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.
* Why does Wall Street get all the juicy scandals? We’re jealous of our DealBreaker colleagues. [Dealbreaker]
* Larry Ribstein’s take: “it’s hard not to think that it’s really all about dispute a few weeks ago between [the NYT's Andrew Ross] Sorkin and Dealbreaker’s John Carney.” [Ideoblog]
* Are you in the top one percent of U.S. taxpayers ranked by adjusted gross income? And which states are home to the richest of rich taxpayers? [TaxProf Blog]
* “Would you trust a law professor to be President?” [Althouse]
* Speaking of law profs, they may boycott the annual AALS meeting, due to the hotel owner’s opposition to same-sex marriage. [National Law Journal via TaxProf Blog]
* An interesting interview of Fried Frank partner Jonathan Mechanic, a superstar of the real estate bar. [New York Observer]
* Russian judge: “If we had no sexual harassment we would have no children.” [Telegraph (U.K.)]
Debevoise & Plimpton has long been among New York’s most prestigious law firms. It’s also widely viewed as an excellent place to work.
In the past, Debevoise’s prestige has arguably outpaced its profits. It’s often ranked more highly on the Vault 100 than on the Am Law 100 (when ranked by profits per partner). In the most recent rankings, Debevoise was #13 on the Vault 100 and #20 on the Am Law 100 by PPP.
Perhaps that’s about to change. From Legal Week (via Law.com):
Debevoise & Plimpton has unveiled stellar financial results for 2007, with the New York law firm seeing both partner profits and fees climb by more than 20 percent over the last 12 months.
Profits per equity partner (PEP) at Debevoise rose by 26.5 percent from $1.81 million last year to a new high of $2.29 million. Global revenue, meanwhile, was up by 23.4 percent from $575 million in 2006 to $709.54 million.
A source who passed along this news added: “Although not mentioned in the article, several large investigations are the driving force behind these numbers.”
Of course, that’s not surprising. Thanks in large part to former U.S. Attorney Mary Jo White, internal investigations have long been a mainstay of Debevoise’s practice. They’re long-running and lucrative, since no company in deep doo-doo wants to look like it’s skimping on self-scrutiny. See, e.g., Siemens (aka Debevoise cash cow).
But how much cash will they get to keep? Discussion of a new tax proposal that will disproportionately affect partners at large law firms, after the jump.
Jiminy jillickers! ATL editors are going all over the place over the next month or so. Or at least all over the Eastern Seaboard. If we aren’t heading to your neck of the woods on these trips, never fear, we may hit you up on the next time around. We’ve already hit up Houston, Chicago, Seattle, San Francisco, and Los Angeles in the past year.
Kinney Recruiting’sEvan Jowers is currently in Hong Kong for client meetings and still has a few slots available through October 22. Evan will also be in Hong Kong November 14 to December 15. Further, Robert Kinney has been in Frankfurt and Munich this week and is available for meetings with our Germany based readers.
One of our key law firm clients has referred us to one of their important clients in the US, Europe and China – a leading global technology supplier for the auto industry – in order to handle their search for a new Asia General Counsel and Asia Chief Compliance Officer.
Kinney is exclusively handling this in-house search.
This position will have a lot of responsibility and include supervision of eight attorneys underneath them in the Asia in-house team. The new hire will report directly to the global general counsel and global chief compliance officer, who is based in the US. The new hire’s ability to make judgement calls is going to be as important as their technical skill set background.
The position is based in Shanghai and will deal with the company’s operations all over Asia and also in India, including frequent acquisitions in the region.
It is expected that the new hire will come from a top US firm’s Shanghai, Beijing or Hong Kong offices, currently in a top flight corporate practice at the senior associate, counsel or partner level. Of course, the candidate can be currently in a relevant in-house role.
The JOBS Act created new tools for companies to publicly advertise securities deals online. As a result, thousands of new deals have hit the market and hundreds of millions in capital has been raised, spurring a wealth of new business development opportunities for attorneys.
Fund deals, startup capital raises, PIPE deals and loan syndicates are just a handful of the transactions benefiting from the JOBS Act. InvestorID FirmTM is a platform designed to help attorneys equip their clients with the workflow, marketing and compliance tools to publicly solicit a securities offering online. By providing clients with the tools to painlessly navigate the regulatory landscape of general solicitation, InvestorID FirmTM helps attorneys add value above just legal services.
The Jumpstart Our Business Startups Act (JOBS Act) went into effect in 2013 and permits Regulation D offerings of securities to be advertised publicly. This means that funds and companies can now use social media, emails and web sites to market transactions to new “accredited” investors.
However, with these new powers come new pain points. InvestorID FirmTM provides a secure, fully hosted, cloud-based platform with a breadth of tools for your clients, including: