The Tax Club Report

By Amy Fontinelle

Most people don’t give a second thought to today’s tax withholding system, but taxes haven’t always been withheld at the source, and there are compelling criticisms of the withholding system. In general, tax withholding is good for the government and bad for taxpayers.

Benefits of the Tax Withholding System
The tax withholding system was implemented to help the government raise money to finance various wars and to make it easier for the government to increase taxes without citizens protesting. Here are a few of the benefits of collecting taxes at the source – and notice that most of these benefits go to the government, not the taxpayers.

• People don’t notice the missing money.
  People tend to focus on their take-home pay, which makes sense since that’s the amount of money they actually have to work with. And when they do look at the tax withheld, it may not seem like a significant amount, since it’s divided among the 24 or so paychecks most people receive each year. Since most people don’t ever touch all the money they’ve earned and they only see a number for the total amount of federal tax they’ve paid once a year on their tax returns (which don’t show how much they’ve also paid for Social Security and Medicare, or how much their employers have contributed to Social Security and Medicare on their behalf) it’s easier for the government to collect taxes under a withholding system, even at relatively high rates. (To learn more, read Avoid The Social Tax Trap.)
• There’s no need to save up for or make a gigantic payment in April.
  It’s true that some people are bad at saving and wouldn’t be able to pay their tax bills if they had to pay them in a lump sum or even in quarterly installments. Americans who live paycheck to paycheck, when faced with a credit card bill now or a tax bill in nine months, would probably put the money toward their immediate concerns. Thus, tax withholding is said to be convenient for taxpayers because it allows them to make small, seemingly affordable payments throughout the year. Some people, however, might say it’s paternalistic of the government to decide when and how you’ll pay your taxes instead of allowing you to make the payments yourself. (Despite tax withholding, some people are still caught off guard in April. Read Top 9 Solutions To An Unexpected Tax Bill to learn how to handle this problem if it happens to you.)
• Withholding increases compliance and decreases evasion and underpayment.
  Because of the aforementioned savings dilemma, withholding makes it more likely that the government will receive all the taxes it is due. Withholding also makes it more difficult for tax protesters and tax evaders to keep their money out of the IRS’s hands.
• Withholding decreases collection costs.
  Since most people have all or most of their taxes remitted to the government by their employers, the IRS theoretically has a smaller pool of people to go after for unpaid or underpaid taxes. Lucky you – this means that fewer of your tax dollars are needed to fund the IRS’s collection efforts. (For more, see Surviving The IRS Audit.)
• Government can use the money sooner and receives payments and thus program funding steadily throughout the year.
  If this point is truly a rationale for withholding, it would seem that government is admitting that its own employees aren’t very good at managing the budgets for their programs, either. If they were, it wouldn’t matter if programs were funded in a lump sum in April or with steady payments all year long.

Criticisms of the Tax Withholding System
The tax withholding system is something that most of us take for granted, but the concerned citizens, politicians and economists who have analyzed it have many criticisms of the system.

