Why the U.S. Government Hates -and Fears- Gold

By Alan Walsh

The U.S. Government hates Gold because it serves as a clear, unambiguous, and constant sign of their fiscal irresponsibility.

U.S. currency used to be issued by the U.S. Government, and was backed by Gold. You could literally trade-in your dollars for Gold. Then, the Federal Reserve system was created, the dollar was disconnected from Gold, and the U.S. government stopped issuing currency. To really “seal the deal”, the government even outlawed individual ownership of Gold for awhile and forced citizens to sell it to them at a fixed price they set; then they raised the “official” price of Gold, devaluing every dollar citizens held by about 40%.

The Federal Reserve (also referred to as the U.S. central banking system, or central bank) is not a government agency; it’s a private bank, owned by other big banks, and run by people from those banks. When the U.S. Government wants additional money to spend, it buys it at face value ($100 for a $100 bill, for instance) from the Federal Reserve; which creates the currency. That’s why your dollars say “Federal Reserve Note” on them. In order to buy the currency, the U.S. government goes into debt  via Treasury Notes & Bills, etc. The government then spends that money.

Why did the U.S. government do this? So politicians could avoid accountability, buy votes, get reelected, increase their power, and transfer the effect of their spending to the future. This is how the federal government got to be the monster it is today. Under the old system, the government could only spend as much as it held in gold-backed dollars. If they wanted to spend more, they had to tax citizens. Citizens don’t like higher taxes, and get upset. Politicians lose jobs. Government was held accountable. The new Federal Reserve system removes this nasty inconvenience by letting the politicians just go buy currency from the Federal Reserve, creating new debt in the process; and government debt is a claim on the productivity of the nation – therefore it is your debt. Government doesn’t produce; it only consumes – your wealth. The income tax was created at the same time as the Federal Reserve system to pay for this debt.

As government buys more dollars from the Federal Reserve (and creates more debt in the process), it increases the number of dollars in circulation; thus creating inflation – plus damaging boom & bust cycles in the economy – plus interest expense on the debt. This is where Gold becomes very annoying to them. Gold, like any other commodity, adjusts in price with inflation and glaringly points it out. As the number of dollars in circulation goes up, the price of Gold rises.  People see their purchasing power in dollars go down, so they trade them for Gold; which holds its purchasing power in times of inflation and serves as alternative money. Government doesn’t want you to notice their little shell game, and they don’t want you to stop using and holding their inflationary dollars, so they hate Gold.

Our government, and other governments who play the same shell game, try to control the price of Gold and hold it artificially down through surreptitious trading activity in league with major financial firms. They try to send you false signals about their inflationary borrow & spend activity by artificially holding the cost of Gold down. If the price of Gold is low, everything must be okay, right? Wrong! Very, very wrong!

We’ve now reached a point where government borrowing and spending is so extreme that they can’t artificially hold Gold down to the price level they would like anymore.  Thus, Gold is trading near $1,700.00 per ounce. Many experts argue that if the government wasn’t surreptitiously intervening in the market to hold the price of Gold down, it would be trading for $3,000 or more.  Regardless, the rise in the price of Gold is a clear and unambiguous signal that government spending is out of control. The effect of this is to undermine peoples’ faith in the dollar and our government.  That makes it hard for government to keep up their shell game. Their borrowing & spending has also created a debt that the income tax can’t begin to cover – plus those nasty and growing interest obligations.

Sober people have also questioned how much of the Gold the government holds it actually owns anymore. They suspect that the government’s secret Gold sales to flood the market and hold the market price of Gold down have been so extensive that very little of the Gold they hold is actually owned by them anymore. Large Gold sales usually don’t involve physical transfer. An electronic record is created to note the new ownership. Therefore the government may be sitting on a large cache of Gold that “we the people” don’t own anymore. Perhaps this is partly why the price of Gold has risen despite government’s best efforts to hold it down. Maybe they’ve run out of Gold to sell. We can’t know for sure, because the government hides this activity behind a thick wall of secrecy. But bits and pieces of info leak out now and then, and they paint a dismal picture. Investigators have even uncovered documents created by central bankers for central bankers on how to execute market intervention between each other to hold the Gold price down.

