On Wednesday, Senate Democrats are expected to create legislation that would require million-dollar earners to pay at least 30 percent of their income in taxes. Even if the bill faces a brick wall of Republican opposition, which it will, a vote on this proposal cannot come soon enough.
The bill, to be introduced by Senator Sheldon Whitehouse of Rhode Island, would impose a new rate of up to 30 percent that would phase in gradually on incomes between $1 million and $2 million. The new rate would have to be paid if it is higher than the taxpayer’s current rate. It would operate like the alternative minimum tax, superseding all brackets and the lower rates for investment income, though it would preserve the incentive for charitable donations.
Those taxpayers who earn most of their high incomes from salaries would not be affected, as their rates are already higher than 30 percent. But taxpayers like Mitt Romney, who earn most of their income from investments or hedge-fund partnerships that are taxed at 15 percent, would have to pay substantially more.
President Obama prefers the example of Warren Buffett, who, he has said, pays a smaller tax rate than his secretary. (Thus, he calls it the “Buffett Rule.”)
The Congressional Research Service estimates that the Buffett Rule, requiring millionaires to pay at least the same rate as most middle-income taxpayers, would affect about a quarter of all millionaires, or 94,500 taxpayers. Citizens for Tax Justice, a liberal policy group, says the bill’s 30 percent rate would bring in about $50 billion a year.
The Obama administration says it is supportive of Mr. Whitehouse’s bill but still wants to see other changes in the tax code, such as using limits on itemized deductions for the highest earners to generate more tax revenue.
Both approaches would be good starts toward making the rich pay a fairer share and reduce the mounting cuts to government programs that benefit the less fortunate. But they are only the beginning. Sound tax policy calls for raising the capital gains tax, which, at 15 percent, is the lowest since the Great Depression.
That rate is scheduled to go up to as much as 25 percent next year, but it will eventually need to rise to the level of ordinary income. Doing so would bring in $45 billion a year more than the Buffett Rule by 2014, according to Citizens for Tax Justice. Having a separate rate not only perpetuates income inequality, it also creates vast tax avoidance schemes. It is also important that the Bush tax cuts expire for all tax brackets at the end of this year.
Republicans are certain to filibuster Mr. Whitehouse’s bill in the Senate or try to ignore it in the House. But explaining a tax code that allows the wealthiest to escape their responsibility is getting much harder to do.
January 2012 Archives
Jan 31 2012, 9:19 AM ET
Some conservatives insist the GOP frontrunner pays half his income to the government. Their math is wrong, but their point is right on: Double taxation is a problem.
When the media reported that Mitt Romney's total tax rate was 15%, some people were mad at Romney for taking advantage of the tax code. But others were mad at the media for getting it wrong.
Mitt Romney's tax rate was not 15%, this group said. It was more like 50% because Romney's income is doubled taxed. He derives the vast majority of his income from corporate investments, which are taxed first under the 35% corporate income tax rate and second under the 15% rate for capital gains.
"There are two levels of taxation in capital gains," Mitt Romney explained succinctly to Larry Kudlow on CNBC. "One at the corporate level, which is a 35% rate, and another at the individual level, which has been 15%. So combined it's about a 50% tax."
The IRS, corroborated by some smart people, says Mitt Romney's real tax rate is 15%. Yet Mitt Romney himself, corroborated by other smart people, claims his real tax rate is more like 50%.
THE MISERY AND THE MYSTERY DOUBLE TAXATION
To understand the Romney's argument you have to understand something called double taxation. The standard argument against double taxation goes like this. Let's say you all own stock in Derek, Inc, which earned $100 in 2011 (sorry, I'm not a very good company). I'm taxed at the corporate rate of 35%. Out of $65 that remains, I offer a dividend to all of you to thank you for investing in me. That dividend is taxed, again, at 15%. That is double taxation. It brings the total tax on your kind investment to a total of 44.75%. That sounds outrageously high.
But like Derek, Inc., this standard argument against double taxation is only theoretically plausible and mostly mythological. The vast majority of companies pay far less than 35% of their income in taxes. GE paid practically nothing in 2011. Google paid about 22%. Out of 280 companies in a study by Citizens for Tax Justice, more than 250 had a tax rate under 35%.
Another way to see why the toll of double taxation is often far less than 44.47%, ask yourself a simple question: Why would I buy a stock in a company? Maybe it's that the company is making money. But maybe it's also because the company has potential. "If an oil company discovers a huge new oil field, its value will increase substantially well before any additional oil is extracted from the ground and sold at a profit," the Tax Policy Center's Eric Toder explained. If you sell that oil company's stock right after it shoots up, much of your capital gain isn't double taxed because it represents the hope for future income.
Back to Romney. Private equity firms like Bain Capital buy, fix, and sell companies whose profit comes after restructuring. The money private equity firms get from selling winners reflect the market's expectation that the newly buffed companies will perform well in the future. That's one reason why "the tax burden on private equity partners [such as Romney] is a lot closer to 15 percent than to the 44.8 percent figure," Toder says.
THE TAX CODE WE DESERVE
If I've convinced you that double taxation is no big deal, then ... I've failed. Double taxation does matter. But not for the reason that Romney is paying too much to Washington.
Of the four economists I spoke with for this article, all four criticized the spirit of double taxation and the way we tax investments. Collectively, they identified three problems.
Problem 1: The gap between investment and income taxes gives smart people a reason to spend lots of valuable time hiding their money. "When you have a 15% rate on capital gains and 35% rate on earned income for the wealthy, you create huge incentives for tax sheltering," said Len Burman, a professor at Syracuse University and renowned expert on capital gains taxes. "The people who invent all these tax schemes are really smart. They could better spend their time making stuff."
Problem 2: The gap between investment income and earned income makes the tax code revert to regressivity at the top. Millionaires made $258 billion of the $261 billion of net gains reported on tax returns in 2010 -- 97% of the of the total. That's neither an inherently good thing nor a bad thing. It's just the kind of stat that makes you see that the tax code isn't as progressive as the marginal rates make it look.
Problem 3. Double taxation is a symbol of our confusing tax code, and we could change it if we thought more holistically about the flow of money. "The double taxation of corporate income is not something that makes sense," said Alan Viard, an economist with the right-of-center American Enterprise Institute. "The better treatment is to not have a firm level tax and tax the income at the individual level. You would have to tax the gains from publicly traded stock as they accrue."
Seth Hanlon an economist with the left-of-center Center for American Progress said nearly the exact same thing. "The best way to deal with this would be to integrate the corporate and individual income taxes," he said. "Basically, shareholders would pay tax on income as it accrues, rather than when they sell an asset."
So, that's the deal with double taxation. It exists. It's not as bad as it sounds. But it's much worse than it should be.
Nota Bene from the economists:
-- Hanlon on the benefits of private equity: "The other aspect that seems especially ironic in the private equity context is that the use of debt can lower or zero out the company's tax bill. So some of the gain for the PE investors and managers might result directly from the reduction in tax at the corporate level."
-- Viard on the clear case for a lower dividend tax rate: "The sole argument for the dividend rate was to offset that double taxation. The cap gains and dividends offset is better than nothing. But it's not ideal."
-- Burman on how corporate taxes affect a new company: "You know that future income will be taxed and that affects the value of future expected profits. It does suggest that anticipated dividends aren't really double taxed because the value of the company already reflects the expected future taxes. I think this is the basis of the new view of dividends."
By Bill Knight
Pekin Daily Times
Posted Jan 30, 2012 @ 08:00 AM
President Obama this month announced cuts of almost $500 million in defense spending in the decade ahead, but the action is not as dramatic as what most news coverage and ultraconservatives suggested. However, genuine and sensible cuts to the Pentagon and other policy changes show there is hope for addressing the economy and helping employment, according to a new report from the Institute on Policy Studies.
In fact, “President Obama’s upcoming proposed military budget for 2013, while a bit smaller than what we previously expected, is still going to be bigger than last year’s budget,” said ISP director John Cavanagh, who co-authored the report, “America is Not Broke.”
“This military budget will exceed the budgets of the next 10 largest militaries put together,” Cavanagh added.
True, Obama is changing strategy to allow a troop reduction from 570,000 to 490,000 because the Pentagon goal no longer will be to fight two wars at once. And, true, some weapons programs will be delayed or dropped.
However, such moves play to overwrought concerns about spending while ignoring other needs, and they also invite criticism from political foes that the Pentagon is untouchable without risking national security.
A nation with a jobless rate of 8.5 percent should not be considered secure.
“A misplaced obsession with our national debt and austerity has overtaken the national debate on the economy,” the ISP report says. “Some lawmakers are asserting that the country is broke, that we must tighten our belts, and that we lack the resources to pay for teachers, firefighters, and other vital public servants. They argue that we can’t afford the government programs that help people in need, and claim we don’t have the funds for urgently needed job-creating investments.”
The report challenges that premise, arguing that the economic crisis actually offers a chance to use the country’s ample resources better. ISP suggests $824 billion in changes – seven times the savings Congress’s “super committee” was asked to propose.
The ISP’s recommendations fall into three categories:
• Spending cuts that would make the United States and the world more secure.
“The Pentagon consumes more than half of U.S. federal discretionary spending, much of it on things that do not make us safer,” it says. “Whereas $1 billion devoted to military production creates approximately 11,000 jobs, the same amount invested in clean energy creates about 17,000 jobs; in health care, 19,000 jobs; and in education, 29,000 jobs.”
The ISP suggests generating $252 billion in cuts can be made to free up funds for job creation without risk to our national security: ending the war in Afghanistan, reducing the huge network of overseas U.S. military bases, and eliminating programs that are obsolete and/or wasteful.
“All three of these goals are supported by the majority of Americans,” it reports.
• Revenues that advance a more equitable society.
Modest new taxes on Wall Street, corporations and wealthy individuals could raise more than $375 billion a year, while reducing reckless speculative activity and creating a healthier society.
Tax reform would generate $250 million of its $375 million total from two taxes: taxing financial transaction by investment traders and stopping the tax-haven abuse that permits corporations to escape the 35 percent tax on their profits. (The top U.S. corporations paid just 18.5 percent effective tax rate on their profits, according to Citizens for Tax Justice.)
“Today, opinion polls indicate widespread renewed support for proposals to increase taxes on millionaires, make Wall Street pay its fair share, and close corporate tax loopholes,” the report notes.
• Revenue increases and subsidy cuts that will create a cleaner environment.
“If all polluting industries were required to pay the full cost of environmentally harmful practices and products, they would have greater incentives to adopt improved green technologies and reduce our nation’s dependence on foreign oil,” the report states. “We recommend eliminating this corporate welfare and introducing new taxes on pollution that could generate an estimated $197 billion per year in revenue.”
Ending the war in Afghanistan alone would save $122 billion, ISP shows, and eliminating waste and unneeded weapons programs would save an additional $109 billion.
The United States has the money to allocate to ensure jobs for unemployed Americans and a more prosperous future, but such budgeting must be done with those priorities, not out of saber-rattling, fear or to line the pockets of the rich and powerful.
By: David Dayen Monday January 30, 2012 10:27 am
Sen. Sheldon Whitehouse plans to introduce the “Paying a Fair Share Act” on Wednesday. The bill follows the contours of what President Obama laid out as “the Buffett rule” in his State of the Union address. The bill would set a second alternative minimum tax for millionaires, essentially, at 30%. So after taxpayers with over $1 million in income, including capital gains and dividends, work out their taxes, they would have to pay an effective tax rate of either 30% or the result of their taxes with deductions, whatever is higher. The bill would “preserve the incentive for charitable giving,” so presumably charitable donations would be made exempt from this rule, which could perhaps spur lots of charitable giving rather than handing over more money to the government.