• Taxpayers have no idea how much they pay in taxes and are apathetic about tax rates.
  If taxpayers had to make one large payment, they would know exactly how much they were forking over for federal taxes, Social Security taxes, Medicare taxes and state taxes. Since the money is taken gradually, many people never pay attention to the full amount, which makes it easier for high tax rates to persist and for the government to increase tax rates. For example, the state of California in 2009 decided to use the tax withholding system to take a large, interest-free loan from its taxpayers. It increased the withholding tax by 10%, and even journalists didn’t seem to notice until the days before the rate hike was implemented. The government says it will refund the borrowed money in April. (For more, see How To Owe Nothing On Your Federal Tax Return.)
• Taxpayer apathy contributes to high levels of government spending.
  As we all know, the government has a knack for not only spending every single tax dollar it collects, but for running large budget deficits. To continue the previous argument, critics say that when taxpayers don’t realize how much of their income is going to the government, they aren’t likely to make the connection between their income and the money that is needed to fund new government programs and expand existing ones. Thus, they are likely to support ever-bigger programs without understanding that they’re also supporting higher taxes.
• Taxpayers think that tax refunds are gifts from the government.
  They don’t realize the money was theirs all along and that they’ve made an interest-free loan to the government all year.
• Taxpayers treat their refunds as windfalls and don’t use the money wisely.
  A tax refund isn’t really a windfall – it’s money that you earned that you should have had access to during the year. But when it arrives in a lump sum in the form of a tax refund, it seems like a good excuse to do some extra spending. It’s possible to adjust your withholding so you don’t receive a large refund. You can use the extra money in each paycheck to help meet your savings goals throughout the year. (For more on this topic, read Don’t Waste Your Tax Refund.)
• Taxpayers suffer opportunity costs from withholding.
  For example, taxpayers lose out on the interest they could be earning on their tax dollars all year if they could hold on to the money until April. Over the course of a year, let alone a lifetime, this lost interest really adds up.
• Taxpayers can’t protest by refusing to pay taxes.
  Citizens who want to withhold their support for certain types (or all types) of government spending or who believe that the income tax is unconstitutional can have a difficult time keeping their money from the government under the tax withholding system.
• The system penalizes wage earners.
  Because taxes aren’t withheld from investment income or self-employment income (and a few other less common types of income), the withholding system is said to penalize wage earners, or those whose taxes are collected at the source (from each paycheck). They have to pay up sooner, which means that their opportunity costs from the withholding system are higher.
• The system imposes costs on employers.
  The employers who protested tax withholding in 1913 and got it revoked in 1917 had good points that are still true today. Businesses have to hire additional staff to deal with tax withholding and spend time and money on tax compliance that could be spent on improving their businesses or paying workers more.

Conclusion
It’s important to understand where that money coming out of your paycheck goes and why – after all, you earned it, and someone else is deciding what happens to it. Instead of taking the tax system for granted as a simple way to pay your taxes, consider what it really means for your finances.

Read more: http://www.investopedia.com/articles/tax/10/tax-withholding-benefits-criticisms.asp#ixzz1PSoYi4Tb

by Mark P. Cussen

In the corporate world, the only number that really matters at the end of the day is the bottom line. For taxpayers, the bottom-line number on their tax returns is just as important.

There are three main components that determine this number: income, deductions and credits. After these first two components have been computed and all deductions subtracted from income, any remaining income is assessed the appropriate amount of tax. But this final number is not the bottom line for many taxpayers, because their actual tax liability can be reduced further dollar-for-dollar by the various tax credits to which they may be entitled.

In this article, we will look at the available tax credits to help you determine which you can use to help pad your wallet.

What Are Tax Credits?
Tax credits are dollar-for-dollar reductions in the amount of tax that you owe to the government. These credits are much more effective at reducing your tax than deductions, because deductions only reduce the amount of taxable income that will be assessed, while tax credits reduce your tax liability.

Tax credits fall into two main categories: refundable and non-refundable. Refundable credits pay back the excess difference to the taxpayer as a refund if the amount of the credit exceeds the total amount of tax that is owed. Non-refundable credits can only be credited against your tax liability for that tax year; any excess amount is lost.

For example, if you owe $1,500 in tax but have a tax credit of $2,000, then you will get a refund of $500 if the credit is refundable and nothing if it is non-refundable. As with deductions, most tax credits have an income threshold phase-out schedule that reduces and eventually eliminates eligibility for the credits for high-income taxpayers.

Refundable Tax Credits
Here are three examples of available refundable tax credits. They are:

• Earned Income Tax Credit – The earned income tax credit is designed to provide a tax incentive for low and lower- middle income wage earners. The amount depends on the taxpayer’s income level and number of dependents. (To keep reading about earned income credits, see How can I tell if I’m eligible for an EIC?)
• Additional Child Tax Credit – The child tax credit applies to taxpayers who qualify for the non-refundable child tax credit, but who are unable to claim the full amount due to the limit imposed on non-refundable credits. Taxpayers must usually have more than two dependents to qualify.
• Excess Social Security Tax and Tier 1 RRTA Tax Withheld Credit – This credit applies to taxpayers who have more than one employer and have the full amount of Social Security tax withheld by each employer. If the aggregate amount of Social Security tax exceeds the taxpayer’s taxable wage base, then the excess amount withheld will be refunded to the taxpayer. The tax credit is also for railroad employees who paid too much into their tier 1 railroad employee retirement (RRTA).

