[W]Rangling More from the Rich: Rep. Rangel's Plan to Fund Health Care

Charles Rangel (D-NY) has proposed additional surtaxes on wealthy Americans (defined as those earning over $280,000 ($350K if MFJ)). Surtax rates would be 1% at 280/350; 2% at 400/500 and 3% at $800,000/$1 million. Rangel estimates that the surtax would over one-half trillion, 2/3rds more than the controversial taxing of health insurance coverage paid by employers. Rangel was invited to meet at the White House and further explain his proposal over the weekend, but Senator Dick Durbin (D-IL) suggested that he planned a different strategy.

Surtaxes tend to have a short shelf-life; past uses include taxation for the Vietnam War and the "windfall oil profits tax." The obvious selling point of Rangel's proposal is that it takes the apparent burden of healthcare funding off the middle class. Potential disadvantages: extra taxes on the wealthy tend to be passed on to public by higher prices, lower wages, less hiring, etc. and the tax structure (rate points for unmarried taxpayers are at 80% for MFJs) provides some opportunity for Republicans to catagorize the surtax as "anti-marriage."

A Dozen (maybe a Baker's Dozen) of New Blog Links

Added about 12-14 new blogs to the blog roll today; most were accounting but three were tax blogs. Most were from three sources: Cherry, Bekaert and Holland CPA firm in Virginia, Somerset CPAs in Indiana and Monica Lawver in Ohio. Topics ranged from farm to faith-based accounting and from government contracting to international tax. Thanks again to Michelle Golden for her impressive blog list in Golden Practices. Enjoy a new blog today!

Note: As mentioned earlier, my father-in-law passed away this morning. This will probably be my last post until at least the middle of next week.

Off Topic: July Starts with a Bang (even without firecrackers)

Several pieces of personal news: yesterday, the State of Tennessee confered tenure on me at Austin Peay; unfortunately, that good news was soon tempered as Bill Sharp, my wife's father, took ill with pneumonia yesterday and died this morning. Bill was a self-educated man who successfully helped support and raise four children and who enjoyed a variety of interests, such as paper money and coins, antique postcards, travel and contract bridge. He will be missed by friends and family.

FASB Codifies (Not Coddles) Financial Accouting Standards

The Financial Accounting Standards Board announced the Codification of nongovernmental financial accounting standards effective September 15. The codification supercedes all FASB pronouncements and literature not included in the codification will be considered nonauthorative. The Codification is subdivided into about 90 topics and the topics are designed to have a consistent structure within the Codification. Access to the Codification will cost $850 for full access by accounting firms and other interested organizations and $150 for academic organizations. Free access with limited scope (called the Basic View) will be available as well. Additionally, academic users will receive a free trial period through August 31. Tick Marks will link to the Codification access page at right.

It will be interesting to see what the FASB has done and how FASB incorporates IFRS (if at all) in the Codification. I hope at some point that the FASB considers a reduced price for smaller not-for-profit organizations similar to the discounted academic price.

Olson: Don't Look for Mercy Here, Scofflaw Tax Preparers

In her annual report to Congress, Taxpayer Advocate Nina Olson said that she would work with the Inspector General for Tax Administration to develop regulations for presently unregulated (commercial preparers who are not attorneys, CPAs or enrolled agents) tax preparers. Olson scolded these preparers for inaccuracy, lack of sufficient diligence and even taking unreasonable positions. She asked that unregulated preparers should be tested and required to take continuing education (in effect, requiring something comparable to enrolled agent status before being permitted to prepare tax returns commercially) and that unregualted preparers who are regularly sloppy or overly aggressive should be pursued by IRS enforcement officals. She also advocated a specific identification number, similar to an employer number, for commercial tax preparers. Additional priorities include additional study (and potentially increased access to) the offer-in-compromise program, better administration of refundable credits and better telephone service to taxpayers.

I certainly have no quibble with the additional priorities and Ms. Olson has earned the right to be taken seriously when it comes to her support of regulation for tax preparers. There is a theoretical argument for letting states regulate non-ABA/CPA/EA tax preparers; there is also a "interstate commerce/tax gap" justification for increased federal regulation. One of my biggest fears for increasing federal regulation, brought out in a previous post, is that regulation initially claimed to be directly at unregulated preparers would be used to leverage additional regulation of EAs and CPAs, a scenario which I DEFINITELY would not support. Ultimately, in my opinion, Congress needs to make it clear whether only EAs, CPAs and attorneys should be permitted to be commercial tax preparers before the proposed IRS regulations are put into place; in other words, the legislative body should speak before the administrative/executive body regulates.

