Major tax bill delyed by House of Representatives

The house of Representatives pulled H.R. 1956 before going to a vote on Wednesday because of insufficient support to get it passed. This is major tax news that has gone largely unreported. The significance of this bill is it would change the way states can tax out-of-state companies doing business in their jurisdictions. The term that is used to describe whether a company is liabile to pay taxes in a given state is called Nexus.

Under the commerce clause of the U.S. Constitution, the Federal government essentially sets the rules on how a state can tax an out of state entity doing business. There are different standards for sales taxes and income taxes. For income taxes, the law states that sellers of goods (tangible perdional property) who sell goods in a state, but do not have employees or own property in that state, from being liable for INCOME tax in that state. In the 1950's when this law (P.L. 86-272) was passed, it covered most economic activity. Today, it has less significance because services and intangibles make up a large portion of economic activity, and many states have moved away from income taxes towards gross receipts or franchise taxes, which are not covered by the law.

Congress decided to address this inequity by proposing H.R. 1956, which would have ammended the law that would say all companies would be exempt from income or any other type of entity level tax provided they did not have property or payroll in that state. While this did address the inequity, it rose fierce opposition from state governors, who would lose significant tax revenues. State governments like the status quo because they can tax people who cannot vote in their respective states. This bill, if passed would mean substantial tax savings for many entities that do business in multiple states.

I am of two opinions on this matter. I like the fact that it levels the playing field and it starves state governments of money - which coincides of my 'starve the beast' limited government philosophy. However, the states have a legitimate point regarding tax revenues and fundamental fairness in taxing business directed to the state.

The solution to this is to pass H.R. 1956, but also change the rules for sales tax nexus, allowing the states to have out-of-state companies collect sales tax (especially on internet sales) with a more liberal interpretation of substantial nexus that has been used by scholars. This would address another fairness issue, the taxability of internet based companies versus bricks and mortar companies, and allow states to recoup some of their lost revenues. It would also have the benefits of states working to streamline their sales and use tax policies (National Sales Tax Project) and would turn the tax systems of many states from an income base to a consumption base.

Handicapping the Michigan Governor's Race

In the lazy days of August, Republican challenger Dick DeVos has a 4-5 percentage point lead against incumbant governor Jennifer Granholm. Generally, I would be excited about the idea of a Republican challenger defeating a Democratic incumbent for the governorship of the state of the Michigan, but I'm rather ambivalent.

The reason for my ambivalence is my gut feeling that Dick DeVos is an empty suit, or as conservatives would say, a "country-club" Republican. He talks about being a "successful businessman" (heir of AmWay - take that for what it's worth) and a "problem-solver", but he has not given anything on a substantive or a philisophical basis on how he sees the problems ailing Michigan or how he would govern. No talk anywhere about how he would reduce the size of government or even an outline of how he sees the structural issues that have led to Michigan's economy lagging the rest of the country. Based on this, I would have to say DeVos is closer to Bob Taft (current tax and spend governor of OH) than John Engler (former slash and burn governor of MI).

As for Granholm, she hasn't done that bad of a job. With a Republican house tempering her liberal impulses, she has been OK, and her poor poll results are more due to events surrounding the auto industry than anything that the government has done or not done under her stewardship.

I think DeVos has peaked if he continues the campaign on a policy free, persona based image. If he sticks to that, I think Granholm will be able to clobber him on being an empty suit and sqeak in a win.

Here are my "keys to victory" as of today

For DeVos to win, he must:

1. Outline a substantive, conservative based platform to address Michigan's problems.
2. Make the case for change by highlighting the economic record of the state under Granholm.
3. Energize turnout in the Western half of the state.

For Granholm to win, she must:
1. Highlight many of her accomplishments as governor.
2. Show her plan to address the anxieties of the populace.
3. Show Dick DeVos as a silver-spoon "empty suit" who is running for governor as a hobby.
4. Make up with Kwamme Fitzpatrick as the Detroit turnout will be critical for her to win.

No eating at La Shish for me.

Found this today:

OWNER AND FINANCIAL MANAGER OF “LA SHISH” RESTAURANT ARE CHARGED WITH TAX EVASION

U.S. Department of JusticeStephen J. Murphy United States AttorneyEastern
District of MichiganSuite 2001 211 West Fort Street Detroit, Michigan 48226-3277Fax: (313) 226-3561

Federal charges were unsealed today in Detroit against Talal Khalil Chahine, 51, of Dearborn Heights, Michigan and the owner of the “La Shish” restaurant chain, and Elfat El Aouar, 39 of Plymouth, a “La Shish” financial manager and Chahine’s wife. Chahine and El Aouar are charged by the federal grand jury Indictment with four Counts each of Income Tax Evasion, in violation of Title 26, United States Code, Section 7201. Each Count carries a maximum penalty of 5 years’ imprisonment and a $250,000 fine. Elfat El Aouar was arrested earlier today from her home in Plymouth. A bail hearing and arraignment is scheduled to occur at 1:00 p.m. in federal court. Talal Chahine is presently outside the United States and is believed to be in Lebanon. A warrant has been issued for his arrest.

