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April 22, 2011

by Paul Krugman

The claim that only rich people pay taxes is a zombie lie — something that keeps coming back no matter how many times it’s killed by evidence.

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Backers of a proposed cut argue it would make U.S. businesses more competitive. Yet corporations have been paying an increasingly smaller share of federal taxes over the past half century.

By Jim Puzzanghera, Los Angeles Times

April 19, 2011, 6:12 p.m.
Reporting from Washington—
U.S. corporations have enjoyed a two-year bull run on Wall Street. They are sitting on a record amount of cash and are back to paying bonuses that are the envy of executives around the world.

And the icing on the cake for many of them might be just around the corner: a tax cut that has bipartisan support in Congress.

As part of their budget plan passed last week, House Republicans want to cut the corporate tax rate to 25% from 35%. The Obama administration and many Democrats also are looking to slice the current rate, but not as much.

Supporters of the corporate tax cuts say they're needed to make U.S. companies more competitive with their foreign counterparts, and the administration and House Republicans say they want to offset rate cuts by eliminating unspecified loopholes and tax breaks.

Yet despite complaints that they fork over too much money to Washington, U.S. corporations have been paying an increasingly smaller share of federal taxes over the last half-century.

Nearly a third of all federal taxes came from corporations in 1952. Last year, they paid just 8.9%, according to government figures. Loopholes, credits and the ability to shelter earnings abroad have helped many of the country's biggest companies pay far less than the corporate tax rate set into U.S. law.

Take Hewlett-Packard Co., which reported $11 billion in pre-tax earnings in 2010. Its chief executive for most of the year, Mark Hurd, earned $24 million in salary and other compensation, and three other executives earned more than $9 million apiece.

The company said it paid $2.2 billion in income taxes — a rate of 20.2%, well below the 35% U.S. rate.

HP is hardly alone. Apple Inc.'s effective tax rate last year was 24%, Google Inc.'s was 21% and General Electric Co.'s was 7.4%, according to corporate filings.

"Something's wrong with the system," said Rep. Jim McDermott (D-Wash.), a leading Democrat on the tax-writing House Ways and Means Committee. "And everyone knows that."

Timothy E. Guertin, CEO of Varian Medical Systems Inc. in Palo Alto, said his company's effective tax rate in 2010 was 31% because Varian does most of its manufacturing of advanced medical equipment such as X-ray tubes and flat-panel imagers in the U.S.

"I haven't manipulated the system quite as much as some people have," Guertin said. "When I look at the tax rates of certain companies, it's very clear to me they have tax rates we don't have. In my view, you want a … fairer playing field than what we have today."

Business groups said that will happen if the government eliminates some of the dozens of tax breaks and uses the savings to reduce the overall rate. The corporate tax code is filled with breaks, including credits for energy production and conservation, accelerated depreciation for machinery purchases, and exemptions for interest on airport and dock construction bonds.

The Senate Budget Committee estimates that corporate tax breaks will total about $124 billion this year. Overall, companies will pay $191 billion in U.S. corporate income taxes in 2010.

"The ones who would benefit most are in some sense the ones who have been playing by the rules. They aren't as good at finding lobbyists," said Austan Goolsbee, chairman of the White House Council of Economic Advisors.

Neither House Republicans nor the White House has said which tax breaks they would ax so their plans remain "revenue neutral" and don't add to the budget deficit. They've been clear they don't want to eliminate all of them. In fact, the Obama administration has pushed for increasing the corporate research and development tax credit.

Eliminating any tax breaks will be difficult because corporate lobbyists are expected to fight hard to keep breaks that benefit their companies. But the push begun by the Obama administration for revenue-neutral corporate tax reform hasn't pleased some liberals. They want the loopholes removed, but want the savings to go toward reducing the budget deficit, not the corporate tax rate.

"We have this big fiscal problem, and if there's one thing the public might support it's getting rid of a lot of these business subsidies that are almost entirely a waste," said Robert McIntyre, director of Citizens for Tax Justice. "Otherwise the alternatives are cutting Medicare, or Social Security or the national parks."

The top tax rate for corporations has dropped from 52% in 1952 to 35% today. That has led corporate taxes as a share of U.S. economic output to decrease from 6.1% in 1952 to 1.3% last year.

But tax experts said another reason for the decline is the dramatic expansion over the last 30 years of business owners' paying taxes on their individual returns. That has shifted hundreds of billions of dollars from the corporate side of the tax ledger.

Still, there's broad agreement that a host of deductions and special breaks — many added after the last major corporate tax overhaul in 1986 — have allowed some companies to significantly reduce their tax rates.

"The tax lobbyists have brought down the federal portion of corporate taxes to the point where they're not paying very much," McDermott said.

GE is one of the best examples. The company has slashed its payments in recent years by taking advantage of numerous breaks, including one for "active financing" that allows it to defer paying U.S. taxes on income it makes overseas on certain financial transactions.

GE, like other companies, doesn't release detailed tax information. But in its annual report to shareholders, the company said that those breaks, along with losses from its GE Capital lending unit stemming from the financial crisis, led to an effective tax rate of 7.4% in 2010.

It's unclear how much GE will pay this year in U.S. taxes. The company reported a federal tax benefit of $3.3 billion for 2010, which would appear to offset the $2 billion it set aside to pay income taxes, meaning GE would get a refund. But GE said the calculations were more complex and that it ultimatelyexpected to "have a small federal income tax liability."

Businesses note that the 35% U.S. corporate tax rate in 2010 was second highest only to Japan among the 34 industrialized nations in the Organisation for Economic Co-operation and Development.

Taking into account all U.S. tax breaks, the average effective rate was 27.7% for large companies during the 2006-09 period, according to a study released last week by PricewaterhouseCoopers for the Business Roundtable. The U.S. rate ranked sixth highest globally and fourth highest among Organisation for Economic Co-operation and Development nations.

"Let's focus on getting a competitive tax rate and see what happens to revenue," said Business Roundtable president John Engler. "Lower tax rates would generate more investment and generate higher revenues."

In addition to wanting to lower the overall rate, Democrats and Republicans said they will consider a huge, one-time tax cut on corporate profits stashed abroad. Reducing the rate to about 5% from 35% for one year would lure back $1 trillion to boost the economy, businesses said.

It also would save multinational corporations billions of dollars in taxes.

Critics argue the move would encourage companies to park more money overseas. The California Public Interest Research Group estimated last week that companies avoid as much as $100 billion in taxes each year through that tactic.

"Main Street businesses and ordinary taxpayers without access to an army of lawyers and accountants to devise elaborate tax avoidance schemes are forced to pick up the tab every year," said Pedro Morillas, the group's consumer advocate.

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WASHINGTON (Reuters) - Taxpayers scrambled to meet Monday's deadline for filing income tax returns amid reports that the richest of the rich are paying less to the Internal Revenue Service.

Submitting online from the comfort of home or at the U.S. Post Office, taxpayers turned over the complicated forms that tally up either the joyful news that a refund is due or painful reality that even more money is due.

Watchdog groups, meanwhile, found the richest Americans are paying a smaller share of the pot than in years past. According to 2008 IRS data analyzed by the Tax Foundation, the top 1 percent of earners paid 38 percent of all federal individual income taxes, a decline from 2007 when the same group paid more than 40 percent.

Citizens for Tax Justice, which looks at all taxes paid including federal, state and local taxes, said that in 2010 the top 1 percent of earners will pay 21.5 percent of taxes. The group said that top 1 percent earned just over 20 percent of total income.

"It doesn't make things any easier for a working stiff like me," said David Desmarais, 37, of Stanford, Connecticut, a hotel desk clerk who mailed his tax return at the enormous main post office in New York City. "I work really hard to earn what I do, so tax day is never fun."

Another taxpayer, bank teller Linda Blanchard, 28, said wealthier Americans do not feel same sting she does seeing her paycheck eaten away by tax dollars.

"It still hurts to be doing this. I'm sure they are able to part with that money easier," said Blanchard, who lives in suburban Harrison, New York.

From everyday taxpayers to the most famous celebrities, Tax Day forces all Americans to look back at how their life has added up over the previous year.

President Barack Obama and wife Michelle made significantly less money last year than in 2009, reporting an adjusted gross income of $1,728,096 and paying federal taxes of $435,770, according to their joint tax return. That's down from income of $5,505,409 in 2009.

Vice President Joe Biden and wife Jill reported adjusted gross income of $379,178 in 2010 and paid $86,626 in federal taxes, the White House said.

Among the experts who used Tax Day as a platform to call for tax reform was U.S. economist Arthur Laffer, who penned an opinion piece in the Wall Street Journal calling for a simple flat-rate tax with no deductions.

The practice of whittling down a tax obligation through deductions is so complicated that "tax compliance" has grown into a $431 billion annual industry, employing more people than Wal-Mart, United Parcel Service, McDonald's, International Business Machines and Citigroup combined, he said.