Whitehouse’s next step, according to aides, is to refer the bill to the Joint Committee on Taxation for a score on how much revenue this would raise. A preliminary score from Citizens for Tax Justice showed that the Buffett rule would raise $50 billion annually – so well over half a trillion in the 10-year budget window – and hit only 0.08% of all taxpayers. So this is a bill not for the 1%, but the 0.08%. For context, letting the Bush tax cuts expire for the top 2% generates about $800 trillion over ten years. So this rule change would actually add at least $500 billion on top of that, because the CTJ analysis assumes current law. This is not a small number; in fact, you’re talking about tax changes that would bring in $1.3 trillion, minimum, in the budget window. CTJ also assumed that the tax would phase in between $1 million and $2 million to avoid a “cliff” between $999,999 and $1,000,000 on the effective tax rate. So a less gradual phase-in would take in more money.
Josh Barro of the Manhattan Institute predictably argues this would result in bad policy.
Preferential treatment for capital gains isn’t an idea that the Republican congress invented in the 1990s. It has been a feature of the United States tax code for more than eight decades and is also present in substantially every other advanced country’s tax code. In every G7 country, even the taxpayers with the highest incomes pay capital gains tax at a significantly lower rate than on ordinary income.
The United States has had a preferential rate on capital gains almost continuously since 1922, when it was determined that a top rate of 73 percent was discouraging gains realizations.
So, a Buffett Rule would not simply mark a return to a time when tax burdens were higher on people with high incomes. It would entail enacting a new form of tax policy not used in other major countries and not used for any sustained period in the United States. It is very cavalier to contend that such a policy would not discourage investment.
It’s not cavalier at all. First of all, 30% is not 35%. Second, there is simply no economic analysis that shows a correlation between capital gains tax rates, or the difference between investment and ordinary income, and economic growth. It doesn’t really exist. I agree that the US has had a preferential rate on capital gains for a long time, but that’s a feature of the United States, not an argument for the superior nature of that preferential rate.
(I would consider just raising the capital gains tax rate, a large driver of inequality, rather than this Buffett rule thing, but the larger point stands.)
Simply put, the tax code has gotten completely out of balance as it relates to progressivity. Because of the generally regressive nature of state taxes, the income tax at the federal level needs to be more progressive. And the facts are that the code has been twisted so much that the richest 400 Americans in the country in 2008 paid an average effective tax rate of 18.2%. This is a problem that the country needs to solve, among other problems with the tax code.
By ROBERT PEAR and JONATHAN WEISMAN
Published: January 30, 2012
WASHINGTON — In an effort to regain public trust, the Senate voted Monday to take up a bill that would prohibit members of Congress from trading stocks and other securities on the basis of confidential information they receive as lawmakers.
The vote was 93 to 2.
Senators of both parties said the bill was desperately needed at a time when the public approval rating of Congress had sunk below 15 percent.
“The American public has no confidence in Congress,” said Senator Kirsten E. Gillibrand, Democrat of New York, who introduced an earlier version of the legislation.
At the same time, Democratic senators moved to tap into concerns about comparatively low tax rates paid by some of the nation’s top earners, introducing a bill that would require households with more than $1 million of adjusted gross income to pay at least 30 percent of it in taxes.
A handful of lawmakers have tried for years to enact restrictions on stock dealing by members of Congress. But their efforts drew little support until new attention on the practice last year — coupled with election anxiety — prompted a flood of backing for the idea and support from President Obama in his State of the Union address.
The bill states that members and employees of Congress are not exempt from the federal law and regulations that ban insider trading.
“No member of Congress and no employee of Congress shall use any nonpublic information derived from the individual’s position as a member of Congress or employee of Congress, or gained from performance of the individual’s duties, for personal benefit,” the bill says.
Federal securities law does not explicitly exempt members of Congress, but experts disagree on whether and when lawmakers may be found to have violated the law. The bill is meant to eliminate any ambiguity.
It says that lawmakers have “a duty arising from a relationship of trust and confidence” to Congress, the federal government and the citizens of the United States — a duty they violate by trading on nonpublic information.
The bill also requires members of Congress to disclose the purchase or sale of stocks, bonds, commodities futures and other forms of securities within 30 days of transactions. The information would be posted on the Web in a searchable format.
In his speech last week, Mr. Obama urged Congress to act, citing what he called “the corrosive influence of money in politics.”
“Send me a bill that bans insider trading by members of Congress,” Mr. Obama said. “I will sign it.”
The Senate was already writing such a bill. However, the bill does not subject lawmakers to a second type of restriction suggested by Mr. Obama, who said Congress should “limit any elected official from owning stocks in industries they impact.”
From talking to other lawmakers, executive branch officials and business executives, members of Congress learn potentially valuable information about military contracts, economic policy and myriad federal programs before the information becomes public. In addition, they can write spending bills in ways that, for example, benefit their own real estate investments.
The bill — the Stop Trading on Congressional Knowledge Act, or Stock Act — was drafted by Senator Joseph I. Lieberman, independent of Connecticut, and Senator Susan Collins, Republican of Maine. Similar bills were introduced by Ms. Gillibrand and Senator Scott P. Brown, Republican of Massachusetts.
“This is a measure that the American people are clamoring for,” Mr. Brown said Monday. “We need to re-establish trust with the American people, and this is a first step in doing that.”
In the House, more than 250 lawmakers, including at least 90 Republicans, have signed up as co-sponsors of a similar bill. Laena Fallon, a spokeswoman for the House Republican leader, Representative Eric Cantor of Virginia, said he “plans to move an expanded version of the Stock Act through the House in February.”
Senior House Republicans said they wanted to expand the bill to prohibit lawmakers from using nonpublic information in real estate transactions as well as stock trades.
Representative Louise M. Slaughter, Democrat of New York, who has been pushing such legislation since 2006, urged House Republican leaders to stop their “continued stalling.”
Academic studies have come to different conclusions about whether members of Congress have higher investment returns than ordinary investors.
Senator Sheldon Whitehouse, Democrat of Rhode Island, introduced the bill codifying the principle that the top earners should pay at least the tax rate of middle-class workers.
Mr. Whitehouse said he might press his legislation as a stand-alone bill or try to attach it to other legislation.
“In theory,” Mr. Whitehouse said, “we have a progressive tax code in which the more successful you are, the more money you make, the greater rate you pay in taxation. Unfortunately what turns out to be the fact, in practice, is that you have these huge exceptions.”
Mr. Whitehouse noted that the billionaire investor Warren E. Buffett had often asserted that he pays a lower percentage of his income in taxes than his secretary does.
The bill, following the rough contours suggested by Mr. Obama, creates what would be an alternative minimum tax for the most affluent.
Households with adjusted annual gross incomes over $1 million would prepare their taxes as they do now, with all the deductions, credits and loopholes intact. They would also calculate what 30 percent of their adjusted gross income amounts to. They would then pay whichever amount was larger.
Republicans showed no sign of coming to the table on the Buffett Rule legislation. Senator Orrin G. Hatch of Utah, the ranking Republican on the Senate Finance Committee, said he had breakfast with Mr. Buffett on Sunday, but rejected his personal entreaties. He cited an estimate by the liberal-leaning Citizens for Tax Justice that the proposal would raise $50 billion a year, a small percentage of a budget deficit that will probably top $1 trillion.
By Robert J. Samuelson, Published: January 29
Whatever else they are, the super-rich have now become political props. We can thank President Obama and Mitt Romney for this. Obama thinks he can ride resentment against the rich into the White House for a second term; and Republican Romney’s fortune, estimated at $190 million or more, qualifies him as super-rich.
By all means, Congress should pass the “Buffett Tax,” named after billionaire Warren Buffett, who noted that his 2010 tax rate (17.4 percent) was about half his secretary’s. The explanation is that Buffett’s income comes mostly from dividends and capital gains — profits on sales of stocks and other assets — that enjoy a preferential rate of 15 percent. This is neither socially just nor economically necessary.
Obama’s still-vague Buffett Tax would apparently impose a minimum 30 percent tax rate on incomes exceeding $1 million. Republicans should support it. Economic incentives for risk-taking wouldn’t collapse. Under President Reagan, the top capital gains rate was 28 percent. The economy did fine. And passing a Buffett Tax might improve political truth-telling.
For starters, don’t pretend, as Obama does, that taxing the ultra-rich would solve the deficit problem. Here’s what he said in the State of the Union address:
“Do we want to keep these tax cuts for the wealthiest Americans? Or do we want to keep our investments in everything else, like education and medical research, a strong military and care for our veterans? Because if we’re serious about paying down our debt, we can’t do both.”
We sure can’t. In September, the Congressional Budget Office estimated the 10-year deficit at $8.5 trillion. The nonpartisan Tax Foundation estimates that a Buffett Tax might now raise $40 billion annually. Citizens for Tax Justice, a liberal group, estimates $50 billion. With economic growth, the 10-year total might optimistically be $600 billion to $700 billion. It would be a tiny help; that’s all. “The purpose of the Buffett Rule is not to close the deficit gap,” Buffett has said. Hard choices remain, in part because existing deficit estimates already assume steep defense cuts.
It’s also a myth that all the ultra-rich enjoy low tax rates. In 2007, the richest 1 percent of taxpayers paid an average tax rate of 29.5 percent and provided 28.1 percent of federal revenues, reports the CBO. On their wages and salaries, many of the ultra-rich pay the top income tax rate of 35 percent plus a Medicare tax of 1.45 percent.
Who are these people? How did they get so rich?
In a study, economists Jon Bakija, Bradley Heim and Adam Cole break down the top 1 percent as follows: executives in nonfinancial companies, 30 percent; doctors, 14 percent; professionals in finance (banks, hedge funds, pension funds), 13 percent; lawyers, 8 percent; computer experts and engineers, 4 percent; sales workers, 4 percent; sports, entertainment and media stars, 2 percent. The rest include farmers, management consultants, real estate developers and scientists.
Most of these people probably got rich the old-fashioned way. They worked hard, started businesses (about one in eight is an entrepreneur or manager in a closely held company) or showed great talent. But traditional virtues can’t explain the growing concentration of income. From 1950 to 1980, the top 1 percent represented about 10 percent of Americans’ income; by 2000, this had increased to about 20 percent, where it’s remained, estimate economists Emmanuel Saez and Thomas Piketty.
Explanations abound: “superstar” rewards for those at the top; globalization (by expanding markets for the talented); warped corporate compensation practices. But the biggest contributor was the long financial market boom that inflated executive stock options and Wall Street compensation. “So many people in this group (corporate managers, bankers, traders) have pay that’s tied to the stock and financial markets,” says economist Bakija.
Consider: From 1980 to 2000, stocks rose almost tenfold; from 2000 to 2007, the gain was about 40 percent. And the boom’s largest cause was declining inflation, which reduced interest rates. As rates fell, stocks and other assets rose. The ultra-rich benefited partly from good luck. Ironically, because the boom is spent, the rise of inequality may cease or reverse (Wall Street bonuses are shrinking) just as political attacks on the rich intensify. From 2007 to 2009, the number of tax returns with incomes exceeding $1 million dropped 40 percent, says Scott Hodge of the Tax Foundation.
So, raise tax rates on Warren Buffett and others to upper-middle-class levels. But recognize that the anti-wealthy populist rhetoric is mostly political expediency. It distracts from the serious issues the country faces — creating jobs and closing long-term budget deficits. The anti-rich backlash is growing; a Pew poll finds 66 percent of Americans see “strong” conflicts between rich and poor, up from 47 percent in 2009. Pandering to this is easier than dealing with the future.
