STUMP » Articles » Taxing Tuesday: Maneuvering to Benefit the Rich, Hope the Suckers Stop Looking, and More » 25 September 2018, 10:34

Where Stu & MP spout off about everything.

Taxing Tuesday: Maneuvering to Benefit the Rich, Hope the Suckers Stop Looking, and More  

by

25 September 2018, 10:34

I doubt the midterm elections will have anything to do with taxes.

But hey, let’s check out what the blue states are up to, to make the sure high income folks don’t get to hit too hard.

CONNECTICUT: PROTECT THE BILLIONAIRES!

Thanks to a reader for forwarding this.

Connecticut’s SALT Bypass Offers Hidden Perk for Money Managers

Hedge fund and private equity managers in Connecticut may have more to like about the state’s novel workaround for a new cap on state and local tax deductions.

Not only do those who live and work in the state get a break on their property taxes, they can also shave the tax bill for their carried interest profits, a key source of earnings.

As I only work in Connecticut, and don’t live there, I guess I’m shit out of luck.

Earlier this year, Governor Dannel Malloy signed a law that creates a way for owners of so-called pass-through businesses, such as partnerships, to take bigger federal deductions to absorb the hit from the tax law’s new $10,000 SALT deduction limit. Buried in the provision is a way to further reduce the rate applied to carried interest.

For managers at some of Connecticut’s big funds such as Viking Global Investors, Lone Pine Capital, Stone Point Capital and Silver Point Capital, the measure could translate to hundreds of thousands, or even millions, of dollars in federal tax savings on carried interest. Representatives for the firms didn’t respond to requests for comment.

The new tax “could create a significant benefit,” said Joseph Pacello, a tax partner in the asset management group at BDO USA. Pacello said the carried interest break is currently being discussed by fund managers in Connecticut and their accountants.
…..
The pass-through tax, signed into law by Malloy in May, set a mandatory 6.99 percent levy — the state’s top marginal individual income tax rate — on pass-through entities, whose income is reported on owners’ personal returns and taxed at individual rates. Pass-through owners then get a state credit equal to about 93 percent of the owner’s share of tax paid by the business. They also get a full deduction for the levy as a business expense on their individual federal returns, since those are still unlimited.

The workaround, retroactive to Jan. 1, 2018, effectively assesses a state tax on the business that the owner can turn into a federal deduction.

“It’s one of the better workarounds out there,” said Gary Bingel, the partner-in-charge of EisnerAmper’s state and local tax group.

I wouldn’t bank on this, necessarily.

I want to hear what the IRS has to say about this.

SEATTLE: WE’LL TRY AGAIN WHEN PEOPLE AREN’T LOOKING

There are always entrants to the “dumbest tax idea”, but this one took the cake:

Clueless in Seattle: Text messages show politicians regret their head tax—for now.

Seattle’s head tax is one for the annals of political regret. In May the City Council unanimously approved an annual tax of $250 per employee on any business with $20 million or more a year in revenue. A month later the Council repealed the tax 7-2 amid local and national ridicule. Now we’re learning how the politicians realized they had made a big mistake and scrambled to curb the damage—at least until it’s safe to try again.

The Seattle Times obtained the text conversations of Mayor Jenny Durkan and Councilwoman Lorena González on the weekend before the June 12 repeal vote. “Pulling the head tax down now is super super smart and strategic,” venture capitalist Nick Hanauer advised the mayor in a June 10 text. “This was a no-win fight. Wrong fight at the wrong time on the wrong terms.”
….
The political fallout was entirely predictable since the tax was essentially a levy on job creation. Days before the initial vote, more than 100 businesses signed a letter warning that the tax sends the message that “if you are investing in growth, if you create too many jobs in Seattle, you will be punished.” Voters heard the message, too, and after the tax passed the mayor’s office was inundated with nearly 5,000 emails, the Seattle Times reported.

So lesson learned? Not for Ms. González. “Sadly the policy is right,” she wrote. “Our timing, however, was off. It’ll occur but we need to socialize people to what we’ve done, what we could do, the need and the real lack of resources.”

“A replacement may be in the cards but not now,” Ms. González wrote in another text. “We need to get rid of this albatross and then quietly work to figure out what takes its place,” adding that “I’m thinking this is a November 2019 strategy.” Liberal taxers never sleep.

Should be interesting if Amazon picks up a bunch of employees and drops them elsewhere.

THAT WOULD BE A PITY

via GIPHY

I wrote about the Seattle head tax a couple times, most notably in June when I laughed at the council having to rescind the tax.

ILLINOIS COMPTROLLER BRINGS LOVELY CAMPAIGN MESSAGES IN REFUNDS

This isn’t the first time I’ve seen something like this (as in, yes, I’ve seen this sort of thing in New York…but more on that in a bit.)

Wirepoints: Illinois Comptroller Mendoza Inserting Political Messages With Tax Refund Checks – Quicktake

The two-year budget impasse caused most of our problems in Illinois, and Governor Rauner is to blame for that impasse. That’s crazy — Illinois was in a death spiral long before Rauner even took office — but it’s a central theme of this year’s election, constantly repeated by J.B. Pritzker and many Democrats, particularly Illinois Comptroller Susana Mendoza.

Suppose you are Mendoza and want to use taxpayer money to mail that message out. You’d have to water it down enough the avoid laws against campaigning with public resources. And suppose you want to brag about reducing Illinois’ backlog of unpaid bills, as Mendoza often does (though in fact she just performed the clerical task of applying bond proceeds against bills).

If you’re clever, you’d message that when people are likely to be receptive to you, like, say, when you are sending them a government check.

You’d produce something just like this, and include it with tax refund checks:

Here’s the message:

So here’s the deal — I’m the sort of person who reads these inserts. Because I’m always looking for information, details, etc., to fold into my brain to chew on for a while.

Most people read these things perfunctorily to see if they can’t just go out and cash their check immediately. In short, I don’t think this is going to have much of an impact on the low info voters. The high info voters already know what’s going on.

Oh, and that message is chock full of numbers, which is anathema to any low info types. If you need to use a specific number in a political message, I would risk two numbers at most, and only if you’re comparing them. Otherwise, stick to one number.

Such as:

(You can see the break out at this Civic Fed page)

And that bond crap that the Comptroller is mentioning? That is for ongoing operational bills. That has been going on in Illinois for years. As I mentioned in an April post, the unpaid bill situation has been rolling over for at least 8 years, if not longer.

Anyway, I doubt this message will do much of anything other than annoy people like Mark Glennon, who notices these things.

TAX TWEETS

I understand people are getting up in a lather about something-or-other on twitter… but I’m just here for the tax tweets!



What percent of income tax is paid by the top 20%? Just curious.


I don’t think it’s about fooling. I just think that’s not a top care for most folks.


Ah, how are your taxes going up, exactly? I mean, even here in Westchester, New York, which supposedly is higher tax than Illinois/Chicago (I should know), if I get hit by slightly higher federal taxes compared to last year, it will be because my income went up a little bit. The rate cut + the SALT cap is a washout for me.

So… are you one of those unicorns?


Yeah, that’s happening to all sorts of companies re: deferred tax assets/liabilities.






See ya next week!


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