In this short video, I explain the major provisions of the new gift card rules.

To read the final rule, as issued by the Federal Reserve, click here (opens as .pdf.)

Text Summary:

Signed into law on June 4, 2008 by Governor Mark Sanford, the South Carolina Illegal Immigration Reform Act (“SC Immigration Act”) began on July 1, 2009 for private employers with 100 or more employees. All businesses that have employees – even as few as one – must begin to abide by the provisions of the act by July 1, 2010.

To insure compliance with the SC Immigration Act, the South Carolina Department of Labor, Licensing and Regulation will perform audits of employers. It will also investigate complaints against employers. In addition for being required to notify Federal and State agencies responsible for the enforcement of immigration law, there are stiff monetary penalties for failure to abide by the provisions of the law. If an employer fails to follow proper procedures for verifying worker eligibility, they will be fined a minimum of $100 and a maximum of $1,000 – per employee. If you are a small business who cycles through a fairly large amount of workers, this could become quite costly. If an employer knowingly or intentionally employs an illegal alien may get his license suspended or revoked. During the period that the license is suspended or revoked, the employer is not allowed to employ any employees. As you can see, this law can quickly put you out of business if you fail to abide by its provisions.

If you have any questions or comments, please let me know.

A major problem with the bill is that it is so far reaching.  It goes far beyond regulating companies such as AIG and Goldman Sachs.  As the bill is currently written will require any business that asses late fees OR allows customers to make payments in more than four installments to be treated under the same terms as AIG, Freddie Mac and Goldman Sachs.    This could have huge ramifications for small businesses – many of whom assess late fees on their past due receivables or who offer payment arrangements for their customers.  Given all of the other increased tax and regulatory burdens bearing down on small business – this is yet another that we do not need.    Not only is this going to be an increased burden on virtually every business in America, it will create yet another government bureaucracy that will give taxpayers a very poor return on the tax dollars it waste to establish and maintain the monstrosity.

According to Senator DeMint, one of the hardest areas to be hit will be healthcare – particularly orthodontists and their patients.  Currently, the cost of braces are typically done through a payment plan with the orthodontist.  Under the proposed law, this payment plan will come under the jurisdiction of yet another government bureaucracy – the new Consumer Financial Protection Agency which is slated to regulate all of these transactions.

Senator DeMint states that “the banking regulation bill was supposed to crack down on Wall Street, but it’s just another power grab that’s going to hurt Main Street doctors, dentists and small-town businesses. And, certainly the families who struggle to find ways to pay for their doctor bills.”

On Wednesday, I blogged about how North Carolina’s Amazon Tax actually resulted in lost revenues to the State.  The WSJ.com has an interesting article today, Maryland’s Mobile Millionaires, about how nearly a third of all of Maryland’s millionaires have vanished the state after it passed a tax increase on them in 2008.   This just goes to show that politicians usually do not think through the consequences of their greedy actions.

Most of you are probably thinking what I am – millionaires declined nationwide in 2008 due to the national recession.  The data goes on to show that one out of every eight millionaires that filed a Maryland tax return in 2007, did not file a Maryland tax return in 2008 – signaling that many had fled to other more tax friendly states.

I am not sure when (if ever) the elites throughout this Country will realize that they just can’t keep increasing taxes.  The answer to all of our budget problems always seems to be a tax increase. What about fiscal restraint and a massive slashing of the federal budget?

The rates are so high that mid-income to high-income individuals are refusing to start new businesses because they get so little reward for doing so.   Why would they want to take a big risk with so little opportunity for reward?  Even if they are successful, they send a bigger chunk of their profits to the government than they get to keep for themselves.

For those that may be unclear as to exactly what an affiliate is, let me explain it as simply as I can and use Amazon.com as an example.  Amazon allows other website owners to post links or advertisements to their products on their website. In exchange, Amazon pays those website owners a small commission on the products sales that this generates. Simply put, these website owners are basically providing a targeted advertising medium to Amazon. What the “Amazon Tax” law does is it requires Amazon (or other Internet retailers) to collect sales tax in a particular state, even if Amazon has no physical presence in that state.

As an example, let’s say that Suzy Customer lives in Raleigh, NC.  She is reading the Century House SEO blog from Robert Enriquez who is physically located in Charlotte, NC.  Robert is discussing a book that he recently read, and Suzy decides to buy it. Suzy follows the link to the Amazon.com website where she makes a purchase. Even though Amazon has no physical presence in North Carolina, the State of North Carolina expects a piece of the pie.