Would close so-called "Delaware loophole"
January 29, 2012
By Stacy Brown | PA Independent
HARRISBURG — Two Pennsylvania state representatives, a Democrat and a Republican, are teaming up to produce a bill that would close the so-called Delaware loophole and potentially add up to $600 million annually in state income.
State House Policy Committee Chairman Dave Reed, R-Indiana, and state Rep. Eugene DePasquale, D-York, are expected to outline their proposal at a news conference Wednesday in the statehouse
"We're looking to even the playing field for all businesses, so that they will be able to compete on their own merits as opposed to competing against those who have high-paid tax attorneys and lawyers who can find loopholes," Reed said Monday
The lawmakers said the proposal also would:
Require more companies in Pennsylvania to pay the 9.99 percent corporate net income tax;
Lower that tax from 9.99 percent to 6.99 percent.
Lawmakers could not provide exact figures for how much revenue would be lost because of the lower tax rate or gained from more businesses paying the income tax.
However, they anticipated the state would net millions in revenue, because about 75 percent of corporations in Pennsylvania are not paying the corporate net income tax because of the Delaware loophole.
The proposal would force all to pay, making up for at least some of the $500 million annual revenue officials said the state loses each year because of the loophole.
"We want to make the state business competitive and get rid of the loophole," DePasquale said. "We want to improve the business friendliness of the state. In the long term, this will help attract more companies to Pennsylvania, because we will lower the corporate tax rate to 6.99 percent."
By lowering the corporate tax rate, the proposal would lure more businesses to the state, thus having an impact on unemployment, Reed said.
"It's all about workers getting jobs and collecting paychecks instead of collecting unemployment checks," he said.
The Delaware loophole is used by some companies operating in Pennsylvania who set up a shell company in Delaware, which doesn't tax franchise fees, intellectual property payments and other so-called passive income.
The shell company controls the trademarks, patents or other investments, and charges the parent corporation a royalty for using the trademarked name or patent.
This allows the corporation in Pennsylvania to treat the payment as a business expense, which it then deducts from its income, thereby reducing its tax burden in Pennsylvania.
For small businesses without interstate operations, the Delaware loophole is not an option. "This tax scam forces small businesses to shoulder a bigger share of the state tax burden," said Eric Epstein, founder of Rock The Capital, a political watchdog group based here.
In fact, the state Department of Revenue reported Pennsylvania taxpayers lost $493 million through the loophole or about 35 percent of the sum paid in state business taxes last year.
A study issued in 2011 by the Institute on Taxation and Economic Policy, a Washington, D.C.-based non-profit think tank that works on state and national tax policies, and Citizens for Tax Justice, a Washington, D.C.-based tax research group, said at least 14 Pennsylvania-based corporations failed to pay the 9.9 percent tax rate after deductions.
The study provided as one example the H.J. Heinz Co., the Pittsburgh-based ketchup maker, which had nearly $1.6 billion in profits from 2008 to 2010 and paid just $13 million in taxes, a rate of 0.8 percent.
If the company paid the 6.99 percent tax rate under the bill, the state would have generated more than $111 million in revenue.
The study estimated that the state loses about $500 million a year it could receive from businesses if not for the Delaware loophole.
Reed said past proposals during former Gov. Ed Rendell's administration estimated that closing the loophole would generate between $500 million and $600 million in revenue annually.
"We are looking at a more narrow and focused view," he said." The state of Virginia did this and brought in between $30 million and $40 million, and we're confident that we'll bring in that amount in the first year."
The fact that the proposal has bi-partisan support is a step in the right direction, DePasquale said.
Stephen Miskin, a spokesman for House Majority Leader Mike Turzai, R-Allegheny, said Turzai hadn't seen any revenue projections about the plan, but the representative supports the proposal, because it would level the playing field for businesses in the state.
House Labor and Industry Committee Chairman Ron Miller, R-York, said he is waiting for more specifics before lending his support to the bill.
"We have to be careful that we don't hurt any companies in Pennsylvania right now," Miller said. "That's my main concern."
Lawmakers have been working for six months on this proposal, Miskin said.
Still, making legitimate businesses pay for a minority of bad business practices isn't fair, said Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry, based here, which represents businesses in the state.
"Companies do not owe Pennsylvania for their business operations outside the state. We will wait and see what the language is when the bill is introduced," Barr said. "We know that over the years, Pennsylvania has had the worst business tax structure in the country, so we are anxious to see what comes up with this."
Further, referring to the tax shelter as a loophole is a misnomer, said Kevin Shivers, president of the Pennsylvania chapter of the National Federation of Independent Businesses, based here, which represents small business owners.
"It seems to me that if I pay it, it's a tax. But, if someone doesn't pay it, it's a loophole. We have to get away from liberal tax and spend philosophy that says if you tax people more the economy will be okay," Shivers said. "The state needs to reduce structural impediments and reduce onerous burdens that punish job creation by making the tax code fair."
Posted on Saturday, 01.28.12
By Ana Veciana-Suarez
I will spend much of this weekend taming the beast that is my income tax folder, a multi-pocketed file with such handwritten labels as Office Supplies, 1099 and Charity. I keep detailed documentation in order to take every deduction available. Like Mitt Romney, my husband and I will pay Uncle Sam what we owe him but not a penny more come April.
This is by way of saying that we can rage all we want about Romney’s tax rate, how he pays a much smaller percentage of his income than the rest of us working stiffs, but the GOP presidential hopeful has done what most Americans try to do every year: Keep as much of their money as they can.
Mortgage interest? Check.
Donations to church and alma mater? Check.
Medical expenses? Check.
Romney released two years’ worth of tax returns this week, and the resulting debate has been as exciting as a season-ending installment of Survivor. In 2010, he and wife, Ann, earned $21.7 million and paid $3 million in federal taxes — a 13.9 percent tax rate, which is much lower than that of a family scraping by on an annual salary of $50,000.
This is inequitable, unjust and unreasonable, but Romney isn’t to blame. The problem is an outdated, labyrinthine tax system that is grossly unfair, a system that makes tax filing an onerous task for those of us with various sources of income, a system that favors the rich under the guise of promoting investment.
Romney benefits from a loophole known as a carried interest provision, which gives a handful of investment executives preferential tax rates. It’s perfectly legal — although you and I probably don’t earn enough or the right kind of income to qualify for that, so we fork over a larger percentage of wages to the federal government.
We shouldn’t begrudge Romney his millions. In a way, he’s being rewarded for his skills and business acumen as a venture capitalist. Good for him. I expect similar rewards for my talents, as do my friends. Most have studied hard and now work long hours to achieve their monetary success.
But Romney has protected his millions by taking advantage of a tax system that is skewed against the middle class. He is able to multiply his millions through avenues not available to the average American, through loopholes and credits and deductions passed into law by the very people who stand to benefit from them.
Citizens for Tax Justice, a nonprofit advocacy group, has estimated that the tax plan Romney has proposed would allow him to pay less than half of his current rate. And under GOP rival Newt Gingrich’s plan, he would pay no taxes at all because Gingrich wants to eliminate taxes on capital gains, dividends and interest income.
Romney’s tax return, a veritable magnum opus at 550 pages, inflames the growing debate about income inequality in a country that prides itself on providing equal opportunity. It comes at a time when some leaders are calling for cuts in social programs that would disproportionately affect those with less income but higher tax rates. No wonder Occupy Wall Street has struck a chord with those who find their prospects diminishing and their income stagnating.
Envy is a dangerous emotion, yes. It colors aspirations and damages success. Some leaders, invariably those who stand to gain most politically or monetarily, like to paint the discussion in those terms.
But it’s not envy or jealousy that fuels the anger over secretaries paying a higher tax rate than the millionaires they work for. It’s a sense of fairness, a yearning for a level playing field where everyone is being treated equally.
Jan. 26 (Bloomberg) -- Scott Hodge, president of the Tax Foundation, and Bob McIntyre, director of Citizens for Tax Justice, talk about President Barack Obama's proposal for a minimum corporate tax on U.S. multinational companies. They speak with Trish Regan on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Posted: 01/27/2012 9:59 am
It's been a big week for calling out corporate tax dodgers.
In his State of the Union speech, President Obama called for an economy where "everyone plays by the same set of rules" and where companies can't avoid taxes by shifting profits overseas. He acknowledged what we've been saying for a long time which is that special interests have long played by a different set of rules than the rest of us -- ones they've helped create, I might add.
That same night, Massachusetts Senate candidate Elizabeth Warren went on The Daily Show and called out 30 corporations that a recent U.S. Public Interest Research Group (U.S. PIRG) and Citizens for Tax Justice study found paid more to lobby Congress than they did in federal income taxes between 2008 and 2010. When Warren told this to Jon Stewart on The Daily Show, it made the usually unflappable comedian's jaw drop.
The special treatment that special interests have won over the years is on full display when it comes to our tax code. While small businesses and ordinary taxpayers pay taxes on the income they earn, companies like GE and Wells Fargo have so deftly manipulated the tax code that they paid no taxes on billions of dollars in profits between 2008 and 2010. In fact, they actually got tax rebates from Uncle Sam on tax day. While it may sound criminal, it's all perfectly legal.
Most taxpayers can't employ hordes of tax lawyers to manipulate the tax system or hire an army of lobbyists to craft the tax code in their favor. Warren put it best during her Daily Show interview: "Washington now works for those who can hire an army of lobbyists and an army of lawyers."
The "Dirty Thirty" companies identified by U.S. PIRG and CTJ all told spent nearly half a billion dollars lobbying Congress on tax policy and other issues over the three year period of the study. "They hire those people to make [the tax code] onerous so they can worm their way through," as Stewart rightly asserted.
Some of the most egregious tax loopholes allow large corporations to stash profits in offshore tax havens to avoid paying federal taxes. Many of the offshore subsidiaries are nothing more than PO boxes. In fact, a single five-story building in the Cayman Islands houses over 18,000 corporations under one roof. At least 22 of the companies among the Dirty Thirty have subsidiaries in offshore tax havens like the Caymans. Tax havens cost America $100 billion a year in lost revenue and it's ordinary taxpayers that end up footing the bill in the form of higher taxes, fewer services, or more debt.
The short term solution is simple: close the loopholes. But to stop corporations from just finding new loopholes, we need to turn back the tidal wave of corporate money that is swamping our elections. As a result of the Supreme Court's ill-fated decision in the Citizens United case, companies can fill the campaign coffers of electoral candidates directly from their treasuries. For this reason, the lobbying done by these tax dodging corporations should be seen as a cautionary tale. It's only the tip of the iceberg unless we can reverse the tide of corporate money.
By Monitor staff
January 26, 2012
If Mitt Romney hoped that his 2010 tax return would draw less attention if he released it on the same day as President Obama's speech, he badly miscalculated. Obama didn't mention Romney in his speech, but he didn't have to. The 13.9 percent Romney paid in taxes might as well have appeared as a subtitle to the annual political theater that is the State of the Union address.
The address contained what will be the theme of Obama's reelection campaign: economic justice. Obama called for reform of the federal tax code and the imposition of the "Buffett rule," which would require taxpayers with an income of $1 million or more to pay an effective tax rate of at least 30 percent rather - than the 15 percent people like Warren Buffett and Romney pay because the bulk of their income comes from capital gains and dividends. The president is right. And his plan represents a stark contrast to those of his would-be GOP opponents, who would lower taxes on the rich, thereby increasing the deficit.
The Buffett rule won't become law this year, nor will any other tax reform. Odds of congressional action in an election year are somewhere between infinitesimal and zilch. The exception could be - and this is still a very long shot - a compromise that would see the continuation of some of the George W. Bush tax cuts due to expire at year's end. The president would prefer to allow the cuts to be retained for households that earn less than $250,000 per year and revert to their old rates of 36 percent and 39.6 percent for the well-to-do. The 15 percent tax on capital gains would rise to 20 percent and stock dividends would be taxed as regular income.
