(Original Post)
By Steve Wamhoff
President Obama has called on Congress to reform the corporate income tax by eliminating loopholes and tax shelters. This could end the abuses that allow many profitable corporations to pay little or nothing in taxes, and it could save a great deal of money.
Unfortunately, President Obama also proposes to use all the money that would be saved to pay for a tax break — a reduction in the corporate tax rate.
Here's a better idea: Use corporate tax reform to take a big bite out of our nation's long-term budget deficit.
Most editorials are accompanied by an opposing view — a unique USA TODAY feature that allows readers to reach conclusions based on both sides of an argument rather than just the Editorial Board's point of view.
Almost everyone agrees that once we get past the current deep recession, our economic future requires slashing the frightening long-term imbalance between federal spending and revenues. Revenue-raising corporate tax reform can play a major role in achieving that goal. But that's not all it can do.
Corporate tax reform can also improve economic growth. For example, curbing tax subsidies that encourage the export of American jobs will make hiring Americans more attractive. Getting rid of loopholes that distort corporate investment decisions right here in the USA will make our economy more productive.
Corporate leaders say a low corporate tax rate will make America competitive. They're wrong. The evidence shows that our competitiveness depends on sound infrastructure, education and other public investments that are not possible if corporations that benefit from them don't pay enough in taxes.
Despite what some members of Congress might think, closing corporate loopholes and thereby raising taxes on corporations isn't some kind of socialist plot. After all, President Reagan, a conservative icon, did the very same thing. In the 1980s, when corporate tax loopholes were out of control (as they are again today), Reagan signed into law a major tax reform closing so many loopholes that it raised taxes on corporations overall by a third, even while it reduced the corporate tax rate.
President Obama is right that we need to eliminate corporate tax loopholes. But we also need more revenue to address our long-term budget crisis. Done right, corporate tax reform can achieve both these goals.
Steve Wamhoff is the legislative director for Citizens for Tax Justice, a public interest research and advocacy organization focusing on tax policies and their impact on ordinary Americans.
March 2011 Archives
(Original post)
By Jennifer Rubin
Milton Friedman once said, “I favor tax reductions under any circumstances, for any excuse, for any reason, at any time.” But there is another adage: Timing is everything in life.
Last week, well below the national media radar already jammed with coverage of Libya, Bahrain, Yemen, Egypt, and Rep. Michele Bachmann (R-Minn.) and other 2012 presidential contenders, the issue of tax repatriation popped up. Under current tax law, U.S. multinationals are not taxed on revenue earned overseas; however, if and when those monies are returned to the United States, those corporations are taxed. In 2004 Congress passed a “tax holiday” allowing multinationals to return overseas earnings at a very low tax rate of 5.25 percent. Now a group of large corporations under the banner of WinAmerica is reviving the idea.
WinAmerica, which includes a wide array of firms such as Apple, Broadcom, Cisco, Duke Energy, Google, Kodak, Microsoft, Pfizer and Qualcomm, is rolling out a campaign to win over the public and Congress. The group has been hitting the conservative press with prominent tax cutters to make the case that allowing corporations to bring that revenue home would, as economist Douglas Holtz-Eakin argued, make the United States “a better location for headquarters and benefit from the ability of companies to move trillions of dollars from offshore investments to domestic expansion. If even a single dollar of investment moves into the U.S., our economy benefits.” WinAmerica is rounding up bipartisan support, getting a favorable nod from House Majority Leader Rep. Eric Cantor (R-Va.).The National Journal reported that others may be signing on: “In addition to Cantor, supporters include Sen. Barbara Boxer, D-Calif., who championed the 2004 tax holiday; Rep. Brian Bilbray, R-Calif., who introduced a repatriation bill; and Rep. Kevin Brady, R-Texas, who is currently ‘finalizing the language’ on a bill, according to a spokesman.”
But is this a good idea? Consider the politics first. The WinAmerica corporations have correctly figured out that comprehensive tax reform is unlikely to pass before 2012, so they figure they might take a shot at this single item. However, that, I think, is horridly misguided. Michael Mundaca, assistant Treasury secretary for tax policy, already took to his blog to shoot down the idea. And the idea of giving the largest corporations a break on their overseas earnings at a time the White House is decrying companies that “export jobs” is likely a complete non-starter. In the context of overall tax reform, territoriality might be one item to obtain or trade off for other items, but on its own it sticks out like sore thumb, and a grab by Big Business.
What about the merits? Conservatives shouldn’t fall for the crass populism of the left that opposes any tax reductions for employers. (How’s this for a low-brow appeal? “Treasury Department thinks multinationals should have to pay taxes.”) Still, conservatives, as they increasingly must do, should consider whether what is good for Big Business is really good for the conservative movement and for the country.
From a conservative perspective there are good reasons to oppose the repatriation measure. For starters, it would once again put the government in the position of picking some players (Kodak, for example) over others who don’t have foreign holdings. Supporters say, sure they’d like to lower the corporate rate for all companies, but in the meantime let’s do this. Well, not so fast. Once the break is given, the bidding on the corporate tax rate begins at a higher rate. Conservatives should stick to their philosophy of tax reform: the lowest possible rate, with the broadest possible base. The National Journal piece relates this argument:
Philip Swagel, a former assistant Treasury secretary for economic policy in the George W. Bush administration, said the holiday was a gimmick rather than a policy.
“Global competitiveness [in the tax code] will boost U.S. job creation, but one-off is not the way to do tax policy,” said Swagel, now a professor at the University of Maryland. “Think about what’s good policy and do that, don’t just do this one-off.”
Moreover, the risk is that by raising the issue conservatives will only stir up a hornet’s nest. Sure enough liberals are now demanding that all worldwide earnings be taxed.. The Hill reported:
A liberal group is proposing that the United States alter its policy toward overseas profits held by corporations — but not in the way some businesses are pushing for.
In a paper released Wednesday, Citizens for Tax Justice, a group with significant union ties, said America should drop its policy of allowing corporations to defer paying taxes on offshore profits until they attempt to bring that revenue back stateside.
Given the populist furor these days, I tend to think Big Business would come out on the losing side of “tax everything overseas vs. don’t tax overseas profits brought home.”
And finally, there is a matter of incentives. Proponents of repatriation argue that multinationals are at a competitive disadvantage with regard to foreign companies that aren’t taxed on their overseas earnings. True, but the root of the problem — and especially one for mid-sized, purely domestic companies — is that the U.S. corporate tax rate is too high as compared to other countries. And let’s be honest here: The measure would, you can’t escape it, make it cheaper to generate revenue overseas than at home.
Obama accepted conservatives’ arguments on keeping the Bush tax cuts for individuals (i.e. keeping marginal tax rates low); the same argument should be made on corporate tax rates. Our economy is still in a ditch, and we should be enacting broad, fair tax relief for investors, employers and individuals. Conservatives should keep their eye on the ball: comprehensive tax reform and simplification that would lower rates for everyone.
The lesson here is one conservatives should take to heart: Large corporations are willing to settle for higher tax rates in exchange for breaks like a repatriation tax holiday. The sophisticated multinationals are happy to leave smaller competitors with a higher tax bill. When we do get around to tax reform, conservatives should keep that in mind.
(Original Post)
By DAVID KOCIENIEWSKI
General Electric, the nation’s largest corporation, had a very good year in 2010.
The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.
Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.
That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.
Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
While General Electric is one of the most skilled at reducing its tax burden, many other companies have become better at this as well. Although the top corporate tax rate in the United States is 35 percent, one of the highest in the world, companies have been increasingly using a maze of shelters, tax credits and subsidies to pay far less.
In a regulatory filing just a week before the Japanese disaster put a spotlight on the company’s nuclear reactor business, G.E. reported that its tax burden was 7.4 percent of its American profits, about a third of the average reported by other American multinationals. Even those figures are overstated, because they include taxes that will be paid only if the company brings its overseas profits back to the United States. With those profits still offshore, G.E. is effectively getting money back.
Such strategies, as well as changes in tax laws that encouraged some businesses and professionals to file as individuals, have pushed down the corporate share of the nation’s tax receipts — from 30 percent of all federal revenue in the mid-1950s to 6.6 percent in 2009.
Yet many companies say the current level is so high it hobbles them in competing with foreign rivals. Even as the government faces a mounting budget deficit, the talk in Washington is about lower rates. President Obama has said he is considering an overhaul of the corporate tax system, with an eye to lowering the top rate, ending some tax subsidies and loopholes and generating the same amount of revenue. He has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.
“He understands what it takes for America to compete in the global economy,” Mr. Obama said of Mr. Immelt, on his appointment in January, after touring a G.E. factory in upstate New York that makes turbines and generators for sale around the world.
A review of company filings and Congressional records shows that one of the most striking advantages of General Electric is its ability to lobby for, win and take advantage of tax breaks.
Over the last decade, G.E. has spent tens of millions of dollars to push for changes in tax law, from more generous depreciation schedules on jet engines to “green energy” credits for its wind turbines. But the most lucrative of these measures allows G.E. to operate a vast leasing and lending business abroad with profits that face little foreign taxes and no American taxes as long as the money remains overseas.
Company officials say that these measures are necessary for G.E. to compete against global rivals and that they are acting as responsible citizens. “G.E. is committed to acting with integrity in relation to our tax obligations,” said Anne Eisele, a spokeswoman. “We are committed to complying with tax rules and paying all legally obliged taxes. At the same time, we have a responsibility to our shareholders to legally minimize our costs.”
The assortment of tax breaks G.E. has won in Washington has provided a significant short-term gain for the company’s executives and shareholders. While the financial crisis led G.E. to post a loss in the United States in 2009, regulatory filings show that in the last five years, G.E. has accumulated $26 billion in American profits, and received a net tax benefit from the I.R.S. of $4.1 billion.
But critics say the use of so many shelters amounts to corporate welfare, allowing G.E. not just to avoid taxes on profitable overseas lending but also to amass tax credits and write-offs that can be used to reduce taxes on billions of dollars of profit from domestic manufacturing. They say that the assertive tax avoidance of multinationals like G.E. not only shortchanges the Treasury, but also harms the economy by discouraging investment and hiring in the United States.
“In a rational system, a corporation’s tax department would be there to make sure a company complied with the law,” said Len Burman, a former Treasury official who now is a scholar at the nonpartisan Tax Policy Center. “But in our system, there are corporations that view their tax departments as a profit center, and the effects on public policy can be negative.”
The shelters are so crucial to G.E.’s bottom line that when Congress threatened to let the most lucrative one expire in 2008, the company came out in full force. G.E. officials worked with dozens of financial companies to send letters to Congress and hired a bevy of outside lobbyists.
The head of its tax team, Mr. Samuels, met with Representative Charles B. Rangel, then chairman of the Ways and Means Committee, which would decide the fate of the tax break. As he sat with the committee’s staff members outside Mr. Rangel’s office, Mr. Samuels dropped to his knee and pretended to beg for the provision to be extended — a flourish made in jest, he said through a spokeswoman.
That day, Mr. Rangel reversed his opposition to the tax break, according to other Democrats on the committee.
The following month, Mr. Rangel and Mr. Immelt stood together at St. Nicholas Park in Harlem as G.E. announced that its foundation had awarded $30 million to New York City schools, including $11 million to benefit various schools in Mr. Rangel’s district. Joel I. Klein, then the schools chancellor, and Mayor Michael R. Bloomberg, who presided, said it was the largest gift ever to the city’s schools.
G.E. officials say the donation was granted solely on the merit of the project. “The foundation goes to great lengths to ensure grant decisions are not influenced by company government relations or lobbying priorities,” Ms. Eisele said.
Mr. Rangel, who was censured by Congress last year for soliciting donations from corporations and executives with business before his committee, said this month that the donation was unrelated to his official actions.
Defying Reagan’s Legacy
General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. Industrial, commercial and medical equipment like power plant turbines and jet engines account for about 50 percent. Its industrial work includes everything from wind farms to nuclear energy projects like the troubled plant in Japan, built in the 1970s.
Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.
As it has evolved, the company has used, and in some cases pioneered, aggressive strategies to lower its tax bill. In the mid-1980s, President Ronald Reagan overhauled the tax system after learning that G.E. — a company for which he had once worked as a commercial pitchman — was among dozens of corporations that had used accounting gamesmanship to avoid paying any taxes.
“I didn’t realize things had gotten that far out of line,” Mr. Reagan told the Treasury secretary, Donald T. Regan, according to Mr. Regan’s 1988 memoir. The president supported a change that closed loopholes and required G.E. to pay a far higher effective rate, up to 32.5 percent.
That pendulum began to swing back in the late 1990s. G.E. and other financial services firms won a change in tax law that would allow multinationals to avoid taxes on some kinds of banking and insurance income. The change meant that if G.E. financed the sale of a jet engine or generator in Ireland, for example, the company would no longer have to pay American tax on the interest income as long as the profits remained offshore.
Known as active financing, the tax break proved to be beneficial for investment banks, brokerage firms, auto and farm equipment companies, and lenders like GE Capital. This tax break allowed G.E. to avoid taxes on lending income from abroad, and permitted the company to amass tax credits, write-offs and depreciation. Those benefits are then used to offset taxes on its American manufacturing profits.
G.E. subsequently ramped up its lending business.
As the company expanded abroad, the portion of its profits booked in low-tax countries such as Ireland and Singapore grew far faster. From 1996 through 1998, its profits and revenue in the United States were in sync — 73 percent of the company’s total. Over the last three years, though, 46 percent of the company’s revenue was in the United States, but just 18 percent of its profits.
Martin A. Sullivan, a tax economist for the trade publication Tax Analysts, said that booking such a large percentage of its profits in low-tax countries has “allowed G.E. to bring its U.S. effective tax rate to rock-bottom levels.”
G.E. officials say the disparity between American revenue and American profit is the result of ordinary business factors, such as investment in overseas markets and heavy lending losses in the United States recently. The company also says the nation’s workers benefit when G.E. profits overseas.
“We believe that winning in markets outside the United States increases U.S. exports and jobs,” Mr. Samuels said through a spokeswoman. “If U.S. companies aren’t competitive outside of their home market, it will mean fewer, not more, jobs in the United States, as the business will go to a non-U.S. competitor.”
The company does not specify how much of its global tax savings derive from active financing, but called it “significant” in its annual report. Stock analysts estimate the tax benefit to G.E. to be hundreds of millions of dollars a year.
“Cracking down on offshore profit-shifting by financial companies like G.E. was one of the important achievements of President Reagan’s 1986 Tax Reform Act,” said Robert S. McIntyre, director of the liberal group Citizens for Tax Justice, who played a key role in those changes. “The fact that Congress was snookered into undermining that reform at the behest of companies like G.E. is an insult not just to Reagan, but to all the ordinary American taxpayers who have to foot the bill for G.E.’s rampant tax sheltering.”
