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Eyeing Revenue, States Try To Predict Billionaires’ Moves

Eyeing Revenue, States Try To Predict Billionaires’ Moves

By Elaine S. Povich, Stateline.org

WASHINGTON — The wealthiest Americans can move markets at home and abroad with their business decisions. When they sell massive quantities of stock, receive huge bonuses, or suffer crushing
losses, those events also can have a significant impact on state finances, especially in small states that collect taxes on income or capital gains.

The problem is that billionaires don’t typically telegraph their financial moves, let alone to state officials. That leaves revenue estimators guessing whether they can count on a windfall in the upcoming fiscal year, or whether they have to figure out how to plug a gaping hole.

To eliminate some of the uncertainty, revenue estimators in many states interview financial planners and economists to help them predict what billionaires might do, and what the tax consequences of those moves might be for their states. Financial planners can’t divulge what they will advise individual clients to do, but they can give state revenue forecasters some idea about the type of general advice they will be providing.

Lyman Stone, economist at the tax policy research organization Tax Foundation, said it’s prudent for states to take into account all aspects of anticipated revenue, even if the income taxes of high earners, especially capital gains taxes, are hard to predict. “Smaller or mid-sized states with one or two billionaires — that’s not something you can ignore. States with income taxes would have an interest in tracking that,” he said.

Take Arkansas, where a handful of wealthy taxpayers “can make a huge difference” in state revenues, said Richard Weiss, director of the Arkansas Department of Finance and Administration.

Arkansas is home to Jim Walton, an heir to the Wal-Mart company fortune. While Weiss said his department can’t “go to the extent of getting specific information” from individual taxpayers or their financial advisers on what they plan to do in a given year, the agency does make it a priority to cultivate warm relationships with the state’s heaviest hitters.

“We don’t do anything that is proprietary, I don’t think we try to meddle in their business either,” he said. “There’s a fine line there. All the folks we have in the revenue department and our economic analysts are very cautious of that. We look at lots of trends to get some idea of what’s going on.”

Revenue estimators employ a similar technique in Oregon, where the biggest billionaire is Phil Knight, founder of Nike, who is worth an estimated $18.4 billion. “Our economic advisers maintain good relationships with the big accounting and law firms, and while they can’t talk about individual taxpayers, they get an idea how those tax advisers will generally advise their clients,” said Oregon Budget Director George Naughton.

“With personal income taxes, the decisions that certain individuals make could certainly have an impact on your revenue forecast. It depends on how big the move is. If they are selling a billion dollars worth of stock, that can be significant enough to notice in the revenue,” Naughton said.

Ken Heaghney, state fiscal economist for Georgia, said his state convenes a panel of advisers, including a bank economist and the head of a local wealth management group, to get a sense of what the state’s wealthiest residents are likely to do.

Heaghney said the impact of wealthy taxpayers in Georgia is blunted by the fact that the state has a relatively low tax on capital gains and a flatter income tax structure than most other states. However, he said one person could make a difference in state revenues if the decision involves enough money and is Georgia-based. “We don’t generally have that kind of taxpayer here, unfortunately,” he said. “As for the Chambers family (Anne Cox Chambers is the richest resident in the state) most of their wealth is in trust funds and sheltered in various ways,” he said.

Nebraska, home to Warren Buffett, who is worth about $40 billion, also scans the financial landscape with economists and financial advisers before doing its revenue forecasts, according to Gerry Oligmueller, state budget administrator. But state officials don’t ask about any one individual, even the so-called “Oracle of Omaha.”

Oligmueller noted that states with capital gains taxes were affected by the decision by many high-income taxpayers to take their capital gains in 2013 to avoid increased federal capital gains taxes in 2014. Those moves provided a boost to state revenue for 2014, and a subsequent dip this year.

“The implications of what any single corporation will do, what’s going on with federal tax policy, all have to be rolled together to be considered in determining what’s the best forecast for tax receipts for the next fiscal year,” Oligmueller said.

In California, which has 111 billionaires, more than any other state, revenue estimators were keenly interested in Facebook’s initial public offering of stock in 2012. With thousands of Facebook employees in the state in line to receive valuable stock options, it was a safe assumption that the IPO would have a revenue effect.

“We generally do not base our forecasting on individual wealthy individuals,” said California Budget Director Michael Cohen. “California’s economy and taxpayers are too diverse. One exception is with the Facebook IPO — there was enough public information and the one-time event was large enough for us to try to capture the IPO’s effect on revenues separately.”