Upward mobility in America has declined. Median household income in 2010 fell to nearly 1970 levels. Meanwhile, the wealthy made great gains. If the president's choice is between a bad tax deal offered by congressional Republicans or doing nothing, the answer should be do nothing. A tax increase will be painful for lower-income filers, but allowing the Bush tax cuts to expire would eliminate a huge chunk of the deficit and make deep cuts to social programs that benefit the poor and middleclass unnecessary.
"Now you can call this class warfare all you want," Obama said of his call for a higher tax rate on the wealthy. "But asking a billionaire to pay as much as his secretary in taxes? Most Americans would call that common sense."
Placing Obama's proposals side-by-side with the tax plans put forward by the men who seek to replace him demonstrates why tax fairness will be at the heart of the 2012 presidential contest. All the Republican plans, but particularly the ones proposed by Romney and Newt Gingrich, would lower taxes dramatically on the wealthy, increase the deficit by trillions of dollars, and mean higher taxes for some in the middle class.
Romney wants all the Bush tax cuts extended and the estate tax eliminated. His plan, according to the nonpartisan Tax Policy Center, would lower the taxes of people who earn a million-plus by about $300,000 per year. Gingrich's plan, which also lowers taxes on the rich, also wipes out the capital gains tax, which means Romney's 14 percent rate would fall to something near zero.
The liberal-leaning group Citizens for Tax Justice analyzed the impact of the Republican candidates' tax plans on a state-by-state basis and found that in New Hampshire, the richest 1 percent would enjoy an average tax cut 200 times as large as the average cut received by middle-income residents.
Come November, to put it in the president's terms, voters will have the choice. We can be "a country where a shrinking number of people do really well, while a growing number of people barely get by, or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules."
First Posted: 01/25/2012 9:55 pm Updated: 01/26/2012 12:49 pm
Unfair tax rates are the topic du jour when it comes to inequality in America and protesters in Hollywood put the issue center stage on Wednesday afternoon with a march down Hollywood's Sunset Boulevard to highlight what they called FedEx's excesssively low rate.
Organized by Good Jobs LA, Service Employees International Union, the Teamsters and a smattering of Occupy LA members, the protestors took to the streets at noon with bullhorns, drums and provocative signs, traveling from the CNN building at Cahuenga Boulevard to a FedEx branch at Vine Street to deliver boxes of what they called "unpaid" tax bills.
Good Jobs LA claims that FedEx received a federal tax subsidy of more than $552 million, which could have created over 1,000 jobs, contributed tens of millions for Medicaid and food stamp benefits, and added more than $11 million for education programs.
Good Jobs LA points out FedEx is part of a group of 78 companies that paid less than 1 percent tax for at least one year from 2008 to 2010, according to the study "Corporate Taxpayers & Corporate Tax Dodgers." FedEx paid a rate of -3.2 percent, according to the study.
The study, published in November by Citizens for Tax Justice and the Institute on Taxation and Economic Policy, lists, among other things, companies that paid a tax of 1 percent or less for at least one year from 2008 to 2010. When the report was released, the Washington Post highlighted companies on the list that actually paid a negative tax rate, including General Electric (-45 percent) and Pepco Holdings (-118 percent).
Anyone outraged by companies finding enough loopholes to legally dodge their 35 percent tax responsibility would have fit right in with the protesters in Hollywood Wednesday. Signs with messages like "We Are The 99%" and "If protesting is terrorism, Martin Luther King Jr. would be in Gitmo" made an appearance. The marchers also noted with pleasure that they loudly passed by the office buildings of other large corporations.
Refugio Mata, a spokesperson for Good Jobs LA, explained to The Huffington Post over the phone that the banks have come under activists' scrutiny for their foreclosure and consumer practices, while Verizon and FedEx are companies that paid less than 1 percent of taxes per year from 2008 to 2010.
By 1:30 p.m., the march had ended, and by 2 p.m. the protesters had already dispersed. Mata claimed that there were no confrontations between what she estimated were 400 gathered protesters and the riot units of assembled police. Officer Larry Park, a spokesman for the Los Angeles Police Department, told The Huffington Post that the march was peaceful and there were no incidents.
A FedEx employee at the Hollywood branch declined to comment to The Huffington Post but confirmed that the company closed only for a short period of time.
The uproar over Mitt Romney's finances shines a light on the world's most unlikely financial capital.
BY JOSHUA E. KEATING | JANUARY 24, 2012
Grand Cayman is known for its beach resorts, world-class scuba diving, and as the unlikely facilitator of billions of dollars in global financial transactions.
The island has been garnering a lot of publicity this week -- not the good kind -- thanks to the scrutiny of presidential candidate Mitt Romney's tax returns, which include millions of dollars in foreign investments. According to ABC News, Romney has as much as $8 million invested in 12 Cayman Islands funds. (The governor has money parked in Bermuda, Ireland, and Luxembourg as well.)
Romney's Cayman riches aren't actually a new story. The L.A. Times reported in 2007 that the former Massachusetts governor was listed as a general partner and investor in BCIP Associates III Cayman, a fund set up by his old employer Bain Capital. Bain has as many as 138 funds registered in the Caymans, according to ABC. The BCIP fund is registered at P.O. Box 908GT in George Town, the Caymanian capital. This is the address of Walker House, the local office of international law firm Walkers. It's also, on paper at least, home to dozens of other companies including Del Monte Fresh Produce Inc., the global food giant physically headquartered in Coral Gables, Florida.
Walker House is just one of a number of addresses in downtown George Town used by corporations, including Coca-Cola, Oracle, and Intel, to minimize taxes or cut out the red tape in international transactions. The vast majority of these companies are legally prohibited from doing business in the Caymans themselves. The most famous of these addresses, located just down the road at 335 South Church St., is Ugland House, a five-story office building that is home -- physically -- to law firm Maples and Calder, and -- on paper -- nearly 19,000 companies.
President Barack Obama called out Ugland House specifically in a 2009 speech, saying "either this is the largest building in the world or the largest tax scam in the world." Legally speaking, it's neither. A 2008 GAO report found no evidence of illegal activity by Maples and Calder or any of the entities registered at Ugland House, about half of which have billing addresses in the United States. But, particularly in the case of hedge funds and private equity funds like Bain's -- about 38 percent of Ugland's "tenants" -- the building makes a mockery of the U.S. tax system.
As Romney's campaign has repeatedly stated, investors in these funds do pay U.S. taxes on their income. But there are significant financial incentives in having a Cayman address. First of all, the British territory has no direct taxes, and makes it exceptionally easy to set up a new company -- it only costs about $600. A fund with a Cayman address also allows foreign investors to invest in U.S.-run funds -- such as the bricks-and-mortar incarnation of BCIP Associates on Huntington Avenue in Boston -- while avoiding double-taxation in both the United States and their home countries.
A managing partner of Maples and Calder told Bloomberg in 2009 that “having a registered office address in the Cayman Islands is driven by commercial considerations, not by tax avoidance," but there are tax advantages for U.S. investors. Under U.S. tax law, a person is taxed on all foreign income. But a foreign corporation is not taxed on foreign income until it is distributed to shareholders, meaning greater returns for investors like Romney. The Caymans also allow U.S. non-profit entities like pension funds and university endowments to invest in hedge funds without paying the "unrelated business income tax," which could be as high as 35 percent if those funds were based in the United States.
There are also concerns that the complexity and lack of transparency in Cayman Islands transactions can make tax evasion and money laundering easier, though there's no evidence that Bain or Romney were involved in these activities and the vast majority of Cayman Islands transactions are entirely legal.
This is not to say they're popular. The organization Citizens for Tax Justice estimates that the U.S. federal government loses as much as $100 billion per year in revenue due to tax havens. Sen. Carl Levin has proposed legislation that would treat foreign-registered, U.S.-based corporations as American companies for the purposes of tax law. Legislation to shut down the Caymans as a tax haven has been proposed in the British parliament. Given the nearly $5 trillion held by U.S. corporations and individuals in tax-haven countries, though, these motions are likely to face some stiff, and well-funded resistance.
As for Romney, he argues, "I don't think you want someone as the candidate for president who pays more taxes than he owes." Fair enough, but it will be up to voters to decide what the definition of the word "owes" is.
Jan. 26, 2012 | By Corey Bridwell with Paige Osburn | KPCC
About 200 people met Wednesday outside a Hollywood FedEx store to protest the FedEx corporation for allegedly paying less than 1 percent in federal taxes last year.
The event was organized by the non-profit Good Jobs L.A. with support from Service Employees International Union (SEIU) and the Teamsters Union. Referencing a 2011 report by Citizens for Tax Justice, demonstrators accused FedEx of making $4.2 billion in profits but paying less than 1 percent in federal taxes.
"During that time FedEx spent $46 thousand a day on lobbying Congress," said the group in a Facebook statement. "$13.8 million more than they paid in taxes."
Once the protesters arrived, the FedEx on Vine Street shut and locked its doors. Ten police officers were on hand to observe the demonstration.
Organizers parked a truck in the parking lot directly in front of FedEx, acting out skits and giving speeches. One man dressed in a sheet of white paper and did a rendition of School House Rock's "I'm Just A Bill." Another wore three FedEx boxes and called himself "the FedEx Monster."
"As a social worker I see the impact of corporations like FedEx not paying their fair share," said demonstrator Joaquin Miramontez.
"Yesterday I was working with a family. They were trying to get help with childcare and we could not get them any because the program that we had last year, they had it cut off. We don't have the funding."
FedEx itself objected vehemently to the protestor's accusations, calling the Citizens for Tax Justice report "extremely inaccurate and misleading."
"In the past five years alone, our total taxes that we paid were $9 billion dollars," said Shea Leordeanu, a FedEx spokesperson. "That's billion with a B."
She went onto point out that since FedEx is a publicly traded company, they're required to release their tax information - both online and in investment reports. According to FedEx Corporation's December 2011 10-Q report, FedEx's 2011 income tax rate was consistently between 35.5 and 36.3 percent.
"The Citizens for Tax Justice, they don't show their numbers," Leordeanu concluded. "So I don't know how they do their math. But we're actually required to show ours."
By Michael Moore, Union Advocate editor
25 January 2012
ST. PAUL - Workers briefly occupied the Wells Fargo tower downtown St. Paul Tuesday, shaming the giant bank for using loopholes in the corporate tax code to avoid paying its fair share.
The rally, timed to coincide with the opening day of the Minnesota legislative session, concluded with a march to St. Paul RiverCentre, where the Minnesota Chamber of Commerce was holding its annual “Session Priorities” gala dinner for state lawmakers.
The protest march, organized to spotlight the “priorities of the 99 percent,” was planned by SEIU Local 284, which represents 8,000 school service employees statewide, and the advocacy group Minnesotans for a Fair Economy.
“At the beginning of the legislative session, Wells Fargo and the Minnesota Chamber of Commerce will tell state legislators how to vote to protect the agenda of the top 1 percent,” the organizers said in a statement before the event. “Minnesotans who have had enough of such skewed priorities and corporate irresponsibility will assemble this afternoon to speak out.”
protest at Wells Fargo bank
Wells Fargo has accepted more in federal tax subsidies than it has returned to the government in tax payments, protesters said.
Photo by Michael Moore
Wells Fargo is among the nation’s most notorious corporate tax avoiders, according to the non-profit research group Citizens for Tax Justice. The company has 19 subsidiaries in the Cayman Islands, a tropical tax haven.
