Select Page

Another Asset Forfeiture Fiasco: Dressmaker Edition

I have continuously written about the deplorable practice of asset forfeiture via the IRS. Many of the cases involve circumstances where the business is accused of “structuring” cash deposits to stay under $10,000 — which the IRS considers to be “suspicious,” not unlike drug money laundering.  In such instances, the IRS can swoop in and seize the business bank accounts of the “offenders” while simultaneously NOT charge them with any crime.

This latest case regarding a business called Mii’s Bridal and Tuxedo involves an alleged IRS tax debt that had been in dispute between the business and the IRS. Just like in previous cases, the owners had not been charged with anything. In this instance, however, instead of raiding a bank account, the IRS seized the store’s inventory and liquidated its entire contents within four hours — while violating numerous IRS practices and federal laws along the way. In the end, another American business and the livelihood of its owners was destroyed.

According to the Dallas News,Mii’s, a small Garland business owned by an elderly immigrant couple from Thailand, was never accused in court of violating any federal laws.” Within hours of IRS agents arriving in March 2015, “Mii’s Bridal & Tuxedo was out of business after serving customers for decades. Its entire inventory of wedding gowns and dresses as well as sewing machines and other equipment were sold at auction. The hastily-called sale held inside the store netted the IRS about $17,000 — not enough to cover the roughly $31,400 in tax debt alleged, court records show. The balance is now likely unrecoverable.”

Violations by the IRS agents include:

-“The lead agent brought four children to join the armed agents and tag along during the entire process. The children sat on a pallet with several boxes of pepperoni pizza while watching events unfold.

-The Dallas police assisted in the raid, and an off-duty Dallas Police officer in plain clothes bid on and purchased an auction item.

-Agents seized items they shouldn’t have, such as a Vietnam veteran’s hat left at Mii’s to have badges of honor sewed into it. The IRS refused to return the hat.

-The agents also seized video game consoles, a surround-sound music system and a 65-inch TV, which was not authorized by the judge’s order.”

What’s more, “When the agents arrived for the seizure, they told the Thangsongcharoens to give them a $10,000 check within two hours to avoid the sale of their roughly 1,600 “designer” gowns, worth more than $615,000.  Regarding the speed of the sale, the government said in legal filings that the IRS used a special law that allows for a streamlined procedure if the agency determines the goods seized could “perish or waste” or become greatly reduced in value.

As a result, the IRS didn’t have to post advance public notice of the Mii’s sale or wait at least ten days before selling the goods, as is normally required. The provision also says a speedy auction can be used if storing the property would cost the IRS ‘great expense.'”

In response, the shop owners are suing in federal court, arguing “that the agents deliberately marked down the inventory to about $6,000 so they could claim it would cost more to store than it was worth. That comes to less than $4 per dress.” This allowed them to justify and proceed with the liquidation that destroyed their business, and forms a basis of their $1.8 million lawsuit.

That case has yet to be resolved. It doesn’t make up for the fact that everything hard-working couple had built over the last 30 years had been destroyed in one afternoon, when no crime had ever been committed. This is just one of a long list of citizen abuses that have happened under the egregious asset forfeiture laws that pervade the IRS and rob Americans of their civil liberties and their livelihoods, often with little to no recourse.

 

Let’s Talk About Social Security

Entitlement reform is necessary for the fiscal health of this country, but it is something that no one wants to talk about, much less tackle. How can we begin? How can we open up the conversation and the possibility to reform and improve our social security system?

One step in the right direction would be to treat Social Security as a true retirement plan, and not as a wealth transfer system that it currently is. This could begin with reclassifying the payroll tax. The majority (6.2% out of 7.65%) of the payroll tax covers Social Security retirement benefits. If we actually used it (or at least most of it) for that individual’s social security retirement, everyone’s perception would change. Instead of being viewed as a hated tax (just ask any young person who has received their first paycheck), it would be viewed as a desirable saving for their future!  

