New York City mayor Michael Bloomberg could be preparing to raise taxes:
To close budget gaps in the year that starts next July the mayor is thinking about a combination of sales tax increases and income tax hikes.
“Every city agency must push each dollar further,” Bloomberg said. “We’re going to do that and doing that means making hard choices that will not be popular with everyone or perhaps anyone.”
The mayor proposed raising the income tax by either 7.5 percent or 15 percent.
15 percent? Tastes like loss of purchasing power.
If New York associate salaries remain flat (a near certainty) then the incentive to work in NYC is … free Knicks tickets?
These new taxes could push the cost of living in New York well beyond the expenses of living on the International Space Station:
“Increasing the personal income tax would be a disaster for the city,” said Nicole Gelinas of the Manhattan Institute. “It’s hard to overestimate that fact. We’ve already got the highest local personal income tax in the nation.”
And this is of course before you take into account Obama’s planned tax increases on individuals making more that $250,000.
If you’re a mid-level NYC associate, it might be time to consider the legal market in New Hampshire.
President Obama and the new Democratic Congress face unprecedented fiscal policy challenges. First, they must endeavor to restore public confidence and return our economy to a period of growth. Here one can only hope that any new economic stimulus is well-targeted and genuinely temporary. Extending unemployment coverage and benefits should take priority. (And we should modernize our archaic system for funding unemployment insurance.)
When we emerge from the current recession, the president must tackle more fundamental issues. We need to put our fiscal house in order, restructure tax policy toward healthcare and health insurance, and shift away from tax expenditures as our principal policy instrument for financing higher education, implementing energy policy, addressing long-term care needs and the like.
“Ronald Reagan will raise your taxes, and so will I.”
We’ve discussed that under Barack Obama’s plan, taxes on Biglaw associates are likely to go up. But a cursory glance over on Open Secrets shows that many law firm partners are contributing towards the Obama campaign.
One associate we’ve talked with has a pretty interesting idea on how to deal with Biglaw partners that support Obama’s plans to take extra money away from “greedy” associates:
So a sixth year associate, who currently makes $250k and will receive a raise to $265k in January will see a larger chunk of that extra $15k disappear to taxes (via the new 39% tax bracket and and the 6.2% FICA tax). This will probably amount to a couple of thousand dollars per associate. I know this has been a lot of information, so bear with me …
My challenge to the lawfirm partnerships who are voting for Obama: bump senior associate salaries to compensate associates for the tax hike/salary cut they favor. This will no doubt be portrayed as the greediest of greedy associate complaints, but why should I pay for their preferred social policies?
Baseball teams do this all the time. New York and Boston often bump up players’ salaries to compensate them for the high state tax rates in New York and Massachusetts (as compared to places like Florida or Texas).
Of course, there are many (many) flaws with this idea. If you are angry about having your taxes raised, the preferred outlet for redress is the polling booth (or Boston Harbor), not your boss. And (ahem) associates are probably more worried about keeping their jobs right now than making their salary “whole” depending on the presidential administration.
But we take the point. Senior associates are likely to get hit under the Obama tax plan, and some people still vote their pocketbook. But look on the bright side. At least we are not staring into the abyss of a socialist nationalization of the private banking industry.
The latest analysis of Obama’s and McCain’s tax plans show that both candidates will likely raise the marginal tax rate paid by most Americans:
Senator Obama’s tax plan includes a number of proposals for new or expanded tax benefits that are generally targeted to low- and moderate-income taxpayers. Many of these additions to the “skyline” change taxpayers’ effective marginal tax rates in important ways, lowering or raising them, sometimes significantly. …
Senator McCain’s tax plan also affects marginal rates, but for very different reasons. His tax plan includes only two individual tax proposals and only his health tax credit has a material effect on effective marginal tax rates.
For those of you who slept through Tax, the marginal tax rate is the tax you pay on your last dollar of income. A high marginal tax rate (generally) represents a direct disincentive to making more money.
The marginal tax rate will increase to 50% under Obama’s plan, 40% under McCain’s plan. For the visually inclined, TaxProf Blog has charts that show the effects of both plans — thankfully based on double income homes.
Does anybody still believe anything they hear? After the jump.
Late Friday night, we reported that Sarah Palin’s tax returns failed to report the per diem reimbursements she received as governor of Alaska. Over the weekend our commenters weighed in:
This is an easy income tax question. Any 1L/2L taking an income tax class could have answered this problem. Yes, the IRS usually relies on employer’s W2 forms. That’s for administrative convenience. For the most part, the IRS doesn’t want to audit every employee’s fringe benefits, which would be an incredible waste of tax dollars. That being said, the governor, with all her qualifications and knowledge regarding the U.S. system of governance, should have known that a per diem (worth how much over the last 18 months?) should be included in her tax return. If my employer reimbursed me for tens of thousands of dollars (for what expenses?), I would at least think about whether this was income.
The answer is probably that Palin is civilly responsible for underreporting income and underpaying taxes, but is not criminally responsible.
