Forbes: When States Make Empty Promises, Taxpayers Walk

By admin | April 16, 2013

As American taxpayers wrap up their individual tax filings, the vast majority of our state legislatures still have a few weeks or months to complete their efforts for state tax reform. In the coming days, small business owners will try hard to forget how much they paid into the system in 2012. Given the pain associated with paying, measured against the return, one can easily see why business owners move to more tax-advantaged locations — just as several professional athletes and entertainers have done recently.

However, if our job creators are to turn around America’s economy, they cannot turn a blind eye to leading reforms happening within their own state capitols. Watching Washington, D.C., languish its way through more than 73,000 pages of Internal Revenue Service regulations could easily consume years. However, the chief executives of our states, the 50 governors, often navigate substantial tax code changes within weeks or months. If turning around Washington, D.C. can be likened to shifting the direction of a battleship, realizing change within the states is more akin to a few folks padding rapids inside a canoe.

The trend towards state action, in part as a hedge against rising uncertainties with federal taxes, may be on pace to break a state legislative record. Kansas Governor Sam Brownback led with tax cuts this past January. State legislatures in Oklahoma, Missouri, Iowa, Indiana, Ohio, Louisiana, and North Carolina have responded with tax cut bills of their own. What do these states have in common on other issues beyond income tax reform? Their commitment to take responsibility for reigning in major increases in state spending is clear. States serious about economic growth are putting new ideas on the table.

Based on the headlines, and even well-meaning critiques, the strength of this trend is not always apparent. Governors who lead with bold tax-cutting principles are fought by many stakeholders. Those who choose to oppose new, independent tax codes often write political obituaries before bills are even considered. Owners of small businesses know that success starts with courage and conviction. If the process for tax reform were an easy one, every governor, speaker, and senator would be leading the charge.

Governors do not have to guess about the past performance of how their business climate has lured new income. Thanks to migration data, we see the clear evidence that when states make empty promises, taxpayers leave. That means that auditing Milwaukee’s leadership versus the loss of more $22 billion in adjusted gross income within Chicago will be easier to do. That’s one audit worth having in our economic future.

Source: Forbes.com

Forbes: Why All Governors Need A ‘Empleos Ahora’ (Jobs Now) Tax Haven Strategy Like Puerto Rico

By admin | March 29, 2013

One could argue that the new face of American leadership can be found in Puerto Rico. Take, for example, newly elected Governor Alejandro Garcἰa Padilla. He won a narrow election in what could someday be America’s 51^st state, on an island with 3.7 million people. Perhaps most importantly, the new administration seems to be continuing the business- and investment-friendly policies of previous governor Luis Fortuño. Indeed, it appears that on either side of the political spectrum, Puerto Rico is committed to becoming a tax-friendly investment haven. The rest of the continent would do well to take a look.

Following in Fortuño’s footsteps, Padilla seeks to expand an economy roughly the size of Delaware. As the new governor articulated in his message platform, his plan will “attract industries that cannot operate outside the United States because of security and tax reasons.”

From the mainland, looking out toward the Caribbean, Puerto Rico’s strategic path towards a U.S.-based tax haven makes a lot of sense. In recent years, it has become harder and harder to repatriate income into the United States, with an estimated $8 trillion settling offshore. Certain industries, such as those investment funds regulated within U.S. securities law, still might prefer to do business within an American-based jurisdiction. Then, there’s the issue of real tax advantages, such as simplification and lower effective rates. Where else within U.S. territorial waters can the U.S. stop the filing of a federal income tax return, other than Puerto Rico? Recently, the Internal Revenue Service issued this advice in Topic 901; as of January 4^th, 2013:

“In general, United States citizens and resident aliens who are bona fide residents of Puerto Rico during the entire tax year, which for most individuals is January 1 to December 31, are only required to file a U.S. federal income tax return if they have income from sources outside of Puerto Rico or if they are employees of the U.S. government.”

How can someone potentially prove that all of his or her income is sourced within Puerto Rico? Well, a first step is moving yourself and your assets there. Sources, such as Bloomberg, are now reporting that at least ten wealthy investors have already made the jump. Then, for some, there is utilizing the new law that was set up to lure businesses into Puerto Rico – known as Act 22, it exempts those who qualify from income tax on their interest, dividends, and certain long-term gains from securities. There’s no need for a Phil Mickelson apology tour like hedge fund billionaire John Paulson has attempted. Puerto Rico incentives will matter to those who meet their attractive conditions.

On the international front, legal advisers explaining Act 22 advise foreign investors that as long as they do not own residential holdings within the United States (excluding Puerto Rico), they may not be subject to U.S. estate taxes. This tax code structure could provide Puerto Rico with the best of both worlds on how money walks onto the island – foreign assets if you want it offshore, and domestic governance if you need it onshore.

