It's happened to everyone: one day, your property taxes drop from $1400 a year to $50, and you, well, you figure it's not a problem. Or if it is a problem, it's somebody else's problem. Detroit City Council member JoAnn Watson has landed in hot water thanks to revalations that she saved a sweet $12,000 over the last nine years. A flurry of media attention forced her to explain exactly what was going on, and a thorough investigation (it lasted about a week). She didn't exactly get a positive reception when she explained herself: If anyone here in this circle received a bill and you've argued to pay more, just raise your hand. That's fine, but if I lived in a notoriously corrupt city, and happened to have a job in politics, I might at least think it looked bad. And it's not like Detroit is doing especially well, financially. Did Watson have any idea how many steamy text messages from Mayor Kwame Kilpatrick to his chief of staff that money could have paid for? Or how many jobs for the mayor's friends and family that money could have saved (answer: not many -- his associates got raises averaging 36% over two years, while ...

New York taxpayers are getting a nasty surprise in the next months, as retroactive tax increases require them to set aside much more money in their quarterly tax payments. The Wall Street Journal reports that this change is hitting taxpayers who have high deductions especially hard. Those tax hikes were tempting, but this kind of story showcases one of the big problems with raising taxes during a recession: that unstable tax code gives everyone an incentive to earn less and lie more, since they don't know what they'll actually get to keep. Instead of spending big during good times and squeezing taxpayers during bad times, states should plan ahead for this kind of crisis. A better plan is to set aside savings for bad times -- New York could have kept spending low during the boom years, paid down debt, and had a large expense cushion when times got more difficult. That might have slowed the boom down a bit (with less hiring going on at city hall, wages citywide would be a tad lower), but that's not such a big problem: a crash from a Dow at 13,000 or 12,000 is less painful than a crash from 14,000, and if the ...

New York has a new plan to collect back taxes: publicly shame delinquent taxpayers. It's pretty cheap, as far as collection strategies go. And it doesn't sound as bad as you'd think, because they plan on notifying taxpayers first. But there are a few big problems with this plan. First, it's a huge violation of privacy, that's prone to error. If there's a mistake in the records that keeps the state from contacting a taxpayer in time, it might be a mistake on the state's end -- so they could end up naming and shaming someone who doesn't owe money after all. And even if the state is able to collect back taxes from taxpayers who are grateful for the amnesty, what if the naming-and-shaming gets the attention of the IRS? According to some reports, owing lots of back taxes could become a felony. If that happens, this plan would essentially give the IRS a list of targets who could be hit with serious penalties. New York State would end up using the Feds as muscle to enforce their own tax claims. So if they can't name and shame, what can they do? They can negotiate with taxpayers, and find out how much they ...

The fat tax proposal is back, and it hasn't exactly slimmed down. Now, instead of a statewide tax hike, we might get a nationwide effort to raise taxes on soda, alcohol, sodium, and trans fats. Inside sources tell the Tax Rascal that this proposal is just a preliminary one, and that the full plan also includes a cost-saving cap-and-trade system, reducing the total number of flavors available to an easily managable group including stalwarts like "Bitter," and "Bland," as well as new introductions like "Asphalty," and "Shame." Okay, maybe not. But it's still a bad plan. The jury's still out on whether or not taxing this kind of stuff would actually lead to better health (or would just lead to people trying unhealthier alternatives). And even if it is the right thing to do, there's always the question of why that's the right way to cover the extra health costs of people with unhealthy habits. A rule like this basically says that the way to charge for health care is to figure out how much people are likely to cost the system, and then charge them in advance based on that. But that doesn't make much sense: it's like a restaurant charging people ...

Coming soon: you can use your $8,000 new-home tax credit to make a down payment on your new home. We're now several years into a credit crisis caused by people buying homes they couldn't really afford. And the response? Creating a new incentive to buy more homes — and to borrow money to do it. There is no way this will end up moving prices to an appropriate level, and no way it's going to make the finance and housing industries change their behavior. In fact, the main result is to make things even worse: in the past, the government just made borrowing cheaper (through the income tax deduction, which made interest cheaper than other kinds of interest, and through Fannie and Freddie, which made mortgage loans easier loans to make). With this new law, they've gone from making promises to just plain writing checks. You can't really take this much farther without making it even more absurd. In the future, we're going to have to raise taxes (on everything except real estate, apparently). Or huge deficits will lead to rampant inflation (making dollar bills worth less than wallpaper — also a boon to the housing industry, incidentally).