Criminal tax violations require “willfulness”. In the criminal tax arena, the Supreme Court has interpreted that as a pretty tough standard — approaching actual intent to violate a known obligation. See Cheek v. United States (1991). But a taxpayer is civilly liable for taxes whether or not she knew or had reason to know of the liability. (You’re still liable even if you relied in good faith on your accountant; even if you thought you didn’t have to pay; even if you made just a math error). And the IRS can require payment of back-taxes for whatever years are still within the statute of limitations, which almost certainly would include Palin’s limited time as governor.
So to the extent [Roger] Olsen [Palin's tax lawyer] is simply saying that Palin won’t be criminally prosecuted, he’s right. To the extent he’s saying that the IRS would believe Palin current on her obligations, he’s wrong — she’s going to have to file amended returns and send in a check.
Earlier today, Governor Sarah Palin released her tax returns. It turns out she makes a little more than most “hockey moms” but she’s no Joe Biden. TaxProf Blog breaks down how she stacks up to the other Article II contenders:
Gov. Palin’s charitable contributions do not approach the 10% tithe required by her evangelical church, but they are in line with the average charitable contribution of Americans with her income and they are over ten times greater (on a percentage basis) than Joe Biden’s miserly charitable contributions.
But Paul Caron was also right on the money about another issue: Palin’s failure to report her per diem reimbursement she received as governor of Alaska. Both the New York Times and the Washington Post have mentioned these reimbursements before.
Palin tonight responded with authority to these allegations. The campaign released a letter (pdf) from D.C. tax attorney Roger M. Olsen:
Unless employees have reason to know that the W-2 is incorrect, the IRS expects employees to rely on the employer’s W-2 as prepared & filed with the IRS, as Governor Palin did. The income tax aspects of fringe benefits are complex and highly technical, and not subject to second-guessing by laymen. The State of Alaska is confident that its position is correct. Its employees were entitled to rely on that determination, So was Governor Palin.
Sounds like Olsen just called the liberal media “TTT.” Caron points out that Olsen is more qualified to speak about Palin’s tax returns than your average cable news anchor:
Mr. Olsen has a tax LL.M. from George Washington and is a former Assistant Attorney General of the Department of Justice’s Tax Division under President Reagan.
Are there any uber-qualified attorneys that would like to support the Olsen-Palin position? Or stand opposed?
A Stanford law school graduate suspected of paying off her costly student loans by running a high-priced escort service has now been hit with federal tax evasion charges.
In court papers filed Tuesday in San Jose federal court, prosecutors allege that Cristina Warthen failed to pay taxes on more than $133,000 she earned as a prostitute in 2003, jetting off as a call girl for clients in Washington, D.C., Chicago, New York and other cities. The government has charged her with felony tax evasion for failing to pay about $25,000 in federal income taxes.
Warthen’s business as a reputed high-priced hooker was first revealed several years ago, when the federal government searched her then-home in Oakland and seized more than $61,000 in cash suspected to be linked to her escort business. Court papers allege that starting in 2001, Warthen, then Cristina Schultz, used the name “Brazil” and advertised her escort services on a Web site, TouchofBrazil.net.
We have to at least entertain the possibility that the tanking economy could fundamentally change the Biglaw lifestyle that we have come to know and bilk. We could see flat salaries, tepid bonuses, and decreased job security over the next few years. Maybe this is the perfect opportunity to break out of the “top school-top firm-top shrink” pipeline?
Enter Don Korb, Chief Counsel of the IRS. As Tax Prof Blog mentioned earlier this week, Korb has been trying to recruit law students to the IRS.
And why not (if you’re into that sort of thing)? Nobody is planning on downsizing the IRS anytime soon. And you will likely get the kind of experience that law firms will respect once they get around to having paying clients again. Korb lays out what the IRS has done for his life in his recruitment brochure:
I have been both an associate and a partner in a law firm, a partner in a Big Six accounting firm, and an Assistant to the Commissioner of Internal Revenue. Now I’m back leading the Office where I began my legal career. What has stayed with me throughout this journey has been the wonderful foundation in the tax law that I gained during my first stint in the Office of Chief Counsel, an experience that I believe cannot be found anywhere else.
In fact the IRS just reported a 72% job satisfaction rate. Granted, that number is out of all their employees. But go find four random people walking through your office today and ask yourself if three of them are happy.
The pay isn’t great. But it beats the bag out of what you’d get at the unemployment office.
Did you watch Republican vice-presidential nominee Sarah Palin’s speech last night? Of course you did; it was a must-see. And regardless of your politics, you can’t deny that she delivered it superbly, with polish and poise. In short, at least as a stylistic matter, it was the Best Speech Ever.
But how was the Palin speech as a matter of substance? The AP fact-checked it and identified some issues:
PALIN: “The Democratic nominee for president supports plans to raise income taxes, raise payroll taxes, raise investment income taxes, raise the death tax, raise business taxes, and increase the tax burden on the American people by hundreds of billions of dollars.”
THE FACTS: The Tax Policy Center, a think tank run jointly by the Brookings Institution and the Urban Institute, concluded that Obama’s plan would increase after-tax income for middle-income taxpayers by about 5 percent by 2012, or nearly $2,200 annually. McCain’s plan, which cuts taxes across all income levels, would raise after tax-income for middle-income taxpayers by 3 percent, the center concluded.