As the government shell game grows, people start paying attention, and realizing how they’re being hosed by the government’s inflationary, destructive borrow and spend policy. If more Americans understood how our monetary policy works, and what government’s doing to them, they’d be screaming. Government does everything it can to keep us in ignorance.

Faith in the U.S. Dollar has been so severely undermined that other nations, who are not so naive in these matters, are seriously talking about abandoning the dollar as the “world currency”, a beneficial status which the U.S. has enjoyed since the end of World War II. If that happens, investment coming into the U.S. will decline and government will find it increasingly difficult to sell or roll-over their debt; China being our largest current creditor. Then the U.S. will hit a “fiscal cliff” that makes the current one look like a ride in the park.

The U.S. national debt is now over $16 Trillion dollars; over $52,000 per person, and approx. 125% of gross domestic product (gross domestic product being our productivity as a nation – your productivity – the productivity our government taxes you on) – a new record by far. The current government’s policies alone added $8 Trillion to that debt in the last four years. Then there’s the interest on all that debt. Budget projections indicate that the national debt could hit $20 Trillion in the next couple years if we keep going the way we are. Other nations are starting to look at the U.S. like Greece; a bankrupt financial disaster. We’re mortgaging our nation to entities like China, who are not exactly our friends. The current administration’s indebted the nation to a greater extent than any other, but they’re not the only perpetrators. This has been going for decades since the new system was created. It’s not a Democrat or Republican problem – it’s a national tragedy.

Gold at $1,700 an ounce sends this signal clearly – which government fears and hates.

The government wants you to hold their inflationary dollars. The Federal Reserve does too; and bad-mouths Gold. The finance houses who surreptitiously work with the government to control the price of Gold tell you that Gold is an unproductive asset, and you should hold dollars instead; while they quietly buy it for their own accounts. They’re all propagandizing you to keep their shell game going. I remember one time a couple of years ago when one of the major financial houses (JP Morgan I believe) was publicly telling it’s clients to sell Gold, while privately buying it for their own account.

The national tragedy goes even deeper. The Federal Reserve holds secret meetings where it shares inside information with the finance houses who help it; information that they use to make millions and billions on the markets from you unknowing investors. If you think the equity & debt markets are free and open, think again. It’s all manipulated.

Let’s talk about one of the many ways in which your government shafts you with this shell game – Social Security. You are required to make tax payments into Social Security. These payments are made with post-income tax dollars (you’re first income-taxed on the income you pay the social security tax with). The government spends the social security revenues (money) and replaces them in the social security trust fund with government debt instruments; thus, the government spends your social security contributions as it sees fit, and replaces them with new government debt. Of course, government debt is a claim on the productivity of the country – your productivity – and therefore represents a new debt you as citizens take on. This is important to note, because government spends your social security contributions, and creates a new debt owed by you as a citizen (another tax) for payment of benefits to you. Then, when you receive your benefits, up to 85% of them are subject to income tax depending on your filing status and how much income from other sources you have coming in.

To recap, the government first taxes the income you pay social security taxes with (income tax), then taxes you for social security (social security tax), then spends the money and replaces it with new debt (a new claim on your productivity, or tax), and then taxes you on your benefits (income tax). That’s three taxes on the money you put into social security, plus the social security tax itself. Of course, the government must pay interest on the new debt they created (another claim on your productivity, or tax), so really you pay five taxes; and your contributions are spent now for anything the government wants. Most citizens think the government is taking their money and putting it into a social security trust fund (savings account) to pay your benefits. Nope! That money’s gone. They spent it and replaced it with debt – debt that you owe as citizens.