Barack Obama has an exciting new plan to raise revenue: make companies pay taxes on the money they earn. Okay, so it's not new, and it's not that exciting. But it is a little more complicated than that. Basically, the current plan is designed to tax income earned overseas, whether or not it's returned to the US. Right now, if Apple sells an iPod in Italy, they pay Italian taxes on their Italian income. As long as they keep the money in Italy, they don't have to pay US income taxes on it. The case for the plan is that it closes a giant loophole in the current tax scheme. And it's not as if companies will just stop selling overseas if they have to pay regular taxes on the money. If a sale is only worth making because of special tax advantages, it's probably a good thing to get rid of the tax issue. The case against it is that this is an extra tax on our best companies, and that it unfairly penalizes American workers. Consider someone who took a risk and joined Apple ten years ago, when their survival was in doubt. Now, they're ...

Mr. Donald Trump, famous for announcing the line "You're FIRED" on the popular NBC show The Apprentice, was interviewed today by Neil Cuvato from the Fox News Network. Mr. Trump announced that he doesn't approve of the proposed New York Assembly Democrats' Millionaire Tax, which will bring millions of dollars to the hemorrhaging MTA. Under the plan, people who earn over $1 million in New York state will pay an income tax surcharge of about 3/4 of 1 percent for five years. In all, it would raise over $5 billion for mass transit. Mayor Bloomberg and Mr. Trump would contribute to the transportation funds as will athletes and high-paying corporate executives. Donald Trump says that most individuals, including himself,  will flee the city and Manhattan will fall in shambles. Rush Limbaugh recently announced his Manhattan departure. I say they won't leave, especially Mr. Trump. Mr. Trump has made a fortune during high tax season and I believe will continue to be a Manhattanite. His hair alone has its own zip code. In other news there was an article today in the WSJ announcing that San Franciscans top the list of tax-filing procrastinators, in regards to filing within the last two days of tax ...

Nobody feels more strongly about high taxes than smokers do, and with good reason: it's incredibly easy for politicians to raise taxes on smoking, and the average non-smoker doesn't have a lot of sympathy. So it's no surprise that the news is full of stories about planned cigarette tax hikes. But why is it so easy to raise taxes on smokers? Why not bottled-water drinkers, car owners, or life insurance buyers? The reason is simple: cigarettes have the combination of addictive power and brand loyalty. Very few smokers give up if the cost of their smokes goes up 10% -- in fact, basically no other product has the long-term resistance to price changes. It's also popular among people who don't smoke. Most people are pretty happy to hear that someone else's vices are getting punished. In fact, people are willing to believe that smoking will get rarer if the price goes up (even though, so far, that has been only slightly true). So what should smokers think of this? If you spend much time reading about taxes, you'll find plenty of resentful smokers tired of paying so much per pack -- but notice that they're still paying, and will continue to pay even ...

It's an outrage -- handing someone millions of dollars when his employer is nearly bankrupt? It's ridiculous -- larding paychecks with taxpayer dollars? It's unacceptable -- paying out a giant bonus in the face of a huge recession? It's just business. Even though Barney Frank expressed outrage over AIG's recent bonuses, people are (deliberately?) forgetting that AIG is a massive company, with over 100,000 employees in 130 countries. And the team responsible for most of the offices was a remarkably tiny group of remarkably arrogant traders. If AIG's structured products team is collecting these bonuses, it is, indeed, an outrage. But it's much more likely that the bonus recipients aren't the same team at all. AIG has a huge variety of insurance businesses, and it invests the proceeds from its insurance in an incredible array of assets. Even at a time like this, there are numerous AIG employees who are capable of making the company millions of dollars (and this would be a good time for them to have some extra money). But think about those people: how happy would they be to work for AIG? If they got stock options for good work in past years, those options are worthless; if they ...

People are still talking about it. Ed Barnett's IRS letter made him famous -- but there's something missing from the story: what did the IRS say about it? It's usually a bad idea for them to respond to someone who complains about taxes like this. The classic response to tax complaints is "You get what you pay for," but Barnett's tax rant dodged that question by listing all the things he did pay for. It could be hard to ignore the letter, too. The complaints are legitimate, and it's getting mentioned in blogs, forums, and newspapers nationwide. Here are a few possible responses: More responsiveness: if Barnett could have gotten in touch with someone at the IRS, he might not have had to write the letter at all. Lower taxes, more fees: taxes you pay for doing something well (buying a building that went up in price, getting a raise at your job) are less popular than taxes you pay for things that are neutral or harmful (like a mileage tax or a cigarette tax). If we switch to more of those taxes, we might see lower revenue, but we'd have fewer expenses as well. More transparency: this one is actually a possibility, and would definitely ...