According to the report, Amazon taxes do not provide easy revenue for the states that have enacted them. In fact, the Amazon taxes that are in already in place have not produced any revenue to those states and there is evidence of lost revenue. This is because Company’s like Amazon have discontinued their affiliate programs in these states, the website owners in those states are now earning less income and paying less income tax than before.

Some additional key findings from the Special Report are as follows:

Amazon taxes are unlikely to produce revenue in the near term.  New York continues to face a lengthy legal constitutional challenge.  Rhode Island has even seen a drop in income tax collections due to the law.

Amazon taxes do not level the playing field between brick-and-mortar and Internet-based businesses because they require Internet-based businesses to track thousands of sales tax bases and rates while brick-and-mortar businesses need to track only one.

Unconstitutionally expansive nexus standards like the Amazon tax undermine legal certainty, burden interstate commerce, and harm economic growth.

Enacting an Amazon tax law sends a signal of hostility to businesses engaged in interstate commerce, runs the risk of retaliation from other states and from affect businesses, and undermines efforts to improve the uniformity of state sales taxes.

One of the biggest factors that proponents of the Amazon tax use is that it isn’t fair that these purchases go without tax, while brick-and-mortar businesses are required to collect tax – offering a competitive disadvantage.  The fact of the matter is that even those these retailers are not required to collect sales tax on these sales, consumers are still legally required to pay use tax on those goods.  The problem is that 99% of consumers do not do so.    Certainly, looking at methods to enforce existing law would be better than passing new laws that have a negative effect on businesses within these states.

Due to the strain on the states budgets throughout the country, we suggest that you adjust your tax withholdings to eliminate the possibility of having substantial over payments in either federal or state payments.  We have already seen several states over the past year that have issued IOU’s instead of actual refunds.    The problem with an IOU is that you can’t use that to pay your mortgage or put food on the table.

Small Business Tax Credit. One of the big highlights of the Presidents speech was where he proposed a new small business tax credit that would go to small businesses who hire new workers or raise wages.  Generally speaking, small business owners would get a portion of the new worker’s salary or existing worker’s raise back as a tax credit – effectively allowing the government to subsidize a portion of this person’s salary.    As general policy goes, I hate the idea of the government subsidizing anything.  However, if they are going to help someone with subsidies to help create jobs, small businesses are where it should be.    After all, its better than spending $533,000 to create each temporary job, as we did with the Stimulus Bill.

Elimination of All Capital Gains Taxes on Small Business Investment. Wow!  This sounds great!  Except for one thing.  When someone invests in a small business, they typically invest for the long-term.  While this policy would mean well, will it really create a flood of investment into the small business market?  After all, these investments could indeed be subject to capital gains taxes again when they are sold 5, 10, or 20 years down the road.  Don’t get me wrong – I like the idea of lowering the Capital Gains rates because it will allow great investment capital to those people who are likely to invest in the first place.

Therein is the underlying problem that I have seen with using Capital Gains rates to encourage investment all along.  Altering the tax rate in the short-term does little to spur on long-term investment.  The problem is that the tax rate is determine based on when an investment is sold – not when the investment is made.  If I invest $100,000 into a new business venture today, what will the tax policy be 15 years from now when I sale the small business?    If the President and Congress want to spur investment, they need to allow taxpayers to “lock-in” a zero-percent capital gains rate at the time they make the investment – not years later when it is sold.  Investors like certainty.  Little certainty equals little investment.  Greater certainty equals greater investment.

I do like the idea of lowering the Capital Gains rates because it will allow great investment capital to those people who are likely to invest in the first place.  I applaud the President for this proposal.  I just happen to like it for slightly different reasons than he does.

Small Business Lending Fund. President Obama is now promoting a $30 billion fund that will be specifically designed for the nearly 8,000 small community banks (those with assets of $10 billion or less) to loan money to small businesses in hopes that it will spur job growth.   Interestingly, many in the banking industry say that the extra funds will not help lending.  They say that banks with plenty of money to lend are having trouble finding credit worthy borrowers and that small business owners are holding off on expansion and improvements due to the sluggish economy.