From 2008 to 2010, Wells Fargo paid an effective tax rate of -1.4 percent. The means the bank accepted more in federal tax subsidies – $17.9 billion over the three-year period – than it returned to the government in tax payments.
At the rally, workers expressed their outrage on hand-written signs, including “I pay more taxes than Wells Fargo,” and “Wells Fargo, pay your fair share!”
Blaine McCutchan, a Local 284 member from Golden Valley, said that while Wells Fargo has padded its profit margins by dodging federal taxes, the public school where he works as a facilities maintenance employee, Intermediate District 287, has struggled with steadily shrinking budgets.
“I love my job,” McCutchan said. “But each day it becomes more and more difficult to make sure that the building I am responsible for is in the best condition. With each budget cut, my ability to maintain an environment where students can learn and grow is undermined.
“Today I’m standing with my fellow Minnesotans to call on Wells Fargo and the Minnesota Chamber of Commerce to invest in our children’s future. It’s time to set aside the priorities of the top 1 percent and focus on the priorities of the rest of us.”
January 25, 2012
The release of Mitt Romney’s tax return has renewed a debate that Warren Buffett raised last year when he pointed out that, because of the way income from investments is taxed, he paid a lower tax rate than his secretary. President Obama further called attention to this issue by inviting Buffett’s secretary to the State of the Union last night.
However, the ability to dodge paying the top tax rate extends not just to individuals, but corporations as well. Many American companies use the tax code’s loopholes to dodge paying any of the 35 percent corporate tax rate entire. All the while, beneath the debate lies the underlying question of how money influences politics in America and how that, in turn, affects businesses and the economy.
Low Taxes for High CEO Payers
In November of last year, two left-leaning think tanks, Citizens for Tax Justice and the Institute on Taxation and Economic Policy, released a study showing that 30 US companies were paying no taxes with many even receiving money from the federal government.Major American corporations like General Electric (GE) and Boeing (BA) avoided paying any taxes between 2008 and 2010 (though Boeing rejected the claim through a spokesman).
Companies use a variety of different corporate loopholes to avoid paying the full 35 percent that have seeped back into the tax code after Ronald Reagan managed to push through legislation that swept away such tax breaks in 1986. Companies were able to use write offs for accelerated depreciation on equipment, deductions for executive stock options, and for making products in the United States instead of overseas.
Where is all this money going if not to the Federal Government? One area could be CEO compensation. A study from the left-leaning Institute for Policy Studies released in August of last year revealed that 25 of the 100 highest paid CEOs in America were earning more money than their company was paying in Federal taxes in 2010.
Among others, GE’s Jeff Immelt earned $15.2 million while GE received a $3.3 billion tax refund, Boeing’s Jim McNerney received $13.8 million while Boeing paid only $13 million in taxes, and eBay’s (EBAY) John Donahoe made $12.4 million while the company received a $131 million dollar refund.
Corporate Loopholes Avoiding Taxes
While some may be horrified by this sort of data, there are many outside of the Occupy Wall Street movement who will defend these elements of the tax code. Many would argue that lower rates of taxation for investment income can spur the flow of capital into the economy and and benefit economic growth while corporate deductions are most often based on legitimate need and free up money for growth and hiring in some of America’s biggest companies.
However, the picture does grow murkier when one considers the amount of money being spent by these corporations on lobbying. A recent study by researchers Raquel Alexander and Susan Scholz of the University of Kansas School of Business, reported on NPR’s Planet Money, showed that companies spending on lobbyist are more than getting their money’s worth.
The study showed that for every $1 spent on lobbyists around the 2004 American Jobs Creation Act, corporations could expect $220 in tax breaks, a return of 22,000 percent. Supporting this is a study from Public Campaign, a corporate watchdog group, that cited 29 corporations that paid more to lobbyists than they did in federal taxes between 2008 and 2010. Once again, General Electric lead the way, paying out over $80 million to lobbyists between 2008 and 2010 while receiving $4.7 billion in rebates. PG&E (PCG) also lobbied heavily in the same period, spending $79 million on lobbyists while securing a $1 billion tax rebate.
2012 Elections Could Focus on These Issues
The debate over the most effective methods for stewardship of the American economy look to rage on throughout the year as both parties prepare for the 2012 elections. Groups like the Occupy Movement and the Tea Party should ensure that concerns over the influence of money on politics and the structure of the tax code will continue to be a central focus for some time to come.
By ABC News | ABC News
ABC News' Huma Khan, Elizabeth Hartfield, Matt Negrin, Chris Good, Amy Bingham, Jeunee Simon, Greg Krieg, Meg Fowler and Sarah Parnass report:
Fact or Fiction Number 1 - The Booming Economy: Obama's Jobs Story
Did the economy crater before President Obama's inauguration, then rebound once his policies took effect?
It seems unlikely that the president would utter inaccurate jobs numbers during his State of the Union address, but while we wait for official White House citation, the president made at least one claim that for now looks iffy. The transcript:
" In the six months before I took office, we lost nearly four million jobs. And we lost another four million before our policies were in full effect. Those are the facts. But so are these. In the last 22 months, businesses have created more than three million jobs. Last year, they created the most jobs since 2005."
4 million jobs lost in 6 months before Obama took office: Looks like this total falls short of 4 million. Subtracting the total employment listed in the January 2009 Bureau of Labor Statistics employment report from the same total in August 2008, one arrives at 3.378 million jobs lost. **
Another 4 million jobs lost before Obama's policies took full effect. Using this Bureau of Labor Statistics table, starting at February 2009, the sum of monthly job losses surpass 4 million in October 2009. President Obama's stimulus was passed in February 2009-though it took notoriously long for that money to make its way out the door.
3 million jobs created over 22 months, more jobs created in 2011 than in any year since 2005. Using total employment, Obama's numbers don't hold up. According to the same BLS table, the economy added 2.056 million jobs over 21 months (counting backward, the next month saw job losses). And 2011 saw more job growth than any year since 2006, not 2005. But Politifact notes that Obama's statement was accurate-he was talking about private-sector jobs.
**UPDATE: President Obama was referencing private-sector jobs exclusively when talking about jobs lost before his time in office, according to the White House official. Based on this private-sector jobs chart, the economy lost 3.506 jobs in the six months before his inauguration, not four million.
Fact or Fiction Number 2 - Obama's Plan for Foreclosures
"That's why I'm sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won't add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust."
The Obama administration has announced a number of programs to salvage the housing market, which continues to be a drag on the U.S. economy. Today, the president was referring to a plan he announced in October from the front porch of a home in Las Vegas, which has one of the highest foreclosure rates in the country. The president's plan would allow struggling homeowners who have mortgages backed by Fannie Mae or Freddie Mac to refinance without getting a new appraisal or a full credit check. The program would also eliminate some risk-based fees for borrowers.
The proposal would alter the $75 billion Home Affordable Refinance Program, or HARP, which was launched in 2009 to help distressed homeowners.
If a homeowner has a mortgage of $250,000 at a 6 percent interest rate, they would be able to take advantage of record low interest rates and refinance their home. If they got a rate that's 4.5 percent or lower, the homeowner would save $250 a month, or $3,000 a year. Given that there are 4 million homeowners who are backed by government-sponsored entities, the administration says the program can help millions of Americans.
But the initial HARP program fell short of its initial goals, with only about 900,000 homeowners taking advantage of it, far less than what the administration had hoped. Additionally, many homeowners who took advantage of the program ended up defaulting again on their mortgage.
The president tonight touted this new proposal as having no red tape or runaround from banks, but there are a number of caveats in his program. Only those who signed a mortgage before May 31, 2009, and have not refinanced previously under the Home Affordable Refinance Program are eligible for the new scheme. The loan-to-value ratio has to be greater than 80 percent. Borrowers must also have good credit and must have kept up with their mortgage payments, with no late payment in the past six months and no more than one late payment in the past 12 months.
Some economists calculate that it would only benefit 1 million households, a relatively small number given that more than 6 million homeowners are facing foreclosure or have delinquent payments. Others say the restrictions are too stringent and automatically cut out those under-water homeowners who have bad credit.
Fact or Fiction Number 3 - The American Auto Industry is Back
The manufacturing sector is a key part of Obama's "Blueprint for An America Built to Last," which he outlined in his state of the union address, and a key part of that sector is the American automobile industry. "On the day I took office, our auto industry was on the verge of collapse … and tonight, the American auto industry is back," Obama said in his address.
When Obama took office in 2008 the American auto industry was indeed in crisis. General Motors, Chrysler, and Ford were all facing financial turmoil, and seeking government bailouts in order to stay afloat. In 2009, Obama hired Steve Rattner to serve as his car czar, and oversee the federal bailout of these three American institutions.
Today, General Motors, Chrysler, and Ford have turned around. General Motors recently reclaimed its place as the top-selling automaker in the world, ousting the previous top-seller, Toyota. Chrysler is currently America's fastest growing car company, and Ford recently announced plans to invest $446 million in manufacturing in Brazil.
As part of this claim, Obama gave a subtle jab to his one of the GOP presidential candidates, Mitt Romney. On the topic of the auto industry, Obama said "some even said we should let it die." That comment was likely a reference to the former Massachusetts governor's 2008 Op-Ed piece in the New York Times titled "Let Detroit Go Bankrupt," in which Romney argued against a bailout for the industry.
Fact or Fiction Number 4 - Debt Serious: Obama's Plug for Students
In his State of the Union speech tonight, President Obama said Congress should slow interest rates on student loans because "Americans owe more in tuition debt than credit card debt."
As of late 2010, that's true. In September, a student aid study reported that Americans owed $830 billion in student loan debt, and $825 billion in credit card debt.
The National Center for Education Statistics says : "38 percent [of all undergraduates in 2007-08] took out an average of $7,100 in student loans … and 4 percent of students had parents who took out an average of $10,800 in Parent PLUS loans. … 34 percent of all undergraduates took out federal Stafford loans averaging a total of $5,000. Subsidized Stafford loans were received by 30 percent of undergraduates and averaged $3,400, while 22 percent received an average of $3,200 in unsubsidized Stafford loans."
Fact or Fiction Number 5 - The Rich, Their Secretaries and Taxes
Treasury Secretary Geithner yesterday declined to answer a key question about the president's proposed "Buffett Rule": How many millionaires and billionaires pay lower tax rates than middle-income families?
The answer: not that many.
Read more from ABC News' Jon Karl here.
Fact or Fiction Number 6 - Soaring Energy Production and Advances in Offshore Drilling
Nowhere is the promise of innovation greater than in American-made energy. Over the last three years, we've opened millions of new acres for oil and gas exploration, and tonight, I'm directing my Administration to open more than 75 percent of our potential offshore oil and gas resources. Right now, American oil production is the highest that it's been in eight years. That's right - eight years. Not only that - last year, we relied less on foreign oil than in any of the past sixteen years.
The president tonight touted the rise in domestic energy production and a decrease in U.S. oil imports during his term. While his claims on oil production are true, they don't quite live up to the facts when it comes to imports.
In 2010 - the most recent full year for which the U.S. Energy Information Administration has published data - crude oil production was the highest since 2003. Total energy production, which includes fossil fuels and renewable energy, was the highest it has been since the EIA started recording the data in 1949. Read more from the EIA here.
In the first seven months of 2011, total production was more than 5 percent higher than during the same time period in 2009, and the total numbers for the full year 2011 looked to surpass 2010. Read more from the EIA here.
Meanwhile, offshore oil production has grown under Obama despite the moratorium on deepwater drilling that he imposed in 2010, following the BP oil spill in the Gulf of Mexico. Oil production in the Gulf of Mexico was at record levels that year. In 2009, total oil production from the U.S. Outer Continental Shelf was the highest since 2003, according to data from the Bureau of Ocean Energy Management, Regulation and Enforcement.
