Illinois Launches 20% Privilege Tax at Financial Professionals

Perhaps a little more often lately, you come across pending legislation in which you can actually feel a politician stick his hand into your pocket and help himself to your wallet. Such a reaction is understandable after you read Illinois House Bill 3393, popularly called the “Illinois Privilege Tax” because it plans to charge investment professionals an extra 20% on their services rendered.

The specifics of the Illinois privilege tax contain the following provisions:

  • Partnerships and s-corporations that provide investment services would be subject to the tax.
  • The original bill stated that the privilege tax would be subject to repeal once the United States federal government removed the lower tax rate on carried interest, though the amended version contains no such expiration.
  • The test for whether a partnership or s-corporation is subject to the tax is whether it derives more than 40% of its income from “advising as to assets”, “managing or disposing of client assets”, “arranging financing or planning over public securities”, or “any any activity that supports the service of asset management.”
  • “Assets” are defined to mean real estate rental or ownership, publicly traded stocks, bonds issued from governments or any business, commodities, options, derivatives, or “any other financing that shares these characteristics.”
  • Partnerships and s-corporations are excluded from this bill if at least 80% of their income comes from the management of real estate.
  • This tax is in addition to all taxes that partnerships and s-corporations are already obligated to pay.
  • The original version stated that the law would not take effect until New York, New Jersey, and Connecticut all passed “substantially similar” legislation on financial professionals, but the amended version merely states that it will take effect on July 1, 2017 and there is no clause limiting when it takes effect or sets it for expiration.

The Illinois Privilege Tax aims to tax financial professionals at a rate of 20%. The definitions of the target audience is too overbroad and the tax hike is so extreme that it will need to a substantial counter-response from the business community if this legislation is enacted.

My takeaways:

#1. Specially targeted taxation generates a special kind of resentment. There is a reason why, when you visit a restaurant, the costs of your cheeseburger are not itemized. You don’t get charged $0.25 for ketchup, $.50 for a pickle, $0.25 for lettuce, $0.25 for tomato, and so on. That is the same reason why it is rare to see restaurants that charge $0.50 for a refill. Such targeting and nickeling and diming feels like extortion, even if the cumulative cost for the burger is the same as a place that just charges $10 regardless of your toppings.

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Wiping Out A Trust Fund Through Litigation

When you deal with trust fund administration, there is a lot that can go wrong. The typical pitfalls are usually related to the fact that the beneficiary of the trust is not the one who made the money that got submitted into the trust as principal, meaning there is no indication that the person receiving the money has the sophistication to adequately manage financial affairs.

The other pitfalls typically relate to traditional agency issues—the person who makes investment selection and distribution decisions for the trust fund (the trustee) is not the same person that is actually receiving the money (the beneficiary) so problems can arise from this disunity of self-interest. The self-interest for the trustee is to keep as much money in the trust fund as is permissible, as most banks and trust fund administrators charge a certain percentage of the assets each year.

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The Horrible Math Of Being A Corn Farmer

I do not think you can make it as a small farmer in the United States anymore. I find it very sad that I have reached this conclusion, as I am ideologically sympathetic to the argument that producing food from the land is on the short list of fantastic human achievement you can accomplish in life.

But the profit per acre just isn’t there anymore.

I was looking at the recent University of Iowa estimates for the costs per acre associated with corn, and I can’t but reminisce about the old quip often applied to newspaper investing “What’s the best way to make a small fortune in this industry? Start with a large fortune.”

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How Bill Gates Built His Net Worth: Four Lessons

As one of the founders of Microsoft, Bill Gates was able to build his net worth from $0 to $100 million while he was in his 20s and 30s. That is part of his brilliance that is difficult to replicate. But since then, his net worth has grown from $100 million to $85 billion over the past three decades, almost exclusively through investment in the publicly traded stock market. I want to share with you four of the lessons I learned when studying how Bill Gates grew his fortune, with a particular emphasis on the structures and philosophies he followed later in life.

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How Eminem Built His Net Worth: Four Lessons

I was recently studying the story of how Eminem built up his $400-$600 million net worth, and I was struck by how various efforts throughout his career led to vastly different financial results. The things that made Eminem rich aren’t necessarily the things that you would guess made him rich, and this is also something I suspect Eminem knows given his launch of “Shady Productions” and repeated insistence to own the equity from his efforts during the later stages of his career. I wanted to share with you four of the insights I gained from studying the economic side of Eminem’s life.

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