Americans flee industrial wasteland, seek shelter in taxless Texas
Here is an interesting interactive map that shows the more than 10 million relocations made by Americans from one county to another during 2008. I took a few screen shots to highlight some interesting trends.
Sully focuses on the migration to Texas, which he calls the “Blue flight to a red state.”
I really doubt the people fleeing from New York and California are mostly diehard Libertarians, who don’t want their tax dollars going to The Man. More than likely, they’re looking for jobs, and hey, if they can save money by not being taxed by the state, what poor person is going to turn that down?
I’m not condoning that logic. After all, citizens fleeing to Texas is a race to the bottom. If all states suddenly adopted Texas’s bare bone approach, citizens would lose all kinds of services, namely because no one would be paying to preserve public services. What I’m saying is it’s understandable that poor, desperate people would see moving to taxless Texas as a perk.
Struggling States Consider Legalizing Pot and Taxing Porn
In his 11 years in the Washington Legislature, Representative Mark Miloscia says he has supported all manner of methods to fill the state’s coffers, including increasing fees on property owners to help the homeless and taxes on alcohol and cigarettes, most of which, he said, passed “without a peep.”
And so it was last month that Mr. Miloscia, a Democrat, decided he might try to “find a new tax source” — pornography.
The response, however, was a turn-off.
“People came down on me like a ton of bricks,” said Mr. Miloscia, who proposed an 18.5 percent sales tax on items like sex toys and adult magazines. “I didn’t quite understand. Apparently porn is right up there with Mom and apple pie.”
Mr. Miloscia’s proposal died at the committee level, but he is far from the only legislator floating unorthodox ideas as more than two-thirds of the states face budget shortfalls.
“The most common phrase you hear from the states is ‘Everything is on the table,’ ” said Arturo Perez, a fiscal analyst with National Conference of State Legislatures, who predicted the worst financial year for states since the end of World War II.
Nowhere is that more true than California, where Assemblyman Tom Ammiano, a freshman from San Francisco, made a proposal intended to increase revenue, and, no doubt, appetite: legalizing and taxing marijuana, a major — if technically illegal — crop in the state.
“We’re all jonesing now for money,” Mr. Ammiano said. “And there’s this enormous industry out there.”
In Nevada, State Senator Bob Coffin said he would introduce legislation to tax the state’s legal brothels, a fee that would be “based on the amount of activities.” And unlike the Washington porn proposal, which drew the ire of the adult entertainment industry, Mr. Coffin’s plan has the backing of the potential taxpayers, in this case brothel owners who employ women as independent contractors.
“I think they figure if they become part of the tax stream, the less vulnerable they will be to some shift in mores,” he said.
Hawaiian legislators were also considering capitalizing on another potential shift in public attitudes when they proposed legalizing same-sex unions, which supporters say could help the slumping tourism trade.
In Massachusetts, meanwhile, state legislators have introduced a proposal to build two resort-style casinos, including one in Boston. A similar push died last year in the State House of Representatives. But Representative Martin J. Walsh, a Dorchester Democrat and co-author of the new casino bill, said a $2 billion budget deficit might have changed some minds.
“Every state in the nation, including Massachusetts, needs to figure out a way of raising revenues,” Mr. Walsh said. “So we need to be creative.”
Scott Pattison, executive director of the National Association of State Budget Officers, said many lawmakers were loath to tap more traditional tax sources during a downturn.
“What’s pushing it is this incredible desire to raise revenue,” he said. “But it’s coupled with the desire not to raise the general and sales and income taxes.”
Whether such proposals can pass is another issue, though each idea has its supporters. Betty Yee, chairwoman of the California Board of Equalization, the state’s tax collector, said that legal marijuana could raise nearly $1 billion per year via a $50-per-ounce fee charged to retailers. An additional $400 million could be raised through sales tax on marijuana sold to buyers.
The law would also establish a smoking age — 21 — effectively putting marijuana in a similar regulatory class as alcohol or tobacco. Marijuana advocates argue that legalization could also decrease pressure on the state’s overburdened prison system and law enforcement officers.
All of which, Ms. Yee said, at least makes the proposal worth talking about in a state with chronic budget problems and a law already on the books allowing the medical use of the drug.
“We know the product is out there, and we know marijuana is available to young people as well, but there’s no regulatory structure in place,” Ms. Yee said. “I think it’s an opportunity to begin the debate.”
Such a debate, of course, does not always favor tax innovators, and several law enforcement groups have already objected to the idea of legal marijuana, which would conflict with federal law.
John Lovell, a lobbyist for several groups of California law enforcement officials, said the plan would create a large, illicit — and thus untaxed — black market, in addition to magnifying substance abuse problems. “The last thing we need is yet another legal substance that is mind-altering,” he said.