A move in this direction could be helped by a characteristic of the present structure. The employer and employee contribute equally to the Social Security Tax. If the individual’s part went towards his personal retirement, the other part could go towards defraying the past obligations that are coming due. If we had done such a thing 20 years ago, the entire system would have been fixed. . Unfortunately, the present situation would probably require some portion of the individual’s portion to also go towards paying the ever growing obligation for past unfunded promises. It’s that dire! And it gets worse every year.

Let’s stop treating Social Security like welfare or wealth transfers and start treating it like a retirement system. It’s our money anyway, even though the government wants to act like it is being generous when it gives us back our money. This would lessen the loose-and-fast accounting gimmicks that contribute to the fiscal mismanagement of Social Security anyway — and may move it away from its impending insolvency.

 

Carried Interest Does Not Need To Be Fixed

There continues to be a notion that carried interest is something that needs to be fixed because of a seemingly unfair low-tax capital gains income rate.

It is true the rate is low. But so what? It’s not as though the income isn’t from capital gains. If the law was changed so that the operators were taxed at ordinary income only, it wouldn’t get rid of those gains — it would simply mean that the investors get the benefit of the capital gains lost by the operators. This fixes nothing.

Ultimately such a change –which is being proposed by President Trump like it was by President Obama — will merely shift the tax benefit from the operators to the investors. This takes a tax break away from people who are working for a living and gives it to millionaires who are just investing – pure hypocrisy from liberals who wish to inflict additional taxes on the wealthy at every step.  It make compensation deals for hedge fund operators a bit more complicated (i.e. requiring more assistance from accountants), but the amount of compensation stays revenue neutral.

Therefore, it takes a whopping dose of either incompetence or disingenuousness from the many carried interest critics to look at the hedge fund industry and proclaim that “carried interest” is a problem that needs to be addressed.

Illinois Finances In Disarray

It’s kind of funny that the AP is reporting a story that has not been “news” for years to tax professionals. The state of Illinois is running out of taxpayer money, as its obligations exceed its revenue intake.  This is what happens when a state has been mismanaged for decades by incompetent Democrats: From CHICAGO (AP): 

The Illinois official responsible for paying the state’s bills is warning that new court orders mean her office must pay out more each month than Illinois receives in revenue.

Comptroller Susana Mendoza must prioritize what gets paid as Illinois nears its third year without a state budget.

A mix of state law, court orders and pressure from credit rating agencies requires some items be paid first. Those include debt and pension payments, state worker paychecks and some school funding.

Mendoza says a recent court order regarding money owed for Medicaid bills means mandated payments will eat up 100 percent of Illinois’ monthly revenue.

There would be no money left for so-called “discretionary” spending – a category that in Illinois includes school buses, domestic violence shelters and some ambulance services.

Is Illinois going to be the first state to become truly insolvent? Is Illinois going to file for bankruptcy? The situation is critical enough that we need keep an eye on it in the coming weeks and months.

Yellen Raises A Quarter

In an interesting move this week and true to the Fed plan to raise rates three times this year, Fed Chair Janet Yellen raised interest rates .25%. It’s worth it to note that at the same time, the Feds downgraded the forecast for inflation:

The central bank now believes inflation will fall well short of its 2 percent target this year. The post-meeting statement said inflation “has declined recently” even as household spending has “picked up in recent months,” the latter an upgrade from the May statement that said spending had “rose only modestly.” The statement also noted that inflation in the next 12 months “is expected to remain somewhat below 2 percent in the near term” but to stabilize.

At the same time, the Feds up the forecast for GDP growth slightly to 2.2%, up from a 2.1% forecast. They also anticipated a drop in unemployment as well, from 4.5% to 4.3%.

The Fed vote to go up a quarter-percent was not unanimous, however. “Minneapolis Fed President Neel Kashkari on Friday said he voted against an interest-rate hike this week because he wasn’t convinced the recent spate of soft inflation readings was due to one-off factors…We should have waited to see if the recent drop in inflation is transitory to ensure that we are fulling our inflation mandate” to get inflation back to 2%, Kashkari said.  Kashari was the only dissenting vote out of nine.