Imports have dropped over the years, especially from oil-rich Middle Eastern countries. But the president's assertion that foreign oil imports are the lowest in the past 16 years may not completely be true. The United States imported more petroleum in 2010 than it did in 2009, according to the EIA. And total imports in 2010 - including that of oil and coal - were lowest in 13 years.
Fact or Fiction Number 7 - Overseas Tax Breaks
Obama called tonight for America to "stop rewarding businesses that ship jobs overseas, and start rewarding companies that create jobs right here in America."
"Right now, companies get tax breaks for moving jobs and profits overseas," Obama said at in his third State of the Union address Tuesday night. "Meanwhile, companies that choose to stay in America get hit with one of the highest tax rates in the world. It makes no sense, and everyone knows it."
The president was correct in saying that business can lower their tax rates by fleeing U.S. soil. Of the 34 developed countries that make up the Organization for Economic Cooperation and Development, America has the second-highest corporate tax rate.
U.S.-based companies are taxed at 35 percent by the federal government. Add state taxes to that and the average corporate tax rate is 39.2 percent. Only Japan's is higher at 39.5 percent, according to OECD data from 2011.
But when tax deductions and loopholes are factored into the equation, the U.S. corporate rate falls to roughly 27 percent, according to the Tax Foundation.
And according to a study by the Citizens for Tax Justice and the Institute on Taxation and Economic Policy , 280 of the corporations on the Fortune 500 list paid an average rate of 18.5 percent.
Obama also called for a "basic minimum tax" on every multinational corporation to prevent companies from outsourcing to overseas tax havens.
Obama's approach on this issue is virtually the opposite of his GOP presidential rivals. Nearly every Republican presidential candidate has called for U.S. companies that earn profits overseas to be able to bring those profits back to America tax-free.
As the tax code stands now, those companies have to pay the U.S. government the difference between the lower, foreign tax rates and the often higher U.S. tax rate.
The president said he wants to increase tax cuts for American manufacturers and double the deduction for high-tech manufacturers.
Manufacturers already receive multiple tax credits and deductions that the lower their collective taxes by about $58 billion annually, the Fiscal Times reports .
As of 2010, tax credits for investing in new facilities focused primarily on energy efficiency. For example, $240 million of deductions were given to corporations who invested in clean coal facilities in 2011.About $39 billion worth of deductions went to support investments in machinery and equipment.
Fact or Fiction Number 8 - The Tax Man Is Hereth: Can Obama Tax the Rich to Save the Debt?
President Obama suggested in his speech tonight that taxing the rich will "reduce our deficit." Unfortunately, tax experts disagree.
Obama need look no further than the two men he chose to lead his deficit commission, Alan Simpson and Erskine Bowles. They wrote in The Washington Post : "The president must be willing to support real savings in entitlements that deal with long-term costs. We can't simply cut or tax our way out of this problem. Bringing our debt under control will require tackling the growth of entitlements and reforming the tax code to promote economic growth and generate enough revenue to meet our commitments."
Here's what Obama said in his speech:
"We need to change our tax code so that people like me, and an awful lot of members of Congress, pay our fair share of taxes. … If you make more than $1 million a year, you should not pay less than 30 percent in taxes. … Asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense. … When I get a tax break I don't need and the country can't afford, it either adds to the deficit, or somebody else has to make up the difference - like a senior on a fixed income; or a student trying to get through school; or a family trying to make ends meet. That's not right. Americans know it's not right. They know that this generation's success is only possible because past generations felt a responsibility to each other, and to the future of their country, and they know our way of life will only endure if we feel that same sense of shared responsibility. That's how we'll reduce our deficit. That's an America built to last."
Fact or Fiction Number 9 - Manchurian Trade Rate: Who Took on China More?
President Obama said tonight that he's "brought trade cases against China at nearly twice the rate as the last administration."
President Bush filed seven complaints with the World Trade Organization against China, over eight years. Obama has filed five in three years.
Obama's team must have done some math: If Obama keeps that rate the same, he'll have filed about 13 by the time his (presumptive) second term ends. That's just one short of 14, which would be, as Obama said, twice as much as Bush's seven.
The White House didn't support the anti-piracy bill known as SOPA , though the administration did voice support for a kind of legislation that addressed piracy. "Any provision covering Internet intermediaries such as online advertising networks, payment processors, or search engines must be transparent and designed to prevent overly broad private rights of action that could encourage unjustified litigation that could discourage startup businesses and innovative firms from growing," a White House statement said.
Fact or Fiction Number 10 - A Milk Spill Was Equal To An Oil Spill In The Eyes of Federal Rules
As an example of his record on getting rid of unnecessary federal regulations, President Obama cited the elimination of a rule that classified a milk spill as a type of oil spill.
While the comparison seems odd, it is indeed based in an old federal law. An obscure quirk in an EPA rule called the Oil Spill Prevention, Control and Countermeasures (SPCC) rule classified milk as a type of oil. The logic behind the rule, which went into effect in the 1970s, was that milk fat is a type of animal fat, and is therefore technically a type of oil. In August of 2011 finally altered the rule, resulting in the exemption of milk and milk product containers.
Obama's larger claim he sought to make through the utilization of this milk example, is that he has generally been against increasing regulations. He asserted that he has approved fewer regulations in the first three of his presidency than George W. Bush did in his first three years. This claim is true. In the first 33 months of his presidency Obama approved 613 federal rules, while President George W. Bush had approved 643 in the same time frame, according to an analysis by Bloomberg News .
However that same analysis notes that while the number of regulations approved by Obama alone is smaller, he has approved a larger number of federal rules which carry a price tag over $100 million than his Republican predecessor had at the same point in his presidency. Obama has approved 129 of these rules, while Bush had approved 90.
Fact or Fiction Number 11 - It's Getting Hot in Here: Obama Repeats a Demand to Tone It Down
Remember last January, when President Obama flew to Arizona after Rep. Gabrielle Giffords was shot and called on the country's political class to take it down a notch?
"But at a time when our discourse has become so sharply polarized - at a time when we are far too eager to lay the blame for all that ails the world at the feet of those who think differently than we do - it's important for us to pause for a moment and make sure that we are talking with each other in a way that heals, not a way that wounds," Obama said a year ago. "What we can't do is use this tragedy as one more occasion to turn on one another. As we discuss these issues, let each of us do so with a good dose of humility. Rather than pointing fingers or assigning blame, let us use this occasion to expand our moral imaginations, to listen to each other more carefully, to sharpen our instincts for empathy, and remind ourselves of all the ways our hopes and dreams are bound together."
Twelve months later, Obama's message is about the same. To be sure, it's been a heated year - with the debt ceiling debate, the Republican primary and more.
Obama said near the end of his State of the Union speech tonight: "None of these reforms can happen unless we also lower the temperature in this town. We need to end the notion that the two parties must be locked in a perpetual campaign of mutual destruction, that politics is about clinging to rigid ideologies instead of building consensus around common sense ideas."
Fact or Fiction Number 12 - Can President Obama Stimulate the Stimulus and Use the War Funds to Pay Down the Debt and Build New Roads?
President Obama has promised quite a lot tonight, but never so much as in this fevered paragraph below.
We'll take it line by line:
In the next few weeks, I will sign an Executive Order clearing away the red tape that slows down too many construction projects.
The president wasn't the first to say it, but he did admit as much - " Shovel ready wasn't quite as, uh, shovel ready as we thought," he told his Council on Jobs and Competitiveness when they met in Durham, NC, last June. He was referring to the American Recovery and Reinvestment Act, better known as "the stimulus," a plan to spend approximately $787 billion on infrastructure renewal, "creating and saving" millions of jobs in the process. But the building of the roads and rails has been slow. Bickering over contracts and other issues have plagued the program. It is not clear what, if anything, the president can do to stimulate his stimulus. A single executive order hardly seems like it'd be enough.
But you need to fund these projects.
True, but that was what the stimulus money had been meant for, right?
Take the money we're no longer spending at war, use half of it to pay down our debt, and use the rest to do some nation-building right here at home.
Sounds simple, right? Not so fast. When it comes to government, "a penny saved" is often confused with "a penny not spent." The dollars that the U.S. will not spend in Iraq and Afghanistan (as the latter conflict winds down) do not get thrown back into some imaginary pot (Republicans might say, "slush fund") for paying down the debt or building high-speed railways. In fact, the billions authorized by the Federal government for fighting abroad helped to create that debt. Less spending on the war front will surely help with the bottom line, but it is not a newly realized rainy-day fund.
SHARPTON: Now, Romney`s taxes show nothing illegal but someone working a system that`s deeply unfair. You start by earning more than $21 million a year without having a job, then you pay less than 14 percent in taxes and you park your money in offshore accounts and places like Switzerland and the Cayman islands. What these taxes tell us? Is that Willard Mitt Romney is the perfect person to represent the one percent. But can he really claim to have a clue about the rest of us?
Joining me now is Pulitzer prize-winning writer David Cay Johnston. He`s columnist for Reuters and author of the book "perfectly legal, the covert campaign to rig our tax system to benefit the super rich and cheat everyone else" and Rebecca Wilkins, tax expert at citizens for tax justice. And to cover the politics of the all this, Joan Walsh, editor at large for salon.com. Thank you all for coming on the show tonight.
UNIDENTIFIED FEMALE: Thanks.
SHARPTON: Let me start with you, David, Mitt Romney made 42 million over the last two years but paid taxes at lower rate than many middle class Americans. Is that the headline to you out of this story?
DAVID CAY JOHNSTON, AUTHOR, COLUMNIST, REUTERS: Absolutely. A school teacher, a police officer, a nurse who made $54,000 in 2010 paid the same tax rate. If you made $60,000, you were more heavily taxed than Mitt Romney. And the -- the system that allows this is based on this idea that businesses are double taxed and that the rich will not invest and they will not create jobs unless we lower their taxes. Well, we have got years and years of evidence now that that`s just not how it works.
SHARPTON: Now, let me ask you, Rebecca. He put some money in the Caymans and in the -- in Switzerland and in other places. We are showing money all over the world, Bermuda, Ireland, Luxembourg. I mean, what is the tax benefit of that? I know it is not illegal but what is the strategy and why do super rich people do this?
REBECCA WILKINS, CITIZENS FOR TAX JUSTICE: Well, his tax return is 203 pages long and it`s the best illustration I can think of all the things that are unfair about the tax code. Most of the forms in his return are forms that most of us will never have to file because they are about his offshore holdings or the special tax planning he did around charitable trusts and all the ways that the tax code favors the wealthy and allows them really easy ways to reduce their tax rate.
SHARPTON: Now, David. I think that what I want to make clear, we are not begrudging him of being wealthy and we are not accusing him of being illegal. I think the bigger point here is the loopholes and the things that the rich get away with some of the tax laws the way they are. Average Americans don`t benefit from it, many of us. I have had my battles I just solved with the IRS. But we are talking about what is unfair and unequal. I think that`s what really bothers a lot of Americans about this story.
JOHNSTON: America has two income tax systems, Al, separate and unequal. One system is for wage earners and operators of mom and pop businesses who are very efficiently and effectively taxed by the federal government and there`s extensive verification of their income and the minor deductions they are allowed to take.
The other system is for this tiny segment of people, like Mitt Romney, who are allowed to enjoy income now and pay taxes by and by, who are allowed to make use of all sorts of tax treaties and agreements, all of which are legal, but have the effect of making huge amounts of money appear to be nothing to the IRS. And when they do take money, then they only have to pay at this 15 percent rate.