Americans' quest for deductions and the IRS's efforts to verify them ends up costing taxpayers 30 cents for every $1 paid in taxes, said Laffer.

For those who still haven't finished their tax returns as the clock ticks down to the midnight filing deadline, the IRS offered these tips to avoid common mistakes:

** File electronically. Because the e-file and IRS Free File software makes calculations, it flags common errors and prompts taxpayers for missing information.

** Mail it to the right address, if doing a paper return. "Where to file" information can be found on the IRS site -- www.irs.gov -- or in the printed instructions. Getting it right avoids delays in processing and can speed up delivery of refunds.

** Attach forms like W-2s and others that show tax withholding, and other necessary forms and schedules, to the front of your return.

** Check just one filing status and make sure you've checked the right exemption boxes.

** Double check that you've entered the correct Social Security number or numbers and double check all figures. The IRS says math mistakes remain common on paper returns.

** Double check the routing and account numbers for getting any refund directly deposited into your bank account.

** Can't meet the deadline for filling out a return? Don't panic. You can request an extension by using Free File or Form 4868 and avoid late filing penalties. See the IRS site for more details. But remember the IRS still wants any taxes owed paid by the Monday deadline.

The IRS said that as of early April around 99 million individual income tax returns had already been received, about the same as for the comparable period last year.

The number of refunds totaled about 81 million, up from 80 million the previous year, with the total value of the refunds at around $234 billion both years.

(Reporting by Jerry Norton in Washington, Bernd Debusmann Jr. in New York and Lauren Keiper in Boston; Editing by Barbara Goldberg and Greg McCune)

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By Robert J. Samuelson

April 17, 2011

In the Great Budget Debate, Democrats and Republicans are closer than you might think. Neither is proposing a balanced budget anytime soon; both peddle soothing myths to convince supporters that they’re upholding either “liberal” or “conservative” values. Meanwhile, the public seems largely clueless about the enormity of the problem. The Congressional Budget Office reckons that, in 2021, even after a full economic recovery, the remaining deficit will equal almost 5 percent of gross domestic product. In today’s dollars, that’s $750 billion. It’s the hole that needs filling.

We won’t make much progress until (a) Democrats concede that spending control requires genuine cuts in Social Security and Medicare, which now total $1.3 trillion annually and represent 35 percent of federal outlays; and (b) Republicans acknowledge that, even after significant spending cuts, tax increases will be needed to balance the budget. Last week, there was little sign of either. President Obama rebuffed Social Security and Medicare cuts. Most Republicans held fast on taxes.

What we have instead is a public relations war. Both parties propound brands of wishful thinking designed to make it seem that they’re accomplishing more than they are.

Start with the Republicans. House Budget Committee Chairman Paul Ryan’s plan fulfills the no-tax-increase requirement. Yet, deficits shrink. How does he do that? Well, he doesn’t touch Social Security, the government’s biggest program with $9.9 trillion of projected spending from 2012 to 2021. He does propose a voucher program for Medicare, but it doesn’t take effect until 2022 and exempts the 77 million Americans now 55 and over. Ryan isn’t picking a fight with seniors.

He achieves big savings by assuming deep cuts to most of the federal government beyond Social Security, Medicare and Medicaid. Ultimately, it would shrink to almost nothing. That’s defense, food stamps, highways, federal courts, basic research . . . and much more. Altogether, these programs constitute about 12 percent of GDP. By 2022, Ryan’s plan would reduce them to 6 percent of GDP; by 2050, they’d be about 3 percent, estimates the CBO. The United States would virtually disarm and dismantle much of the social safety net, and starve important federal responsibilities, from environmental regulation to the FBI. This isn’t likely to happen — and shouldn’t.

Democrats are as bad or worse. Remember that Obama’s original budget for 2012 envisioned deficits of $9.5 trillion over the next decade (2012-2021), according to the CBO. So Obama’s now-promised additional $4 trillion of savings over 12 years — meaning about another $2 trillion of deficits — barely touches the problem. Rhetorically, Democrats finger familiar villains to explain and cure the deficits. These don’t withstand scrutiny.

One is: the Bush tax cuts for the rich. The trouble is that Obama’s budget already assumes higher rates (39.6 percent) on incomes exceeding $200,000 (individuals) and $250,000 (couples). Suppose we get tougher on the very rich. One proposal would raise rates to 45 percent on incomes from $1 million to $10 million, with rates increasing to 49 percent on incomes of $1 billion. Over a decade, tax revenue would grow about $900 billion, says the advocacy group Citizens for Tax Justice. Assuming the money materialized, it’s a lot — but only a tenth of the decade’s deficits.

Another liberal villain: the wars in Iraq and Afghanistan. They’ve cost $1.26 trillion from 2001 to 2011, reckons the CBO. Again, a lot of money. But it, too, pales next to all spending ($29.8 trillion) or deficits ($6.2 trillion) over the same period. Here, too, Obama’s budget already assumes big cuts.

Our budget problem is conceptually simple. Government’s spending commitments, driven by more retirees and uncontrolled health costs, vastly exceed the existing tax base. There is an argument about how fast changes should be made to protect the economic recovery. There should be no argument over the need for changes to prevent a debt crisis: Too many Treasury bonds frighten investors and drive up interest rates.

But it also matters how we do this. By policy and procrastination, both Democrats and Republicans would largely exempt today’s elderly from changes and shift the burden to workers and the young. That’s not “liberal” or “conservative.” It’s expedient — and bad for America’s future. It suggests the young will pay even higher taxes and receive even fewer public services. It will make raising a family harder and possibly deter millions from doing so. It may endanger America’s security by shortsighted military cutbacks.

We still await a serious debate about which programs to cut and which taxes to raise. Congressional Republicans advance a radical plan for shrinking government — and are not candid about it. Obama defends the status quo of ever-bigger government — and is not candid about it. Perhaps these are negotiating positions and, needing to raise the federal debt ceiling, both sides will recognize their shortcomings. It’s a hope.

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Apr 14 2011

By Kim Dixon

WASHINGTON (Reuters) - Whether companies are drowning in high taxes or artful exploiters of loopholes is at the center of a debate over reforming corporate taxes.

Corporate America and Republicans often point to the United States as having among the highest tax rates in the world at about 35 percent, saying it makes the country less competitive and drives jobs overseas.

The Obama administration has acknowledged the need to overhaul the complex and confusing corporate tax code and agreed the top statutory rate is too high.

But administration officials say the 35 percent figure overstates U.S. companies' disadvantage once deductions and other breaks bring their "effective" tax rate much lower.

"Our tax system has not kept pace with the rest of the world," John Engler, the former Republican governor who heads up the Business Roundtable, a group of chief executives from the biggest U.S. companies.

The group of heavyweights like Verizon Communications and American Express Co. released a comparison of effective tax rates on Thursday that it said showed companies still pay more than their global peers.

The Business Roundtable-funded study, by corporate accountants PricewaterhouseCoopers, found an average effective tax rate of 27.7 percent among about 500 U.S.-headquartered companies.

That compared to a non-U.S. average effective tax rate of 19.5 percent across on a large selection of countries, from Nigeria to Japan to Qatar, according to the study.

But a lot depends on what countries you are comparing the United States against, and how you crunch the data.

Critics said the study's methods skew the reported U.S. tax rates paid upward.

"The report is hogwash," said Robert McIntyre, director of Citizens for Tax Justice, a consumer group whose own analysis finds companies pay on average rates in the upper teens, after deductions and loopholes.

COMPARED TO WHO? INCLUDING WHAT?

Lots of countries have lower effective rates than the United States, including Sweden with a 22 percent rate and smaller countries such as Hungary with a 14 percent rate, according to the study that covered the 2006-2009 period.

Some of the smaller countries only had reports from a handful of companies, while others had hundreds, which can distort the results.

Looking at the Group of Seven industrialized countries, the U.S. rate is on par, according to the study.

For example, Japan has about a 38.8 percent rate, Germany has a 27.9 percent rate and the United Kingdom has a 23.6 percent rate.

McIntyre and a former Treasury official said the study included both current taxes and taxes on income that is deferred, which may never be subject to U.S. tax.

"That makes the U.S. rate look higher than it actually is," McIntyre said.

The Roundtable study computed average effective tax rates paid by dividing total income taxes by pretax income.

The inclusion of deferred taxes also excludes the impact of timing advantages enjoyed by U.S. companies, according to Martin Sullivan, an economist and former U.S. Treasury Department official.

The United States has more liberal depreciation rules than many peers, letting companies more quickly write down the loss in value of equipment and other assets more quickly, .

"The study shows the unsurprising result that compared to multinational companies in other large countries -- like Japan, China, Germany, France, United Kingdom -- the U.S. book effective rate is marginally higher," Sullivan said. "Taking into account depreciation advantages could significantly change the relative rankings, i.e., the U.S. would almost certainly move down the list."

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By Mark Trumbull

April 15, 2011

As Republicans square off with the Obama administration on how much to tax the wealthiest Americans, a new report suggests the overall tax burden does not vary much by income level.