Earlier this year, the Federal Reserve tentatively planned three rate hikes in 2017 and three rate hikes in 2018. So far, they’ve completed two, and seem to want to stay on that track. Time will tell if this rate hike and pathway are good for the economy.

Iowa Obamacare Market Facing Collapse

We’ve written about the collapse of many Obamacare markets as well as the removal of several insurers from the Obamacare system across multiple states and exchanges.  Earlier this year Aetna Inc. and Wellmark Inc. announced that they would not participate in Iowa for 2018 due to unsustainable costs; only the insurer Medica would be available in the state.

In response, Bloomberg reports that “Iowa is asking the Trump administration to let it reallocate millions of dollars and create a stopgap program that would provide health insurance options for 72,000 Iowans covered by the Affordable Care Act.

Under the proposal made public on Monday, the state would use $352 million in federal money to provide backup funding for insurers and overhaul Obamacare’s subsidies for consumers next year. The state would also create a single standardized plan that insurers would offer.”

Iowa’s proposal has three main pieces:

  • It would create a standard plan, pegged to Obamacare’s mid-level silver offering. Insurers and consumers who want the extra help would need to buy that plan.
  • The state would use about $220 million of funding to provide the new subsidies.
  • And the state would create a reinsurance program, funded with an estimated $80 million, to help insurers deal with high-cost claims.

The program needs to be approved by the Trump administration and would be known as a “Stopgap” measure while the future of Obamacare gets played out in Congress. Nonetheless, the current form of Obamacare is financially unstable; expect to see more of these types of proposals in the coming months.

“Disparate Impact” and Minimum Wage

The idea of “disparate impact” holds that a defendant can be held liable for racism and discrimination for a race-neutral policy that statistically disadvantages a specific minority group even if that negative “impact” was neither foreseen nor intended. This tactic was increasingly used in recent years during the Obama Administration, most often by Loretta Lynch, Obama’s Attorney General, and Thomas Perez, his Secretary of Labor.

It follows then that minimum wage laws are racist and discriminatory. There’s no question that the effect these policies have on minorities are unfavorable. The citizens who are going to lose their jobs or will be unable to get jobs as a result of raising the cost of wages are disproportionately larger populations of minorities. If you can impute and infer racial bias because of an adverse impact and then use it to determine the legality of a law, it is unequivocally clear that minimum wage laws should be deemed unconstitutional.

Puerto Rico Votes For Statehood in Non-Binding Referendum

23% of Puerto Ricans voted today for a statehood referendum, and 97% of them cast a vote in favor of it. 1.5% percent voted for independence from the United States, according to Decision Desk HQ, while 1.3%  voted to keep the current status of a territory of the United States.

The catalyst for this vote for statehood — the first one since 2012 — was the declaration of a form of bankruptcy in early May.  Many did not vote because the vote actually did nothing. Congress would still have to formally agree to statehood, which is highly unlikely due to its crippling debt.

Last month, Puerto Rico sought financial relief in federal court, “the first time in history that an American state or territory had taken the extraordinary measure. The action sent Puerto Rico, whose approximately $123 billion in debt and pension obligations far exceeds the $18 billion bankruptcy filed by Detroit in 2013, to uncharted ground.”

I have written numerous times on Puerto Rico in the past due to business there over the years. My take has always been about reduction; reducing the size and scope of government is a major key part of getting Puerto Rico back on track.

Puerto Rico’s debt crisis is the result of years of government mismanagement. Dozens of agencies and publicly owned corporations have run deficits year after year, making up the difference by borrowing from bond markets, though there was a brief respite during the year of Governor Fortuño. Puerto Ricans must have to first experience tough reforms and cutbacks help Puerto Rico thrive once again.

AETNA To Quit Obamacare Entirely

Last year, Aetna announced it would cease providing insurance in 11 states. Then in April, Aetna said that it would leave Virginia and Iowa, leaving just a few states with Aetna coverage. Now, Aetna has announced that it will leave Obamacare altogether, citing cost as the major factor.

