of the issues being debated amongst the players, team owners, and the NBA are being discussed in the wrong forum. The NBA allowed the union to create too much player influence, and not enough sound business influences. The NBA in its entirety is after all a business. If there were no NBA, where would the players be right now? Where would the owners be right now? Where would the union be right now? So the overall goal should be saving the NBA, giving the fans what they pay for, and preserving the competitive advantage of the NBA amongst other basketball leagues abroad. There are already players entering into contracts with foreign teams, and if this lockout continues, larger numbers are sure to follow. So team owners should be allowed to control their own teams, and players should understand that there are others in the United States who have suffered pay cuts, but found a way to persevere, and surely they can do the same.
Reference:
ESPN (2011). Retrieved on August 8, 2011 from: http://espn.go.com/nba/topics/_/page/nba-labor-negotiations.
-Kerriann E. Sheppard
Splitting the Revenue Amongst teams
It has been suggested that teams should share the revenue when they play against each other. So there will be a certain percentage of the revenue retained by the home team and a percentage shared with the visiting team. Although on the surface it appears to be a fair proposal, there are other variables not accounted for. Should the NBA allow the least dominant teams (less successful) to benefit from the hard work placed into advertising, promotions, and the commitment to building a successful organization by the most dominant teams? For example, should the Los Angeles Lakers be forced to share its revenue with the Sacramento Kings when the Kings come to play in a sold out Staples Center? And should the Lakers share in the revenue when they play in the Pavilion (formerly known as Arco Arena)? Clearly one team would benefit more than the other from this arrangement. While the Kings would clearly benefit from sharing revenue with the Lakers, the Lakers would not stand to gain the same from sharing its revenue with the Kings. In this example, the Lakers would likely incur a larger profit by keeping the revenue made at home, rather than sharing with the Kings, while the Kings may very well profit more by receiving a share of the revenue that the Lakers made on their home court. This would be unfair to the more successful NBA teams.
Obtaining a Competitive Balance
It has been suggested that in order to obtain a competitive advantage, it is necessary to enter into a new collective bargaining agreement that would reduce the maximum salary paid to NBA players to an amount that would allow the less successful teams to have the ability to compete for superstar athletes. No matter what figure is agreed upon, it will always be to the benefit of some and to the disadvantage of others. A competitive balance can be reached without manipulation of player salaries. The most successful teams are able to attract superstar athletes not simply because they can offer a higher salary, but because they can offer a championship team. The least successful teams may argue that they are not able to compete for superstar athletes because they cannot pay their salary while trying to also surround that player with teammates who are of championship caliber. Although this would be a plausible argument, if the salary cap was lowered so that the least successful teams may compete for superstar athletes, does that not strengthen the bargaining power of the most successful teams? This would allow the most successful teams to have more money to attract an entire team of superstars. And the growing trend is that superstars are willing to incur pay cuts to play with other superstars because the chances of winning a championship is greater. The Dallas Mavericks is a perfect example of this. A salary cap will only increase the ability of the most successful teams to attract an entire squad of superstars. This would lead the NBA to setting a cap on the amount of superstars one team may have, resulting in extremely unhappy team owners, unhappy NBA players, and unhappy fans.
Hard Cap Versus Soft Cap
The owners of NBA teams proposed that the total salary paid should not exceed a certain amount to be agreed upon, and any team who exceeds the cap should pay a penalty for doing so. The players union however would prefer a soft salary cap similar to the salary cap currently in place. The disagreement over hard salary cap versus soft is of the least importance in my opinion. Either way, the fact that the salary cap will likely remain in the millions suggests that team owners, players, and the NBA should all be thankful that it can continue to pay lavish salaries while the rest of the United States are content with making less than six figures annually with hardly any time off from work. The decision on what players should be paid should be left to the owners, the players, and the players attorneys to decide. If some players can't accept it, there are lots of lower paid athletes who will.
Increasing Revenue Sharing for Team Owners
New Contract Terms
There is a debate over the length of new contracts and the age in which individuals should be allowed to enter the NBA. Once again, this is the least of their worries. If an 18 year old has proven his ability to play at a professional level, no one has the right to tell him that he cannot enter the draft. This may work for the NFL but it is a matter of time before this is debated there as well. Also, the length of a player's contract should be left up to the owners and the player's representative. After all is this not the reason why players hire agents and attorneys? If the union could accomplish this better than they could, why are players even paying attorneys?
In the end a lot of the issues being debated amongst the players, team owners, and the NBA are being discussed in the wrong forum. The NBA allowed the union to create too much player influence, and not enough sound business influences. The NBA in its entirety is after all a business. If there were no NBA, where would the players be right now? Where would the owners be right now? Where would the union be right now? So the overall goal should be saving the NBA, giving the fans what they pay for, and preserving the competitive advantage of the NBA amongst other basketball leagues abroad. There are already players entering into contracts with foreign teams, and if this lockout continues, larger numbers are sure to follow. So team owners should be allowed to control their own teams, and players should understand that there are others in the United States who have suffered pay cuts, but found a way to persevere, and surely they can do the same.
Reference:
ESPN (2011). Retrieved on August 8, 2011 from: http://espn.go.com/nba/topics/_/page/nba-labor-negotiations.