As millions of Americans prepare to file their tax returns, taxes are also back in the news for political reasons.

House Republicans passed a budget plan Friday for the 2012 fiscal year premised on the notion that both federal spending and taxes should go way down – including taxes on the wealthiest Americans.

Earlier this week, President Obama parried that Republican framework with his own fiscal plan, which sought more tax revenue even as he echoed the call for a streamlining of the tax code. Mr. Obama also doubled down on his proposals for the rich to shoulder more of the nation's tax burden.

In a press briefing on Thursday, White House budget director Jack Lew said that some $1.1 trillion in new tax revenue – which Obama's plan calls for over the next decade – could come entirely from high-income households earning roughly $250,000 or greater.

A big debate over tax policy is starting to heat up.

So, what are the facts behind the debate? How much do wealthier Americans already pay in taxes?

Quite a lot of money, but perhaps not as much as is implied by the nation's progressive income-tax brackets, in which tax rates rise along with income.

One analysis, released Friday, finds that high-income Americans pay overall taxes that are roughly proportional to their income – and that most lower-income groups do the same.
Who pays how much

To put it in numbers, according to the analysis, the top 1 percent of earners account for 20.3 percent of total personal income in the United States and pay 21.5 percent of all federal and state taxes. The middle 20 percent of households earn 11.6 percent of US income and pay 10.3 percent of taxes. The lowest 20 percent account for just 3.5 percent of income, and pay 2 percent of all taxes.

The numbers were reported by Citizens for Tax Justice, a research group that supports progressive tax rates, and drawn from calculations by the Institute on Taxation and Economic Policy.

Note that these numbers look at the broad mix of US taxes, not just income taxes. Federal gas taxes, payroll taxes, and state sales taxes offset the progressive tilts of the income tax and estate tax.

The report also sheds light from another angle, showing the percentage of income that each group pays in total taxes. Lower-income groups pay a smaller – but still significant – share of their incomes in taxes. For example, the lowest fifth of earners pay, on average, 16 percent of their income in taxes. At the higher end of the scale, the top fifth pay a bit more than 30 percent of their income in taxes, not much higher than the next fifth down.

And within that top tier, the top 1 percent pay 30 percent of their income in taxes, which is actually a bit less than the 31 percent of income that the next 9 percent of taxpayers pay.

Another research group, the Tax Foundation, which supports low tax rates, offers an analysis of the federal income tax in isolation. According to the Tax Foundation, the top 1 percent of earners account for 20 percent of "adjusted gross income" (an Internal Revenue Service measure) and pay 38 percent of income taxes. That shows how the income tax itself is progressive.
Other taxes often regressive

The contrast between this number and the tally by Citizens for Tax Justice also shows how other taxes levied in the US are often regressive in their impact on different income groups.

The current structure of tax brackets has rates that start at 10 percent of income at the low end and rise to 35 percent for the highest earners. In the middle are brackets of 15, 25, 28, and 33 percent. That top bracket doesn't mean the rich pay 35 percent of their adjusted gross income in taxes. Deductions and other factors lower their effective rate to 23 percent of income, the Tax Foundation reckons.

For comparison, the average tax rate for all taxpayers is 12 percent of adjusted income.

Of course, politicians and voters will have different views on what these numbers mean – what tax system is fair and optimal. And tax rates are just part of a larger policy puzzle that also entails thinking about the right level of federal spending and what kind of taxes are best for the economy and jobs. But the reports give an important benchmark of how much taxpayers are contributing now.

(Original post) 

By John D. McKinnon

April 14, 2011

A new study commissioned by the Business Roundtable dives into the deep question of how much tax big U.S. companies pay. A lot, it concludes.

The study, by PwC, finds that among companies on the Forbes Global 2000 list for 2010, U.S.-headquartered companies had an average effective tax rate of 27.7% over the 2006-2009 period, compared with an average rate of 19.5% for their foreign-headquartered counterparts. That’s another reason for the U.S. to revamp its corporate tax system, the BRT said.

“American businesses and workers are at a severe competitive disadvantage because U.S. companies are burdened with both statutory and effective rates that are higher than those faced by most foreign-headquartered competitors,” said former Michigan Gov. John Engler, the BRT president.

The findings are roughly in line with some prior studies. The  BRT is a group of CEOs of some of the nation’s largest corporations, and PwC provides tax and accounting services.

A longtime critic of U.S. corporate tax policy, Robert McIntyre, says the study’s methodology overestimates the tax burden for U.S. companies because it includes the tax they owe but defer paying on their foreign income.

The U.S. is one of the few developed countries that seek to tax domestic-headquartered multinationals on their foreign earnings. Most countries don’t seek to tax their multinationals on that income at all. To partly offset that disadvantage for American companies, the U.S. allows its companies to defer taxation on their foreign income, until the money is returned home. Some companies currently are pushing for a tax holiday that would allow them to bring that money home at a much-reduced tax rate.

Mr. McIntyre, director of Citizens for Tax Justice, said the study also inappropriately lumps together domestic-imposed taxes and foreign taxes in arriving at a company’s effective rate. He said the real effective tax rate for big U.S. companies is around 15%. His group is doing its own study, expected out this summer.

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By David Cay Johnston

Published: April 13, 2011

For three decades we have conducted a massive economic experiment, testing a theory known as supply side economics. The theory goes like this: Lower tax rates will encourage more investment, which in turn will mean more jobs and greater prosperity—so much so that tax revenues will go up, despite lower rates. The late Milton Friedman, the libertarian economist who wanted to shut down public parks because he considered them socialism, promoted this strategy. Ronald Reagan embraced Friedman’s ideas and made them into policy when he was elected president in 1980.

For the past decade, we have doubled down on this theory of supply side economics with the tax cuts sponsored by President George W. Bush in 2001 and 2003, which President Obama has agreed to continue for two years.

You would think that whether this grand experiment worked would be settled after three decades. You would think the practitioners of the dismal science of economics would look at their demand curves and the data on incomes and taxes and pronounce a verdict, the way Galileo and Copernicus did when they showed that geocentrism was a fantasy because Earth revolves around the sun (known as heliocentrism). But economics is not like that. It is not like physics with its laws and arithmetic with its absolute values.

Tax policy is something the framers left to politics. And in politics, the facts often matter less then who has the biggest bullhorn.

The Mad Men who once ran campaigns featuring doctors extolling the health benefits of smoking are now busy marketing the dogma that tax cuts mean broad prosperity, no matter what the facts show.

As millions of Americans prepare to file their annual taxes, they do so in an environment of media-perpetuated tax myths. Here are a few points about taxes and the economy that you may not know, to consider as you prepare to file your taxes. (All figures are inflation adjusted.)
1. Poor Americans do pay taxes.

Gretchen Carlson, the Fox News host, said last year “47 percent of Americans don’t pay any taxes.” John McCain and Sarah Palin both said similar things during the 2008 campaign about the bottom half of Americans.

Ari Fleischer, the former Bush White House spokesman, once said “50 percent of the country gets benefits without paying for them.”

Actually, they pay lots of taxes—just not lots of federal income taxes.

Data from the Tax Foundation shows that in 2008, the average income for the bottom half of taxpayers was $15,300.

This year the first $9,350 of income is exempt from taxes for singles and $18,700 for married couples, just slightly more than in 2008. That means millions of the poor do not make enough to owe income taxes.

But they still pay plenty of other taxes, including federal payroll taxes. Between gas taxes, sales taxes, utility taxes, and other taxes, no one lives tax-free in America.

When it comes to state and local taxes, the poor bear a heavier burden than the rich in all 50 states, Citizens for Tax Justice calculated from official data. In Alabama, for example, the burden on the poor is more than twice that of the top 1 percent. The one-fifth of Alabama families making less than $13,000 pay almost 11 percent of their income in state and local taxes, compared with less than 4 percent for those who make $229,000 or more.
2. The wealthiest Americans don’t carry the burden.

This is one of those oft-used canards. Sen. Rand Paul, the tea party favorite from Kentucky, told David Letterman recently that “the wealthy do pay most of the taxes in this country.”

The internet is awash with statements that the top 1 percent pays, depending on the year, 38 percent or more than 40 percent of taxes.

It’s true that the top 1 percent of wage earners paid 38 percent of the federal income taxes in 2008 (the most recent year for which data is available). But people forget that the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government.

Social Security, Medicare, and unemployment insurance taxes (known as payroll taxes) are paid mostly by the bottom 90 percent of wage earners. That’s because, once you reach $106,800 of income, you pay no more for Social Security, though the much smaller Medicare tax applies to all wages. Warren Buffett pays the exact same amount of Social Security taxes as someone who earns $106,800.
3. In fact, the wealthy are paying less taxes.

The Internal Revenue Service issues an annual report on the 400 highest income-tax payers. In 1961, there were 398 taxpayers who made $1 million or more, so I compared their income tax burdens from that year to 2007.