If a business participates in the loan program, does it subject that business to more regulation and government control?  If so, the loan may not be worth it.

Much of the success of the program will revolve around how much control the federal government wants to exercise over the program participants (the banks) and what kind of regulations the government places on the banks.    An easy example of this are the underwriting guidelines for these loans.

The federal government will have to change drastically from the ARC Loan program for small businesses if they want it to succeed.  (See prior posts, ARC Loans are Ready to Go – If You Can Find A Lender and What Ever Happened to ARC Loans?)  The ARC Loan program was a complete failure by any measure.  It was amazing to me how many SBA Lenders had never even heard of it.   A big reason for its failure was the stringent underwriting guidelines placed on the banks for a very low-profit loan for them.  They had no interest in underwriting a loan that was simply not profitable for them – even with little or no risk.

While the above three proposals are a step in the right direction, they ultimately do not solve the underlying issue.  Small business owners rarely make decisions based solely on tax results.  Regardless of whether there is a credit available, most small business owners are gong to be reluctant to hire or borrow money until they see their business moving in the right direction.

In excerpts of a speech from today that were released by the White House early, President Obama states that “Jobs will be our No. 1 focus in 2010. “  Well, that sounds spectacular, Mr. President.  I am not sure why it was such a back burner item in 2009, but at least we can look forward to 2010.  Or, are you just paying us lip service again?  Only time will tell.  In the meantime, kudos to the President for at least proposing some small business relief.

Charlotte's Bank of America repaid back its TARP loan in December.

During Wednesday night’s State of the Union Address, President Obama again mentioned a proposal that would impose a tax on banks that have yet to repay their TARP funds.   I find the very idea of this proposal outrageous and feel that it is a vast abuse of government power to impose it.  Let’s see what President Obama said on Wednesday night regarding the the banks that have yet to pay back their TARP funds:

I have proposed a fee on the biggest banks.  I know Wall Street isn’t keen on this idea, but if these firms can afford to hand out big bonuses again, they can afford a modest fee to pay back the taxpayers who rescued them in their time of need.

The TARP is just another example of what happens when legislation is rushed through as quickly as possible with little thought to its ramifications or a thorough understanding by the people that vote for it (such as the current Healthcare bill).   If the government wanted to limit the bonuses that the banks could pay out, they should have put that in the agreement.  They didn’t.  Why do our politicians keep voting for bills that they do not understand fully?

First off, a fee is just a more politically acceptable term for a tax.  What he is doing is proposing a tax on the banks that have not paid back their TARP funds.  The problem is that regardless of what these banks are doing with the money, they have no contractual obligation to repay the funds yet.  The deadline for setting up a TARP repayment system is 2013.

When TARP was passed in 2008, they setup rules for how things would be handled.  Now, President Obama wants to change those rules on the banks mid-stream.

Imagine if your brother-in-law loans you $50,000 to start a business, and you sign a written agreement stating that you will pay the amount back in a lump sum in 5 years.  A year and a half goes by, and your business is chugging along nicely.  You decide to reward yourself with a new flat screen TV for the living room.  Now your brother-in-law comes over and has a hissy-fit because you are spending money on a new television, but you have yet to repay the $50,000 to him.  To get back at you, he decides he is just going to help himself to the better part of your DVD collection.  I can see how he may want his money now rather than later, but that was not your agreement.    If your brother-in-law wants his money sooner, he needs to work with you to amend the agreement, not just start taking things.

In his post, Is the Bank Tax Unconstitutional, Peter Pappas of the Tax Lawyer’s Blog discussed the constitutionality of the Bank Tax and whether the banks have a legal or a moral obligation to repay their TARP funds early.   I can see how someone may argue that it isn’t right for them to take bonuses when they have yet to repay their debts.  But do the people making those arguments think that it is morally acceptable to go out and eat an extravagant dinner when they have yet to repay their credit cards debts or home mortgage.  The fact is that the banks had until 2013 to setup a TARP repayment system.  The banks have NOT broken that agreement.

The TARP is just another example of what happens when legislation is rushed through as quickly as possible with little thought to its ramifications or a thorough understand by the legislators that vote for it (such as the current healthcare bill).  If the government wanted to limit the bonuses that the banks could pay out, they should have put that in the agreement.  They did not.  Why do our politicians keep voting for bills that they do not understand fully?

President Obama wants YOU to pay more than your fair share!