-Kerriann E. Sheppard
Wednesday, August 3, 2011
Does raising the Debt Ceiling Help Our Economy?
Now that President Obama has achieved an increase in the debt ceiling, can the citizens of the United States expect to see our economy get better? The answer is NO! The United States have a history of spending more money that it receives in revenue, and this is the main problem with our government. By raising the debt ceiling, we just allowed the government to continue borrowing the money that it "needs," but this only raises our deficit even more.
I analogize this issue with credit card debt, something that many Americans can relate to. Lets say that an individual has an American Express card with a credit limit of $5,000. Now lets say that this individual has used the maximum amount of $5,000 and is only able to pay the minimum payment every month of $100. But after making the minimum payment, the individual finds a way to use the available credit every time. As a result, the debt is never reduced, it is only sustained. Now lets say that this individual wishes to increase their credit limit so that they may borrow more money, but they are already living above their means and has more debt than income. Would it be wise for a credit card company to increase their limit based on their history of payments and debt to income ratio? A wise credit card company would refuse to increase their limit until the individual has proven that they can afford to pay a substantial amount of the credit already used on a consistent basis. The United States government, however, treats its credit as if it was owned an American Express "Black Card" with no limitations. Every time it reaches the debt ceiling and cannot raise the revenue to reduce it, it simply increases its credit limit. Don't we all wish we could do this? If it continues to have the ability to increase its debt ceiling, what incentive does it have to pay back its debt? It could simply continue to raise its limit, and make the minimum payment. So in reality, it is only sustaining its debt, not reducing its debt.
There have been suggesting made that the government needs to make some cuts on governmental agencies and spending, but have yet to be done. Some also suggest that the government raise taxes in an effort to generate revenue (the feasibility of these measures will be discussed in another segment). However, no such measures have been taken, and I am not surprised. What incentive is there to do so when the debt ceiling has been raised and it has the ability to raise it again so that it can continue to borrow the funds that it "needs". I wonder how long it is going to take the creditors before they stop lending money to the United States? How long will it take before they refuse to invest in our bonds and securities and take their money elsewhere?
There is great concern about our AAA credit rating declining, and I fear that it will soon become a reality. No responsible borrower operates the way that the US government has operated over the past presidential terms. Individuals are often cautioned not to live above their means, and I think that it is time the US government receives the same caution. It is time to make some serious cuts and focus on increasing revenue. Raising the debt ceiling did nothing more than prove that the United States government holds a "Black Card" with no credit limit, but it has yet to prove that it is a responsible borrower.
Is our Economy now in a better position? Maybe, but I highly doubt that we will make any progress until our government starts proving that it understands the words "deficit" and "budget." We will always have the former if we do not know how to accomplish the latter.
-Kerriann E. Sheppard (Law Offices of Sheppard & Associates)
I analogize this issue with credit card debt, something that many Americans can relate to. Lets say that an individual has an American Express card with a credit limit of $5,000. Now lets say that this individual has used the maximum amount of $5,000 and is only able to pay the minimum payment every month of $100. But after making the minimum payment, the individual finds a way to use the available credit every time. As a result, the debt is never reduced, it is only sustained. Now lets say that this individual wishes to increase their credit limit so that they may borrow more money, but they are already living above their means and has more debt than income. Would it be wise for a credit card company to increase their limit based on their history of payments and debt to income ratio? A wise credit card company would refuse to increase their limit until the individual has proven that they can afford to pay a substantial amount of the credit already used on a consistent basis. The United States government, however, treats its credit as if it was owned an American Express "Black Card" with no limitations. Every time it reaches the debt ceiling and cannot raise the revenue to reduce it, it simply increases its credit limit. Don't we all wish we could do this? If it continues to have the ability to increase its debt ceiling, what incentive does it have to pay back its debt? It could simply continue to raise its limit, and make the minimum payment. So in reality, it is only sustaining its debt, not reducing its debt.
There have been suggesting made that the government needs to make some cuts on governmental agencies and spending, but have yet to be done. Some also suggest that the government raise taxes in an effort to generate revenue (the feasibility of these measures will be discussed in another segment). However, no such measures have been taken, and I am not surprised. What incentive is there to do so when the debt ceiling has been raised and it has the ability to raise it again so that it can continue to borrow the funds that it "needs". I wonder how long it is going to take the creditors before they stop lending money to the United States? How long will it take before they refuse to invest in our bonds and securities and take their money elsewhere?
There is great concern about our AAA credit rating declining, and I fear that it will soon become a reality. No responsible borrower operates the way that the US government has operated over the past presidential terms. Individuals are often cautioned not to live above their means, and I think that it is time the US government receives the same caution. It is time to make some serious cuts and focus on increasing revenue. Raising the debt ceiling did nothing more than prove that the United States government holds a "Black Card" with no credit limit, but it has yet to prove that it is a responsible borrower.
Is our Economy now in a better position? Maybe, but I highly doubt that we will make any progress until our government starts proving that it understands the words "deficit" and "budget." We will always have the former if we do not know how to accomplish the latter.
-Kerriann E. Sheppard (Law Offices of Sheppard & Associates)
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