Despite skyrocketing incomes, the federal tax burden on the richest 400 has been slashed, thanks for a variety of loopholes, allowable deductions, and other tools. The actual share of their income paid in taxes, according to the IRS, is 16.6 percent. Adding payroll taxes barely nudges that number.

Compare that to the vast majority of Americans, whose share of their income going to federal taxes increased from 13.1 percent in 1961 to 22.5 percent in 2007.

(By the way, during seven of the eight Bush years, the IRS report on the top 400 taxpayers was labeled a state secret, a policy that the Obama overturned almost instantly after his inauguration.)
4. Many of the very richest pay no current income taxes at all.

John Paulson, the most successful hedge fund manager of all, bet against the mortgage market one year and then bet with Glenn Beck in the gold market the next. Paulson made himself $9 billion in fees in just two years. His current tax bill on that $9 billion? Zero.

Congress lets hedge fund managers earn all they can now and pay their taxes years from now.

In 2007, Congress debated whether hedge fund managers should pay the top tax rate that applies to wages, bonuses, and other compensation for their labors, which is 35 percent. That tax rate starts at about $300,000 of taxable income; not even pocket change to Paulson, but almost 12 years of gross pay to the median-wage worker.

The Republicans and a key Democrat, Sen. Charles Schumer of New York, fought to keep the tax rate on hedge fund managers at 15 percent, arguing that the profits from hedge funds should be considered capital gains, not ordinary income, which got a lot of attention in the news.

What the news media missed is that hedge fund managers don’t even pay 15 percent. At least, not currently. So long as they leave their money, known as “carried interest,” in the hedge fund, their taxes are deferred. They only pay taxes when they cash out, which could be decades from now for younger managers. How do these hedge fund managers get money in the meantime? By borrowing against the carried interest, often at absurdly low rates—currently about 2 percent.

Lots of other people live tax-free too. According to Donald Trump’s tax records for four years early in his career, he paid no taxes for two of those years. Big real estate investors enjoy tax-free living under a 1993 law then President Bill Clinton signed. It lets “professional” real estate investors use paper losses like depreciation on their buildings against any cash income, even if they end up with negative incomes like Trump.

Frank and Jamie McCourt, who own the Los Angeles Dodgers, have not paid any income taxes since at least 2004, their divorce case revealed. Yet they spent $45 million one year alone. How? They just borrowed against Dodger ticket revenue and other assets. To the IRS, they look like paupers.

In Wisconsin, Terrence Wall, who unsuccessfully sought the Republican nomination for U.S. Senate in 2010, paid no income taxes on as much as $14 million of recent income, his disclosure forms showed. Asked about his living tax-free while working people pay taxes, he had a simple response: Everyone should pay less.
5. And (surprise!) since Reagan, only the wealthy have gained significant income.

The Heritage Foundation, the Cato Institute, and similar conservative marketing organizations tell us relentlessly that lower tax rates will make us all better off.

“When tax rates are reduced, the economy’s growth rate improves and living standards increase,” according to Daniel J. Mitchell, an economist at Heritage until he joined Cato. He says that supply side economics is “the simple notion that lower tax rates will boost work, saving, investment, and entrepreneurship.”

When Reagan was elected president, the marginal tax rate for income was 70 percent. He cut it to 50 percent and then 28 percent starting in 1987. It was raised by George H.W. Bush and Clinton and then cut by George W. Bush. The top rate is now 35 percent.

Since 1980, when President Reagan won election by promising prosperity through tax cuts, the average income of the vast majority—the bottom 90 percent of Americans—has increased a meager $303, or 1 percent. Put another way, each dollar people in the vast majority made in 1980 became $1.01 by 2008.

Those at the top did better. The top 1 percent’s average income more than doubled to $1.1 million, according to an analysis of tax data by economists Thomas Piketty and Emmanuel Saez. The really rich, the top 10th of 1 percent, each enjoyed almost $4 in 2008 for each dollar in 1980.

The top 300,000 Americans now enjoy almost as much income as the bottom 150 million, the data show.
6. When it comes to corporations, the story is much the same—less taxes.

Corporate profits in 2008, the latest year for which data is available, were $1,830 billion, up almost 12 percent from $1,639 billion in 2000. Yet even though corporate tax rates have not been cut, corporate income-tax revenues fell to $230 billion from $249 billion—an 8 percent decline, thanks to a number of loopholes. The official 2010 profit numbers are not added up and released by the government, but the amount paid in corporate taxes is: In 2010 they fell further, to $191 billion—a decline of more than 23 percent compared with 2000.
7. Some corporate tax breaks destroy jobs.

Despite all the noise that America has the world’s second highest corporate tax rate, the actual taxes paid by corporations are falling because of the growing number of loopholes and companies shifting profits to tax havens like the Cayman Islands.

And right now America’s corporations are sitting on close to $2 trillion in cash that is not being used to build factories, create jobs, or anything else, but that acts as an insurance policy for managers unwilling to take the risk of actually building the businesses they are paid so well to run. That cash hoard works out to nearly $13,000 per taxpaying household.

A corporate tax rate that is too low actually destroys jobs. That’s because a higher tax rate encourages businesses (which don’t want to pay taxes) to keep the profits in the business and reinvest, rather than pull them out as profits and have to pay high taxes.

The 2004 American Jobs Creation Act, which passed with bipartisan support, allowed more than 800 companies to bring profits that were untaxed but overseas back to the United States. Instead of paying the usual 35 percent tax, the companies paid just 5.25 percent.

The companies said bringing the money home—“repatriating” it, they called it—would mean lots of jobs. Sen. John Ensign (R-Nev.) put the figure at 660,000 new jobs.

Pfizer, the drug company, was the biggest beneficiary. It brought home $37 billion, saving $11 billion in taxes. Almost immediately it started firing people. Since the law took effect, it has let 40,000 workers go. In all, it appears that at least 100,000 jobs were destroyed.

Now Congressional Republicans and some Democrats are gearing up again to pass another tax holiday, promoting a new Jobs Creation Act. It would affect 10 times as much money as the 2004 law.
8. Republicans like taxes too.

President Reagan signed into law 11 tax increases, targeted at people down the income ladder. His administration and the Washington press corps called the increases “revenue enhancers.” Among other things, Reagan hiked Social Security taxes so high that the government collected more than $2 trillion in surplus tax since 2008.

George W. Bush signed a tax increase too, in 2006, despite his written ironclad pledge to never raise taxes on anyone. It raised taxes on teenagers by requiring kids up to age 17, who earned money, to pay taxes at their parents’ tax rate, which would almost always be higher than the rate they would otherwise pay. It was a story that ran buried inside The New York Times one Sunday, but nowhere else.

In fact, thanks to Republicans, one in three Americans will pay higher taxes this year than they did last year.

First, some history. In 2009, President Obama pushed his own tax cut—for the working class. He persuaded Congress to enact the Making Work Pay Tax Credit. Over the two years 2009 and 2010, it saved single workers up to $800 and married heterosexual couples up to $1,600, even if only one spouse worked. The top 5 percent or so of taxpayers were denied this tax break.

The Obama administration called it “the biggest middle-class tax cut” ever. Yet last December the Republicans, back in control of the House of Representatives, killed Obama’s Making Work Pay Credit while extending the Bush tax cuts for two more years—a policy Obama agreed to.

By doing so, Congressional Republican leaders increased taxes on a third of Americans, all of them the working poor, this year.

As a result, of the 155 million households in the tax system, 51 million will pay an average of $129 more this year. That is $6.6 billion in higher taxes for the working poor, the nonpartisan Tax Policy Center estimated.

In addition, the Republicans changed the rate of workers’ FICA contributions, which finances half of Social Security. The result:

If you are single and make less than $20,000, or married and less than $40,000, you lose under this plan.

But the top 5 percent, people who make more than $106,800, will save $2,136 ($4,272 for two-career couples).
9. Other countries do it better.

We measure our economic progress, and our elected leaders debate tax policy, in terms of a crude measure known as gross domestic product. The way the official statistics are put together, each dollar spent buying solar energy equipment counts the same as each dollar spent investigating murders.

We do not give any measure of value to time spent rearing children or growing our own vegetables or to time off for leisure and community service.

And we do not measure the economic damage done by shocks, such as losing a job, which means not only loss of income and depletion of savings, but loss of health insurance, which a Harvard Medical School study found results in 45,000 unnecessary deaths each year.

Compare this to Germany, one of many countries with a smarter tax system and smarter spending policies.

Germans work less, make more per hour, and get much better parental leave than Americans, many of whom get no fringe benefits such as health care, pensions, or even a retirement savings plan. By many measures the vast majority live better in Germany than in America.

To achieve this, German workers on average pay 52 percent of their income in taxes. Americans average 30 percent, according to the Organizations for Economic Cooperation and Development.