A state study of the anticipated effect of the IPO estimated that nearly 1 percent of all personal income in the state in 2012 would be related to Facebook. While original estimates of revenue to the state were in the $1.6 billion range, Cohen said that was later revised over the following six months to $1.25 billion.

Cohen said the extra revenue anticipated from Facebook IPO was designated as a one-time event and placed into the overall revenue estimate rather than, for example, a rainy day fund.

Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, said windfalls such as the Facebook IPO are a challenge for estimators. “For California policymakers, it was like walking down the street and finding a $20 bill,” Gardner said. “For every good year you have, there’s going to be a less good year down the road.”

AFP Photo/Joe Raedle

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Disciplined IRS Workers Got Bonuses, Time Off

Disciplined IRS Workers Got Bonuses, Time Off

By Becky Yerak, Chicago Tribune

More than 2,800 Internal Revenue Service workers who recently had been disciplined received millions of dollars in bonuses and time off as part of an employee recognition program, a new government audit shows.

The IRS has a program that rewards its employees for a job well done, but a report released Tuesday by the Treasury inspector general for tax administration found that between Oct. 1, 2010, and Dec. 31, 2012, more than 2,800 recently disciplined IRS workers got more than $2.8 million in monetary awards and more than 27,000 hours in time-off awards.

The employee infractions included not paying their taxes.

“While not prohibited, providing awards to employees who have been disciplined for failing to pay federal taxes appears to create a conflict with the IRS’ charge of ensuring the integrity of the system of tax administration,” J. Russell George, Treasury inspector general for tax administration, said in a statement.

The watchdog conducted the audit because of new federal guidance issued in fiscal year 2011 that requires agencies to reduce spending on awards programs beginning in fiscal year 2012.

The inspector general recommends that the tax agency’s personnel chief institute a policy requiring management to consider conduct issues resulting in disciplinary actions, particularly the nonpayment of taxes, before awarding bonuses and paid time off. The inspector general said he has been assured by the IRS personnel chief that, by the end of June, the agency will study establishing a policy requiring management to consider disciplinary actions before giving out performance awards.

The audit also showed that most IRS workers get cash and time off in the agency’s award program.

For fiscal year 2011, the IRS awarded almost $92 million in cash and almost 520,000 hours of time off to 70,500 of its 104,400 workers. In fiscal 2012, it awarded $86 million in cash and almost 490,000 hours of time off to 67,870 of its 98,000 workers.

The audit didn’t find any violations with the IRS’ overall awards program, agency spokesman Jose Manuel Vejarano points out.

The IRS has developed a policy linking conduct to performance awards for executives and senior level employees, he said.

“Even without a formal policy in place, over the past four years, the IRS has not issued awards to any executives that were subject to a disciplinary action,” Vejarano said. “We are also considering a similar policy for the entire IRS workforce, which would be subject to negotiations with the National Treasury Employees Union.”

Photo via Wikimedia Commons

Wall Street Bonuses Vs. The Minimum Wage

Wall Street Bonuses Vs. The Minimum Wage

Purveyors of Ferraris and high-end Swiss watches keep their fingers crossed toward the end of each calendar year, hoping that the big Wall Street banks will be generous with their annual cash bonuses.

New figures show that the bonus bonanza of 2013 didn’t disappoint. According to the New York State Comptroller’s office, Wall Street firms handed out $26.7 billion in bonuses to their 165,200 employees last year, up 15 percent over the previous year. That’s their third-largest haul on record.

That money will no doubt boost sales of luxury goods. Just imagine how much greater the economic benefit would be if that same amount of money had gone into the pockets of minimum-wage workers.

The $26.7 billion Wall Streeters pocketed in bonuses would cover the cost of more than doubling the paychecks for all of the 1,085,000 Americans who work full-time at the current federal minimum wage of $7.25 per hour.

And boosting their pay in that way would give our economy much more bang for the buck. That’s because low-wage workers tend to spend nearly every dollar they make to meet their basic needs. The wealthy can afford to squirrel away a much greater share of their earnings.

When low-wage workers spend their money at the grocery store or on utility bills, this cash ripples through the economy. According to my new report, every extra dollar going into the pockets of low-wage workers adds about $1.21 to the national economy. Every extra dollar a high-income American makes, by contrast, only adds about 39 cents to the gross domestic product (GDP).

And these pennies add up.