Who cares about Kansas — what about Biglaw associates (and partners)? How would they be affected by Obama’s tax plan? With their six- and seven-figure salaries, some are doing a lot better than “middle income.”
Check out some surprising numbers, after the jump.
[Ed. note: Ted Frank's posts analyzing presidential candidate Barack Obama's tax plan, available here and here, were some of the most popular in ATL history. They generated over 900 comments and thousands of pageviews. Because there have been some developments on this front since February, when Ted Frank first issued his analysis, we requested an update; he kindly obliged.]
Above the Law’s Fearless Leader David Lat asked me to update my earlier posts on Obama’s tax plan. As you recall, Obama made a series of promises of “fixing” the tax code, mostly on the backs of investors and the upper middle-class — like Biglaw associates.
I ran a spreadsheet that showed that, with reasonable assumptions, those tax increases would have the same effect on associate after-tax income as a New York law firm cutting salaries by $34,000, but permitted one to change the assumptions if you disagreed with the assumptions I made. I made no endorsements, noting that, Thomas “no relation” Frank notwithstanding, taxes and economic issues were not the only reason to vote for a presidential candidate. (Still, commenters’ reactions can best be described by Tyler Cowen’s description of “Obama insecurity“: “For some people no comment on Obama, other than the purely laudatory, is anything other than a hackish right-wing attempt to forge an alliance of lies with Karl Rove and his ilk.”)
Since then, Obama’s two top economic advisors have posted a Wall Street Journal editorial and a website giving somewhat more detail to the Obama tax plan. David asked me to update my post.
1. The most notable change is Obama’s social security tax plan. Recall that his original promise was to simply lift the cap, changing the system from a pay-in to income-redistribution — something that would have cost law firm associates thousands or tens of thousands and raised marginal tax rates to nearly 60%. When Hillary Clinton started hitting him hard about it, he backed off his original plan to make social security taxes uniform and said he might (but might not) add a “doughnut-hole” between $97,000 and $150,000 or $200,000 or $250,000.
Now that Obama has clinched the nomination and is pretending to be a centrist for the general election, after the Wall Street Journal hit him hard about it, Obama pushed everything he promised in the primaries overboard. First, he said he would raise taxes not the full 12.4%, but just “2 to 4%” — so much for making Warren Buffett pay the same rate as his secretary. The latest is that Obama will avoid any tax changes in social security until 2019, i.e., punting the problem into President Jindal’s lap. So zero out the social security tax increases, unless Obama changes his mind for a fourth time. (People at my high school backed off of plans for trillion-dollar tax increases when faced with outrage from Above the Law commenters all the time. It was no big deal.)
Read more, after the jump.
If you are considering a virtual law practice, you know that many of today’s solo firms started that way. But why are established, multi-attorney law firms going virtual?
Many small firms are successfully moving part—or even all—of their practice to a virtual setting. This even includes multi-jurisdictional practice spanning several states and practice areas, although solo and small partnerships are still the largest adopters of virtual law.
Can you do the same? The new article Mobile in Practice, Virtual by Design from author Jared Correia, Esq., explores how mobile technology bring real-life benefits to a small law firm. Read this new article—the next in Thomson Reuters’ Independent Thinking series for small firms—to explore how a mobile practice:
Reduces malpractice risk
Enables you to gather the best attorneys to fit the firm, regardless of each person’s geographic location
Leverages mobile devices and cloud technology to enable on-the-spot client and prospect communication
Transitioning in-house is something many (if not most) firm lawyers find themselves considering at some point. For many, it’s the first step in their career that isn’t simply a function of picking the best option available based on a ranking system.
Unknown territory feels high-risk, and can have the effect of steering many of us towards the well-greased channels into large, established companies.
For those who may be open to something more entrepreneurial, there is far less information available. No recruiter is calling every week with offers and details.
In sponsorship with Betterment, ATL and David Lat will moderate a panel about life in-house and we’ll hear from GCs at Birchbox, Gawker Media, Squarespace, Bonobos, and Betterment. Drinks, snacks, networking, and a great time guaranteed. Invite your colleagues, but RSVP fast, as space is limited.
Ed. note: The Asia Chronicles column is authored by Kinney Recruiting. Kinney has made more placements of U.S. associates, counsels and partners in Asia than any other recruiting firm in each of the past seven years. You can reach them by email: firstname.lastname@example.org.
It’s that time of year again when JDs are starting to apply for 2L summer jobs and 2L summers are deciding which practice area to focus on.
For those JDs with an interest in potentially lateraling to or transferring to Asia in the future, please feel free to reach out to Kinney for advice on firm choices, interviewing and practice choices, relating to future marketability in Asia, or for a general discussion on your particular Asia markets of interest. This is of course a free of cost service for those who some years in the future may be our future industry contacts or perhaps even clients.
For some years now Kinney’s Asia head, Evan Jowers, has been formally advising Harvard Law students with such questions, as the Asia expert in Harvard Law’s “Ask The Experts Market Program” each summer and fall, with podcasts and scheduled phone calls. This has been an enjoyable and productive experience for all involved.