At first blush the German tax burden seems horrendous. But in Germany (as well as Britain, France, Scandinavia, Canada, Australia, and Japan), tax-supported institutions provide many of the things Americans pay for with after-tax dollars. Buying wholesale rather than retail saves money.

A proper comparison would take the 30 percent average tax on American workers and add their out-of-pocket spending on health care, college tuition, and fees for services and compare that with taxes that the average German pays. Add it all up and the combination of tax and personal spending is roughly equal in both countries, but with a large risk of catastrophic loss in America, and a tiny risk in Germany.

Americans take on $85 billion of debt each year for higher education, while college is financed by taxes in Germany and tuition is cheap to free in other modern countries. While soaring medical costs are a key reason that since 1980 bankruptcy in America has increased 15 times faster than population growth, no one in Germany or the rest of the modern world goes broke because of accident or illness. And child poverty in America is the highest among modern countries—almost twice the rate in Germany, which is close to the average of modern countries.

On the corporate tax side, the Germans encourage reinvestment at home and the outsourcing of low-value work, such as auto assembly, and German rules tightly control accounting so that profits earned at home cannot be made to appear as profits earned in tax havens.

Adopting the German system is not the answer for America. But crafting a tax system that benefits the vast majority, reduces risks, provides universal health care, and focuses on diplomacy rather than militarism abroad (and at home) would be a lot smarter than what we have now.

Here is a question to ask yourself: We started down this road with Reagan’s election in 1980 and upped the ante in this century with George W. Bush.

How long does it take to conclude that a policy has failed to fulfill its promises? And as you think of that, keep in mind George Washington. When he fell ill his doctors followed the common wisdom of the era. They cut him and bled him to remove bad blood. As Washington’s condition grew worse, they bled him more. And like the mantra of tax cuts for the rich, they kept applying the same treatment until they killed him.

Luckily we don’t bleed the sick anymore, but we are bleeding our government to death.

David Cay Johnston is a columnist for tax.com and teaches the tax, property, and regulatory law of the ancient world at Syracuse University College of Law and Whitman School of Management.

He has also been called the “de facto chief tax enforcement officer of the United States” because his reporting in The New York Times shut down many tax dodges and schemes, just two of them valued by Congress at $260 billion.

Johnston received a 2001 Pulitzer Prize for exposing tax loopholes and inequities. He wrote two bestsellers on taxes, Perfectly Legal and Free Lunch.

Later this year Johnston will be out with a new book, The Fine Print, revealing how big business, with help from politicians, abuses plain English to rob you blind.

This story is part of a story-sharing project through the Association of Alternative Newsweeklies (altweeklies.com), of which City Paper is a member.

(Original Post)

By Zachary Roth

In the ongoing debate over reducing the deficit, most experts agree that both spending cuts and tax increases will have to be part of the solution. So far, the former have received way more attention than the latter. But that could be about to change.

On Wednesday, President Obama will give a speech that lays out his strategy for reducing the deficit. In addition to cuts to Medicare and Medicaid and changes to Social Security, he also will call for -- as he has before -- not extending the Bush tax cuts for those earning $250,000 or more. He may also embrace the deficit-reduction proposal of the Bowles-Simpson commission, which recommended scrapping some popular existing tax breaks, like the high-earner benefiting Alternative Minimum Tax and the mortgage-interest deduction, to save about $1.3 trillion.

"Revenues are going to be have to be part of this," David Plouffe, a senior White House adviser, said on Sunday.

Economists, too, seem to believe that taxes are likely to go up sooner or later. And voters -- perhaps responding to rapidly growing income inequality -- appear open to the idea, at least for the rich. Polls show that more Americans favor repealing the Bush tax cuts for high-earners than oppose it.

But opposition to tax hikes is perhaps the central plank of the modern GOP platform, and the party has committed itself to fighting to preserve the Bush cuts. That suggests a showdown is likely.

So before the debate gets too consumed by politics, it's worth taking a closer look at the issues around increased taxes.

Failing to extend the Bush cuts for those who make $250,000 or more -- which in December were extended through 2012, in a deal between President Obama and Republicans -- would mean that the richest 2 percent of Americans would pay a rate of 39.6 percent. This was what the segment paid in the 1990s, rather than the current 35 percent. According to Treasury Department numbers (pdf), the return to 39.6 percent, as compared to keeping tax cuts in place, would save an estimated $50 billion in 2013, and $680 billion by 2020.

There's quite a bit of confusion about these tax rates, so to back up and explain: Because the U.S uses marginal tax rates, those who pay 35 percent do so only on the portion of their income over $250,000. It would be the same if we returned to a top rate of 39.6 percent. That's why it wouldn't make sense to try to game the system by keeping your income just under the $250,000 threshold.

But there's also a farther-reaching approach on the table. A bill introduced by Rep. Jan Schakowsky (D-IL) would increase the top marginal tax rate from 35 percent to 45 percent for married couples making $1 million or more a year, and to 49 percent for billionaires. That would reduce the deficit by around $78 billion this year alone -- more than twice as much as was saved through the spending cuts agreed to last week -- and $784 billion over ten years, according to an estimate prepared for Schakowsky's office by Citizens for Tax Justice, a progressive think tank.

Schakowsky's plan isn't likely to become law. There's almost no support among Republicans for raising the top rate. But as Nancy Folbre, an economist at the University of Massachusetts, Amherst notes, a top rate of 49 percent would still be low by historical standards. As recently as the late 1970s, it was 70 percent.

Republicans argue that raising taxes will hurt economic growth. "If you go down the tax increase path you're sacrificing the economy," Rep. Paul Ryan of Wisconsin, the party's point man on budget issues, said on Meet the Press Sunday. Indeed, Ryan's own budget proposal, released last week, would lower the top rate to 25 percent.

But as far as growth is concerned, lower taxes are hardly the most efficient way to stimulate the economy. A Congressional Budget Office study (pdf) last year found that cutting taxes produces less growth than almost any other cost-equivalent action the government could take. This includes extending jobless benefits, investing in infrastructure, giving an extra payment to Social Security recipients, and instituting a payroll tax holiday. Plus, during the 1990s, when tax rates for the rich were at the level to which the White House wants them to return, growth was far stronger than in the last decade under the Bush rates.

(AP Photo/Pablo Martinez Monsivais: President Obama with Rep. Paul Ryan (R-Wisc.) [second from right] in February 2010)

(Original Post)

By Mike Lux

The Ryan budget is a remarkable document: all of its budget cuts hammer working class families, seniors, and students -- while all of its tax cuts go straight to millionaires. It does almost nothing to deal with the deficit, yet still manages to deal a death blow to virtually every member of the working middle class and everyone trying to work their way into it. It is especially hard on seniors and the most vulnerable in society in the midst of the toughest economic times since the Great Depression, doing serious economic damage to anyone who isn't a millionaire, oil company, or Wall Street bank. The good news, for those who are millionaires? They get so many economic benefits it will be hard to keep track of them all.

Let's start with the deficit itself. According to a new Center on Budget and Policy Priorities report, the actual deficit reduction in the Ryan plan would be only an average of $15 billion a year over the next 10 years. If we end up at a consistent 2.8 percent unemployment rate in spite of all the economic devastation this budget would bring to the middle class (which would be the lowest unemployment since the peak years of the 1950s), get out of the wars we are in pretty quickly, start no new wars or humanitarian "police actions," have the kind of income growth we haven't seen since the 1960s, and have no big terrorist attacks or natural disasters we have to deal with, the Ryan budget theoretically gets us to a balanced budget by about 2040.

Great. I can get to a balanced budget a lot faster than that, and do it without dismantling Medicare and Medicaid, and without taking an axe to Pell Grants, Head Start, and meals for shut-in seniors and hungry children. Heck, Jan Schakowsky's plan balances the entire budget except for interest payments on the national debt in five years. You can easily balance the budget in less than 10 years, even including those interest payments, simply by cutting the waste in military spending, reforming the government contracting procedures, ending tax loopholes for investment bankers and offshore companies, ending subsidies to oil companies and big agribusinesses, taxing speculative financial trades, and having millionaires pay taxes at the same rate they did under Ronald Reagan.

The Ryan budget has nothing -- not a single frickin' thing -- to do with cutting the federal deficit. It is all about income redistribution, simple as that. If you take away the budget savings Ryan claims from projecting that the wars we are in will wind down soon, he has $4.3 trillion in budget cuts and $4.2 trillion in tax cuts. And I bet you can guess which fact comes next: the budget cuts are targeted almost 100 percent at programs that help low-income families and the working middle class, while the tax cuts are almost entirely directed toward the wealthiest 10 percent. In fact, that comment on taxes is an understatement: Citizens for Tax Justice has an analysis showing that 90 percent of Americans will see their taxes go up under the Ryan budget, because the tax breaks his bill calls for actually total more than $4.1 trillion. The bottom 80 percent would pay $1,700 more in taxes under Ryan's plan, while the top 1 percent (those making more than $460,000 dollars per year) would pay more than $211,000 less on average. As the folks at CTJ say, "It is difficult to design a tax plan that will lose $2 trillion over a decade while requiring 90% of taxpayers to pay more. But Congressman Ryan has met that daunting challenge."