A Full-Court Press
Minimizing taxes is so important at G.E. that Mr. Samuels has placed tax strategists in decision-making positions in many major manufacturing facilities and businesses around the globe. Mr. Samuels, a graduate of Vanderbilt University and the University of Chicago Law School, declined to be interviewed for this article. Company officials acknowledged that the tax department had expanded since he joined the company in 1988, and said it now had 975 employees.
At a tax symposium in 2007, a G.E. tax official said the department’s “mission statement” consisted of 19 rules and urged employees to divide their time evenly between ensuring compliance with the law and “looking to exploit opportunities to reduce tax.”
Transforming the most creative strategies of the tax team into law is another extensive operation. G.E. spends heavily on lobbying: more than $200 million over the last decade, according to the Center for Responsive Politics. Records filed with election officials show a significant portion of that money was devoted to tax legislation. G.E. has even turned setbacks into successes with Congressional help. After the World Trade Organization forced the United States to halt $5 billion a year in export subsidies to G.E. and other manufacturers, the company’s lawyers and lobbyists became deeply involved in rewriting a portion of the corporate tax code, according to news reports after the 2002 decision and a Congressional staff member.
By the time the measure — the American Jobs Creation Act — was signed into law by President George W. Bush in 2004, it contained more than $13 billion a year in tax breaks for corporations, many very beneficial to G.E. One provision allowed companies to defer taxes on overseas profits from leasing planes to airlines. It was so generous — and so tailored to G.E. and a handful of other companies — that staff members on the House Ways and Means Committee publicly complained that G.E. would reap “an overwhelming percentage” of the estimated $100 million in annual tax savings.
According to its 2007 regulatory filing, the company saved more than $1 billion in American taxes because of that law in the three years after it was enacted.
By 2008, however, concern over the growing cost of overseas tax loopholes put G.E. and other corporations on the defensive. With Democrats in control of both houses of Congress, momentum was building to let the active financing exception expire. Mr. Rangel of the Ways and Means Committee indicated that he favored letting it end and directing the new revenue — an estimated $4 billion a year — to other priorities.
G.E. pushed back. In addition to the $18 million allocated to its in-house lobbying department, the company spent more than $3 million in 2008 on lobbying firms assigned to the task.
Mr. Rangel dropped his opposition to the tax break. Representative Joseph Crowley, Democrat of New York, said he had helped sway Mr. Rangel by arguing that the tax break would help Citigroup, a major employer in Mr. Crowley’s district.
G.E. officials say that neither Mr. Samuels nor any lobbyists working on behalf of the company discussed the possibility of a charitable donation with Mr. Rangel. The only contact was made in late 2007, a company spokesman said, when Mr. Immelt called to inform Mr. Rangel that the foundation was giving money to schools in his district.
But in 2008, when Mr. Rangel was criticized for using Congressional stationery to solicit donations for a City College of New York school being built in his honor, Mr. Rangel said he had appealed to G.E. executives to make the $30 million donation to New York City schools.
G.E. had nothing to do with the City College project, he said at a July 2008 news conference in Washington. “And I didn’t send them any letter,” Mr. Rangel said, adding that he “leaned on them to help us out in the city of New York as they have throughout the country. But my point there was that I do know that the C.E.O. there is connected with the foundation.”
In an interview this month, Mr. Rangel offered a different version of events — saying he didn’t remember ever discussing it with Mr. Immelt and was unaware of the foundation’s donation until the mayor’s office called him in June, before the announcement and after Mr. Rangel had dropped his opposition to the tax break.
Asked to explain the discrepancies between his accounts, Mr. Rangel replied, “I have no idea.”
Value to Americans?
While G.E.’s declining tax rates have bolstered profits and helped the company continue paying dividends to shareholders during the economic downturn, some tax experts question what taxpayers are getting in return. Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment. In that time, G.E.’s accumulated offshore profits have risen to $92 billion from $15 billion.
“That G.E. can almost set its own tax rate shows how very much we need reform,” said Representative Lloyd Doggett, Democrat of Texas, who has proposed closing many corporate tax shelters. “Our tax system should encourage job creation and investment in America and end these tax incentives for exporting jobs and dodging responsibility for the cost of securing our country.”
As the Obama administration and leaders in Congress consider proposals to revamp the corporate tax code, G.E. is well prepared to defend its interests. The company spent $4.1 million on outside lobbyists last year, including four boutique firms that specialize in tax policy.
“We are a diverse company, so there are a lot of issues that the government considers, that Congress considers, that affect our shareholders,” said Gary Sheffer, a G.E. spokesman. “So we want to be sure our voice is heard.”
(Original Post)
Saturday, 19 March 2011 19:03
Written by Christopher Moraff Tribune Correspondent
In just under a month, those Americans who haven’t already done so will undertake one of those two tasks (death being the other) that popular culture tells us are unavoidable: We’ll pay our taxes.
For many, it’s an endeavor filled with silent scorn, made only slightly easier by the knowledge that everyone else is paying too.
If only.
For years, analysis has shown that some of America’s largest companies exploit the Tax Code to avoid paying their fair share of taxes. The most recent government data, a GAO report from 2008, found that roughly a quarter of the largest U.S. companies reported zero tax liability in 2005.
A more recent analysis, conducted for The New York Times by research firm Capital IQ, determined that of the 500 companies on the Standard & Poor’s stock index, 115 paid a tax rate of less than 20 percent for the past five years, well below the 35 percent proscribed by tax law.
But that’s nothing compared to companies like Boeing, which actually received a tax rebate totaling $75 million over the years 2008-2010 (on profits of $9.7 billion), or General Electric, which, according to Robert McIntyre — director of the nonprofit group Citizens for Tax Justice — had an effective tax rate of negative 15.8 percent from 2006 through 2010. (Forbes has noted that GE has “displayed an uncanny ability to lose lots of money in the U.S. and make lots of money overseas, where tax rates are lower.”)
Suffice to say, such figures have made some people mad as hell.
Indeed, last fall, after the British government announced cuts to the public sector, a small, spontaneous grassroots group blossomed in London into a national protest movement against corporations that don’t pay their taxes.
Initially the group, known as UK Uncut, went after Vodafone — which reportedly owes the UK billions of pounds in unpaid taxes — staging sit-ins at retail locations.
In February the movement jumped the Atlantic and, as US Uncut, has been targeting a handful of companies including Bank of America — which received a $1.9 billion tax benefit in 2009 — FedEx and Verizon.
The new climate of protest is no surprise to tax reform advocates like Seth Hanlon, director of fiscal reform for the progressive Center for American Progress.
“I think people are starting to focus more on these issues because conservatives in Congress are proposing to decimate some of the most important federal programs — Pell Grants, low-income housing programs, nutrition assistance, just to name a few — on the basis that we can’t afford them. But they have left corporate tax breaks entirely off the table,” said Hanlon.
Carl Gibson, a spokesperson for US Uncut, says that the group’s message has been “magnetic,” drawing consensus from activists on the right and the left. In fact, thanks largely to its use of social media, the group now has chapters in a number of U.S. cities and is expanding in Europe.
“It doesn’t seem right that those with the most pay the least and those with the least pay the most [in taxes],” he said. “We just want companies to pay their fair share.”