Non-Refundable Tax Credits
There are quite a few tax credits that fall into the non-refundable category. Some are more common than others, and they differ in amount and complexity. Many of these credits are offered as tax incentives for certain types of activities, such as higher education and adopting a child.

Here is a breakdown of the major non-refundable credits:

• Hope Credit, American Opportunity Credit and the Lifetime Learning Credit - The hope and lifetime learning credits provide a measure of tuition reimbursement for parents (or students) who are paying college tuition and fees. (To read more about this subject, see Clearing Up Tax Confusion For College Savings Accounts and Invest In Yourself With A College Education.)
• Foreign Tax Credit – This credit is designed to reimburse taxpayers for the taxes they pay to foreign governments on investment income realized outside the U.S.
• Adoption Credit – The adoption credit allows taxpayers who adopt children to recoup some or all of costs of the adoption process (which can be very expensive).
• Elderly or Disabled Credit – Taxpayers over age 65 and those who meet the Internal Revenue Service’s (IRS) criteria for permanent and total disability are allotted a special credit. Taxpayers must meet income requirements to qualify.
• Child Tax Credit – Perhaps the most common non-refundable credit, this credit is allowed for all taxpayers who can claim qualified dependents. The maximum credit per child is $1,000. (Find out more about child tax credits in How can I use a child tax credit? and How Expanded Kiddie Tax Affects Families.)
• Dependent Care Credit – This credit helps taxpayers defray the costs of paying for childcare services, as long as certain conditions are met. To see the full list of conditions, see the child and dependent care credit page on the IRS website.
• Retirement Saving Contributions Tax Credit – The saver’s tax credit is designed to encourage taxpayers who meet income restrictions to save for retirement by providing a reimbursement for their IRA or qualified plan contributions of up to $1000 for an individual or $2,000 for a married couple filing jointly.
• Miscellaneous Credits – An assortment of less-common tax credits exist that a smaller number of taxpayers qualify for, such as:
  • Residential Energy Credit
  • Qualified Plug-In and Electric Vehicle Credit
  • Mortgage Interest Credit
  • Health Coverage Credit
  • Prior Year Minimum Tax – Individuals, Estates and Trusts Credit
  • Credit for Tax on Undistributed Mutual Fund Capital Gains

If you think your situation calls for the use of any of these credits, check the IRS website for further information.

Conclusion
There are a great many rules and provisions regarding the eligibility and limitations of the various tax credits that are available. Make sure that you use every available tool to help keep your hard-earned dollars where they belong – in your wallet.

Read more: http://www.investopedia.com/articles/tax/08/tax-credit.asp#axzz1PBNxGIbo

Estate planning is more than simply having a will. It is a continuous planning process done to alleviate the financial impact of your death on those you leave behind. By spending just a few hours and dollars now, you can save your loved ones or beneficiaries from paying as much as a 55% estate tax. But a well-constructed estate plan may not only reduce the tax bill, but also help your loved ones understand, resolve and prepare for many of the issues that arise when settling an estate. We’ll show you where to start. 

Dying without a Will
Dying without a will is known as dying intestate. If this were to happen in the U.S., intestate succession laws would come into play, and your relatives would have to go through probate to claim ownership of assets, perhaps even fight over assets. The state would determine how your property passes to your heirs. If no heirs fit the state’s formula, your assets may become property of the state. A will can help you avoid the pitfalls of dying intestate; however, even if you have a will, your assets will still be subjected to the timely and costly probate process (court involvement).

How a Will Can Help
A will primarily allows you to control the distribution of your assets and state your final wishes.

One very important advantage of a will is that it allows you to recommend a guardian to care for your children or other dependent beneficiaries in the event of your death. Because this is an overwhelming responsibility, you should select your guardian(s) carefully and also obtain their consent before listing them in your will. Although the final decision concerning guardianship is made by the court, the courts give a lot of weight to the parent’s decision in the will.

Other important items on your will are clauses clarifying the will and its purpose. In the exordium clause, for instance, you state your name and residence, and officially declare the document a will. Be careful to note in this clause that the will supersedes all previous wills, making them null and void. In the will you should also name the executor/administrator of your estate and how you would like that person to distribute your assets, including how all your debts, taxes and funeral expenses are to be paid. To avoid family disputes, you may want to add a non-contestability clause, which states that if any beneficiary contests the will, his or her share becomes null and void. Of course, a non-contestability clause is not suitable for every family’s circumstance. 
How to Start on Your Estate Planning
Now that you understand the importance of having a will, here’s a list of steps that gives an overview of the estate planning process:

• Make a list of all your assets and liabilities.
• Open a family discussion of who should be the guardian for your children.
• Check and update your current beneficiaries (those designated for IRAs, life insurance, etc).
• Review the current federal estate tax exemption limits (discussed below).
• Determine the distribution of your assets upon your death (family, charity, etc).
• Discuss your funeral arrangements with your spouse or family.
• Seek the assistance of a certified estate-planning attorney.

(For more on designating IRA beneficiaries, see Who Is The Beneficiary Of Your Account?)

A simple will may cover all your estate planning needs if the value of your estate falls materially below the estate-tax exclusion amount. The federal estate tax is an excise tax levied on the transfer of a person’s property that exceeds a certain amount at the time of that individual’s death. If your estate is worth more than the tax exclusion amount, the tax can be hefty. As such, you really need to take a serious look at your personal situation, and, if your estate is more than the tax exclusion, look into more estate-reduction and planning techniques, which will help your beneficiaries avoid the estate tax (we discuss these techniques further below). Keep in mind that direct transfers to your spouse are not taxed – these assets are not taxed until s/he dies (this is called a marital deduction).

Read the full article: http://www.investopedia.com/articles/pf/05/062005.asp#ixzz1Oo3YYIoS

by Amy Fontinelle

Even when we expect our tax returns to bring a refund, we all dread preparing for the tax deadline. The arcane tax forms, instructions few can decipher and our increasingly complex financial situations make each year’s return seem more painstaking than the last. Manypersonal finance experts recommend adjusting your withholding so that you don’t get a refund check in the spring (arguing that this amounts to giving Uncle Sam an interest-free loan for several months) when you could be putting that money to immediate use. However, for some people, having the government hold their money for them is the easiest way to accomplish their savings goals.

But wait! If you don’t have a plan for the money when that refund check comes, it could be all too easy to spend it. Instead of succumbing to impulse, consider these five options for letting the savings you accumulated last year bring you greater financial security and peace of mind in the years to come. (Still confused by your taxes? Check out our Income Tax Guide.)

Tutorial: Personal Income Tax Guide

1. Pay Down Debt
If you have high-interest credit card debt, putting your tax refund check towards paying it off will likely give you greater returns than any other option. That’s because when the balance you owe to credit card companies goes down, the interest (or finance charges) you have to pay on that debt also goes down. Depending on your interest rate, you’ll be saving anywhere from 10% to 29% per year in interest on any portion of your balance that you manage to wipe out. The simple act of using your refund to pay off an extra $1,000 of debt this year could save you hundreds of dollars in future finance charges. (To learn more about paying down debt, see Understanding Credit Card Interest.)

2. Fund Your Emergency Savings
If you’re fortunate enough to not have any credit card or other high-interest debt, put yourself in a stronger position to stay that way by putting your refund check into your emergency savings account. This special savings account will allow you to cover any expenses in case of an emergency, such as being laid off from work or faced with unexpected medical bills. Instead of borrowing money from credit card companies at high rates or paying interest and penalties on a loan from your 401(k), a well-funded emergency savings account will put you in a position to lend yourself the money for free without jeopardizing your credit score or your retirement. Most people need the equivalent of at least three months’ salary in an emergency fund to feel comfortable. (To find out how to make your own emergency fund, see Build Yourself An Emergency Fund and Are You Living Too Close To The Edge?)

3. Save for Retirement
If your credit card debt is non-existent and you’ve got several months worth of living expenses saved up, consider yourself ahead of the pack. To strengthen your financial position even further, consider putting your tax refund check into a Traditional or Roth IRA. If you don’t already have an IRA established, why not use this opportunity to start one?