The government says that your benefits money is safe because it’s invested in instruments guaranteed by the U.S. government. What they really mean is that your benefit claims are backed by their ability to tax you; or create new debt that you owe as a citizen; and that’s the only way those benefits are going to be paid. They just keep spending the tax money as it comes in, and pass the buck for social security obligations to future generations. Neat trick huh?

Additionally, “people retiring today are part of the first generation of workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire. It’s a historic shift that will only get worse for future retirees, according to an analysis by The Associated Press.”  The government absorbed all the money you put in, plus the employer contributions, and you won’t even get back what you alone put in; let alone all the interest you could have earned on that money over the years. This is what your government has done for you. Isn’t it great? What a deal!

Your wealth, purchasing power, and financial stability are being undermined every day by the government’s borrow & spend shell game, the underhanded dealings of the Federal Reserve and it’s finance house cronies, and very likely the sale of our nation’s Gold reserves (your Gold reserves) to manipulate the markets and fool you. Even your most basic “protections” are being undermined by government subterfuge. Gold serves as a clear warning, and an alternative.

That’s why the U.S. government hates -and fears- Gold.

Be informed.

Learn More About the U.S. Government Monetary Policy:

http://walshal.wordpress.com/2009/04/11/monetary-policy-a-primer/

Other Suggested Reading:

America Has Become a Pinata

http://walshal.wordpress.com/2012/12/28/america-has-become-a-pinata/

A Dummy’s Guide to the 2007-2008 Financial Crisis

Helga is the proprietor of a bar.  She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar.

To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.  Helga keeps track of the drinks consumed on a ledger; thereby granting her customers loans.

Word gets around about Helga’s “drink now, pay later” marketing strategy and as a result, increasing numbers of customers flood into Helga’s bar.  Soon she has the largest sales volume for any bar in town.

By providing her customers freedom from immediate payment demands, Helga gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer; the most consumed beverages.

Consequently, Helga’s gross sales volume increases massively.  A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Helga’s borrowing limit.

He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.  At the bank’s corporate headquarters, expert traders figure a way to make huge commissions; and transform these customer loans into DRINKBONDS.

These “securities” then are bundled and traded on international securities markets.

Naive investors don’t really understand that the securities being sold to them as “AA Secured Bonds” are really debts of unemployed alcoholics.  Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Helga’s bar.  He so informs Helga, who then demands payment from her alcoholic patrons.  But being unemployed alcoholics, they cannot pay back their drinking debts.

Since Helga cannot fulfill her loan obligations she is forced into bankruptcy.  The bar closes and Helga’s 11 employees lose their jobs.

Overnight, DRINKBOND prices drop by 90%.  The collapsed bond asset value destroys the bank’s liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.  The suppliers of Helga’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the BOND securities.  They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations.  Her beer supplier is taken over by a venture capital asset management firm; which immediately closes the local plant and lays off 150 workers.

Fortunately though – the bank, the brokerage houses, and their respective executives are saved and bailed out by a multi-billion dollar no-strings-attached cash infusion from the government.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who’ve never been in Helga’s bar.

Now do you understand?

President Obama Doesn’t Know the First Thing About Economics

By Iain Murray

Published July 16, 2011 | FoxNews.com

 

As the Oscar buzz surrounding actress Meryl Streep keeps growing — thanks to her portrayal of Margaret Thatcher, it’s worth remembering one of the real Iron Lady’s most famous observations: that any housewife could manage the British economy. 

President Obama should heed that advice, and realize that economy begins at home. Unfortunately, his recent statements on the economy give little reason for hope on that front.

The president’s press conference on Monday epitomized the “do something” nature of his administration. He wants to do something about … well, everything—from getting more kids into college to fighting global warming (although the latter is less evident these days, at least in public). The trouble is that he thinks he needs more and more of our money to do it, so he wants any budget deal to include tax rises.

Let’s take the example of college education grants, which the president suggested should be funded by an increase in taxes on millionaires like himself. The president’s budget request for 2012 contains an allocation of $36 billion for increased Pell grants for students from poor backgrounds to attend college. That’s out of an entire federal budget request of $3.7 trillion, which makes Pell grant expenditure just 1 percent of the total.

