March 21, 2013 We Love Lew As a tax lawyer, I was upset that President Obama found it evil that candidate Romney had a Cayman Island investment account. I thought they would be banned. I was relieved that newly confirmed Treasury Secretary Lew had one and it was ok. Senate Finance Chairman, Max Baucus gave them his blessing when he said they are a prudent form of investor diversification. Poorly disclosed executive compensation is no longer a plague on businesses. It is now not uncommon for large organizations like New York University to give a $685,000 severance payment to Mr. Lew when he left NYU, to join Citibank. This is also odd because NYU’s stated policy on its website says, no one who resigns voluntarily receives such a severance payment. But, Mr. Lew did. Could it be that it was because he was going to Citibank who gave NYU a kickback of .25% of each student loan made while Lew was at NYU when the school made Citibank its preferred lender? As investment managers, we are also relieved that Mr. Lew’s ascension might mark the end of Washington’s banker – bashing having been the Chief Operating Officer of Citigroup’s Mortgage investment division when it melted down. Mr. Lew will understand that failure happens in finance and it’s not usually a crime. Wall Street Journal 2/28/13 p. A-14 & Wall Street Journal 2/14/13 p. A-18. US Population Stagnates Except for North Dakota, which saw an increase, the US population gained .75% last year, near historic lows. On the other hand, the oil boom in North Dakota has sparked a people boom that has made the state the fastest growing state since 2011, 2.2% or three times the national rate. Two states, Rhode Island and Vermont, lost population, largely because young people are leaving and few immigrants arrive. Maine and West Virginia are aging so rapidly that deaths now outnumber births. Florida moved into the gains column after several years of seeing more people leaving than moving in. States with strong diversified economies such as North Carolina and Colorado are showing new strength and Texas gained the most number of people, 472,000. Northeastern and Midwestern states where population losses continue to grow include: Illinois, Ohio, New York, Michigan, Missouri, and Indiana. Georgia replaced Michigan as the 8th largest state and Arizona moved past Indiana into 15th. Nebraska moved past West Virginia for 37th. Asbury Park Press 12/21/12 p. A-20. It is our opinion that the consequences of the aging of our population, the reduced birth rate, and the reduced flow of immigrants, will combine to cause national financial hardship as well as create obstacles to maintaining rising investment portfolios. We also believe, if you are out of work, or know someone who is out of work, might think of relocating to states that are adding jobs and people. State Tax Reforms Washington may be a tax reform wasteland, but out in the states, the action is hot and heavy. Nine states including such fast growing places is Florida, Tennessee and Texas currently have no income tax, and the race is on to see which will be the tenth, and perhaps the 11th and 12th. Oklahoma and Kansas have lowered their income tax rates in the last two years with an aim toward elimination altogether. North Carolina’s newly elected governor has prioritized tax reform and wants to reduce the income tax. Mike Pence of Indiana has called for a 10% cut in the income tax rate. Susana Martinez of New Mexico has called for reducing the state corporate tax rate to 4.9% from 7.6%. The first Republican controlled legislature in Arkansas since Reconstruction is considering cutting its tax rates by 50%. Nebraska’s Governor Heineman wants to eliminate state income taxes and replace them with a broader sales tax as well as Louisiana’s Bobby Jindal who wants to do the same. This state reform trend is a rare bright spot in the current high tax era. It will further sharpen the contrast in economic policies with the union dominated high tax model of California, Illinois, New York, Massachusetts, Minnesota, and New Jersey. Wall Street Journal 1/30/13 p. A-112. Lefty Offends Lefties Did you ever wonder why most high-income tennis players live in Nevada, Florida, or Texas? Golfers and ball players, too? Each of these states does not have an income tax. So when California golfer, Phil “Lefty” Mikelson said he will no longer publicly criticize the government for taking most of his paycheck and that the new tax burdens of Californians might drive him out of the state, out of professional golf and even out of the country” we know what he meant. Even if California’s politicians were aghast at his comments after they raised the top tax rate to 13.3%. We also know what he meant when he said “there are going to be some drastic changes for me because I happen to be in the zone that has been targeted both federally and by the state, and it doesn’t work for me right now.” “So I’m going to have to make some changes.” Wall Street Journal 1/23/13 p. A-14. As always, if you have any questions about these or any other matters, do not hesitate to call us.