Tax Roundup, 8/20/2013: California and Florida have nice weather. What differs? And more on well-intended poverty traps.

August 20th, 2013 by Joe Kristan

Taxes Matter.  Check out the Tax Policy Blog Monday Map from yesterday:


The map shows money flowing from high-tax basket cases like New York, Illinois and California to low tax Florida and Texas.  Sure, the weather is an excuse for New York and Illinois, but not for California.  And notice how South Dakota, with the best Tax Climate in the Midwest, is the only green Midwest state.



Wall Street Journal,  Overseas Americans: Time to Say ‘Bye’ to Uncle Sam?

Daniel Kuettel, a Colorado native who lives near Zurich, says he gave up his U.S. citizenship in October because he feared he wouldn’t be able to get a mortgage now that some Swiss banks are cutting ties with American clients.

“It was a really difficult decision. I had to think about what was best for me and my family, to reduce the risk,” says Mr. Kuettel, a 41-year-old software developer. He says his income was below the limit the U.S. allows overseas taxpayers to exempt and he owed no U.S. taxes.

Mr. Kuettel’s problems are due to FATCA, the legislation that tries to force offshore banks to help enforce U.S. tax laws.  Many foreign banks find it easier to just not do business with U.S. citizens.   It didn’t occur to Congress that many Americans abroad are not international financial criminals, but  just ordinary taxpayers whose jobs took them overseas.  Yet FATCA falls alike on the wicked and the just:

But many U.S. taxpayers who aren’t wealthy also are finding it harder to attend to routine financial matters abroad, because some foreign institutions don’t want to face the cost of complying with U.S. requirements.

Amid the crackdown, some face stiff U.S. tax bills and crippling fines over undeclared assets. Paying lawyers and accountants to help meet the various reporting and filing requirements routinely costs at least $1,000 a year, and often much more, experts say.

Congresscritters should have to fill out every form they impose on others, whether it applies or not.  By hand.


Poverty Traps.  Even After “Welfare Reform,” In Many States, the Dole Pays Better Than Honest Work.

A new report from the Cato Institute’s Michael D. Tanner and Charles Hughes says that welfare benefits remain more generous than minimum-wage jobs in 35 states.

That even takes into account the Earned Income Tax Credit.

The full report, The Work versus Welfare Trade-Off: 2013 (PDF), is an interesting read, especially since it doesn’t disparage the poor, but assumes that they’re intelligent and often hard-working people who know a good deal when they’re offered one. The fact is, taxes gobble up much of the value of wages and salaries, while the package of benefits extended to those who qualify is tax-free. As a result, it’s not just grunt work that’s out-paid by state (read: taxpayer) generosity. Tanner and Hughes point out:

In 11 states, welfare pays more than the average pre-tax first year wage for a teacher.  In 39 states it pays more than the starting wage for a secretary. And, in the 3 most generous states a person on welfare can take home more money than an entry-level computer programmer.

And some folks collect benefits while making unreported income.  This should make lawmakers think twice before throwing more money at programs like the Earned Income Credit.


The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

When benefits are phased out, that works like a higher marginal rate.  That means the “working poor” who improve their lot pay taxes at millionaire rates on their additional income.


It will just die more vigorously.  (Camp’s Senate Decision Helps, but Won’t Save, Tax Reform (Jeremy Scott, Tax Analysts Blog)

Kay Bell, Tax Reform Road Show is now playing in Silicon Valley


TaxProf, The IRS Scandal, Day 103

Jack Townsend, Restraining Taxpayers for Tax Debts:

The IRS has a number of collection tools — most prominently the lien and levy.  But the taxpayer can hide assets, particularly overseas assets that stymy collection.  I write today on one of the tools available to the IRS to deal with such situations — the little known writ ne exeat republica.

Interesting stuff.


Robert D. Flach brings the Tuesday Buzz!  I like this:

 At the WALL STREET JOURNAL Tom Herman explains to a reader that “Filing Time Doesn’t Affect Tax Audits”.

The reader wants to know if filing an extension will increase your chances of an audit, and the answer is no.  It is also an “urban tax myth” that extending your return and filing it in October will reduce your chances of an audit.  A return is chosen for audit based on the information reported on the return, and not when it is received by the IRS. 

It’s always better to extend than amend.  An extended return that is e-filed correctly may never have an IRS human pay attention to it.  A human has to look at every amended return.


TaxGrrrl celebrates 1000 blog posts at Forbes:  What I’ve Learned In 1,000 Tax Posts 

There are some bloggers and journos that believe that it’s all about the numbers. And numbers are important – heck, this post is about a number. But more important than the numbers are my readers. I’ve said many times that I have the best readers in the world and that’s completely true.

Except for those of you reading this, of course!


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