Looking at that from the viewpoint of Mrs. Thatcher’s proverbial housewife, we can compare it to the median household income of about $46,000, which, after taxes, is about $3,000 a month. 

The size of the problem that President Obama singles out as requiring tax increases is equivalent to a household budget shortfall of $30 a month. A competent economic manager should be able to deal with that sort of problem by tightening his or her belt elsewhere. The president’s seeming incapability to contemplate this demonstrates just how out of control the federal spending machine is.

Link to Full Article

The New Rules of Estate Planning

By GLENN RUFFENACH

You have to hand it to Congress: It’s doing its best to turn one of the more wearying parts of retirement planning — getting your estate in order — into something of a party. The challenge for you and me is to stay clearheaded.

The Tax Relief Act of 2010, passed in December, made headlines primarily for retaining the Bush-era income tax cuts. But lawmakers also approved changes in estate and gift taxes that left lawyers and accountants gushing. (“Unprecedented.” “Historic.” “Astonishing.”) Most notably, the gift-tax exemption jumps from $1 million to $5 million, which means Americans can now bequeath the latter amount without paying a dime in taxes. This exemption is separate from the annual gift-tax exclusion, currently $13,000.

Now that the hoopla has quieted somewhat, we’re starting to get a clearer picture of who might benefit from Washington’s generosity. When considering whether to fiddle with existing estate plans, there are two things to keep in mind: First, estate planning is sales-oriented. Tax attorneys will be more than happy to craft a new trust (or two) for you. But new rules — however “astonishing” — don’t necessarily mean you automatically need new, expensive documents. (One instance where an automatic review is in order: estate plans that contain “formula clauses.” More on this below.) Second, the changes made in the 2010 legislation expire after the close of 2012, which means the window in which to act, if you choose to, is fairly limited.

Given all that, here are several issues and strategies to consider, whatever the size of your holdings.

Link to Full Article

Think where you live is pricey? Try Tokyo or Sydney

By Martin Wolk, msnbc.com’s business editor

Americans may complain about the cost of living, but life is actually getting a bit cheaper here compared with the rest of the world, a new study finds.

None of the world’s 40 most expensive cities are in the United States, with the top spots dominated by cities in Japan, Australia and western Europe, according to a semi-annual report by the Economist Intelligence Unit.

Los Angeles, which somehow ranks as the most expensive U.S. city, is No. 41 on the global list, down from No. 24 six months ago. Chicago fell to No. 44 from 33, and New York is now less expensive than 48 other cities around the world, including Tel Aviv, Israel, and Dublin, Ireland, according to the report.

As anyone can confirm, the cost of living is not actually getting cheaper in the United States, but the global index is calculated in dollar terms, so the weakness of the dollar makes other cities relatively more expensive.

The Economist survey, mainly intended to calculate cost-of-living allowances for traveling business executives and expatriates, looks at the cost of living in 140 cities around the world, assessing prices of more than 160 items including food, clothing, transportation, utilities and “domestic help.” The index factors in the cost of executive-level rental housing as well as sales taxes, but not income taxes or home sale prices.

Link to Full Article

Making the United States Less Competitive

by Jennifer Pellet; courtesy of Chief Executive.net

2011 marks the 20th year in which the U.S. statutory tax rate has been above the simple average of non-U.S. countries in the Organization for Economic Cooperation and Development (OECD). With a combined federal and state corporate tax rate of 39.2 percent, the U.S. has the second-highest overall rate among OECD nations. Only Japan, with a combined rate of 39.5 is higher. But this will soon change. Japan is planning to reduce its national rate by 4.5 percentage points, which will bring its overall rate to below 35 percent.