If the $26.7 billion Wall Streeters pulled in on their bonuses last year had instead gone to minimum-wage workers, our economy would be expected to grow by about $32.3 billion — more than triple the $10.4 billion boost expected from the Wall Street bonuses.

This immense GDP differential only speaks to one price we pay for Wall Street’s bonus reward culture. Huge bonuses, the 2008 financial industry meltdown made clear, create an incentive for high-risk behaviors that endanger the entire economy.

And yet, nearly four years after passage of the Dodd-Frank financial reform, regulators still haven’t implemented the modest provisions in that law to prohibit financial industry pay that encourages “inappropriate risk.” Time will tell whether last year’s Wall Street bonuses were based on high-risk gambles that will eventually blow up in our faces.

Low-wage jobs, on the other hand, endanger nothing. The people who harvest, prepare, and serve our food, the folks who keep our hotels clean, and the workers who care for our elderly all provide crucial services. They deserve much higher rewards.

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and is the author of the new report Wall Street Bonuses and the Minimum Wage.

Cross-posted fromOther Words

AFP Photo/Stan Honda

Scandal-Hit Barclays Bank Axes Jobs, Raises Bonuses

Scandal-Hit Barclays Bank Axes Jobs, Raises Bonuses

London (AFP) – Barclays will axe thousands of jobs and raise bonuses for its investment bankers this year, the under-fire British lender announced on Tuesday after posting a return to annual profits.

Chief executive Antony Jenkins, who has himself declined a huge bonus as Barclays is probed along with other banks over possible manipulation of foreign exchange trading, said that between 10,000 and 12,000 jobs would go worldwide this year.

Jenkins told a conference call with media that about 7,000 jobs would go in Britain, out of a global workforce of about 139,000.

Barclays, which is seeking to repair a reputation badly damaged by its role in the Libor interest rate-rigging scandal of 2012, increased the money available for staff bonuses by almost 10 percent to £2.378 billion ($3.907 billion, 2.858 billion euros).

While net profits rose, the investment bank unit reported a loss in the fourth quarter, while pre-tax earnings slumped as Barclays factored in restructuring costs and litigation charges.

Along with other British lenders, Barclays has been hit by massive compensation payouts to customers who were mis-sold insurance policies.

“Despite challenging conditions, our underlying performance has been resilient and momentum is building, as evidenced by the results,” Jenkins said in comments accompanying the results.

Defending its bonus payouts, the bank said it was being competitive in “ensuring that Barclays has the right people in the right roles”.

Barclays, which is Britain’s second biggest bank after HSBC, announced on Tuesday that a strong performance by its retail arm helped lift group profit after tax to £540 million last year, compared with a net loss of £624 million in 2012.

Barclays shares slumped 1.91 percent to 269.75 pence on London’s benchmark FTSE 100 index, which was showing a gain of 0.79 percent at 6,643.34 points in morning deals.

“Underneath the Barclays bonnet, performances are mixed,” said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.

“More positively, the capital cushion is now looking robust, the credit impairment position has improved further, the bank continues to pay a dividend unlike some of its rivals… and certain pockets of the business such as UK Retail made a robust contribution.”

Retail banking veteran Jenkins replaced Bob Diamond, who stepped down as chief executive of Barclays in July 2012 after the bank was fined £290 million by British and U.S. regulators over the attempted manipulation of the key interbank Libor interest rate.

U.S. national Diamond was renowned for overseeing a culture of high bonuses at Barclays’ investment banking division, which he headed before taking over as chief executive.

Barclays took the unusual step of posting its headline and adjusted pre-tax profits on Monday, a day earlier than scheduled, after figures were leaked to media.

While statutory pre-tax profits surged last year, adjusted earnings dropped and missed the bank’s own forecast amid the group’s cost-cutting.

Reported profit before tax hit £2.9 billion in 2013, while adjusted pre-tax profit, which the bank said took into account exceptional charges, slumped to £5.2 billion.

Barclays has set aside an additional £331 million in provisions to cover litigation and regulatory charges.

And last year it was forced into a huge £5.8-billion shares sale, or rights issue, to meet regulatory demands to strengthen its capital buffers.

“Barclays tried to stagger the bad news by unexpectedly revealing the headline (pre-tax profit) figure yesterday, but announcing jobs cuts and increasing the bonus pool has backfired on the bank’s share price,” said David Madden, market analyst at traders IG.

In a fresh blow, Britain’s data watchdog on Sunday launched a probe after confidential files relating to Barclays customers were allegedly stolen then sold on to rogue brokers.

AFP Photo/Carl Court