As long as you meet certain income requirements as defined by the IRS, you’re entitled to open a Roth IRA even if you already have a 401(k), 403(b), or other employer-sponsored retirement plan. (To learn more about your retirement, see Which Retirement Plan Is Best?and Roth Or Traditional IRA…Which Is The Better Choice?)

4. Invest in Real Estate
If you don’t yet own your own home but would like to some day, now is the time to start working toward that goal. Having learned the lessons of the housing bubble, over the next few years, many potential homebuyers will be in a great position to take advantage of depressed housing prices and non-predatory loans. If you’re already a mortgage holder, paying off your mortgage principal early can help you save money in interest. Check with your mortgage lender to see what early payoff options are available under your loan terms. (Keep reading on this in Why Housing Market Bubbles Pop.)

5. Start a College Savings Fund
It’s never too early to start saving for your children’s tuition bills. The earlier you start, the less you’ll need to save, because compound interest and time will do much of the work for you. If you happen to save up four years’ worth of tuition early, you can always start putting your extra money towards college funds for books, computers and the like. A common tuition savings plan, called a section 529 plan, allows you to prepay qualified higher education expenses at eligible institutions. Not all 529 plans are the same, so you’ll want to do some research to see which would be the best fit for your family. Another option is aCoverdell Education Savings Account (ESA). This tax-deferred account will help you accelerate your savings.

Conclusion
While none of these options is as glamorous as purchasing a flat-screen TV, remodeling your kitchen or cruising to Hawaii, giving yourself the kind of financial security that lets you breathe easy even in times of crisis will provide you with a cool composure that never goes out of style.

Read more http://www.investopedia.com/articles/tax/08/maximize-refund.asp?partner=sfgate

By Andrew S. Ross

Push is coming to shove on the Amazon tax.

The last of three bills aimed at getting the Seattle giant and other out-of-state online retailers to pay sales tax passed the Assembly on Wednesday afternoon.

“It’s something we’ve been working on for years,” said Assemblywoman Nancy Skinner, D-Berkeley, who authored the bill. “But this is the first time that so many businesses up and down the state are supporting it.”

A companion bill, authored by Assemblyman Charles Calderon, D-Whittier (Los Angeles County), passed the full floor on a 47-16 vote on Tuesday.

“This bill levels the playing field for businesses in California,” said Assemblyman Bill Berryhill, R-Ceres (Stanislaus County). “Not a day goes by when I don’t hear from businesses about their ability to compete.”

Which is what supporters of the so-called e-fairness legislation have been shouting from the rooftops for years, despite vetoes from former Gov. Arnold Schwarzenegger and dire threats from Amazon.com (2010 revenue: $34 billion) and Utah’s Overstock.com to pull their affiliate business out of the state.

That and the $1.145 billion such online retailers and catalog houses are estimated to owe the state in unpaid sales taxes. “As one of Amazon’s 10,000 CA associates, I’ve made $50 in 3 yrs. Will gladly give that up for $1.145 billion in taxes for CA,” said a reader, tweeting my previous column on the subject (sfg.ly/eYA8cg).

Next steps: The two Assembly bills now go to the state Senate, which passed its own measure, authored by Sen. Loni Hancock, D-Berkeley, last month, and is to be taken up by the Assembly. The bills, designed to be complementary, are aimed at closing the loopholes Amazon and others have slipped through – mostly based on claims they don’t have a “physical presence” here – and with language designed to see off the likely legal challenges.

Assuming the bills make it through by September – the Assembly bills passed easily, the Senate bill more narrowly – out-of-state online retailers will be looking at paying sales tax, one way or the other. That includes Overstock, which recently bought naming rights for the Oakland Coliseum.

The unknown is Gov. Jerry Brown, who has so far not weighed in on the matter, and whether he feels differently from his predecessor. A call to the governor’s office on Wednesday was not returned.

“Especially with something dicey like this, you don’t go to the governor prematurely, not until you have it in hand pretty securely,” said Skinner. Plus, she said, “opponents never give up.”

Opponents include San Jose’s eBay, which has been buttonholing lawmakers to carve out an exemption for out-of-state online “small businesses,” i.e., those selling $2 million or less worth of merchandise.

The company has since trimmed back its proposal to apply merely to “auction-style California-based online businesses,” in Skinner’s words. “There are discussions ongoing,” she said.

Moves elsewhere: Similar laws are on the books in five states, and in the legislative process in nine others, including deep red ones. One of them is Texas, a state, we’ve been told lately, that has a lot to teach California in the ways of helping business.

In October, Texas comptroller Susan Combs sent Amazon a $269 million bill covering four years of unpaid sales taxes. Amazon said it would close its warehouse in Irving, throwing more than 100 people out of work – a threat that appears, so far, not to have been acted on.

Last week, Texas lawmakers sent supporting legislation, passed by overwhelming margins in both Republican-controlled chambers, to Republican Gov. Rick Perry.

On Monday, Perry vetoed it, saying he wanted “a thorough policy discussion with Texas lawmakers, consumers, retailers and technology experts – and with other states and even the federal government – about interstate commerce and the structure of state sales taxes in the 21st century.”

The Texas Legislature may not wait that long. It is due to vote on the state’s overall budget, including the tax measure, as well as education and other cuts, which local observers say it will pass.

Should Perry wield his veto pen again, he’d be vetoing the entire budget, spending cuts and all, aimed at eliminating the state’s projected $25 billion deficit.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/06/01/BU931JOABK.DTL#ixzz1O9KlyeDq

By Arthur Pinkasovitch

Tax planning is an essential part of any personal budgeting or investment management decision. Two basic types of accounts which allow people to minimize their tax bills are generally offered: tax-deferred accounts (TDA) and tax-exempt accounts (TEA). Both accounts minimize the amount of lifetime tax expenses one will incur, thus providing incentives to start saving for retirement at an early age.

Distinction Between the Accounts
Tax-deferred accounts allow for immediate tax deductions to be realized on the full amount of the contribution. However, future withdrawals from the account will be taxed. For example, if your taxable income this year is $50,000 and you contributed $3,000 to a TDA, you would pay tax on only $47,000. In 30 years, once you retire, if your taxable income is initially $40,000 but you decide to withdraw $4,000 from a TDA account, taxable income would be bumped up to $44,000. Essentially, as the name of the account implies, taxes on income are “deferred” to a later date. In Canada, the most common type of TDA is an RRSP, and in the U.S. it is the Traditional IRA.

Tax-exempt accounts, on the other hand, provide future tax benefits as withdrawals at retirement are not subject to taxes. Since contributions into the account are made with after-tax dollars, there is no immediate tax advantage. The primary advantage of this type of structure is that investment returns realized within the TEA grow tax-free. If you contributed $1,000 into a TEA today and the funds were invested into a mutual fund which provided a yearly 3% return, in 30 years the account would be valued at $2,427 (1,000*1.03^30). In contrast, in a regular taxable investment portfolio where one would pay capital gains taxes on $1,427, if this investment was made through a TEA, growth is not taxed. In Canada, the most common type of TEA is a tax-free savings account (TFSA), and in the Untied States, the Roth IRA is a popular TEA.

With a TDA, taxes are paid in the future. With a TEA, taxes are paid right now. However, by shifting the period when you pay taxes and realizing tax-free investment growth, major advantages can be realized.

Account Benefits – Tax-Deferred
The immediate advantage of paying less tax in the current year provides a strong incentive for many individuals to fund their tax-deferred accounts. General thinking is such that the current tax benefit of current contributions outweighs the negative tax implications of future withdrawals. When individuals retire, they will likely generate less taxable income and therefore find themselves in a lower tax bracket. High earners are strongly encouraged to max out their TDA accounts to minimize their current tax burden.

Also, by receiving an immediate tax advantage, an investor can actually put more money into their account. For example, assume that you are paying a 33% tax rate on your income. If you contribute $2,000 to a tax-deferred account you will receive a tax refund of $660 (0.33 x $2,000) and thus be able to invest more than the original $2,000 and have it compound at a faster rate. This is assuming you didn’t owe any taxes at the end of the year, in which case the tax savings would simply reduce your taxes owed.