As of January, Canada had already reduced its tax rate from 18 to 16.5 percent. the U.K. rate will fall from 28 percent to 27 percent as a first step of a multi-year plan to lower the British rate to 24 percent by 2014. America’s biggest economic competitor, China, lowered its corporate tax rate from 33.3 percent to 25 percent in 2008.

Critics argue that due to exemptions and allowances the effective rate for U.S. companies is lower. For manufacturers and others with historical assets to depreciate that may be true, but for younger companies whose assets are mostly intellectual property that isn’t the case, according to Tax Foundation president Scott Hodge. Companies like P&G and Dow Chemical may pay at lower effective rates, but for companies like Apple, Netflix or Google—the ones more likely to expand or boost their employment—statutory rates matter.

To attract business and investment in a fiercely competitive global marketplace, every industrialized country except the United States has lowered its corporate income tax over the past 20 years. The United States has bucked that trend and increased its rate, creating a less-hospitable environment for corporations.

Tax Tips for Sub S Corporate Structures

Article by Bonnie Lee, Enrolled Agent; courtesy of Fox News

My article “Tax Tips for S Corporate Structure” that ran on May 20 spurred numerous e-mails from CPAs all over the country stating that I had made an error with regard to the ability to write off rental losses against Sub S income, all of which are declared on Schedule E of a person’s individual income tax return. The main concern is that rental losses are treated as passive losses, whereas Sub S income is non-passive income. You can’t mix apples and oranges: You can’t net passive losses against non-passive income.

To explain the concept simplistically: Passive income is income you receive while sitting around, such as  interest from a savings account, dividends from stock holdings, or rents from apartment buildings. (Can’t resist the aside, you also can’t write off rental losses against dividend or interest income even though they are in the same class of income.)

For those of you who get up every day and go to work at your Sub S Corporate business where you sweat and struggle to claw your way to the top, you’re not thinking that it’s “sitting around income.” This has got to be non-passive income, right?

Well… Please note: this is one of the advantages of incorporating as a Sub S Corporation. Sub S corporation income and losses are treated as passive for tax purposes. Yes, this is counterintuitive, especially if the shareholder in question also has W2 wages and material participation in the entity. Material participation – that pretty much means you go to work every day.

No one ever said the IRS is always logical.

But still, I wondered if I had missed something in my research. And because tax law is so complicated, I decided to get to the bottom of it. I discussed my findings with an IRS auditor, a tax attorney, my office mate who is also an enrolled agent, as well as with an individual in the Tax Law Department at the IRS. They all agreed with me.

But the biggest tipoff is Schedule E itself. Note that rental losses are listed on page 1, line 26; Sub S income is listed on page 2, line 32. What happens next? These two totals are combined and netted out (along with several other line items on the form) on line 42 and transferred to line 17 of Form 1040. This function alone (without any reference to work-sheeting) demonstrates that the principle I outlined is in fact correct. Don’t believe me? Go to http://www.irs.gov, bring up Schedule E and try it yourself.

Link to Full Article

Can The Fed Stop Quantitative Easing?

By Paul Craig Roberts

June 28, 2011 “Information Clearing House” – If the Fed stops QE, confidence in the US dollar would rise. Money would flow into US investments, both supporting the US stock market and helping to finance the large US budget deficit. Gold and silver prices would decline. Negative dollar expectations would be squeezed out of oil and grain prices, although drought, flood, and supply factors would continue to impact grain prices and the administration’s wars can impact oil prices.

If a halt to QE coincided with more European sovereign debt problems, the dollar might regain a lot of the ground that it has lost.

Looked at from this perspective, the Fed should halt its bond purchases, and people should bail out of their bullion investments and commodity speculations.

But there are other factors in play–the economy and continuing solvency worries about financial institutions. At a June 22 news conference, Federal Reserve chairman Ben Bernanke said: “Some of the headwinds that have been concerning us, like the weakness in the financial sector, problems in the housing sector, balance sheet and deleveraging issues, may be stronger and more persistent than we thought.”