In the meantime, the plan:

    Cuts $2.17 trillion in Medicaid spending, some of it by eliminating 32 million people from health care coverage, and some of it through massive cuts in nursing home coverage.

    Cuts $750 billion from programs for low-income people other than Medicaid, including Pell Grants, food stamps, education, training programs, and social services.

    Waits 10 years so CBO can't count it, and then proceeds to take away Medicare as we know it, shredding the idea of guaranteed coverage and putting senior citizens at the mercy of private insurance companies. Dean Baker of the Center for Economic and Policy Research tells me that the Medicare cuts through 2030 would amount to $800 billion, and through 2050 would amount to $8.9 trillion.

    Doesn't give a CBO-scorable number for its Social Security cuts either, but creates a "trigger" mechanism that forces automatic votes on Social Security cuts if the 75-year actuarial tables show any deficit at all. The way that is written, no matter how big a surplus Social Security has, or is creating, every year there would be automatic votes on cutting Social Security benefits.

The modern Republican Party has been taken over by a lunatic fringe of conservatives that are making a concerted, determined assault on the American working middle class. They are trying to destroy unions for firefighters, cops, teachers, and nurses. They want to make dramatic cuts in Social Security, or privatize it entirely. They want to end the guaranteed health coverage of Medicare, and put seniors on their own, at the mercy of private insurance companies. They want to make dramatic cuts in nursing home coverage and medical care for the disadvantaged through Medicaid. They want to slash funding for Pell Grants, Head Start, education, veterans benefits, and disability benefits. They want to slash funding that allows the EPA to enforce the laws that keep our water and air clean, and slash the funding for the oversight that helps consumers and homeowners defend themselves against Wall Street predators.

Why do these conservatives want to do all this? Well, partly because they just hate government and everything it does, but mostly so they can give more tax cuts to millionaires, and subsidies and loopholes to big oil companies and banks. The Ryan budget, the attacks on unions, Eric Cantor's admission that "these programs [such as Social Security] cannot exist if we want America to be what we want America to be," and Spencer Bachus stating "my view is that Washington and the regulators are there to serve the banks" are all part of the same story. These priorities seem pretty strange to me, and they probably do to you, but to the Republican Party, they are just business as usual. You have to dance with those who brung you, as the old saying goes, and the Koch brothers and the Wall Street bankers brought these Republicans to the dance.

(Original Post)

By Michael B. Keegan

As a government shutdown looms, the federal budget process has been reduced to a temper tantrum in a china shop. The House GOP has made it clear that they are willing to cause an economically disastrous shutdown in order to prove how little they like funding women's health care and how much they like protecting big polluters. As we careen toward a shutdown, it becomes absolutely clear beyond a doubt that the GOP does not care a whit about jobs and economic growth. But we should have already known that. Just remember what got us here.

The new Republican majority was swept into power with promises of "fiscal responsibility"... but backed by the bank accounts of corporate America. As a result, the "fiscal responsibility" they're proposing requires great sacrifices from ordinary Americans while letting large corporations and the wealthiest continue to benefit from the status quo. When these pro-corporate politicians talk about the need for "shared sacrifice," they're talking about individual Americans giving up education, clean drinking water, and cops on the streets. When they say they'll never raise taxes, they don't mean protecting middle class Americans from tax hikes --nobody's proposing to raise taxes on working families -- they're talking about letting multinational corporations keep their tax loopholes and letting the wealthiest sliver of Americans keep their massive, supposedly temporary, tax breaks.

The $61 billion in cuts that the GOP has proposed for the coming year would have required working Americans to bear the "fiscal responsibility" for the entire nation. They include huge cuts to education programs from Head Start to higher education Pell Grants. They include cuts to public safety programs that help keep cops on the street in local communities and drinking water clean. They do not, however, include any sacrifices from oil and gas companies, the financial industry, or huge corporations like G.E., which stunningly did not pay a cent in federal taxes last year. The huge tax cuts that George W. Bush handed to the wealthiest Americans will not be touched.

It looks like the GOP will now "settle" for about $35 billion in cuts to essential programs this year. But they could still cut double that amount from the deficit -- more than their original $61 billion -- in a way that involves real "fiscal responsibility" and "shared sacrifice." Here are a few ideas:

Getting rid of Bush's tax cuts for the wealthiest Americans (those earning more than $250,000 per year) would save the country about $65 billion -- well over the total amount the GOP is hoping to chop from the deficit. But why stop there? According to Citizens for Tax Justice, charging banks a fee for taking excessive risks with their clients' money -- risks like those that led to the 2008 financial meltdown -- would help cut $8.2 billion from the deficit in 2011. Closing loopholes that allow corporations to shelter their income in foreign banks would bring in $6.9 billion. Eliminating the massive tax breaks now enjoyed by oil and gas companies would yield $2.6 billion.

But instead of taking these common-sense steps to make sure that large corporations and the wealthiest Americans make their share of our "shared sacrifice," Republicans in Congress have proposed a patchwork of cuts that would make tiny dents in the deficit while causing huge amounts of hurt for the people who depend on them -- slashing the Head Start program, drastically reducing Pell Grants to college students, cutting down on food safety programs, taking away housing options for people with disabilities, taking cops off the streets in local communities... even defunding tsunami warning centers.

It looks like the GOP won't get their full program-smashing wish list in the current year's budget. But now Rep. Paul Ryan is trying to take these mixed-up priorities even further, proposing a budget for the 2012 fiscal year that includes dramatic cuts in Medicare and Medicaid, while preserving massive giveaways for corporations and the wealthy. Ryan has made no secret of his contempt for these programs that help millions of Americans get urgent medical care and stay financially solvent. He dismisses Medicaid as "welfare" -- although it benefits 58 million Americans, mostly children, the elderly, and the disabled. And he proposes pulling the financial rug out from under Medicare, which benefits nearly every American senior citizen. Belittling the importance of these programs exposes the truth behind the GOP's game plan -- they are trying to downplay the needs of individual Americans, while vigorously protecting the welfare that they hand out to those with the biggest bank accounts.

Corporations and the wealthy are of course entitled to their earnings as much as all Americans. But they also must do their part to pay for the basic services that ensure that all Americans have access to health, security, and opportunity.

At a time when income inequality in the U.S. is at an all-time high, GOP leaders are playing reverse Robin-Hoods, milking working Americans for cash and handing it over to the wealthiest -- and they're willing to shut down the government if they don't get their way. That's not fiscal responsibility. It's fiscal, and moral, recklessness.

(Original Post)

by Chuck Collins

Government must stop doling out ever-larger tax breaks to the superrich and vast corporations.

Have you heard? America is broke, according to many governors and lawmakers.

They're calling for deep cuts in teacher pay, firing cops, slashing medical services for working-class kids, and scrapping other essential services to narrow state and federal budget deficits.

There's a better and fairer way to tackle this situation. Government must stop doling out ever-larger tax breaks to the superrich and vast corporations. A new report that I co-authored identifies $4 trillion that could be raised over the ten years by reversing several decades of tax breaks.

Around the country, states and towns are gutting their budgets, undermining the quality of our lives.

"Our country is not really broke," said Cynthia Carranza who directs a food pantry in Niles, Illinois. Carranza witnesses the growing number of hungry people at her food pantry door even as government support for her program is slashed. "We're an incredibly rich and prosperous nation. But our wealth is skewed to a very few fortunate at the top. We're not broken, just twisted."

Our communities are enduring mammoth state and federal budget cuts because we have, in large part, failed to sufficiently tax America's millionaires and billionaires or prevent aggressive tax avoidance by multinational companies. The rest of us are paying to pick up the slack.

Congress has blown holes in our tax code, losing hundreds of billions in revenue. Worse, lawmakers have averted their eyes as corporate lobbyists drill new tax loopholes and extract new corporate welfare subsidies.

How else can we explain how a profitable company like General Electric pays no taxes? Since 2006, General Electric has reported over $26 billion in profits, yet paid not one penny in U.S. taxes. It gets worse. They've actually received more than $4 billion in subsidies and corporate welfare.

GE isn't alone. Other huge global companies such as Verizon, Boeing, ExxonMobil, and Bank of America also pay no taxes. These artful dodgers aggressively solicit government subsidies and use accounting tricks to move money to overseas tax havens like the Cayman Islands. They pretend to earn their profits offshore and then report their paper losses here in the United States -- so they don't have to pay the IRS a dime.

Wealthy individuals have also benefited from a half-century of tax reductions. If U.S. millionaires and billionaires paid taxes based on 1961 tax rules, we would have raised an additional $231 billion in federal revenue this year.

By reversing years of tax giveaways to America's rich and the corporations that enrich them, Congress could raise trillions in revenue. We could fund the public structures that safeguard our families and our future.