US Uncut’s most recent (and first) nationwide action, on Feb. 26, drew roughly 2,000 people; in Philadelphia, about 30 people gathered outside of Comcast’s headquarters to protest the state tax break the company received for building its massive headquarters in Center City. US Uncut is gearing up for another national event, on March 26, with actions planned in 28 cities.
Gaming the System
Corporations use an amalgam of technically legal ways to lower or eliminate their federal tax bill, but most fall into two main categories: legitimate writeoffs used legitimately, like tax benefits for research and development; and legitimate writeoffs used illegitimately, such as using creative accounting to funnel profits into foreign subsidiaries in low tax countries.
Rebecca Wilkins, a senior counsel of federal tax policy at Citizens for Tax Justice, says that corporate America has pushed tax avoidance schemes to the “brink of illegality.”
“They’ve gotten incredibly creative at it and have many highly paid consultants helping them do it,” Wilkins said.
Among the more egregious techniques companies use to game the system is “transfer pricing,” which involves the fees subsidiaries of a corporation charge each other for intercompany exchanges. Firms abuse transfer pricing by shifting costly assets from places like the United States to low or no-tax jurisdictions, like Luxembourg or the Bahamas. Intangible assets like patents and trademarks are especially attractive for income-shifting schemes since their value is arbitrary and therefore more open to distortion.
For example, a pharmaceutical company might transfer a drug patent to an overseas subsidiary in a low-tax jurisdiction (Ireland is a current favorite). The company then charges its U.S. divisions, which account for the bulk of distribution, a hefty licensing fee for use of the patent. Thus, income is shifted to the patent-holding subsidiary, while the U.S. subsidiary records a loss.
Of the 100 largest U.S. corporations, 83 have subsidiaries in low-tax countries, according to the President.
Loophole Heaven
While there is certainly a fair amount of funny business that goes on in corporate accounting departments, much of the problem with tax avoidance can be traced to America’s notoriously complex corporate tax code, which presents innumerable opportunities for completely above-board accounting shenanigans.
“Our tax code is a monumental collection of rules and regulations, riddled with loopholes and preferences …,” House Minority Whip Steny Hoyer said last week. “Many of those loopholes –or tax expenditures, as they’re also called– are popular with special interests. But they exact a high price from the rest of us.”
The U.S. Tax Code has grown from 400 pages in 1913, to over 70,000 pages today; over the years hundreds of exemptions have been added, some at the behest of industry lobbyists, others by lawmakers looking for a quick and easy way to court favor among their constituencies without the need to actually appropriate anything.
“[Expenditures] cost the U.S. Treasury the same as if it enacted some spending program to do the same thing,” explained Wilkins. “[But] they don’t get the same scrutiny that spending measures do; they don’t have to be appropriated every Congress, it’s easy to get them enacted and we think that’s a pretty bad way to use the Tax Code.”
There are hundreds of so-called expenditures for individuals and businesses under U.S. tax law. For corporations, one of the most expensive is a rule that defers taxes on profits made by U.S. businesses overseas until it is brought back to the U.S., a caveat that not only denies the U.S. Treasury revenue that it is rightfully due, but creates an incentive for companies to invest their money outside the country. Industry estimates put the total earnings affected by the rule at $1 trillion.
The number of industry-specific exemptions — like those targeted at the oil industry (which gets $40 billion in annual subsidies) or at farmers — grew by 50 percent between 2004 and 2008, according to the conservative Tax Foundation.
“Business tax subsidies are simply an economically useless waste of resources,” said McIntyre. “That’s because companies don’t ask for subsidies that would force them to change their behavior. Why would they? Instead, they ask for subsidies to reward them for doing what they would do anyway.”
The Treasury Department’s official but incomplete estimate of the cost of tax subsidies for corporations, business owners and business investors in 2011 is $365 billion.
All of which is why, despite having among the highest corporate tax rates on paper, actual U.S. corporate income taxes now rank near the bottom among those of all developed countries. That doesn’t make sense to many people, and a movement is afoot in Washington to change the system.
Last May, a bill that would have chipped away at some of these tax loopholes passed in the House, only to collapse less than a month later in the Senate under the weight of a GOP filibuster. Known as The American Jobs and Closing Tax Loopholes Act of 2010, it would have eliminated $14 billion of foreign tax credit loopholes, its drafters said. Some provisions of the bill (minus the tax reforms) eventually found life as the Unemployment Compensation Extension Act of 2010, which was signed into law in July 2010.
Recently the Obama administration has signaled that it is ready to take a leadership role on tax reform.
“It makes no sense, and it has to change,” President Obama said in his State of the Union address. “Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years — without adding to our deficit. It can be done.”
A proposal from the President’s Fiscal Commission to lower the corporate tax rate to 23 percent and eliminate loopholes has gotten early support from both Democrats and Republicans.
The plan mirrors President Ronald Reagan’s successful reform efforts of the 1980s, which increased corporate tax revenues by 34 percent despite also lowering the rate by eliminating some industry specific tax breaks, leasing tax shelters and offshore corporate profit shifting.
However, the changes brought about by Regan’s plan were short lived, and many of the same expenditures were reinserted during the Clinton and Bush years.
Contacted for comment, Liz Ferry, a spokesperson for the Greater Philadelphia Chamber of Commerce, said the group hasn’t taken a position on the administration’s proposal; but Nicole Giles, who heads the African American Chamber of Commerce — which represents 466 members that do business in the Philadelphia area – thinks it’s time for reform.
“If you simplify the tax code and, in doing so, close some of the loopholes, then we are actually generating more income from tax revenues than has been the case with a higher tax rate, so that’s something we would support,” Giles said. “It’s really about generating more revenues by not allowing people to escape their tax liability … that’s something that affects the entire business community as well as the community at-large due to the lack of funding support for key services.”
(Original Post)
By Lynn Sweet on March 16, 2011 9:25 AM | No Comments
The most popular way to reduce the deficit, according to 81% of Americans? Put a surtax on federal income taxes for those who make more than $1 million per year.
-- NBC/Wall St. Journal Poll, March 2, 2011
WASHINGTON, DC (March 16, 2011) - Today Rep. Jan Schakowsky (D-IL), member of President Obama's 18-member Fiscal Commission, introduced the Fairness in Taxation Act, which would create new tax brackets for millionaires and billionaires. Original co-sponsors include co-chairs of the Congressional Progressive Caucus, Rep. Raul Grijalva (D-AZ) and Rep. Keith Ellison (D-MN), as well as Rep. Jesse Jackson, Jr. (D-IL), Rep. Donna Edwards (D-MD), Rep. Bob Filner (D-CA), Rep. Jerry Nadler (D-NY), Rep. Steve Cohen (D-TN), Rep. John Yarmuth (D-KY), and Rep. Peter DeFazio (D-OR).
Income inequality in America is the worst we've seen it since 1928. Wages have stagnated for middle and lower income families despite enormous gains in productivity. Where has all the money gone?
"In the United States today, the richest 1% owns 34 % of our nation's wealth - that's more than the entire bottom 90%, who own just 29% of the country's wealth," said Rep. Schakowsky. "And the top one-hundredth of 1% now makes an average of $27 million per household per year. The average income for the bottom 90% of Americans? $31,244. It's time for millionaires and billionaires to pay their fair share, which is why I introduced the Fairness in Taxation Act. This isn't about punishment or revenge. It's about fairness. It's about avoiding budget cuts that harm middle class families and those who aspire to it. We can choose to cut education, job creation and health care, or we can choose to ask those who can contribute more to do so."