Despite the fiscal stimulus of the large federal budget deficit and Obama’s $700 billion stimulus program, the economy’s growth and employment performance is not up to expectations. Indeed, as John Williams says, if inflation were fully measured, the economy’s growth could be negative, and if unemployment were correctly reported, the current rate would be over 22%.

An economy this weak offers no support to US-derived corporate profits or to the outlook for financial organizations. US corporations have made large investments abroad in the production of goods and services to sell to US consumers who have neither the income nor borrowing capacity to purchase. People without jobs and those with the low paid jobs provided by domestic service, such as hospital orderlies, bartenders, and waitresses, cannot afford to buy a house even at the depressed current prices. To the extent that financial institutions’ books remain filled with real estate paper, the financial crisis is not over.

Moreover, it is unlikely that the Dow Jones average can be sustained without growth in employment and GDP.

Can the Fed afford to sacrifice recovery, employment, and Obama’s reelection to save the dollar and price stability? This is the unasked and unanswered question.

Tax Credits & Incentives: Are You Missing The Boat?

May 11 2011 by Fred Stiftel, courtesy of Chief Executive Magazine

 

 

When a shareholder grabs the microphone at an annual meeting and asks if the company is taking full advantage of the estimated $60 billion available each year in federal, state and local tax credits and incentives, most CEOs quickly pass the question to their CFO, who will typically provide shareholders with some level of assurance that their company is engaged in all of the appropriate programs designed to reduce operating costs and minimize tax liability.

There currently are nearly 3,000 tax credits and incentives programs in the United States, sponsored by federal, state and local governments to drive job creation, employee training, capital investment and new business development. These statutory and negotiated opportunities – including point-of-hire tax credits, to property & sales tax incentives, to utility & infrastructure abatements, to name a few – are available to companies of all sizes, across a broad range of industries.

But a relatively small number of companies, regardless of their size or financial sophistication, are benefitting fully from the tax credit and incentive-related benefits to which they are entitled.  Industry estimates suggest that fewer than 25 percent of eligible US businesses participate in the federal government’s Work Opportunity Tax Credit (WOTC) program; and despite an array of lucrative employee tax credit and incentive opportunities offered in all 50 states, only about 10 percent of participating companies appear to be taking advantage of them properly.

When pressed for details, corporate tax, finance and HR department managers often have legitimate, as well as unsubstantiated, opinions on the extent to which their company either can or should pursue tax credits and incentives. The four of most commonly expressed points of view limiting corporate participation include:

They’re Too Complex

There is sufficient basis for companies to be overwhelmed by the range of opportunities, and as a result, to either focus exclusively on one or two specific programs, or to avoid them altogether. In general, the statutory opportunities offered by the federal government are fairly straightforward, and fall into four major categories:

• Workforce Incentives– targeted toward groups who have consistently faced substantial barriers to employment, such as veterans, food stamp recipients and residents of designated communities.  The largest of these are the Work Opportunity Tax Credit (WOTC) and Long Term Family Assistance (LTFA) programs, designed to foster employment of individuals from eleven targeted groups.
• Geographic Incentives– to attract job creation and investment in distressed areas, often within Empowerment or Enterprise Zones.
• Investment Incentives– based on investments on qualified machinery and equipment.
• R & D Tax Credits – to foster creation or improvement of various business processes.

The complexity of tax credit and incentive programs occurs primarily on the state and local levels. All 50 states offer a myriad of programs, with credits driven by a company’s investment levels, headcount and business activity at each location. So for companies operating various locations in multiple states, the identification, application process and ongoing management of these programs is no simple task. Broadly, the three major categories of state and local programs include:

• Statutory Programs – or “as-of-right” programs, which in some states require pre-certification of eligibility, as well as location in a specific geographic area.
• Negotiated Incentives– involving job creation, R&D, facilities investment, green initiatives, skills training or site selection. These discretionary programs require negotiation, advance certification, or declaration that the company would not locate to a particular state “but for” these incentives.
• Refundable/Transferable Tax Credits – for companies with net operating losses, or that are unable to use available tax credits, 31 states currently offer programs with opportunities to monetize tax credits through refunds and sales. Many companies are unaware that they may be able to sell or transfer the net operating losses and tax credits they’ve earned.