SHARPTON: Now, Joan, the politics of this. Willard and Newt both have had these little questions about income. But on the tax fairness question, which is on the Willard part of this look at what is going on in the Republican primaries, he had suggested -- he didn`t suggested, but he said that we were engaged in the politics of envy. But, isn`t this really about fairness. No one is jealous that he is making all of this money. It`s that out of his money, he is not paying the same percentage in income tax and under the same rules that all of us have to follow.
JOAN WALSH, SALON.COM: Exactly, reverend Al, that`s the point. I mean, it`s so interesting. We have been calling him Mr. one percent. Now do we have to call him Mr. 0.006 percent? It doesn`t roll off the tongue quite as well.
But, you know, just when you were reading the title of David`s great book, which I read when it came out, this has been an obscure issue for so long but I`m glad he put it the way he did. We have two nations, separate and unequal when it comes to the tax system. And Mitt Romney has become the poster boy for that inequity. I mean, you and I would not be sitting here talking about this in this kind of detail even a few months ago. So, between occupy wall street, the president`s change of tone and now, this really great case study and tax on fairness, the whole country is getting an education in things that they really didn`t know.
I mean, I`m not sure I knew some of t you know, I don`t pay those kinds of taxes. I don`t make that kind of money. There`s just a way that for most Americans, the issue of tax, I pay too much. Well, maybe they do and maybe these other people could pay a little bit more and it is also enforce sod unfairly, as David says, they go after -- there`s a real record of them going after smaller earners and business owners and basically ignoring what the Mitt Romney`s do. Maybe they can`t understand it maybe the IRS can`t understand what they are doing themselves.
SHARPTON: The other thing, Joan, is that really comes into focus now, is that they actually fight to keep this. It is not like this is some, you know, system that`s set up and they just kind like it is the way it is. They aggressively fight to keep the system the way it is and have the audacity to accuse those that question it like we`re envious or somehow, wither in wait of job creators when this imbalance is absolutely obscene.
WALSH: Right. And really, let me say God did not create the tax system. This was not in the garden of Eden. Rich people have rigged the system over the years, over and over, to tilt the balance increasingly in their favor. You know, Mitt is able to draw. He`s paid by Bain for work he hasn`t done in 20 years and that payment is taxed differently as capital gains.
They have fought to keep all of these deductions. We have seen in the last year, the slightest change to the tax code proposed by the president is just greeted with class warfare cries. So it is not that this just happened. It is that it increasingly was rigged that way and it is really wonderful that the country is finally figuring it out.
SHARPTON: Now, David, another thing that was a little surprising to me and helps me with this, Mr. Romney, Willard gave $100 million to his children and didn`t have any taxes involved in this transfer of this huge amount of money? How`s that possible?
JOHNSTON: Yes Al, if -- well, Al, it`s because Congress says that the value of this thing called carried interest which is how Romney made his money, if you give it to your children, is zero. So, if you were to give the right to collect say $5 million a year in dividends to your children because you had that right, you wouldn`t -- you would value it at zero when giving it to your children because of the way Congress treats this. And it is absurd that the gift the children got is worth zero, they now have $100 million in their trust fund, who knows how high it would go, and yet the parents pay no gift tax. And normally on $100 million gift to children, you pay a $30 million-plus gift tax.
SHARPTON: Rebecca, it is an issue of fairness. The president will talk about that as the issue of our time it is. This is about fairness. This is about making sure that everyone has the same investment in the country. I think that this, the bringing out of Willard`s taxes, should bring the issue front and center in the country about how unfair and unequal the tax laws for the average American.
WILKINS: I think that`s right. They will show, obviously, that he is paying a much lower rate and that`s because of the things that he can do that most of us can`t do because we don`t have the wealth he has, but also because the tax code taxes work at a lot higher rate than taxes income from wealth.
SHARPTON: Well, the president will be talking about closing these tax loopholes and loopholes for the rich tonight in his state of the union address. We will all be watching within the next three hours. David, Rebecca and Joan, thank you for coming on the show tonight.
WALSH: Thank you.
WILKINS: Thank you.
JOHNSTON: Thank you.
SHARPTON: Coming up, tax troubles may be just the beginning of Willard`s problems. Newt`s making a big money play for Florida.
Slate's own Dan Check has assembled a calculator that takes the money Mitt Romney made in 2010 and allows you to slice it up into meaningful amounts. How long did it take Romney to make, via investments, the money you made at your dead-end job. Not long!
- In two hours, the length of this week's debate, Romney made $4,946.
- The average household income is around $50,000. Romney made that in 20 hours, 13 minutes, and 13 seconds.
- Let's be a little more fair. The Solyndra loan guarantee was $535 million. If Romney's income was garnished to pay for it, it would take him 24 years, 8 months, 11 days, 13 hours, 45 minutes and 58 seconds to make up the cost. That would be well into President Tagg Romney's second term.
A little more seriously, but just as class-warfare-ly, Citizens for Tax Justice does the basic algebra and finds that the Romney tax plan could have saved Romney $4.1 million; with a conservative estimate, it would have cut his taxes in half. This is the argument Democrats want to have, as evidenced by David Axelrod spraining his Twitter finger to share this after Greg Sargent wrote it up.
By Stephen Gandel
January 25, 2012
Republican Presidential candidate Mitt Romney would save $3.4 million a year — roughly 85 times the total pre-tax income of the average American citizen — if the tax plan he advocates were enacted in the year that he is seeking to be President. In fact, Romney’s policies would not only shrink what he pays to the government, they would also boost his income, and roughly double the amount of money that he can pass along to his children when he dies.
On Tuesday, Romney released his 2010 tax returns and what his accountants expect he will pay to the government in 2011. Romney, whose financial disclosure form puts his net worth as high as $264 million, is one of the wealthiest people ever to run for President. For weeks Romney’s rivals have been calling on the former governor of Massachusetts to release his tax returns in order to prove that he hasn’t used off-shore accounts or other accounting tricks to illegally or unethically lower what he pays the government. TIME asked a number of accountants and tax experts to review the hundreds of pages released by Romney’s campaign pertaining to the candidate’s taxes.
(PHOTOS: The Rich History of Mitt Romney)
Romney does have some off-shore accounts, but it didn’t appear that those accounts have significantly lowered his taxes. In fact, all of the tax experts TIME contacted said Romney’s tax filings appeared quite normal in terms of what you would expect for a wealthy individual. None of the experts saw anything in Romney’s financial documents that would amount to a dodge or any maneuver that would be questioned by the IRS.
But what Romney’s tax release did underscore is the fact that these days many wealthy American’s pay a surprisingly low percentage of their income in taxes. What’s more, all of the tax proposals put forth by the Republican candidates, Romney included, would significantly lower what Romney and other wealthy Americans can expect to pay in taxes come 2013. And as a result, all of the plans are likely to significantly add to the national debt as well.
Ironically, it’s Gingrich’s plan that would lower Romney’s personal tax bill the most. “If Romney was really greedy, he would drop out of the race and endorse Newt,” says Bob McIntyre, director of the liberal group Citizens For Tax Justice. Under Gingrich’s proposal, Romney would pay almost no federal income taxes, saving him nearly $6.4 million a year in 2013. Romney would also save money under the tax plan of Rick Santorum, who is also running for the Republican nomination, than under his own plan.
Perhaps unsurprisingly, the tax plan that would be least friendly to Romney’s wallet would be Obama’s. Under the tax plan the President proposed last year, Romney would pay nearly $4 million more in taxes in 2013 than he did in 2010.
The $3.4 million in annual tax savings that Romney gets under his own plan would largely come from his proposal to permanently lower the tax on investment income to 15%. That’s the rate Americans now pay on stock dividends and on gains on investments that have been held for more than a year. And that’s the main reason that Romney, who gets most of his income from investments, was able to legally pay a tax rate of 13.9%, or just over $3 million to the government, and not the top tax rate of 35%, despite the fact that he made $22 million in income in 2010.
(VIDEO: Explaining Mitt Romney’s 14% Federal Tax Rate)
But in 2013 the taxes on stock dividends and so-called long-term capital gains are set to revert to what they were before President George W. Bush took office. Stock dividends would be taxed as income, which would be as high as 39.6% for the wealthiest Americans like Romney. Capital gains taxes would jump to 20%. Keeping capital gains and stock dividend taxes at 15% would, based on his current income, save Romney $2.6 million annually.
But that’s not the only way Romney’s plan would benefit Romney and other wealthy Americans. Romney also wants to repeal a 3.8% tax on investment income on wealthy Americans that is set to go into effect in 2013 as part of the recent health care reform law. Eliminating that tax would save Romney about $800,000 a year. On top of that, Romney hopes to lower the tax rate companies pay to 25% from 35%. Tax experts say most of that savings would go to wealthy Americans as well. Lower taxes would allow companies to produce higher profits and pay larger dividends to shareholders. A 10% drop in the corporate tax rate could boost Romney’s pre-tax income by $300,000.
(MORE: Are Taxes at a 60-year Low?)
But by far the largest tax benefit in the Romney plan for the candidate and his family would come from changes in the estate tax. Starting in 2013, Americans would be able to pass $1 million tax-free to their heirs. Any money above that would be taxed at 50%. Romney wants to repeal the estate tax completely. That move would save Romney’s family, based on his current net worth, as much as $130 million when he dies.
Gingrich’s plan, on the other hand, would give Romney a huge income boost almost immediately. Gingrich also wants to repeal the estate tax and the new health care tax. But Gingrich, unlike Romney, wants to completely eliminate taxes on stock dividends and capital gains. Corporate taxes would drop, too, to 12.5%, which could boost Romney’s income by more than $600,000. And Gingrich would allow all Americans to pay an income tax rate of just 15%. Gingrich would also repeal the alternative minimum tax, which hit Romney for nearly $233,000 in 2010. (Romney keeps the AMT at its current level.) The result: Romney’s tax bill would drop from an estimated $6.4 million in 2013 to just $75,000.
Santorum’s tax plan would lower investment income taxes farther than Romney, but not as low as Gingrich. Under Santorum’s plan, investment income would be taxed at 12%. Santorum would like to create two income tax brackets – 10% for most Americans, and 28% for wealthy Americans. Like the other candidates, Santorum would also get rid of the estate tax, the new health care tax and the alternative minimum tax. Corporate taxes would fall to 17.5% for most companies, but would be eliminated completely for manufacturers. All in, Romney’s tax bill under Santorum would be nearly $2.5 million.
The one candidate for President in 2012 with a plan that would raise taxes on Romney is President Obama. Under Obama’s proposed plan, the taxes for many wealthy Americans would fall from what they are scheduled to be in 2013. But not Romney. That’s because Obama would also close a tax loophole, making Romney’s taxes rise more than most wealthy Americans. Obama, too, would lower the rate wealthy Americans pay on stock dividends to 20% from as high as 39.6% in 2013. Capital gains taxes, as scheduled, would rise to 20%. And Obama would cut the estate tax to 35% for all inherited income above $3.5 million. Income tax rates would return to pre-George W. Bush levels: as high as 39.6% for the wealthiest Americans, up from 35% today.
But the big difference for Romney is that Obama would close the so-called “carried interest” tax loophole, which allows managers of private equity funds and other investment vehicles to pay just 15% on the income they receive from managing their funds. Romney used to head Bain Capital, one of the nation’s largest private equity firms. As such, Romney recorded $7.4 million in “carried interest” in 2010, and another $5.5 million in 2011. Repealing that loophole alone would have boosted Romney’s taxes $1.5 million in 2010. Add in the new health care law, and under President Obama’s plan Romney would pay a total tax bill of just over $6.9 million.
Just another reason Romney will probably be voting Republican in 2012.