There are five revenue raisers that Congress could institute tomorrow that would generate $400 billion a year--or $4 trillion over the next decade. Such programs would restore greater fairness to our tax system and reduce the extreme levels of inequality polarizing our society.

Congress could levy a modest financial transaction tax on the transfers of stock, currency, and speculative investments that do little to strengthen the real economy. This would generate $150 billion a year while exempting smaller investors.

Lawmakers could reduce corporate tax dodging by closing overseas tax havens and requiring companies to pay U.S. taxes on the profits they actually earn in this country. This could generate as much as $100 billion a year. Another provision -- ending deferred corporate income taxes -- would reduce the incentive for corporations to use tax havens and move jobs offshore. According to Citizens for Tax Justice, ending corporate tax deferral would raise at least $50 billion per year.

Congress could establish new top tax rates on households with annual incomes over $1 million, which could generate another $88 billion a year. Under our current tax system, a person earning $380,000 a year pays the same top tax rate as someone earning $10 million a year.

Lawmakers could institute a progressive estate tax on fortunes over $5 million, with higher rates on billionaire estates. That would generate $25 billion a year.

Taking all five of these straightforward steps could raise a total of approximately $400 billion per year.

Sure, some politicians would rather cut services for children and the mentally ill before they dare to propose tax hikes on millionaires and tax-dodging corporations. But that doesn't mean we're broke. It just means we need to get our priorities straight.

For more information, see the study, "Unnecessary Austerity, Unnecessary Shutdown."

Portions of this article were published in OtherWords.

(Original Post)

Zach Carter

WASHINGTON -- As Congress grinds closer to shutting down the federal government and the White House floats proposals to cut social services for working families, big business is gearing up to try to win yet another budget battle: overhauling the corporate tax code. However the current budget tussling between President Obama and congressional Republicans ends, corporate titans and their lobbyists appear poised for a big victory at the expense of the American middle class.

President Obama said he hopes to eliminate many corporate tax loopholes during his State of the Union address, but he also pledged to cut the overall corporate tax rate -- a joint policy the White House has billed as "revenue neutral," meaning it will neither increase or decrease overall corporate tax receipts. The administration has not yet outlined which loopholes it wants to close or how far it wants to push down the tax rate.

Buoyed by the prospect of a business-friendly tax overhaul, however, the Business Roundtable and other high-powered corporate lobbyists are using tax reform negotiations to push for more offshore tax breaks and official federal forgiveness for tax avoidance schemes. They got a big boost on Tuesday when House Budget Committee Chairman Paul Ryan (R-Wis.) pledged to actively reduce corporate taxes in his fiscal 2012 budget proposal, which would also do away with or fundamentally change key social services, including Medicare.

Ryan's sweeping budget plan generated fierce opposition from congressional Democrats. But it may spark renewed enthusiasm for using the December released bipartisan deficit commission report as a starting point for long-term budget negotiations. The corporate tax reform proposed by the commission would permanently push popular offshore tax shelters beyond the reach of Uncle Sam -- very bad news for legislators, economists and average citizens hoping to see big companies play a bigger role in helping to narrow the budget gap. A bipartisan group of senators is already engaged in talks based off the report, and, in the wake of Ryan’s budget proposal, Third Way, a centrist Democratic think tank with close ties to Wall Street, is pressing lawmakers to hammer out a compromise largely based on the commission’s recommendations.

The push for lower corporate tax rates comes during a flush time for corporate America. Overall corporate taxes as a share of GDP are hovering around one percent, the lowest share of GDP since World War II.

"At a time when cuts to access to college, cuts to scientific research are on the table, it makes no sense to take corporate taxes off the table," said Chuck Marr, Director of Federal Tax Policy for the Center on Budget and Policy Priorities, a left-leaning think tank focused on economic issues. "The country is just starting this process of deficit reduction, and there are going to be some wrenching choices."

A senior Treasury official defended Obama's push for a revenue-neutral corporate tax overhaul in a recent meeting with reporters, contending that the main threat to today's economy isn't low corporate tax rates, but the possibility that higher tax rates will force companies to decamp abroad. The Treasury official requested anonymity in order to speak candidly about rationales for the department's economic policy proposals.

Both Obama and congressional Republicans have repeatedly emphasized that the official tax rate for big corporations of 35 percent is high relative to other nations, but the actual tax bills companies pay are much lower, thanks to the use of special exemptions, tax havens and other sweeteners sprinkled throughout the tax code.

According to a 2007 study by George W. Bush's Treasury Department, the average American company actually pays a tax rate of just 13.4 percent -- lower, for example, than France, Portugal, Spain, Japan, Canada, and Switzerland, and less than half the average rate paid in the United Kingdom and Australia. This, despite the fact that, according to the study, the U.S. had one of the highest official rates in the industrialized world.

Tax experts say that no meaningful corporate tax overhaul, revenue neutral or otherwise, can allow companies to continue stashing money in offshore tax havens-- a creative accounting tactic that allows big firms to avoid paying $50 billion in taxes every year, according to the U.S. Treasury. Gauging the specific amount of taxes lost to offshore accounts is difficult, however, and reform advocates say the number could be even bigger.

"Anybody who tells you that they do know is probably full of it," said Jack Blum, a Washington attorney who chairs Tax Justice USA, a tax code reform group. "The problem is that people don't report what they don't pay in tax, so it's very, very hard to tell how much money we're losing. For a long time administrations went out of their way to make certain that no data was collected."

For years, progressive lawmakers and tax policy advocates have targeted tax havens as hotbeds of federal budget abuse. Companies can register profitable enterprises at an address in the Cayman Islands-- even if it actually does business on Wall Street -- and voila: so long as companies leave their profits in the Caribbean, their taxes can be "deferred" indefinitely.

"It's the number one issue, more important than anything I can think of," said Bob McIntyre, a long-time tax reform advocate who works as Director of Citizens for Tax Justice, a non-partisan research organization dedicated to progressive taxation.

According to a 2008 report by the Government Accountability Office, 83 of the 100 largest U.S. companies operate subsidiaries in nations that the government watchdog considers tax havens. All types of firms indulge, from telecommunications giants to retailers to banks. Wall Street is particularly aggressive; at the time the GAO report was issued, just six American banks were operating more than 900 such sub-companies.

The few lawmakers with the audacity to propose a crackdown on offshore havens say that it would be politically impossible to secure without bestowing other tax benefits on companies.

Last year, Sen. Ron Wyden (D-Ore.) and then-Sen. Judd Gregg (R-N.H.) pushed legislation to overhaul the entire tax code for both individuals and corporations. The effort would have ended deferred tax shenanigans, but in order to bring any Republicans on board, the bill had to be revenue neutral, according to Jennifer Hoelzer, a Wyden aide closely involved with the talks.

"When you start talking about raising revenue, that just enters in more controversy than you need at the moment," she said.

Although the Wyden-Gregg legislation went nowhere last year, it included some provisions that could be used to build political support for another tax reform push. Under that plan, average voters would get a tax break, giving them a stake in a debate that is otherwise simply a battle between muscular corporations and other firms unable to more fully exploit tax perks.

"When we do something big like tax reform . . . people need something to show for it at the end of the debate," Hoelzer said. "For us, when we did both corporate and individual reform at the same time, the average tax filer gets a tax break at the end of it. You want to give people a reason to root for something."

A major concern for those hoping to require corporations to help narrow the deficit is a plan being floated by the Business Roundtable, a lobbying group representing CEOs of the largest American companies.

The Business Roundtable plan would make all international revenue from U.S. firms, including money stashed in Caribbean tax shelters, becomes permanently nontaxable. The Business Roundtable declined to comment for this story, but its website claims that moving to a permanently untaxed foreign income system-- known as a "territorial" plan among tax experts -- is vital to making American business competitive with firms in other countries.

Many economists beg to differ.

"Those offshore affiliated corporations have no economic reality," said University of Texas Economist Calvin Johnson. "Cayman Islands is a suburb of Greenwich, Connecticut and ought to be treated that way. It has no independent life or meaning."

The Obama administration is already backpedaling in the face of this lobbying push. In a Tuesday hearing before a Senate subcommittee, Treasury Secretary Timothy Geithner said that the administration would consider granting a one-time tax holiday for corporations who stash money in tax havens, if it were part of a "comprehensive" tax reform project. Geithner did not specify what else should be included in such a comprehensive overhaul, but reiterated that the administration is committed to a "revenue-neutral" plan.

A bipartisan group of six senators is currently attempting to cut a deal on narrowing the deficit. The group includes Sens. Richard Durbin (D-Ill.), Kent Conrad (D-N.D.), Mark Warner (D-Va.), Tom Coburn (R-Okla.), Saxby Chambliss (R-Ga.) and Mike Crapo (R-Id.). A spokesperson for Chambliss said the group has no proposal yet and is still working out legislative language. None of the other senators would comment.