For most companies, complexity in the range of available federal, state and local tax credits and incentives should serve as an incentive to explore their economic potential, not as a reason to avoid them or limit participation.

They’re Not Worth The Effort

For companies with a large employee base, the economic benefits of diligent pursuit of WOTC-related programs can be well worth the effort: delivering $2,400 to $9,000 in tax credit savings per qualified employee. Even companies that believe they don’t hire the types of people who qualify for tax credits are often pleasantly surprised at the number of employees who do qualify, once they get serious about exploring opportunities. Sometime employees qualify simply based on where they live.

Using only the federal Work Opportunity Tax Credit, a large company that hires 5,000 new employees per year, with 10 percent of those new hires eligible for the program, can realize $4.5 million in tax credits over a 2-year period.

More substantial savings, however, are achieved by companies that are capable of capturing the full range of retroactive, and proactive tax credit and incentive opportunities. A world leader in soft drink manufacturing, for example, combined WOTC credits with state and municipal opportunities that included new jobs tax credits, negotiated training grants, sales & use tax exemptions, property abatements, state income tax exemptions, and enterprise zone property tax exemptions totaling more than $4 million.

Another example of diversified opportunities involved one of the nation’s leading wholesale cash and carry companies, serving grocery retailers and food service operators. This company secured tax credits related to its California and Georgia locations, sales & use tax exemptions for materials and machinery for new warehouse construction, Federal Empowerment Zone, Renewal Community, and Hurricane Relief tax credits worth $5.3 million.

For one location alone, the company also negotiated an incentive package, separate from the state’s offering, resulting in a10-year 100 percent property tax abatement on all improvements. With 10 – 12 new warehouse openings every year, this company carefully approaches front-end site selection in order to evaluate sales and use tax exemptions and state tax credits for these facilities.

With some companies reclaiming as much as 25 percent of their operating costs through government incentives, it’s tough to defend the position that they are not worth the effort.

We’ve Got It Covered

When the CFO who responded to the shareholder’s tax credits and incentives question returns from the company’s annual meeting, his first stop is likely to be the office of the head of taxation or human resources…for assurance that their company actually is benefitting from all relevant opportunities.
“We’ve got it covered” is often the internal assurance provided when a CEO or CFO asks about tax credits and incentives, but there are three major reasons why that response can fall short of the mark:

 

• Most corporate tax departments, regardless of size, have neither the time nor expertise to monitor all of the potential tax credit programs; particularly if their company operates in multiple states. General Motors Corporation, with a tax department of more than 100 analysts, at one time had overlooked at least $2 million in retroactive Native American federal tax credits.
• Regardless of size, CPA firms are often not set up to review and administer tax credit programs, and their range of services in this discipline is limited by Sarbanes Oxley. Further, given the amount of ongoing administration required to benefit from these programs, it would not be cost-effective for a company to use its external accounting firm for that purpose.
• HR support vendors can provide client companies with tax credit and incentives assistance, but often only as an ancillary service in order to maintain a client relationship that includes more profitable service lines, such as payroll and employee benefit-related processing.

Companies that truly do “have it covered” in terms of tax credit and incentive opportunities are usually those in which the CEO or CFO has made oversight and management of this discipline a priority, has ensured that the necessary internal or external resources are leveraged, and has established a formal tracking and review process to monitor the company’s performance and ROI for this activity.

We Tried Them Before

Tax credit and incentives programs are constantly being changed and expanded in Congress, and there have been significant revisions to the federal WOTC program in past three years. As a result of high unemployment and the need to attract capital investment, many states have changed eligibility requirements and enhanced features of their existing programs or have initiated new opportunities.