Account Benefits – Tax-Exempt
Because the benefits of TEAs are realized as far as 40 years into the future, some people will often ignore these accounts. However, young adults who are either in school or are just starting work are ideal candidates for tax-exempt accounts. At these early stages in life, one’s taxable income and the corresponding tax bracket are usually minimal but will likely increase in the future. Although the TFSA allows missed contributions to roll over, meaning that if you did not contribute the maximum amount this year you will be able to add that amount to next year’s allowed contribution, in future years you are likely to generate more income and find yourself in a higher tax rate.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/05/27/investopedia6378.DTL#ixzz1NxMmH8Ad

Chris Christie’s 16-month campaign to control New Jersey spending has been rebuffed by the state’s highest court, which objected to school-aid reductions the Republican governor made to balance his first budget.

The New Jersey Supreme Court, in a 3-2 decision yesterday, ordered Christie to direct $500 million to the state’s poorest school districts for the fiscal year that starts July 1. The case involved the governor’s decision last year to cancel $1.6 billion anticipated by the 31 districts, whose students largely are poor, minority and low-achieving on standardized tests.

Christie, a former U.S. attorney for New Jersey who successfully prosecuted more than 100 corrupt public officials, said he won’t challenge the justices. He also told a town-hall meeting yesterday in Cherry Hill that he won’t raise taxes to comply with the order.

“This is the biggest setback he’s had,” said Patrick Murray, director of the Monmouth University Polling Institute in West Long Branch, New Jersey. “That was a big check on the governor. And by accepting this, he’s accepted that going forward he’s constrained by this court ruling.”

Continue reading: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/05/25/bloomberg1376-LLPY3S0UQVI901-1I1000EJ96UMGFS7N5584OMVP1.DTL

Thousands of companies that cashed in on President Barack Obama’s economic stimulus package owed the government millions in unpaid taxes, congressional investigators have found.

The Government Accountability Office, in a report being released Tuesday, said at least 3,700 government contractors and nonprofit organizations that received more than $24 billion from the stimulus effort owed $757 million in back taxes as of Sept. 30, 2009, the end of the budget year.

The report said the tax delinquents accounted for nearly 6 percent of the 63,000 contractors and grantees examined and cautioned that the real number might be higher because the known tax debt does not measure such factors as income underreporting.

Among the examples was an engineering firm that received a $100,000 stimulus act contract but owed $6 million in taxes. The IRS called it “an extreme case of noncompliance.” A social services nonprofit that received more than $1 million in stimulus funds owed taxes of $2 million.

The GAO referred those two cases and 13 others to the IRS for further investigation.

On Tuesday, a Senate Homeland Security and Governmental Affairs subcommittee will hold a hearing on the report.

Federal law does not prohibit tax delinquents from getting government contracts or grants, though there are provisions that enable the government to withhold payments in some cases. While the federal government requires contractors to present documentation that their taxes are paid, some recipients escaped federal review because the money was disbursed at state or local levels.

Sen. Carl Levin, D-Mich., chairman of the investigations subcommittee holding the hearing, said it’s been known for years that a few federal contractors and grantees don’t pay their taxes.

He said a program to recover funds from tax delinquents has been strengthened, and “the executive branch has made it clear” that nonpayment of tax can be grounds for denying a specific contract or barring a contractor from bidding on any contract. He added that the executive branch should “get on with it” and bar “the worst of the tax cheats from the contractor workforce.”

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2011/05/23/national/w141635D90.DTL#ixzz1NEoC1Wzr

This article is By MICHAEL GORMLEY through the Associated Press. In this article Gormley describes the unlikelihood of a tax break facing the rising gas prices. Please follow the link at the bottom of this post to continue reading the article.

How would you like a 33-cent drop in the price of a gallon of gas?

“Hell, yes!” says Su Ramgoolam, a 34-year-old mechanic from Schenectady, N.Y.

Not so fast.

Whenever gas prices get near a rounder and more punishing number — $2, $3, $4 a gallon — there is talk of temporarily easing state gas taxes or lifting them altogether for a time, even if it might cost a state desperately needed tax revenue. Lawmakers in at least four states are bringing it up again as this year’s summer travel season approaches.