In announcing the Indictment, United States Attorney Stephen J. Murphy commended the work of the Special Agents of the Internal Revenue Service, Criminal Investigation Division and the Federal Bureau of Investigation. The prosecution is being handled by Assistant United States Attorneys Kenneth R. Chadwell and Julie A. Beck.

As set forth in the Indictment, Talal Khalil Chahine is the sole owner of La Shish, Inc., a Middle Eastern restaurant chain located in the Detroit, Michigan metropolitan area. Elfat El Aouar, who is married to Talal Chahine, has an M.B.A. and has worked at La Shish, Inc. in various capacities including as the company’s Vice President of Finance. The Indictment alleges that Talal Chahine and Elfat El Aouar collaborated in a scheme to skim cash proceeds from the restaurants for the tax years 2000 through 2003. During those tax years, it is alleged, La Shish, Inc. maintained a double set of computerized books, records and balance reports, one actual and one altered. The altered records artificially reduced the amount of cash that was actually received by the restaurants. Talal Chahine and Elfat El Aouar oversaw the maintenance of the double set of books, as well as the skimming and concealment of more than $16,000,000 in cash received by the restaurants. To evade government scrutiny, the skimmed cash was not deposited into U.S. bank accounts, but instead, at the direction of Chahine and El Aouar, converted into cashier’s checks and reduced in physical size by changing small denominations into larger ones. These conversions were made for the purpose of transporting the cash outside the United States to Lebanon, away from U.S. government reach and detection. Cash was also skimmed by paying La Shish, Inc. employees all or partly in cash.

United States Attorney Stephen J. Murphy said, “The charges today highlight the importance of enforcing our tax laws fairly and diligently. The transferring of millions of dollars in cash from the United States to the Middle East in the attempt to evade taxes will not be tolerated. I commend the hard work of the IRS Criminal Division and the FBI that lead to these charges being unsealed today.” Special Agent Aouate said, “The Internal Revenue Service spends a great deal of its resources in identifying individuals who earn their income legitimately yet willfully fail to report and pay their fair share in taxes. We will continue to work with the United States Attorney to make sure that there are consequences to one's willful actions.”

An Indictment is only a charge and is not evidence of guilt. A defendant is entitled to a fair trial in which it will be the government's burden to prove guilt beyond a reasonable doubt.

An there is more to the story:

The U.S. government, in a written proffer of evidence (in U.S.A. v. Elfat El Aouar, Cr. No. 06-20248, EDMI, 5/22/2006), states that Chahine and his wife attended a fundraising event in Lebanon in August 2002 with Hizballah Sheikh Muhammad Hussein Fadlallah, a Specially Designated Terrorist (see page 8), where the two men were the keynote speakers. The proffer also claims that a search of El Aouar’s residence turned up a “thank you letter” for sponsoring 40 “orphans,” as well as images of Chahine and his family in front of a Hizballah outpost. According to the proffer, “[t]he government is aware that the sponsorship of orphans is a euphemism used by Hizballah to refer to the orphans of martyrs. This is a common public relations and recruitment tool used by Hizballah. Hizballah gains favor with the public in Lebanon by supporting ‘orphans,’ while at the same time recruiting others into the terrorist organization willing to sacrifice their lives in terrorist operations based in part on the promise that Hizballah will take care of their families.” The government has yet to charge Chahine or his wife with any terrorism-related offense.

Interesting.

H/T Counterterorism Blog

Cross Posted at All Things Moot

End This Proxy War Once and For All

I am cautiously hopeful that the Israeli raids into Lebanon will be a recognition by the Jewish state that they have been in a state of war with Iran and Syria by proxy (Hezbollah and Hamas) for the past 25 years. Although I am concerned about Israel's incursion into Lebanon, in the sense that going after a weak, fledgling democracy may not be wise in the long run, I understand that Hezbollah has control of the south of that country and it must be eradicated.