Having taxes on illegal activities — like a seldom-collected tax on marijuana sales in Nevada — also has its drawbacks, said Robert MacCoun, a professor of law and public policy at the University of California, Berkeley, who has researched drug policy.
“It is very hard to tax illegal vices unless one is comfortable with contradiction,” Mr. MacCoun said. “How can you collect the taxes without documenting the behavior? And how can you document the behavior without making an arrest?”
In Washington State, Mr. Miloscia said he had also received criticism from an array of residents and business owners, who accused him of attacking the First Amendment and other sacred institutions with his porn proposal.
“I had people call up saying their marriages would fall apart,” said Mr. Miloscia, who represents a suburban district between Tacoma and Seattle. “I didn’t know how passionate people are about this stuff.”
UBS: Sorry About All The Fraud
In the hush-hush world of Swiss banking, the unthinkable is happening: secrets are spilling into the open.
UBS, the largest bank in Switzerland, agreed on Wednesday to divulge the names of well-heeled Americans whom the authorities suspect of using offshore accounts at the bank to evade taxes. The bank admitted conspiring to defraud the Internal Revenue Service and agreed to pay $780 million to settle a sweeping federal investigation into its activities.
It is unclear how many of its clients’ names UBS will divulge. Federal prosecutors have been examining about 19,000 accounts at the bank, but UBS ultimately may disclose the identities of only a few hundred customers.
But to some, turning over any names at all heralds the end of the secret Swiss bank account, whose traditions date to the Middle Ages.
“The Swiss are saying that this is the end of Swiss banking as they knew it,” said Jack Blum, an offshore tax specialist. “Nobody will trust the security of the Swiss bank account.”
As part of the settlement, UBS agreed to cooperate with a broad summons issued by the Justice Department to turn over the names. Under the terms of a so-called deferred prosecution agreement, the bank and its executives could be indicted if UBS didn’t identify the customers.
UBS has said it is closing the offshore accounts of its American clients. But under the deal with the United States authorities, the bank must provide periodic written evidence of that to prosecutors. UBS earned $200 million annually from the business.
Prosecutors suspect that from late 2002 to 2007, UBS helped American clients illegally hide $20 billion, letting them evade $300 million a year in taxes.
In a striking admission, UBS said that from 2000 through 2007, some of its private bankers and managers had “participated in a scheme to defraud the United States” and the I.R.S. by helping American clients set up and conceal offshore accounts. The scheme involved falsifying or not properly obtaining or filing certain tax forms required of both the bank and its clients.
UBS’s offshore private banking business once employed some 60 private bankers in Lugano, Zurich and Geneva. Prosecutors claimed UBS referred clients to lawyers and accountants who set up secret offshore entities to conceal assets from the I.R.S.
UBS urged some American clients to destroy records and to stash watches, jewelry and artwork that they had bought with money hidden offshore in safe deposit boxes in Switzerland. The bank also encouraged them to use Swiss credit cards so the I.R.S. could not track purchases. In a statement on Wednesday, Peter Kurer, the chairman of UBS, said that “UBS sincerely regrets the compliance failures in its U.S. cross-border business that have been identified by the various government investigations in Switzerland and the U.S., as well as our own internal review. We accept full responsibility for these improper activities.”
Marcel Rohner, the group chief executive of UBS, said in a statement that “it is apparent that as an organization we made mistakes and that our control systems were inadequate.”
In January a senior UBS executive, Raoul Weil, was declared a fugitive, two months after being indicted by a federal judge in connection with the investigation of the bank. Mr. Weil, a Swiss citizen, oversaw the cross-border private banking operations from 2002 to 2007.
UBS had fiercely resisted turning over the names, even after some executives were indicted and implicated in the offshore private banking business. Swiss law distinguishes broadly between tax avoidance, tax evasion and tax fraud. Unlike in the United States, tax evasion is not a criminal offense under Swiss law.
The move by UBS to settle the case, on the eve of a Senate subcommittee hearing next Tuesday on the matter, signals how close the bank came to being indicted for not cooperating with prosecutors. Indictment is a near-certain death knell for corporations.
Of the $780 million that UBS will pay, $380 million represents disgorgement of profits from its cross-border business. The remainder represents United States taxes that UBS failed to withhold on the accounts. The figures include interest, penalties and restitution for unpaid taxes
As part of the deal, UBS also entered into a consent order with the Securities and Exchange Commission in which it agreed to charges of having acted as an unregistered broker-dealer and investment adviser for Americans.
The settlement caps a painful run for UBS, which suffered more than $50 billion in losses in the collapse of the American mortgage market and received a $60 billion bailout from the Swiss government last October.
The bank will not have to pay additional fines and penalties, which could have brought the deal to more than $1 billion. People briefed on the issue said the banking crisis and the recession were factors in this decision by prosecutors.
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