In yesterday’s post, I discussed the tax cuts that President Obama mentioned in his State of the Union Address.  As I mentioned in that post, President Obama’s statement that he hasn’t raised income taxes by a single dime on a single person is technically true, one can’t ignore the fact that his administration is working diligently to increase taxes all over the board.  We have been hearing about the massive healthcare bill for months now, and both the Senate and House versions of that bill call for income tax increases.

I had originally thought that I would just list the proposals that have been discussed by the Obama administration, but upon diving deeper, I realize that the list is too extensive to compile and too cumbersome to maintain.   I will try to direct you to different list and resources that have complied a partial list of these proposed tax increases.

First off, we have to look at the healthcare bill.  Ryan Ellis from Americans for Tax Reform constructed a list of the major tax increases in the proposed healthcare bills.  Several of the bigger provisions revolve around an Individual Mandate Tax.  In essence, the bill takes away one’s freedom to choose not to buy health insurance.  If you don’t buy it, they will slap you with a fine.  The larger your family, the larger the fine.  By 2016, the tax will amount to an additional $495 or 2% of adjusted gross income (higher of the two, of course).  A family of three or more would get nailed with a fine of the greater of  $1,485 or 2% of adjusted gross income.  OUCH!  That is quite a hefty fine for a low income family that is already struggling to get by.

The news just gets better for business owners.  If an employer with 50 or more employees does not offer health coverage for employees and at least one employee is eligible for the health tax credit, the employer gets slammed with an additional non-deductible tax of $750 for every full-time employee.  Since the minimum employee size is 50, the minimum amount of tax a business will get hit with is a whopping $37,500 – a brutal fine to pay for many businesses that are already struggling to turn a profit.  To make things worse, it isn’t tax deductible as other employer payroll taxes are.  In addition, if a business requires a waiting period for employees to go onto the health plan they get slammed hard again.  For a waiting period of 30-60 days, they get hit with an additional $400 tax per employee.  If that waiting period is 60 days or longer, they get nailed again.

The partial list of backdoor tax increases in the health bill goes on and on.  Here are just a few more of the other “tricks” in the bill to get more money from the middle class.

Excise Tax on Comprehensive Health Insurance Plans
Removal of Non-prescription/over-the counter medicine from the list of allowable expenses to be paid by health savings accounts, flexible spending accounts, or health reimbursement plans.
Increase additional tax on non-medical early withdrawals from an HSA from 10% to 20%
Capping the amount that individuals can put into a Flexible Spending Account at a meager $2,500.  Currently, this amount is unlimited.
Excise Taxes on Charitable Hospitals.
Tax on Innovator Drug Companies, Medical Device Manufacturers, Health Insurers
Removal of Tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D
Increase the threshold for deducting Medical Expenses from 7.5% of AGI (current) to 10% of AGI
Hike in Medicare Payroll Taxes
Blue Cross/Blue Shield Tax Hike
Tax on Indoor Tanning Services

The Obama tax train is not stopping at healthcare.  There have been a whole host of taxes that have been proposed to help may for the massive amounts of new spending that is planned.    David Boaz of the Cato Institute has compiled an extensive list of taxes that President Obama and his allies were trying to impose.

The largest proposed tax increase is the cap and trade levy that is proposed.   The Congressional Budget Office reports that cap-and-trade would cost the average household roughly $1,600 per year.  The Wall Street Journal reports that “while cap-and-trade rises with income, the relative burden is greatest for low-income households.”   This is because low income families spend a much higher percentage (20%) of their income on energy intensive items, while high income earners spend less than 5% of their income on energy intensive items.

The list goes on and on…here are a few of my “favorite” taxes from David Boaz’s list:

Applying the Medicare Tax to capital gains, and other “unearned” income
Raising the Medicare Tax Rate
Raising the top income tax rates
Impose a value-added tax (VAT) on all goods and services (this would be a monstrous tax increase and would hit everyone.
Raising the Social Security Tax
Impose higher taxes on cigarettes, beer, wine, liquor, and now soda.

As you can see, the myth that President Obama is a tax cutter is very much busted.  His administration has been working as hard as they can to enact these taxes in an effort to pay for the massive spending increases and the record deficits that they are creating.  Since they are not going to truly cut government spending, the money has to come from somewhere.  Unfortunately, we can no longer afford it.