Ramgoolam’s all for it.

“For me, I’m not making that much,” he said recently, standing under a blue Mobil sign offering gas at $4.07 a gallon. “You can feel it.”

But there’s no definitive body of evidence that a “gas tax holiday” helps or hurts either drivers or state coffers.

“It’s a teeny drop at the pump,” said Patrick DeHaan, senior petroleum analyst for GasBuddy.com, a watchdog and research site on gas prices. “There is a greater risk to the state than there would be a likelihood of prompting people to go on vacation.”

Politicians in New York, Indiana, New Hampshire and Illinois are talking about suspending part or all of the state and local taxes that can add 14 cents to nearly 50 cents to a gallon of gas, on top of the 18.4 cent federal tax.

It’s been done before.

Florida in August 2004 nipped its share of the gas tax as prices lurked around $2 a gallon, up from about $1.50 in late 2003. Indiana lifted its state tax from July to October 2000, Illinois from July through December of that year. For a month in 2005, right after Hurricane Katrina scattered evacuees across the South, Georgia suspended its share of the gasoline tax.

New York’s bill, proposed by Assemblyman James Tedisco and Sen. Greg Ball, both Republicans, would create a gas-tax holiday for 12 days around Memorial Day, Independence Day and Labor Day — some of the heaviest travel days of the year.

The sponsors and the National Federation of Independent Business said it would give taxpayers a break, encourage vacation spending and could even draw out-of-state dollars from tourists and those in nearby states seeking to fill up.

But in these days of tattered state budgets, it’s harder even to propose the holiday as states try to protect already flat — or falling — tax revenues, and the fallout of another midyear deficit would force still more spending cuts that could trump any political payoff.

All states charge a fixed excise tax per gallon of gas that doesn’t change the revenue regardless of the price of gasoline. Four states — Indiana, Michigan, California and Illinois — also charge a percentage sales tax on the total purchase of gasoline.

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California’s deficit has dropped to under $10 billion because of increasing tax revenues, and Gov. Jerry Brown wants to raise education spending by $3 billion under his major revision of the budget plan released at the Capitol on Monday.

Brown said that although California’s economy is looking better, the new revenue collected by the state does not eliminate the need for more taxes. He plans to seek approval from the Legislature to impose the additional taxes and then allow voters to rescind or extend them, a strategy the governor floated during meetings in Riverside last month.

The plan instantly becomes the new framework for lawmakers and the governor to craft a spending plan for the next 14 months and, if approved, would begin to chip away at what Brown called the “wall of debt” that California has built in passing previous budgets that relied on borrowing or unrealistic assumptions.

“Our finances were plunged into turmoil by the Great Recession and a decade of short-term fixes and fiscal gimmicks. This is not the time to delay or evade. This is the time to put our finances in order, and that’s precisely what this May revision intends to do,” Brown said at a Capitol press conference unveiling the new plan.

Brown said the new deficit is $9.6 billion, down from the $15.4 billion shortfall the state faced following the Legislature’s actions in March to cut into what started as a $25.4 billion deficit in January. The governor wants to include a $1.2 billion reserve as well.

The reduced deficit is a result of tax revenue – largely personal income tax from upper-income Californians, according to the Department of Finance – coming in $6.6 billion higher than projected.

Taxes still needed

Despite that increase, Brown said the state still needs to extend for five years higher rates in the sales tax and vehicle license fee that are set to expire July 1 in order to put California back on solid fiscal ground. Even with his plan, the state still faces a $10 billion structural deficit in future years, though that is about half of what it would be without the plan.

Brown dropped proposals to increase one tax, a surcharge in the personal income tax, for this year and it would only take effect if voters decided to increase it. A reduced credit for dependents would still be in place for 2011.

The governor did not propose a specific date for the election, but said he wanted it “as soon as possible” and that fall seemed like the most logical time. Senate President Pro Tem Darrell Steinberg, D-Sacramento, said he would prefer no election at all, and if there was one for it to happen in 2012.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/05/16/BAQ51JGP5U.DTL#ixzz1Mk1RTidI