The current top tax bracket begins at $373,000 in income and fails to distinguish between the "well off" and billionaires - like the top 20 hedge fund managers whose average income last year was over $1 billion.
The Fairness in Taxation Act asks enacts new tax brackets for income starting at $1 million and ends with a $1 billion bracket. The new brackets would be:
* $1-10 million: 45%
* $10-20 million: 46%
* $20-100 million: 47%
* $100 million to $1 billion: 48%
* $1 billion and over: 49%
The bill would also tax capital gains and dividend income as ordinary income for those taxpayers with income over $1 million. If enacted in 2011, the Fairness in Taxation Act would raise more than $78 billion.
Support for Schakowsky's Fairness in Taxation Act:
"I think very wealthy people like me should pay substantially higher taxes, since we have done exceedingly well in the last few decades," said Katharine Myers, a millionaire from Pennsylvania whose income comes from royalties from the Myers-Briggs personality test, created by her mother-in-law, which she has managed with Peter Myers since the 1980s. "Our taxpayer-funded government contributed to my success." Myers has been a supporter of United for a Fair Economy and its Responsible Wealth project for many years.
"It's time we treated multi-millionaires the same way we treat working families - by creating a tax bracket to match their income," said Rep. Raúl M. Grijalva (D-AZ), co-chair of the Congressional Progressive Caucus. "There's no reason to treat the wealthiest one percent of the country any more specially than anyone else, and right now that's exactly what our tax system is doing. The Republican war on working families means cutting from the middle and handing the savings to the top. Instead, let's have everyone pay their fair share to create jobs and get the economy moving again."
"Millionaires and billionaires should be giving to charity not getting it," said Rep. Keith Ellison (D-MN), co-chair of the Congressional Progressive Caucus. "The middle class is shrinking and deficits are rising because Republicans are giving a pass to special interests who aren't paying their fair share. This bill is part of a plan to level the playing field."
"A tax system where families earning several thousand dollars are taxed at the same rate as millionaires is unfair, and unsustainable," said Rep. Donna Edwards (D-MD). "The Fairness in Taxation Act is a common sense solution to eliminating this inequality and balancing the federal budget. At a time when House Republicans are demanding that working families, teachers, and firefighters bear the burden of reducing the deficit, millionaires should be required to contribute their fair share."
Groups that have endorsed Schakowsky's Fairness in Taxation Act:
United for a Fair Economy, Citizens for Tax Justice, Citizen Action Illinois, U.S. Action, Campaign for America's Future, Wealth for the Common Good, and The Agenda Project.
Congresswoman Schakowsky has shown that there is another way," said Steve Wamhoff, tax expert from Citizens for Tax Justice. "Her proposal would make the federal income tax more progressive by introducing higher rates for taxpayers with income in excess of $1 million. Millionaires have benefited disproportionately from the tax cuts enacted over the past decade, so it seems entirely reasonable that they share in the sacrifices needed to get our fiscal house in order."
"The budget cuts being debated in Washington shamefully require middle class families to pay the price for the recklessness of the Wall Street bankers and hedge fund managers who broke our economy," said Brian Miller, Executive Director of United for a Fair Economy. "Instead of punishing middle class families and de-funding America, the Fairness in Taxation Act asks those who have benefitted so heavily from the economic bounce of Wall Street to share responsibility for getting our nation's finances on track."
"Any sensible program for deficit reduction must begin with changing the massive tax cuts for the very wealthy," said Roger Hickey, co-director of the Campaign for America's Future. "Those tax give-aways were a major cause of our current deficit. In an era of excessive inequality we should end Bush era tax cuts for the wealthiest Americans. We need progressive revenues not just to bring down deficits, but also to finance investments in job and sustainable growth. The introduction of the Fairness in Taxation Act is an important step that will be popular with the American people."
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(PDF version)
By Robert S. Mcintyre | Citizens for Tax Justice
In the late fall of 1995, a budget deadlock between a beleaguered Democratic president and a new Republican majority in Congress aggressively seeking deep program cuts resulted in a government shutdown that closed national parks and alienated taxpayers. It was a confrontation from which President Bill Clinton emerged as the clear winner in the public's eyes.
Now comes former House Speaker Newt Gingrich, the much-criticized GOP leader at the time, to try to rewrite history. In a Feb. 27 article in the Washington Post, Gingrich argues (a) that Republicans did not cause the government shutdown and (b) that the shutdown was a brilliant tactical move by Republicans. The shutdown, he says, led inexorably to the 1997 "Balanced Budget Act," which he claims produced the federal budget surpluses we enjoyed from fiscal 1998 to 2001.
Gingrich's insistence that he deserves none of the blame, but all of the (supposed) credit for the 1995 government shutdown is humorous, and I thank him for the laugh. Not so funny is Gingrich's cockamamie theory that the so-called 1997 "Balanced Budget Act" and its companion bill, the "Taxpayer Relief Act," led to the budget surpluses that began in 1998.
Gingrich's argument comes down to this: In August 1997, Congress passed a bill called the "Balanced Budget Act," which promised to balance the federal budget five years later, in fiscal 2002. Soon after the bill was signed, the budget was balanced. Therefore, the balanced budget act balanced the budget. But that's demonstrably false.
In fact, the budget surpluses that we enjoyed from 1998 to 2001 had nothing to do with the balanced budget act. Instead, the surpluses stemmed from a dramatic surge in federal revenues, mainly personal income taxes. Here's what really happened.
In 1993, Bill Clinton undid some of the Reagan tax cuts for the wealthy, in a bill that every Republican in Congress opposed. In the years that followed, federal revenues shot up. By 1996, the deficit had fallen by more than half from its 1993 level. But cautious official congressional prognosticators thought that this happy trend was unlikely to continue.
So, in January of 1997, the Congressional Budget Office predicted a budget deficit of $124 billion in the fiscal year that ran from October 1996 to September 1997, with little relief thereafter. That was the deficit situation that Congress thought it faced when it enacted the Balanced Budget Act in August 1997.
But CBO's crystal ball was faulty. Because the economy and tax revenues continued to grow rapidly, the actual fiscal 1997 deficit turned out to be a mere $22 billion. Of course, that virtually balanced 1997 budget had no connection to the budget act, which wasn't enacted until the fiscal year was almost over.
In 1998 tax revenues continued to soar, coming in at $162 billion more than CBO had projected back at the start of 1997. That was enough to produce a $64 billion budget surplus. Again, this had nothing to do with the '97 budget act, which, because of its tax cuts, actually reduced the 1998 surplus slightly. (Yes, odd as it may sound, the "balanced budget" act started off by digging an even deeper budget hole, with a capital gains tax cut for the rich and other expensive tax cuts that overall were expected to cost $292 billion over 10 years!)
In 1999 and 2000, tax revenues and surpluses continued to grow at a rapid pace. That was due not just to a still vibrant economy, but also to an extra revenue bonus: Clinton's 1993 increase in tax rates on high earners applied to a new wave of taxable income from corporate executives cashing in their lucrative stock options (which are taxed as wages). In fiscal 2000, the surplus peaked at $237 billion, and it remained a robust $128 billion in fiscal 2001 (Clinton's last budget year).