For example, in the first few months of 2011, the federal government has been completing H.R. 942, to amend the Internal Revenue Code of 1986 to extend the research credit through 2012 and to increase by 20% and make permanent the alternative simplified research credit. On the state level, Louisiana has announced plans to establish a 40% refundable tax credit for R&D, as well as incentives for digital media and software development activity; South Carolina is creating credits up to $2,400 per individual to increase hiring of the unemployed; and New York’s Excelsior Jobs Program’s tax benefit period has been extended to ten from five years, and its R&D tax credits have been increased.

Conversely, change at the federal and state levels can sometimes serve as a catalyst for corporate strategy, including facilities location or relocation. In California, for example, Governor Brown is currently pushing for elimination of its Enterprise Zone Program, as a means to address the state’s budget deficit. This shift will result in a tax increase of more than $1 billion for California companies operating in the EZ program, and if passed, will likely cause those companies to scramble for alternative locations.

In this constantly shifting landscape, companies can not assume that their analysis of current opportunities will have a long shelf-life.  They need to diligently monitor the eligibility requirements and potential benefits of existing programs, in order to keep abreast of new opportunities on the federal, state and local levels – for offensive and defensive purposes.

Three Ways to Increase Corporate Participation

For CEOs who are unsure of whether their company is capturing the tax credits to which it’s entitled, there are number of steps that can clarify the situation and serve to re-focus attention on the relevant opportunities:

1. Maintain a Trigger List:

There are specific conditions and events that serve as key triggers for exploration of tax credit and incentive opportunities. In the human capital category, these triggers involve increases or decreases in employment, turnovers, relocations, employee training or retraining, and shifts from contract-based to permanent employment status. The facilities- and production-related triggers include:

• New site selection and start-up
• New capital investment
• New leases and renewals
• Building acquisitions
• Facility upgrades
• Consolidations and closures
• Mergers and acquisitions
• Shifts in production
• Relocation of equipment

For nearly every strategic issue, CEOs are well-served to condition their senior staff members to respond to the “What are our tax credit and incentive opportunities?” question before they are asked.

2. Establish Program-Related Metrics

To enhance the ROI of a company’s existing tax and incentive programs, it’s important to monitor relevant key metrics. With WOTC programs for example, companies should track both compliance rates and certification rates. Compliance rates reflect the percentage of new hires who are screened for WOTC Program Eligibility, versus the total number of new hires. Compliance also tracks the timeliness of the processing of forms completed by potentially eligible hires.  Compliance is critical because it drives the total amount of credits that are given, and the most successful WOTC programs have at least a 90 percent compliance rate.

Compliance rates are greatly affected by how hard the program is pushed from the corner office. Many corporate offices do not ask their HR Departments to complete the necessary forms or to report their WOTC compliance, but the most successful companies require that every new employee complete the necessary forms and be screened for eligibility.

A company’s certification rate compares the number of employees screened as eligible with those who are actually certified by the various state agencies involved in WOTC. In addition to the company’s business and employment profile, this metric is driven by how well the company’s external resource screens and processes all the paperwork that’s necessary for WOTC tax credits. A certification rate of 55 percent is considered best practices.

3. Make All Hiring Managers Accountable

It pays to engage all HR and departmental hiring managers, and to make them accountable for achieving relevant tax credits and incentives. This requires a senior level corporate champion, such as CEO, CFO, Treasurer or VP Tax, and can involve pushing down tax credit-related savings to a department’s or location’s P&L, or even to an individual manager’s performance scorecard – which causes them to take the tax credit issue seriously. As the HR VP of a clothing retailer with a P&L connection to tax credits noted, “It takes a lot of children’s clothes to make a profit of $2,400.” It also pays for companies to acknowledge internally the tax-related contributions of managers who are diligent in capturing opportunities.

In addition to push-back from inside the company, CEOs and senior managers who insist on changing the corporate culture to ensure their company’s full participation in tax credits and incentives can be assured of at least one other beneficial outcome: they will welcome a related question from any shareholder.

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