I sincerely hope that Israel strikes Hezbollah and Hamas targets in Syria. This proxy war needs to be resolved. Hamas and Hezbollah have sought war with the IDF for a long time now, and now they have it. This war should be waged with the goal of the eradication or unconditional surrender of these forces. This is the only way to destroy the death cult that permeates the Palestinians. No restraint should be shown. Only through utter defeat will the Palestinians understand that the eradication of Israel is a ticket to poverty, misery, and death.

The added benefits would be the crippling of the Syrian regime and a rebuff to Iran. These troublemakers will be halted in their adventuring in the region.

Happy Orangemen's Day!

Today is the anniverary of the battle of the Boyne. A huge holiday in the UK, and used to be a big event in the Anglosphere. For some background, check out the Grand Orange Lodge of Ireland for the history. Or you can check out the Grand Orange Lodge of Canada site for fun too.

More Junk Science Refuted

I found this great editorial on Opinion Journal yesterday, showing how increases in the speed limits have NOT increased traffic fatalities. In fact, they have decreased since Congress let the states decide their own speed limits in a return to proper federalism. This mandated 55 mph speed limit, which is the greatest pock on Ronald Reagan's term as president (btw, Elizabeth Dole who was transportation secretary when this was implemented, and its champion, is in my books deemed a RINO because of this primarily):

Safe at Any Speed
With higher speed limits, our highways have been getting safer.

Friday, July 7, 2006 12:01 a.m.

It's another summer weekend, when millions of families pack up the minivan or SUV and hit the road. So this is also an apt moment to trumpet some good, and underreported, news: Driving on the highways is safer today than ever before.

In 2005, according to new data from the National Highway Safety Administration, the rate of injuries per mile traveled was lower than at any time since the Interstate Highway System was built 50 years ago. The fatality rate was the second lowest ever, just a tick higher than in 2004.

As a public policy matter, this steady decline is a vindication of the repeal of the 55 miles per hour federal speed limit law in 1995. That 1974 federal speed limit was arguably the most disobeyed and despised law since Prohibition. "Double nickel," as it was often called, was first adopted to save gasoline during the Arab oil embargo, though later the justification became saving lives. But to Westerners with open spaces and low traffic density, the law became a symbol of the heavy hand of the federal nanny state. To top it off, Congress would deny states their own federal highway construction dollars if they failed to comply.

In repealing the law, the newly minted Republican majority in Congress declared that states were free to impose their own limits. Many states immediately took up this nod to federalism by raising their limits to 70 or 75 mph. Texas just raised its speed limit again on rural highways to 80.

This may seem non-controversial now, but at the time the debate was shrill and filled with predictions of doom. Ralph Nader claimed that "history will never forgive Congress for this assault on the sanctity of human life." Judith Stone, president of the Advocates for Highway and Auto Safety, predicted to Katie Couric on NBC's "Today Show" that there would be "6,400 added highway fatalities a year and millions of more injuries." Federico Pena, the Clinton Administration's Secretary of Transportation, declared: "Allowing speed limits to rise above 55 simply means that more Americans will die and be injured on our highways."

We now have 10 years of evidence proving that the only "assault" was on the sanctity of the truth. The nearby table shows that the death, injury and crash rates have fallen sharply since 1995. Per mile traveled, there were about 5,000 fewer deaths and almost one million fewer injuries in 2005 than in the mid-1990s. This is all the more remarkable given that a dozen years ago Americans lacked today's distraction of driving while also talking on their cell phones.

Of the 31 states that have raised their speed limits to more than 70 mph, 29 saw a decline in the death and injury rate and only two--the Dakotas--have seen fatalities increase. Two studies, by the National Motorists Association and by the Cato Institute, have compared crash data in states that raised their speed limits with those that didn't and found no increase in deaths in the higher speed states.

Jim Baxter, president of the National Motorists Association, says that by the early 1990s "compliance with the 55 mph law was only about 5%--in other words, about 95% of drivers were exceeding the speed limit." Now motorists can coast at these faster speeds without being on the constant lookout for radar guns, speed traps and state troopers. Americans have also arrived at their destinations sooner, worth an estimated $30 billion a year in time saved, according to the Cato study.

The tragedy is that 43,000 Americans still die on the roads every year, or about 15 times the number of U.S. combat deaths in Iraq. Car accidents remain a leading cause of death among teenagers in particular. The Interstate Highway System is nonetheless one of the greatest public works programs in American history, and the two-thirds decline in road deaths per mile traveled since the mid-1950s has been a spectacular achievement. Tough drunk driving laws, better road technology, and such improving auto safety features as power steering and brakes are all proven life savers. We are often told, by nanny-state advocates, that such public goods as safety require a loss of liberty. In the case of speed limits and traffic deaths, that just isn't so.