All of these surpluses would have occurred if the Balanced Budget Act had never been enacted. But did the act at least play a role in making the 1998-2001 surpluses bigger? Not really. Starting in 1999, the act's tax cuts made the surpluses noticeably smaller, while the plan's biggest program cuts weren't scheduled to take effect until fiscal 2002, and in any event largely failed to materialize at all. For example, in 2002, the bill called for cutting discretionary spending by 10 percent; instead, it rose by 18 percent (or put another way, it was 31 percent higher than the '97 act had tried to mandate).
Sadly, after 2001, the Bush tax cuts and a sagging economy soon sent us back deeply in the red. Ironically, that abrupt turnaround from fiscal responsibility began in fiscal 2002, the precise year that Gingrich and his allies had promised to finally balance the budget.
Sorry, Newt. You never did.
ABOUT THE WRITER
Robert S. McIntyre directs Citizens for Tax Justice, 1616 P Street NW, Suite 200, Washington, D.C. 20036; website: www.ctj.org.
This essay is available to McClatchy-Tribune News Service subscribers. McClatchy-Tribune did not subsidize the writing of this column; the opinions are those of the writer and do not necessarily represent the views of McClatchy-Tribune or its editors.
© 2011, Citizens for Tax Justice
(Orignal Post)
Says taxes paid by the poorest residents of Texas are above the national average.
Paul Krugman on Monday, February 28th, 2011 in an op-ed column.
Paul Krugman says poorest 40 percent of Texans pay more in Texas than national average
True
New York Times columnist Paul Krugman sees Texas as a model for how things might be going wrong across the nation and in his latest blast, posted online Feb. 27, he pokes at the state’s reputedly low taxes.
Texas taxes "are low, at least if you’re in the upper part of the income distribution," Krugman writes. He adds, parenthetically, that "taxes on the bottom 40 percent of the population are actually above the national average."
It’s undisputed that the two major Texas state and local taxes--sales and property--impose a greater burden on low-income Texans. According to the Texas State Comptroller’s latest study of tax incidence, issued last month, Texas households earning $29,223 or less are expected to spend 6 percent of their income in general sales taxes and 5.3 percent of their income on school property taxes in 2013. The report says households earning more than $29,223 are likely to spend on average no more than 3.4 percent of their income on each of the two taxes.
The left-leaning Austin-based Center on Public Policy Priorities wrote in 2009: "Texas relies on the sales tax for more than half of all state tax revenue – a pattern typical of regressive tax systems. Since low- and moderate-income Texans tend to spend all of their income each year to support their families, the sales tax takes a much greater percentage of their income then it does from higher-income families, who can afford to save some of their income or spend it on services that are not subject to the sales tax."
Yet do the state’s poorest residents also pay higher taxes than the national average?
By e-mail, Krugman told us he based his statement on an analysis released Nov. 18, 2009 by the Institute on Taxation and Economic Policy, a research arm of Washington-based Citizens for Tax Justice, which says it advocates for fair taxation of middle- and low-income families.
The study says the 20 percent of Texas families earning less than $18,000 a year spend 12.2 percent of their income on state and local taxes, while the next-wealthiest 20 percent of families, earning $18,000 to $31,000, spend 10.2 percent of income on the taxes, which largely consist of sales and property taxes. Nationally, the poorest 20 percent and next-poorest 20 percent of families spend an average of 10.9 percent and 10 percent of income, respectively, on state and local taxes, the study says.
Conversely, the study says, the 60 percent of Texas families that earned $31,000 or more put less of their income into state and local taxes than the national average. Texas households in the top 20 percent of income, earning $89,000 or more, paid 5.8 percent of their income or less, while such households nationally paid 8.8 percent or less.
Texas is among 10 states with "particularly regressive" tax systems, the study says. One result is that low-income families "pay almost six times as much of their earnings in taxes as do the wealthy" and "middle-income families in these states pay up to three-and-a-half times as high a share of their income as the wealthiest families."
We reached Matt Gardner, the institute’s director. He said the study drew on data from the Internal Revenue Service, U.S. Bureau of Labor Statistics and the Census Bureau’s American Community Survey. He said it was methodologically improved from earlier attempts by the institute to gauge who bears the brunt of state and local taxes.
Next, we shared the methodological details that Gardner aired with Billy Hamilton, a former deputy state comptroller of Texas. Hamilton, who was involved in the state’s past studies of tax incidence, said: "It sounds like what they did is very logical."
Gardner said Krugman’s comparison accurately tracks the study. We noticed that the difference between what the second-poorest 20 percent of Texas households pays and the national average looks small; the Texans paid only .2 percent more. Based on a $30,000 annual income, that’s $60 more. Though measurable, "it’s not a huge difference," Gardner said.
Footnote: Krugman’s statement might not have applied to both subsets of lower-income Texans in the past. The institute’s previous studies, based on different methodologies and 1995 and 2002 tax payments, similarly showed the poorest 20 percent of Texans paying more than counterparts nationally. But the next-to-poorest 20 percent of Texans paid less of their incomes to state and local taxes than residents in the same income group nationally, Gardner said.
We rate Krugman’s statement True.
(Original Post)
By Ralph Nader (about the author)
The tumultuous managerial shakeup at National Public Radio headquarters for trivial verbal miscues once again has highlighted the ludicrous corporatist right-wing charge that public radio and public TV are replete with left-leaning or leftist programming.
Ludicrous, that is, unless this criticism's yardstick is the propaganda regularly exuded by the extreme right-wing Rush Limbaugh and Sean Hannity. These "capitalists" use the public's airwaves free-of-charge to make big money.
The truth is that the frightened executives at public TV and radio have long been more hospitable to interviews with right of center or extreme right-wing and corporatist talking heads than liberal or progressive guests.
PBS's Charlie Rose has had war-loving William Kristol on thirty-one times, Henry Kissinger fifty-five times, Richard Perle ten times, the global corporatist cheerleader, Tom Friedman seventy times. Compare that guest list with Rose's interviews of widely published left of center guests--Noam Chomsky two times, William Grieder two times, Jim Hightower two times, Charlie Peters two times, Lewis Lapham three times, Bob Herbert six times, Paul Krugman twenty-one times, Victor Navasky one time, Mark Green five times and Sy Hersh, once a frequent guest, has not been on since January 2005.
Dr. Sidney Wolfe, the widely-quoted super-accurate drug industry critic, who is often featured on the commercial TV network shows, has never been on Rose's show. Nor has the long-time head of Citizens for Tax Justice and widely respected progressive tax analyst, Robert McIntyre.
Far more corporate executives, not known for their leftist inclinations, appear on Rose's show than do leaders of environmental, consumer, labor and poverty organizations.
In case you are wondering, I've appeared four times, but not since August 2005, and not once on the hostile Terri Gross radio show.
The unabashed progressive Bill Moyer's Show is off the air and has not been replaced. No one can charge PBS's News Hour with Jim Lehrer with anything other than very straightforward news delivery, bland opinion exchanges and a troubling inclination to avoid much reporting that upsets the power structures in Congress, the White House, the Pentagon or Wall Street.
The longest running show on PBS was hard-line conservative William F. Buckley's show--Firing Line--which came on the air in 1966 and ended in 1999.
Sponsorship by large corporations, such as Coca Cola and AT&T, have abounded--a largesse not likely to be continued year after year for a leftist media organization.
None of this deters the Far Right that presently got a majority in the House of Representatives to defund the $422 million annual appropriation to the umbrella entity--Corporation for Public Broadcasting (CPB). About 15% of all revenues for all public broadcasting stations comes from this Congressional contribution.