Since states like Florida (without a personal income tax) have attracted $86 billion in adjusted gross income due in part to tax factors (1995-2010), Puerto Rico’s competitive climate could show other states how tax code incentives work with financial services. Governors like Louisiana’s Bobby Jindal are pressing to repeal state personal income taxes altogether for the same goal: Más dinero para tu bolsillo (more money in your pocket). Within the next decade, if these state initiatives do not pass… Puerto Rico could have more money in its tax-haven pocket as a result.

Travis H. Brown is a contributor to Forbes.com: http://www.forbes.com/sites/travisbrown/2013/03/29/why-all-governors-need-a-empleos-ahora-jobs-now-tax-haven-strategy-like-puerto-rico/

CPAC is Done: Now What? Three Steps to Ready Positive Change

By Miles Gaudet | March 21, 2013

by How Money Walks author Travis H. Brown

Perhaps you returned home from a large conference (like #CPAC2013) feeling the urge to transform your state. Maybe you heard from a Governor or a Congressman and now you are fired up to engage your local community. It’s time to arm yourself with some #howmoneywalks facts to have in the palm of your hand.

Enhancing your book library, reading list, and referrals to others are all great ideas. However, if you want to make an immediate impact on the next face-to-face visit, it makes more sense to keep this kind of community empowerment data with you wherever you travel. Here are three simple recommendations about how to advocate, lobby, or inspire for your local cause using these applications:

If you carry an ipad or kindle, download the book from www.howmoneywalks.com. That way, the big picture news about your region, your state, or your city, is indexed and ready for you at a moment’s notice.
Download the Smartphone application and spend three minutes using it before your next engagement. For iphones, it is called the taxpayer data explorer. On Androids, it’s just the how money walks application. Get familiar with searching your county, your city. Understand what adjusted gross income (AGI) charting really show your community. Practice flipping your community results from both the “wealth” mode to the “population” mode. This three minutes of your life – in an airport, on the train, or while you’re watching the news, can really help you shape local arguments.
Engage local stories using your app’s data. Almost every week, there is a local newspaper or television story about tax rates, tax migration, or local tax policies. With your application in hand, you can quickly look up the area in question, and add some relevance to this debate. Young Americans interested in retaining graduates in Michigan? Start the debate about what’s happened over the last 15 years. Going to a county town hall where two counties will discuss tax rates and growth? Bring #howmoneywalks data on both to the table.

The purpose of sharing this data across America was not academic. It was designed for you to use – first by understanding, then by thinking about it, and then by acting on your thinking. Please share your comments, questions, or ideas for app improvements as you explore the applications!

Conference Media and Marketing – Travis H. Brown

By admin | March 18, 2013

I recently lead my book tour to CPAC 2013. The How Money Walks booth generated a great deal of media buzz and conference excitement. We used large touch screen televisions to drive interactive data and prompted attendees to “transform their state” with our data. In this video we discuss a few pointers on connecting with media and creating quality interactive engagement at your next conference.

How State & Local Governments Tax U.S. Businesses

By admin | February 25, 2013

By Travis H. Brown

During my book tour travels to share information about taxpayer mobility for How Money Walks, I often field the question about how our states and cities attract or discourage business investment within their community. Lately, there has been more debate in Washington, DC and beyond about how to why to lower corporate income taxes from groups such as the United States Chamber of Commerce.

I had the occasion to join a Cato Institute workshop hosted by Chris Edwards and Richard Rahn where the topic of comparative levels of taxation on American businesses was discussed. According to Edwards, our federal tax on corporate income generates about $300 billion a year. While this corporate income tax rate was once thought to be competitive, other countries such as Canada or Japan have since lowered their rates relative to ours.

However, what I found interesting is just how this revenue compares with the widely-variable ways to collect taxes on businesses at the State & Local Government level. By contrast, Edwards estimates that state and local governments collect about $640 billion a year from various business taxes in 2012. This is based upon the Council of State Taxation’s annual survey with Ernst & Young. This order of magnitude alone should interest most corporations regardless of their business structure.

The various modes of taxation applied to business by states and cities also varies widely. Out of the $640 billion collected, about $245 billion is applied to property taxes. Nearly $130 billion is collected from sales taxes applied on business purchases. State applied taxes on corporate income amounts to $46 billion. This leaves other various taxes collected at $223 billion.

As businesses are forced to flee from high tax regimes in favor of lower tax regimes, it seems equally important to me that state and local governments concern themselves with how their business climate appears from a standpoint of a taxing nexus. This is true for all industries of business, not just sales & use tax conflicts with Amazon.com.

Chris Edwards also tabulated the actual growth in total state & local government spending. In 2000, it was estimated at $1.41 trillion among the fifty states. In 2012, it has grown to $2.31 trillion. Despite much rhetoric of cutbacks in state & local spending, annual increases as a whole have remained steady.

As our federal government struggles to find new ways to diet, it will remain important for U.S. businesses to pay equal attention to what is happening within and across the states.