According to Bloomberg, “Aetna had indicated it might pull out earlier this month, when Chief Financial Officer Shawn Guertin said the company would take steps to limit its financial losses in the program. Aetna has said it expects to lose more than $200 million on individual health plans this year in the four states where it’s still selling Affordable Care Act plans.”

As has been the case with other insurers like Humana, who have left the healthcare system, Aetna has been derailed by the dysfunction of Obamacare: the amount of Obamacare enrollees has been far fewer than originally projected (off by nearly 50%!) and those who have signed up have been more ill than expected.

The recent enrollment period was abysmal. “A total of 9.2 million Americans signed up for plans sold on HealthCare.gov, which serves 39 states, by the close of open enrollment. That’s about 400,000 people fewer than had signed up last year.”

It’s clear that Obamacare has been a catastrophic financial failure, so it’s no wonder that insurers have continued to flee the system. It’s damage to the economy over the last few years has been brutal and yet Obamacare stalwarts continue to blame everyone else except themselves and a poorly written, poorly executed law. How to fix the irrevocable damage remains to be seen.

Disparate Impact Alive and Well

I’ve written about disparate impact numerous time over the years, warning that this tactic would begin to be seen more frequently beyond the business world, such as in housing and labor.  Thomas Perez and Loretta Lynch are two of its fiercest advocates, and a recent story in the Wall Street Journal suggests that my prediction is coming true.

The idea of “disparate impact” holds that a defendant can be held liable for discrimination for a race-neutral policy that statistically disadvantages a specific minority group even if that negative “impact” was neither foreseen nor intended.  The Department of Labor has leveled that charge at a Silicon Valley software firm, Palantir Technologies.

According to the Wall Street Journal, five years ago, the Department of Labor accused Palantir of racial discrimination against Asian-Americans on three occasions, saying “the racial composition of Palantir’s hires for three positions—out of 44 job titles—in 2010 and 2011 didn’t mirror its applicant pool. Palantir hired one Asian and six non-Asian applicants for a quantitative-analysis position out of a pool of 730 “qualified applicants,” 77% of whom were Asian. For a software-engineer position, the company hired 14 non-Asian and 11 Asian applicants out of 1,160 applicants (85% of whom were Asian). The complaint says the odds of this occurring “by chance” are one in 3.4 million.”

But here’s the problem. The Department of Labor, by looking at everything entirely by race, completely ignores (excludes?) the idea that a company hire employees based on skill. Palantir argued this point in response: that the Department of Labor’s “analysis assumes incorrectly that anyone having any ‘domestic education,’ any ‘internship,’ any ‘prior experience,’ and ‘Java skills’ should be considered ‘equally or more qualified’ for the positions.”  It adds that the department is “essentially advocating” an “illegal quota system.”

“Palantir notes that a quarter of its workforce and 37% of its product engineering team are of Asian descent. Of the 33 hired by Palantir during 2010 and 2011, 36% were Asian. Two of the four members of Palantir’s senior leadership identify as Asians. And more than half of the managers who oversaw the hiring process are Asian.

If Palantir had selected employees at random, 80% would be Asian. Then Labor might have said it is guilty of discriminating against Latinos and blacks.”

As if the charges weren’t bad enough, the Department of Labor decided to take it further this month after Palantir fought back with its responses. Labor has requested a “an administrative-law judge to cancel Palantir’s federal contracts and force the company to compensate the alleged victims of its discrimination.”  Of course, since Palantir did not actually discriminate against anyone, no one has requested compensation.  Only in the world of disparate impact analysis did Palantir do anything wrong, and since the Department of Labor does not disclose its methodology of determining disparate impact violations (except for broad statistics), no company can actually know if they are violating this kind of bogus “policy” of the Department of Labor.

It’s this kind of  egregious action by the Department of Labor that makes being a business owner in the current climate a very difficult thing.