But a source close to the talks, who requested anonymity because negotiations are ongoing, said that corporate tax reforms would be based on recommendations from Obama's Fiscal Responsibility Commission. The Commission called for eliminating four categories of corporate tax breaks, while exempting offshore tax havens by adopting the "territorial" tax policy now being pushed by the Business Roundtable.

(Original Post)

Rajendra Bhika, Corporate Secretary | Apr. 6, 2011, 10:51 AM

Mismanagement of taxes is a major financial performance and compliance risk, and corporations are increasingly adding this topic to their governance agendas. According to a report by PwC entitled ‘King III requirements – an integral part of creating an effective tax function’, increased regulations and other legal responsibilities make tax risk management an important issue that needs to be addressed in the boardroom.

‘There is a clear need for transparency in tax matters and tax needs to be elevated on the corporate risk agenda, becoming an essential part of the enterprise-wide risk management framework,’ says Seema Ranchhoojee, manager of tax at PwC.

‘This is especially relevant for banks.’ Matters relating to financial, legal and ethical disclosure practices are normally at the top of the agenda when discussions of governance arise in the boardroom. But where exactly does tax risk management fall on th governance radar?

‘The board of directors and the audit committee have become more involved in getting the numbers right before releasing them to the public,’ says John Aksak, a corporate tax expert at True Partners Consulting. ‘Discussion of taxes has increasingly become a part of the CFO’s reporting to these groups.’

How a corporation manages its tax risk can affect its overall financial performance and its relationships with investors, creditors and other stakeholders. After all, tax risk management can have a significant impact on a corporation’s financial performance and reputation, and thus should be part of the entity’s overall governance practice. It is an important issue that affects public trust and confidence in corporate America.

Taxes represent one of the major expenses on a corporation’s income statement and can affect the volatility of net income and earnings per share. If not carefully monitored, taxes can raise the potential for increased expenses, interest and penalties. Moreover, ineffective internal controls over taxes can be cited as a material weakness for certain entities.

‘A lot has changed since Sarbanes-Oxley was enacted,’ says Gregg Dluginsky, another corporate tax expert at True Partners Consulting. ‘The effort, the hours, the manpower and the sophistication that have gone into complying with the reporting requirements for a corporation’s provision for income taxes have increased significantly.

The emergence of the financial accounting disclosure requirements of FASB Interpretation No 48 (FIN 48) and the income tax requirements under the IRS’ newly enacted Schedule UTP has raised the bar, and corporations are being held to a much higher standard when it comes to dealing with issues relating to tax risk management.’

FIN 48, effective from the fiscal year beginning after December 15, 2006 for public entities and the fiscal year beginning after December 15, 2008 for non-public entities, including not-for-profits, requires organizations to evaluate the technical merit of their tax positions.

They must assess whether such positions meet the more likely-than-not recognition threshold and will be upheld, including resolution of any related appeals or litigation processes, if scrutinized by the tax authorities. If entities fail to meet this threshold, appropriate disclosures must be made for financial reporting purposes.

Effective for calendar-year taxpayers for the 2010 tax year, the Internal Revenue Service requires certain corporations to report uncertain tax positions on Schedule UTP, to be filed with Form 1120. Schedule UTP requires such corporations to report on uncertain tax positions for which the corporation, or a related party, has recorded a reserve on its financial statements, or for which the corporation has not recorded a reserve as it expects to litigate the position.

These uncertain tax positions are identified in connection with procedures for applicable accounting standards such as FIN 48.

Protecting the corporation

These regulatory requirements make it clear accountability, compliance and transparency are essential when it comes to governance practices for tax risk management. Fortunately, there are ways corporations can make sure they remain in compliance with the ever-changing regulatory landscape. One way is to ensure CFOs are aware of, and ready to handle, any issues that may arise.

‘The CFO and tax department must be the eyes and ears of the corporation, have a full understanding of the tax risk facing it, and share such information with the board and the audit committee,’ says Dluginsky. Tax experts point to the Enron debacle as an example of what can go wrong when porous governance exists over tax risk management. The issues that arose as a result of that crisis were tax implications relating to the treatment of retirement plans, the treatment of stock options, and the differences between book and tax accounting.

According to analysis performed by Citizens for Tax Justice, Enron had profits before federal taxes totaling $1.785 billion over a five-year period and paid no corporate income taxes for four of those years. Its pre-tax profit for each of those years was never less than $87 million.

In Enron’s case, hard-working people were the worst affected; most lost their life savings and retirement funds. Doesn’t this case make a good argument for the increase in tax regulations over recent years?

‘In response to the Enron case, under SOX, a corporation’s audit committee has become more aware of any work an audit firm is performing for that entity,’ says Aksak. ‘But difficulties facing corporations when it comes to complying with the requirements of FIN 48, SOX and other regulations center on having adequate resources with the proper level of experience, and obtaining and communicating the correct information within an organization to address tax compliance issues on a timely basis.’

‘The increase in demand by the IRS and other regulators to make information more visible has caused a shift among corporations to automate more tax functions,’ notes Dluginsky. ‘Also, corporations are increasingly looking to outside experts to provide guidance and support in-house capabilities during peak times.’

Take action

Governance practices for tax risk management are all contingent on education and communication. The following represent some measures that may help corporations strengthen their governance practices in this area:

1. Understanding and evaluating the knowledge and skills of the entity’s resources, including that of upper management, the audit   committee and the board of directors, regarding the issue

2. Identifying best practices in the industry in which the corporation operates

3. Recognizing strengths and weaknesses of the organization’s current tax risk management practices, with particular focus on expenses, interest and penalties, and the potential impact on the income statement

4. Analyzing and improving the level of communication among the corporation’s upper management, the audit committee, the board, external auditors and other stakeholders

5. Assessing the costs of improving the entity’s current governance practices for tax risk management, including those of using outside tax resources.

An effective corporate governance framework for tax risk management is built on accountability, compliance and transparency.

It is central to promoting public trust, restoring the integrity of corporate America and protecting the welfare of investors, creditors and other stakeholders. It’s in a corporation’s best interests to stay on top of governance and tax risk management, and the best time to start is now, if not yesterday.

Read more: http://www.businessinsider.com/governance-taxes-and-the-board-2011-4#ixzz1Ilwzlzse

By NANCY FOLBRE
Today's Economist

Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

Our budget deficit would be smaller – and pressure to cut social programs lower – if corporate tax revenues had not declined over time relative to gross domestic product and relative to individual income tax revenues.
Center for Budget and Policy Priorities

Corporate America is a world leader in creative tax minimization. As David Kocieniewski reported in The New York Times, General Electric used some particularly innovative strategies to take advantage of overseas tax havens, including “offshore profit-shifting.”

The Boeing Corporation, a major federal contractor, has had a net rebate in federal taxes over the last three years, and a total tax rate of 4.5 percent over the last five years, though the company points to pension contributions and research credits that have reduced the bill.

In 2008, the Government Accountability Office reported that 83 of the 100 largest publicly traded corporations in the United States had subsidiaries in jurisdictions listed as tax havens; it cautiously emphasized that this did not prove that their decisions to locate there were motivated by tax minimization.

The British journalist Nicholas Shaxson takes a bolder and more aggressive swipe at the issue in a new book, “Treasure Islands,” arguing that the globalization of tax evasion is undermining fiscal and economic stability in developed and developing nations alike.

Mr. Shaxson provides a fascinating narrative that is both analytically compelling and rich in institutional detail. A section of the book’s Web site provides both a concise summary and a specific rebuttal of many assertions of offshoring cheerleaders.

While business destinations like Bermuda and the Jersey Islands play a colorful role in his story, Mr. Shaxson emphasizes the larger lack of transparency and accountability, characterizing both the United States and Britain as major tax havens.

He also outlines specific solutions, including international tax treaties. Some countries have adopted a poetically named General Anti-Avoidance Principle, which closes tax loopholes by stipulating that any act contrary to the spirit of the nation’s tax laws is illegal.

Here in the United States, the public interest group Citizens for Tax Justice proposes specific policy measures that could increase corporate tax revenue without encouraging corporations to shift profits or jobs abroad.

Publicity around these issues has generated a grassroots effort to publicly embarrass corporate tax avoiders. The organization UK Uncut mobilizes protesters by calling attention to cuts in public services that could easily be averted by improved corporate tax enforcement. Similar efforts are getting under way in the United States.

Some economists champion tax havens. In an article in the Journal of Economic Perspectives published last fall (also titled “Treasure Islands”), James R. Hines Jr. of the University of Michigan argued that they contribute to financial market competition, encourage investment in high-tax countries and promote economic growth.

Like many economists, Professor Hines expresses far more confidence in the market than in the state. He worries more about possible overtaxation than about undertaxation of corporate income. He does not engage with such concepts as “tax justice.”

The most vivid character in Robert Louis Stevenson’s beloved adventure story “Treasure Island” was the one-legged sailor Long John Silver. He never described himself and his colleagues as pirates. No, they were “gentlemen of fortune.”