Update on the Work Opportunity Credit (Form 8850)

Form 8850 Instructions to qualify for credit

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Publication 954 on the Work Opportunity Credit (uses Form 5884)

Form 5884 to take credit

The Internal Revenue Service has just provided guidance on an expanded Work Opportunity Credit for employers. Form 8850, the form which qualifies employers for the credit, should be filed with the appropriate state workplace agency (SWA) instead of the IRS (exception: if ONLY Hurricane Katrina-affected employees qualify; the employer need not submit Form 8850 but must maintain satisfactory documentation of the employee's qualifications). Changes for 2009: Hurricane Katrina status is continued to August 2009 (four years of date of Katrina landfall), new categories have been added for military veterans which have received unemployment compensation and "disconnected youth" (a summarized definition would be a 16-24 year old who does not have a diploma and has been out of school and out of work of at least minimum wage pay for at least six months--more complete definitions are available in the 8850 instructions linked above). Qualifying groups include people eligible for Part IV-A of Social Security, qualified military, qualified ex-felon, 18-39 year old resident of an Empowerment Zone, Renewal Community or Rural Renewal County (defined at length on pages three and four of the 8850 instructions and probably includes 1/3 to 1/2 of the country), referral of vocational rehabilitation (generally a disabled employee), summer youth employee, SNAP (formerly called food stamps) recipient, long-term family assistance recipient, Hurricane Katrina employee, unemployed veteran (this adds unemployment compensation recipient to the food stamp recipient or disabled status included in qualified military) and disconnected youth. The credit generally is 40% of wages up to $6,000 per first year employee if the employee worked at least 400 hours, 25% of wages up to $6,000 if the employee worked 120-399 hours with maximum wages limited to $3,000 if the employee qualifies solely as a summer youth employee; there are also opportunities for a 50% credit of certain second-year wages if the employee qualifies as a long-term family assistance recipient.

The Work Opportunity Credit, while perhaps not perfect (it does add to complexity, after all) is, in my opinion, a relatively good tax incentive. As a tax incentive, it can be adjusted or eliminated more quickly than direct spending, the incentive does provide employers a reason to hire people that might otherwise have difficulty being gainfully employed and the empowerment and renewal zones in many cases (such as the Mississippi Delta and the Alabama Black Belt) are areas of dreadful poverty and despair which can use whatever help they can get in providing employment and business activity (and corresponding tax revenue)toward covering the costs of needed social services.

Is There an Honest Man (or Woman) to Be Found? How Cheating Damages Capitalism

Steven Malanga of the Manhattan Institute and Real Clear publishing (home of Real Clear Politics and Real Clear Markets) tells the story of New York Times Edmund Andrews as an illustration of the increased acceptably of cheating and how a culture of cheating neccessarily. Andrews tried several techniques of dubious moral fiber to acquire a house in the middle of this decade. but Malanga points that lender American Home Mortgage was equally at fault for enabling and even encouraging Andrews' behavior. Malanga also contrasted that America's willingness to turn a blind eye to cheating to sociologist Max Weber's experiences 105 years ago when fraud was considered not only ethically wrong but a failure to live up to one's duty.

I still believe that capitalism is the best economic system that imperfect humanity is capable of and that even government regulation of capitalism must be viewed carefully to compare costs and benefits (an example of where such benefits exceed costs would be reasonable "MPG" standards for automobiles). Having said that, capitalism has little or no moral underpinning in and of itself; the same capitalistic system which has created great choices for consumers at grocery stores is also capable in a morally unsettled environment of rewarding child pornography. Has our choice to extract God from much of public discourse come home to roost? You make the call.

Cap and Trade: More Impact on Accountants than You May Realize

Intentions of the Obama Administration to reduce pollutants, perhaps through a "cap and trade" tax as well as international meetings on carbon in Copenhagen later this year and the Western Climate Initiative creates a need for businesses (and accountants) to better understand the ramifications of costing carbon-based pollutants. Some specific issues which deserve consideration: increased costs of high pollutant levels (can this be passed on to customers?), integrating "carbon costs" into business strategies (potentially including use of tax incentives to reduce carbon emissions), understanding and assessing risks (examples include price risk, credit risk and regulatory risk), impact on capital budgeting (including purchases of fuel), usage of hedges and carbon offset futures, choice of accounting policies and disclosure of "carbon costs," tax impact of accounting choices well and deductibility of emission taxes, valuation of carbon "assets" (such as options to purchase carbon credits) and risk of fraudulent reporting of carbon costs and "carbon assets and liabilities."

I am aware that with XBRL, IFRS convergence and "mark to market" that accountants need another complicating responsibility like they need a hole in the head, but Obama definitely is pushing for green initiatives and the long-term question here is more likely to be how quickly an accounting scheme can be developed and whether disclosure will on financial statements or in notes rather than whether disclosure will be required. Looks like there is opportunity for tenure-track faculty in accounting to get some publications and presentations by working on systems for reporting costs of pollutants and incorporating these approaches into an accounting model. Perhaps the ISO 14000 series may be of value here.

Libertarian Business Group Mounts Court Challenge to SOX

A small Nevada CPA firm, Beckstaff and Watts and the conservative/libertarian Free Enterprise Fund has received certarori to present their case against Sarbanes-Oxley to the U. S. Supreme Court (a Court of Appeals previously ruled in favor of SOX and the government). The Free Enterprise Fund argues that the Public Companies Accounting Oversight Board (PCAOB) violates the separation of powers clause of the Constitution because the President does not appoint members and Congress does not control its purse strings. The court challenge has been in process for a number of months.

While I have a degree of ideological sympathy for the FEF, their case has virtually no chance of success; moreover, I would not be shocked to similar future legal actions being tagged as "frivolous." The history of tax protestors using "gold standard" arguments and similar literalist legal actions have had almost no success in recent decades. Like it or not, the PCAOB is here to stay; it is even possible after last fall's fiscal fiasco that GREATER regulation of the auditing industry may be in the future.