Though he admits to liking National Public Radio, conservative columnist David Harsanyi, believes there is no "practical argument" left "in the defense of federal funding"in an era of nearly unlimited choices"."
Really? Do commercial radio stations give you much news between the Niagara of advertisements and music? Even the frenetic news, sports, traffic and weather flashes, garnished by ads, are either redundant or made up of soundbytes (apart from the merely 2 minutes of CBS radio news every half-hour). If you want serious news, features and interviews on the radio, you go to public radio or the few community and Pacifica radio stations.
Harsanyi continues: "Something, though, seems awfully wrong with continuing to force taxpayers who disagree with the mission--even if their perceptions are false--to keep giving"."
Public radio's popular Morning Edition and All Things Considered are the most listened to radio shows after Rush Limbaugh's, and any taxpayer can turn them off. Compare the relatively small public radio and TV budget allocations with the tens of billions of dollars each year--not counting the Wall Street bailout--in compelling taxpayers to subsidize, through hundreds of programs, greedy, mismanaged, corrupt or polluting corporations either directly in handouts, giveaways and guarantees or indirectly in tax escapes, bloated contracts and grants. Can the taxpayer turn them off?
Here is a solution that will avoid any need for Congressional contributions to CPB. The people own the public airwaves. They are the landlords. The commercial radio and TV stations are the tenants that pay nothing for their 24 hour use of this public property. You pay more for your auto license than the largest television station in New York pays the Federal Communications Commission for its broadcasting license--which is nothing. It has been that way since the 1927 and 1934 communication laws.
Why not charge these profitable businesses rent for use of the public airwaves and direct some of the ample proceeds to nonprofit public radio and public TV as well as an assortment of audience controlled TV and radio channels that could broadcast what is going on in our country locally, regionally, nationally and internationally? (See: Ralph Nader & Claire Riley, Oh, Say Can You See: A Broadcast Network for the Audience, 5 J.L. & POL. 1, [1988])
Now that would be a worthy program for public broadcasting. Get Limbaugh's and Hannity's companies off welfare. Want to guess what their listeners think about corporate welfare?
(Original Post)
Washington, D.C. (March 10, 2011)
By Michael Cohn
The Senate Budget Committee held hearings on the distribution and efficiency of spending in the Tax Code.
During Wednesday’s hearing, which was conducted while the Senate Finance Committee is convening a separate series of hearings on Tax Code reform, lawmakers heard testimony from three tax experts from a trio of think tanks and advocacy groups.
“The current state of the Tax Code is simply indefensible,” said Senate Budget Committee chairman Kent Conrad, D-N.D. “Our Tax Code is out of date and hurting U.S. competitiveness. It is hemorrhaging revenue to offshore tax havens and abusive tax shelters. The Tax Code is riddled with expiring provisions. This creates enormous uncertainty for citizens and businesses alike, making it very difficult for them to plan ahead. If we took steps to simplify and reform the Tax Code, we could reduce tax rates below where they are today. And tax reform would also allow us to raise more revenue to help address the very serious debt threat hanging over America.”
Robert Greenstein, president of the Center on Budget and Policy Priorities, described some of the recommendations of the bipartisan deficit commission on how to change the Tax Code to bring down the federal budget deficit, along with suggestions of some earlier panels. “As long as we continue to use the Tax Code as a vehicle for advancing social policy, we should take steps to ensure that the tax incentives provided through the code are efficient, effective, and fair,” he said. “And if we are going to step up to the plate and pursue deficit reduction, all parts of the budget—including the Tax Code—should be on the table and should contribute.”
Robert McIntyre, director of Citizens for Tax Justice, suggested that lawmakers stop providing tax giveaways for big business. “Today is the first day of Lent, and I’d like to suggest that members of Congress consider giving something up, not just until Easter, but perhaps until the federal budget is balanced (and even thereafter),” he said. “What I hope you’ll give up is your enthusiasm for providing subsidies to those who don’t need them, in particular, for business subsidies administered by what seems to have become Congress’s favorite agency, the Internal Revenue Service.” He added that “business subsidies are the biggest problem in the Tax Code today.”
Tax Foundation president Scott Hodge noted that over the past two decades, lawmakers have increasingly relied on the Tax Code for advancing “all manner of social and economic objectives, such as encouraging people to: buy hybrid vehicles, turn corn into gasoline, save more for retirement, purchase health insurance, buy a home, replace the home’s windows, adopt children, put them in daycare, take care of Grandma, buy bonds, spend more on research, purchase school supplies, go to college, invest in historic buildings, and the list goes on.”
“In too many respects, the IRS has become an extension of, or rather a substitute for, every other cabinet agency, from Energy and Education to HHS and HUD,” he added. “But perhaps the most troubling development in recent years is that the efforts of lawmakers to use the Tax Code to help low- and middle-income taxpayers have knocked millions of taxpayers off the tax rolls and turned the IRS into an extension of the welfare state.”
“Washington needs to call a truce to using the Tax Code for social or economic goals,” said Hodge.
(Original Post)
– Thu Mar 10, 6:19 pm ET
Florida lawmakers are protesting a proposed IRS rule that they claim will drive capital flight from U.S. banks — especially in the Sunshine State.
The entire Florida House delegation — 19 Republicans and 6 Democrats — sent a letter to the White House last week opposing a plan to change the reporting requirements for foreigners' deposits in U.S. banks. They claim the rule would oblige the IRS to report those deposits to foreigners' home countries.
That would likely spur foreigners to pull out of the U.S. A key reason why they bank here is to keep their money safe from crime and corruption at home as well as autocrats such as Venezuela's Hugo Chavez.
"Because of the privacy laws of the United States, nonresident aliens are estimated to have deposited over $3 trillion in U.S. fi nancial institutions," the lawmakers wrote in the March 2 letter. "During this time of economic concern, we urge that every effort be made to keep capital within the borders of the United States."
Sunshine State banks hold more than $60 billion in foreign deposits, at least 80% of which is from Latin America, the Florida Bankers Association said.
For some banks, they account for the bulk of deposits. Privately held BAC Florida Bank in Miami has $1.1 billion in capital and $800 million in deposits, 90% of which are foreign.
Florida's lawmakers cite a 2004 study by George Mason University's free market Mercatus Center regarding a similar IRS policy proposal. The center estimated that policy could result in $88 billion in deposits leaving U.S. financial institutions. This capital flight could impact the dollar negatively as well as scare off foreign investment,the study said.
"If we are going to start reporting these accounts back to third-world dictatorship countries, then people aren't going to want to put their money into our economy," said George Cecala, spokesman for Rep. Bill Posey, R-Fla. "Why would we want to discourage investment in this country?"
Fighting 'Tax Competition'
The IRS proposal is part of a broader global effort to fight "tax competition" i.e., people shifting their funds to nations with friendly tax and regulatory policies.
Foreign governments have long pressured the U.S. for this information, upset that so much of their citizens' cash is beyond their grasp. The U.S. in turn has forced UBS (NYSE:UBS - News) and other Swiss banks to disclose secret accounts held by Americans to reduce tax evasion.
A posting on the IRS website regarding the proposed regulation doesn't specifically mention turning over the information to depositors' home countries. It does cite "a growing global consensus regarding the importance of cooperative information exchange" as a rationale for the change.
