A key government informant and former UBS banker in the U.S. tax evasion case against Swiss bank (UBS AG) was sentenced to more than three years in prison for helping a billionaire hide assets from U.S. tax authorities.

The sentence of Bradley Birkenfeld, by federal Judge William Zloch Bradley Birkenfeld, was tougher than his attorneys and prosecutors anticipated.

Birkenfeld cooperated in the U.S. government tax evasion investigation of UBS, serving as an informant in 2007 for US authorities.  UBS AG has since admitted that its employees helped American clients evade billions of dollars in U.S. taxes.

Prosecutors asked that Birkenfeld’s sentence be reduced to 2 1/2 years from the 5 years he originally faced. His lawyers pleaded  for 5 years probation.

The ex-UBS employee was sentenced for conspiring to defraud the United States by helping a billionaire U.S. real estate developer create sham corporations and entities to hide over $200 million in assets from U.S. tax authorities.

However, he was credited with providing damning information on UBS’s illegal business practices of helping wealthy Americans use their Swiss bank accounts to hide money overseas to evade U.S. taxes.

The sentencing comes just two days after U.S. and Swiss authorities signed a pact in which Switzerland agreed to reveal the names of about 4,450 wealthy American clients of UBS to U.S. tax investigators.

U.S. officials said Birkenfeld’s sentencing would send a powerful message to U.S. tax offenders hiding undisclosed assets in Swiss bank accounts to give themselves up under a voluntary disclosure program.

“To those taxpayers who have illegally hidden their income in foreign bank accounts and to those who have illegally helped clients hide income and assets, today’s sentencing serves as notice: come in and completely come clean,” said John A. DiCicco, Acting Assistant Attorney General of the Justice Department’s Tax Division.

source: Reuters

President Obama’s treasury secretary and chief economic adviser admit they cannot rule out raising taxes on middle-class Americans to curb the soaring budget deficit and fund health care reform.

With more federal spending expected on the economic stimulus package, extended unemployment benefits and health care reform, revenue sources to cover these expenses just aren’t available.

The Obama administration is treading lightly on the issue of raising of taxes to calm the public. Both Treasury Secretary Timothy Geithner and National Economic Council Director Larry Summers sidestepped questions on the President’s intentions about taxes. Geithner said the White House was not ready to rule out a tax hike to address the federal deficit; Summers said Obama’s proposed health care overhaul needs funding from somewhere.

President Obama vowed “you will not see any of your taxes increase one single dime” during his presidential campaign. But the simple truth is the federal spending on economic recovery combined with an ambitious plan to revamp American health care – will have to be paid for.

On Friday, the government released a report that suggests the worst U.S. recession since WWII appears to be ending. But President Obama cautioned about a quick turnaround.

“Well, as I’ve said, I think we maybe are beginning to see the end of the recession, but it’s still going to be some time before we are seeing companies hiring again. That’s usually the last thing that happens,” Obama said in an interview with Univision that aired on Sunday.

“So I think we are still going to have a tough remainder of the year — probably until next year — but, you know, at least what we are seeing — we’ve pulled back from the possibility of a depression. That’s not the danger.”

Private economic forecasters suggest that unemployment will come down in the second quarter of 2010 with positive growth in the latter half of 2009.

But at the same time, Geithner and administration officials are pondering how to ask Congress for more funds to extend unemployment benefits for Americans who have recently lost their jobs. The proposal drew some support from Sen. Jim DeMint, R-S.C., as long as the benefits come from the already approved economic stimulus package.

Opponents of the plan question whether the proposal will benefit the country.

Senator John McCain stated, “I think it’s pretty clear, if you pump trillions of dollars into the economy, you will see some recovery,” the Arizona Republican said while giving Obama credit for the improvement. “But the long-term consequences, I think, are going to be, unfortunately, devastating unless we do something about it.”

Geithner and Greenspan appeared on ABC’s “This Week.” Summers appeared on NBC’s “Meet the Press” and CBS’s “Face the Nation.” DeMint was interviewed on “Fox News Sunday.” McCain spoke with CNN’s “State of the Union.”

source: Associate Press

Are U.S. States unfairly burdening smokers by taxing cigarettes to cut budget deficits?  Historically, states have used part of the revenues from cigarette sales to help smokers quit or to pay for their health care. But now, many states are proposing an additional cigarette tax to bail them out of the fiscal crisis without earmarks to help people stop smoking.

Sure, smokers are an easy target. There is little political opposition and health advocacy groups consider it a bane to society.  But does it make it right? Are they being singled out?

In more than 20 states, budget shortfalls are pushing more to look to tobacco for revenue. Even the tobacco-producing states are considering it.

According to the New York Times, “in the South, where such taxes have been lower than in the rest of the country, Arkansas has nearly doubled its tax, to $1.15 a pack, and Kentucky’s will double, to 60 cents, on April 1.

Increases are also under consideration in other tobacco-growing states like North Carolina, South Carolina and Georgia. With estimated state budget shortfalls nearing $50 billion, opponents of smoking see an opportunity to make headway with the most reluctant lawmakers.

A 10 percent increase in the price of cigarettes reduces consumption by 3 percent to 5 percent, according to the Centers for Disease Control and Prevention, and deters young people from picking up the smoking habit.

Tobacco industry representatives have argued that tobacco taxes unfairly burden smokers, who are mostly working class or poor, and jeopardizes jobs at retailers like convenience stores, where more than 30 percent of total sales can come from cigarettes.

“Many of these states are asking the very definition of Main Street to bail out state capitals,” said Frank Lester, a spokesman for Reynolds American, which makes Camel and other major brands. “It’s just another bailout.”

States whose cigarette taxes are already high are also considering increases. In Oregon, now at $1.18 a pack, Gov. Theodore R. Kulongoski has proposed a 60-cent increase. In New Jersey, Gov. Jon Corzine is asking the Legislature for a 12.5-cent increase over the current $2.58. New York has the highest state tax on cigarettes, $2.75 a pack.

In Mississippi, cigarette tax increases in surrounding states have helped dampen fears that people would cross state lines to buy cigarettes. After a tax study commission appointed by Governor Barbour recommended an increase, he reversed his opposition but warned that the tax should be viewed as a matter of health policy, not a generator of revenue.

Bill Phelps, a spokesman for the Altria Group, the parent company of Philip Morris, argued that states often overestimated revenues from cigarette tax increases. From 2003 to 2007, there were 57 state tax increases, Mr. Phelps said, and in 41 cases they fell short of projections.

“We don’t think it makes a lot of sense to fund what are often important government programs with a revenue source that is in decline,” he said. “Just in the last 10 years, sales have declined an average 3 percent a year.”

But Frank J. Chaloupka, an economist and director of the Health Policy Center at the University of Illinois, Chicago, said cigarette taxes had not reached the threshold of diminishing returns. “We haven’t yet seen a case where if you raise taxes you don’t raise revenues,” Mr. Chaloupka said.

New Jersey did see a decline in revenue after its last tax increase, he said, but other factors, like a comprehensive smoke-free-air law that went into effect before the increase, drove down consumption.”

On top of all this, a 62-cent increase in the federal cigarette tax will go into effect in April.  The tobacco industry believes this will overburden smokers and drive down state collections. But the federal increase does not seem to have derailed state efforts, in part because smokers cannot avoid it by crossing state lines.

The debate will continue but the bottom line is that states will come down to the last day of the session, when they realize they have to get the budgets down and they need X dollars.”

What vice will be taxed next?  Beer, Wine, Liquor?

source: NY Times