Remembering Robert Bork

Robert Bork died this morning at the age of 85.  He was nominated by Ronald Reagan to serve as a Justice of the US Supreme Court but faced fierce opposition (albeit, unjustified) in the Senate.  He was not confirmed and ultimately resigned as an appellate justice.

After retirement he wrote several books.  Two of which are on my top ten list of favorite books:  Slouching Towards Gomorrah and the Tempting of America.  Despite the unfair attacks he suffered he was reportedly always good-natured and upbeat. 

Gerard Depardieu Fires Back at Critics Attacking His Tax Saving Move to Belgium

Recently, Gerard Depardieu, France's most famous actor, announced that he would be moving from France to Belgium in response to the ever increasing French tax rates on the wealthy.   This announcement was not met kindly and Depardieu was vilified by the French press, with Prime Minister Jean-Marc Ayrault calling Depardieu “pathetic” and “unpatriotic”. 

Depardieu didn't take the attack lying down and fired back a letter to the Prime Minister, returning his French passport and social security card.  “We no longer have the same country. I’m a true European, a citizen of the world,” Depardieu wrote.  The actor said his 2012 tax bill – 85 percent of his revenue – is fully paid.  Depardieu said he’s been working since age 14. In the last 45 years he claims to have paid €145 million ($190 million) in taxes. The letter finished with “I hand over my passport to you and my social security card, which I have never used.”

Should I Really Make a Large Gift Before the End of 2012?

Many estate planners, CPAs and valuation experts are busy right now assisting clients who are making extremely large gifts in an effort to maximize the current $5.12MM gift tax exemption.  For those with large estates, the prospect of the gift/estate tax exemption amount defaulting back to the $1MM level as a result of the fiscal cliff is nausea inducing. 

However, for many estates that are on the margin, serious consideration should be given to NOT making the gift.  The reason why is that when the owner passes away, the value of the property owned will get a full date of death step-up in basis.  So if farm property was bought or even inherited years ago (which means it has a low basis), is gifted now to children, the children would receive this property and will still have this low basis.  That means that if the children turn around and sell the property they will be hit with a significant taxable capital gain. 

Traditionally, it was much better to take the hit on capital gains in order to avoid the estate tax, but if one's estate is around $5MM and there is an intention to liquidate holdings after death, it may be better to only give away part of the property so that the other properties can get a step-up in basis at death.

If Congress keeps the estate/gift tax exemption high (as opposed to reverting back to the $1MM level) then there will be many instances where the 2012 gift giving was unnecessary and resulted in the loss of a step-up basis upon the owner's death.

While hind-sight is always 20/20, a little strategic planning can go a long way.

Income Tax Rates Rise...Revenues Fall: The UK's Vanishing Millionaires

From the WSJ editorial page, Britain's Missing Millionaires: Income tax Rates Rise but Revenues Fall:

A funny thing often happens on the way to soaking the rich: They don't stick around for the bath. Take Britain, where Her Majesty's Revenue and Customs service reports that the number of taxpayers declaring £1 million a year in income fell by more than 60% in fiscal 2010-2011 from the year before.

That was the year that millionaires became liable for the 50% income-tax rate that Gordon Brown's government introduced in its final days in 2010, up from the previous 40% rate. Lo, the total number of millionaire tax filers plunged to 6,000 in 2010-2011, from 16,000 in 2009-2010.

The new tax was meant to raise about £2.5 billion more revenue. So much for that. In 2009-2010 British millionaires contributed about £13.4 billion to the public coffers, or just under 9% of the total tax liability of all taxpayers that year. At the 50% rate, the shrunken pool yielded £6.5 billion, or about 4.4%....

Politicians would love to lay the whole burden of their policies on a tiny minority of the rich, but you can't finance the welfare state on the shoulders of the 1%. That's something for the U.S. to remember as President Obama pretends he can fill a $1 trillion budget hole with tax hikes on "millionaires and billionaires."

(Hat Tip: Tax Prof Blog)

Are Tax Hikes The Cure For CA Budget Woes?

One can only wait and see how the Passage of Prop 30 will affect California, but politcal cartoonist Michael Ramirez has his own take.

(Coutesy of National Review)

As Goes San Bernardino, So Goes CA?

There is an absolute must-read article from Reuters that examines San Bernardino's downward spiral in exhaustive detail.

Below are some of the tidbits that were shocking:

Yet on close examination, the city's decades-long journey from prosperous, middle-class community to bankrupt, crime-ridden, foreclosure-blighted basket case is straightforward — and alarmingly similar to the path traveled by many municipalities around America's largest state. San Bernardino succumbed to a vicious circle of self-interests among city workers, local politicians and state pension overseers. 

Little by little, over many years, the salaries and retirement benefits of San Bernardino's city workers — and especially its police and firemen — grew richer and richer, even as the city lost its major employers and gradually got poorer and poorer.

...

In bankrupt San Bernardino, a third of the city's 210,000 people live below the poverty line, making it the poorest city of its size in California. But a police lieutenant can retire in his 50s and take home $230,000 in one-time payouts on his last day, before settling in with a guaranteed $128,000-a-year pension.

 ...

San Bernardino's biggest creditor, by far, is Calpers, the public-employee pension fund. The city says it owes Calpers $143 million; using a different calculation, Calpers says the city would have to pay $320 million if it left the plan immediately.
Second on the city's list of creditors are holders of $46 million worth of pension bonds -- money borrowed in 2005 to pay off Calpers. The total pension-related debts are more than double the $92 million owed to the city's next 18 largest creditors combined.
Complicating matters were obscure budgeting procedures that left residents in the dark. The word "pension" doesn't appear once in the most recent 642-page budget, and retiree costs are buried in detailed departmental line items.

Yet even in bankruptcy, reducing pension costs by cutting benefits is not an option - at least according to Calpers.
The pension agency says the benefits are carved in stone, arguing that from the day a worker is hired, the pension plan in place on that day for that person can never be reduced in value under any circumstances, including municipal bankruptcy.
That argument has never been tested in court: When the Bay Area city of Vallejo went bankrupt in 2008, it declined to challenge the pension payments to Calpers, in part because of the daunting legal costs involved.
But the pension-bond insurers who are now on the hook for defaulted bonds in both Stockton and San Bernardino have signaled their intention to do battle with Calpers in bankruptcy court. San Bernardino, in an unprecedented move, has already stopped making payments to Calpers.

Occupy Wall Street Group Buys Consumer Debt--Then Just Forvgives It: a bailout of the 99%

I first read about the movement called Rolling Jubilee the other day and I must admit that I am fascinated by it.

According to its website, the group buys up consumer debt for pennies on the dollar and then just forgives it.  Puff...the debt is gone.  The movement is an offshoot of the Occupy Wall Street movement and considers this action a bailout of the 99%. 

The group claims to have raised over $240,000 of funds and will purchase nearly $5 million in debt--all of it which it will promptly forgive.

The tax consequences of this transaction, however, are subject to debate.  Generally, a debtor whose debt has been cancelled is supposed to recognize as ordinary income the amount of the debt that was cancelled.  However, Rolling Jubilee argues that this debt forgiveness is purely meant to be a "gift" to the debtor, which would not trigger any income tax.

Below is a video from the group that explains the basics.