Robert McIntyre, head of the liberal nonprofit Citizens for Tax Justice, says the U.S. needs the rule to help build an international consensus against tax evasion.
"We want other countries to tell us what our citizens are earning there and if we are going to get that kind of cooperation, then we need to cooperate with the other countries," he said.
It's a touchy subject, though. The IRS declined to comment.
The IRS does not tax the interest from these accounts because they aren't by U.S. citizens. The proposed change wouldn't alter this. The IRS would not get any extra tax revenue, just more data.
That loss of secrecy is what worries Florida Bankers Association President Alex Sanchez. He said that these depositors often don't trust their own governments.
"People have it here from Latin America for primarily two reasons: Number one, they are afraid of kidnappings," he said. "The second reason people have their money in the U.S. is the fact that they are afraid of financial or economic collapse (at home). "
(Original Post)
By John D. McKinnon
Do the rich get richer because of tax breaks?
Senate Budget Committee Chairman Kent Conrad thinks so. The North Dakota Democrat made a big pitch for getting rid of many tax deductions and credits at a hearing on Wednesday, saying they’re contributing to a wide disparity in income between the wealthy and not-so-wealthy.
Citing recent research by tax expert Martin Sullivan, Mr. Conrad said a resident of a typical Park Avenue building in New York – with average household income of $1.1 million – is paying taxes at an effective rate of about 15%. But the rate for janitors in the building hovers closer to 25%, Mr. Conrad said. “I don’t know how anybody can defend or justify that kind of tax burden,” Mr. Conrad said.
The discrepancy has been noted previously, for example by investor Warren Buffett, who often complains that his tax rate is lower than his secretary’s. The differential is largely due to the lower tax rates the government imposes on investment income, such as capital gains and dividends. Defenders of the policy say it promotes investment and thus economic efficiency to keep taxes low on capital.
But other tax breaks, such as the major itemized deductions for home interest and state and local taxes, also play a role, Mr. Conrad said, because they help the wealthy more. He’s part of a group of centrist senators that are hoping to shut down a lot of tax breaks as part of a broader deficit-reduction package. The effort also would lower overall tax rates.
Robert McIntyre, director of the left-leaning Citizens for Tax Justice, argued at the hearing that many major corporations also are paying less than they should, thanks to a variety of breaks. He contended, for example, that Exxon Mobil Corp. paid no federal income tax on its U.S. profits in 2009, and that General Electric Co.’s rate on its $26.3 billion in U.S. profits from 2006 to 2010 was “a negative 15.8%,” while its foreign tax rate on foreign profits was about 19.6%.
An Exxon Mobil spokeswoman disagreed, terming Mr. McIntyre’s characterization “completely false.” In a recent blog post, the company said its income tax expense related to 2009 activities was approximately $500 million.
A GE spokeswoman also disputed Mr. McIntyre’s testimony. “GE has not received a net income tax rebate from the U.S. for 2006-2010,” said spokeswoman Anne Eisele.
Arguments about companies’ actual tax rates are common, particularly given the hideous complexity of the U.S. system of taxing multinationals. Expect a lot more back-and-forth as the debate over reshaping the tax code develops.
Friday, Mar. 04, 2011
By Steven Gray
Washington is more divided than ever, but there's a surprising area in which lawmakers are finding a measure of consensus: corporate tax reform. Conservatives, unsurprisingly, support it, arguing that America's 35% corporate tax rate stymies investment. President Obama embraced reform, too, saying in his State of the Union address that America has "one of the highest corporate tax rates in the world." The President's debt commission has recommended adopting a single corporate tax rate as low as 23%.
In reality, few companies actually pay 35% of their profits to Uncle Sam, or even 23% for that matter. A series of generous corporate tax loopholes brings the effective rate for businesses down to barely a dime on every dollar earned, in some cases. Consider Boeing. Between 2008 and 2010, the company reported about $9.7 billion in pretax U.S. income. But the company received a rebate of $75 million, according to a new report from Citizens for Tax Justice, a Washington advocacy group. (See the top 10 tax dodgers.)
One of the hurdles to reform could be that a streamlined tax code, even at a lower stated rate, could mean a corporate tax increase, something most Republicans and companies would oppose. What's more, at a time when the public is increasingly budget-conscious, skeptics wonder how well proposing lowering corporate taxes will play with voters. "It's a no-brainer that you have to eliminate all those loopholes," says Vermont Senator Bernie Sanders, who caucuses with the Democrats. "But do I believe at the end of the day it has to be revenue-neutral? I don't. Corporations are making a huge profit and in some cases getting a refund. It's wrong."
Nonetheless, many agree that the current system for determining what corporations pay Uncle Sam is a confusing state of affairs. At a recent Congressional hearing on the subject, North Dakota Democratic Senator Kent Conrad, the chairman of the Senate Budget Committee, called the current tax code a "Chinese riddle" that only a "contortionist" could deal with. A streamlined tax code could boost government revenue and at the same time provide clarity for corporate executives, many of whom have cited uncertainty about government tax policy as one of the reasons they have been slow to hire after the recession. (See inside Big Business's push for tax breaks.)
Surprisingly, the biggest driver behind the corporate tax-reform debate is President Obama. Beyond the State of the Union mention, the Treasury Department is believed to be formulating corporate tax-reform proposals. White House officials, meanwhile, say promoting corporate tax reform will be one of the key areas of focus for GE CEO Jeffrey Immelt, who was recently appointed head of the President's Economic Recovery Advisory Board. Immelt is likely to find much support among other CEOs. Caterpillar's Doug Oberhelman, who joined President Obama at a December meeting of CEOs at Blair House, recently told Fox News that the current corporate tax code "puts us at a little bit of a disadvantage. It encourages us to park foreign earnings outside this country. Wouldn't it be nice to have that free flow of funds back here and put some of that to work in the U.S.?"
One of the most promising blueprints for reform could come from a bill co-sponsored by Senator Ron Wyden, the Oregon Democrat. Wyden's bill lowers the stated corporate tax rate to 24%. At the same time, Wyden's bill would end special tax breaks favoring certain business sectors and repeal a rule that allows companies to defer taxes on income earned abroad. The exception would be small businesses — roughly defined as outfits earning less than $1 million annually — which Wyden proposes be allowed to expense all equipment bought in a given year. (See where the jobs are in a struggling economy.)
The latest in a wave of hearings on corporate tax reform came Thursday, convened by Dave Camp, Republican Representative from Michigan and chair of the House Ways and Means Committee. There was the usual parade of small-business owners and tax experts. But few observers believe the hearings will amount to substantive action this year. Bob McIntyre, executive director of Citizens for Tax Justice, predicts corporate tax reform will likely be an issue during the upcoming presidential campaign cycle, as it was in 1984.
Wyden, though, says key fiscal scorekeepers, like the Tax Policy Center, have declared his bill to be "revenue neutral." The conservative Heritage Foundation even issued a report calling the bill "ambitious" and "excellent." So why now? Wyden frames the need for corporate tax reform as a job-creation bill. In the two years after the last significant tax reform became law in 1986, the U.S. created more than 6 million nonfarm jobs, Wyden says. During George W. Bush's two Administrations, just under 3 million jobs were added. (Comment on this story.)
"There are other reasons that went into job creation in the 1980s," Wyden says, but tax reform "was a significant factor." He says his reform would create 2 million jobs and pump more than $500 billion into the economy by 2015. Nevertheless, Wyden remains optimistic. "We're really getting traction, for a sense of urgency."