By John Tomasic
Wednesday, January 25, 2012 at 9:17 am
President Obama in his State of the Union speech last night laid out the no-brainer case again for deficit reduction through a return to tax code fairness. The speech came hours after multi-millionaire Republican primary frontrunner Mitt Romney released the low-rate, off-shore income tax returns he submitted last year– returns that among sensible people will devastate Republican trickle-down economics talking points on tax policy and government finances. What else happened to Mitt Romney this week?
There was that ad from Newt Gingrich’s Super PAC, Winning the Future, which was, as Dave Weigel put it, “the sort of thing that will make a Republican voter’s bile bubble up and come shooting out of every waiting orifice.”
There was also Dan Check’s “Romney Income Calculator,” an online “game” of sorts that attracted mega-hits, in which you type in your working-person annual salary to discover how long it would take an under-taxed fortune to generate the same amount of money for Mitt “corporations are people, my friend” Romney. The tragi-comic oddly hypnotizing math works out to inform that if you make less than $100,000 a year, it takes Romney’s money about a day and a half to out earn you.
Which cast the tax plan Romney is pushing under a spotlight. According to Citizens for Tax Justice, the plan would have saved Romney $4.1 million last year, effectively cutting his taxes in half. That math leads to more math, like this, for example: As president, Romney could end up paying himself $24 million in tax breaks over his first term in addition to earning the president’s $400,000 per year salary. So, electing Mitt Romney could cost the American tax payers $25.6 million in Mitt Romney’s take alone. The obvious next calculation: The guy not a lot of voters even really like is not worth paying $25.6 million to be as mediocre a president as he was a governor.
There was in addition, the problem of “the help.” The wealthy Romneys with their three homes appear to be stingy with their maids (or maybe they’re paying them under the table). Either way, more great news.
There was also the matter of his just plain losing voting contests. “Republican primary frontrunner” Romney lost to Santorum in Iowa and then he lost to Gingrich in South Carolina. So he has won only in New Hampshire.
Now Gingrich is tied with Romney or leading in Florida polls. The primary there is Tuesday.
Romney is no longer the frontrunner and he is not an inevitable nominee.
By Selena Maranjian, The Motley Fool Posted 6:30AM 01/25/12
With all the talk about taxes and whether we should lower them, you'd think that the citizens and corporations of the United States face steep tax rates. You'd be wrong, though. When it comes to taxes, things are not as they appear.
There are many ways to evaluate tax rates, and most of them point to our tax burden being rather low. For example, look at our average -- or effective -- tax rate, which you can arrive at by dividing total federal tax revenue by our nation's gross domestic product. For 2011, the average tax rate in the U.S. is an estimated 14.8%, according to the Congressional Budget Office. That's the lowest rate since 1950.
Here's another comparison point: The folks at Citizens for Tax Justice -- an organization advocating for fair taxation of the lower and middle classes -- determined that our total federal, state, and local taxes in 2009 amounted to 22.6% of our GDP. Among the 28 member nations in the Organization for Economic Cooperation and Development, that puts us in 26th place, with only Chile and Mexico having lower overall taxes.
Tax rates in America haven't always been this low. Per CTJ data, our top marginal income tax rate has fallen from 94% in 1945 to 35% in 2011.
On the corporate side, recent tax rates are also at a record low. According to the Office of Management and Budget, the average corporate tax rate paid was just 1.3% in 2011, down from 7.2% in 1945.
Such low rates, in turn, are reflected in the national budget. According to data from the OECD, corporate taxes contribute much less to national revenue in America than in most other nations. That rate is about 25% lower than the OECD average.
The Problem With Low Taxes
As good as it sounds on paper, a low-tax environment has significant drawbacks. Countries need to take in tax revenue in order to keep governments and societies running. Because we pay less in taxes than most developed nations, we get less in return. Plenty of high-tax-rate countries, for example, cover health care for all citizens.
What we do pay goes to support various government agencies. They pay for roads and courts and police forces and schools and parks -- and much more. Without our Federal Aviation Administration and its regulations and air traffic control system, our skies would be chaotic. Without the Food and Drug Administration, our foods and medications would be far less safe.
In fact, you may be surprised at how little you actually pay for various public services:
If you think we spend too much on education, know that it eats up only 4.8% of your tax bill.
Energy and the environment take up just 2.1%.
Immigration, law enforcement, and justice: 2%.
Natural disaster responses? Just 0.4%.
As you might suspect, the big-ticket items are defense (26.3%) and health care (24.3%).
Support Sensible Changes
It's clear that our tax system isn't perfect. In fact, there are lots of problems. Our tax code is far too complex, at nearly four million words. Various loopholes and tax breaks cost us $1 trillion each year. Tax cheats cost us close to $400 billion annually.
As I see it, those who think we pay too much might want to encourage those in power to close more loopholes and chase down cheats. Meanwhile, consider that even slightly higher taxes might -- just might -- mean extra revenue being put to good use, paying down debt, improving our nation's infrastructure, and serving Americans in countless other ways.
Longtime Motley Fool contributor Selena Maranjian holds no position in any company mentioned.
Date: Wednesday, January 25, 2012, 7:08am CST
U.S. Public Interest Research Group and Citizens for Tax Justice has released a list of 30 corporations that spent more to lobby Congress than they did in taxes.
The report is titled "Representation without Taxation: Fortune 500 Companies that Spend Big on Lobbying and Avoid Taxes" and highlights what the groups say is a need for changes in corporate tax policy.
"By exploiting loopholes and special provisions in the tax code, 280 consistently profitable Fortune 500 companies paid about half the statutory corporate tax rate while spending $2 billion to lobby Congress on tax policy and other issues," according to the groups.
The report also looks at what it calls the "Dirty Thirty" particularly aggressive tax avoiders that spent more on federal lobbying than income taxes between 2008 and 2010.
Sister publication Dayton Business Journal has a list of all 30 companies on the list here.
"Corporations should not be able to shirk their tax burden by using gimmicks to game the tax code," said Dan Smith, U.S. PIRG Tax and Budget Associate, who co-authored the report.
Companies on the list include marquee names like General Electric, Boeing Co., DuPont, Wells Fargo, Verizon and Tenet Healthcare.
By HUMA KHAN (@humaik)
Jan. 24, 2012
Mitt Romney earned more than $42 million over the past two years, and paid $6.2 million in taxes at an effective rate averaging 14 percent, according to documents provided by the Romney campaign today.
The tax rate that Romney paid both in 2010 and 2011 is less than what most middle-income Americans were required to pay, mainly because a majority of Romney's earnings were derived from investments rather than wages.
The former Massachusetts governor released his tax returns amid intense scrutiny into his financial records and repeated calls by his rivals, and even some supporters, to release his tax information.
In 2010, Romney made $21.7 million, on which he gave nearly $3 million in taxes at an effective tax rate of 13.9 percent. In 2011, the former governor earned a similar amount, and will pay more than $3.2 million in taxes at a rate of 15.3 percent.
It's "an extensive disclosure and we feel that it satisfies the public's, if not the Obama opposition research guide desire to look at the Romneys," the former governor's campaign counsel, Ben Ginsberg, said in a conference call this morning.
Romney's tax rate appears to be considerably low for someone with his amount of wealth, but Ginsberg pointed out that capital investments are taxed at the corporate level, at a rate of about 35 percent.
The returns also showed that Romney and his wife, Ann, gave away $3 million in charitable donations in 2010, including $1.5 million to the Mormon church. In the past two years, Romney and his wife, Ann, gave just a little bit less, about 10 percent, to the Church of Latter Day Saints.
The two put their assets in a blind trust when he became governor of Massachusetts in 2003.
One aspect of Romney's wealth that has come under some scrutiny are his investments in Cayman Island. Brad Matt of Ropes and Gray, Romney's trustee who handles his family's funds, clarified today that those investments are in "third party entities," not funds, and that it does not constitute a foreign account but rather a foreign investment. Matt said the decision to invest there was made by him, not Romney and that the two are not allowed to confer with each other on these investments.
Romney's portfolio included an account in a Swiss bank, but it was disposed off in 2010, the year that Romney announced his candidacy. Malt said the move may or may not have been aligned with Romney's political views, but Malt closed the account because "this account was not serving any purpose."
Malt said he set up that account for diversification, but some tax experts say he didn't need to invest in a Swiss bank to diversify Romney's portfolio. Rather, if he's worried about the financial health of one bank, he could have spread the wealth to different banks, without having to go to a Swiss institution, said Rebecca Wilkins, senior counsel for federal tax policy at Citizens for Tax Justice, a non-partisan but left-leaning non-profit group. She added that there are some tax advantages from foreign investment that don't involve tax evasion.
Taxes on capital gains will be one focus of President Obama's State of the Union speech tonight. The president is a staunch supporter of what has come to be known as the "Buffet Rule," a minimum tax rate for all Americans in the top 1 percent income range so that they don't end up paying taxes at a lower rate than middle-class Americans.
"Billionaires should not pay a lower effective tax rate than the middle class," said White House Communications Director Dan Pfeiffer.
The idea stemmed from Warren Buffett, the billionaire investor and Obama supporter who has said that he should not pay a rate lower than his own secretary. "We can make sure everyone is being responsible, everyone is playing by the same set of rules. And the system both on Wall Street and in Washington is not being rigged at the expense of middle-class and working class Americans."
Republicans, however, say lower taxes, even on the wealthiest Americans, are tied to job creation.
"We all know that there's a reason we have low rates on capital gains. That's because it spurs new investment in our economy and allows capital to move more quickly," House Speaker John Boehner, R-Ohio, said today.
Romney was questioned about his tax release at Monday night's debate, where he said he wouldn't follow his father's lead and release 12 years' worth of returns. He also defended the tax rate that's less than what an average American pays.
"I pay all the taxes that are legally required and not a dollar more," Romney said. "I don't think you want someone as the candidate for president who pays more taxes than he owes."
That may be true, but some tax experts say Romney took advantage of loopholes in the system to pay a lower rate.
"All these disclosures, all these complicated, expensive transactions, all aimed to reduce his tax," Wilkins said. "The overarching message is, this is the way the tax system is tilted towards the wealthy. These are advantages middle income people don't get."
Newt Gingrich revealed his 2010 tax returns last week, which showed that the former House speaker made more than $3.1 million and paid nearly $1 million on his earnings, with an effective tax rate of 31 percent, the rate for the top one percent of earners. Most of those earnings, about $2.5 million, came from his companies and investments, and he earned $21,625 in speaking fees. Gingrich's net worth is more than $6.5 million, according to his personal financial disclosure forms.
The Romney campaign today was quick to point out that unlike the former governor, Gingrich did not release his full tax return, specifically documents that would've revealed his sources of income.
Romney's move today is, in many ways, an acknowledgement by the campaign that not revealing his taxes hurt him in the South Carolina primary.
"We made a mistake for holding off as long as we did," Romney said in a Fox News interview Sunday.
Romney's reluctance damaged his image of leadership, specifically and economic leadership among the broad majority of South Carolina voters who cited the economy as the most important issue, per exit polls.
Gingrich and other candidates attacked Romney feverishly for not disclosing the information. Romney himself struggled to answer questions on why he wouldn't do so, particularly during debates last week, even eliciting boos from the crowd at one point.
Romney's tax records are likely to bring renewed attention to the amount of wealth the former governor has, which could hurt him in a race where the economy and unemployment are top concerns among voters.
Financial disclosures with the Office of Government Ethics showed Romney's net worth to be between $190 million and $250 million. In 2008, his personal wealth made him the richest presidential candidate.
Candidates' wealth "is something that should be considered by people as to what kind of appeal do they have, what kind of relationship do they have with the kind of voters we need to be able to be successful," GOP contender Rick Santorum said today.
But the release of the returns will also help answer questions by the public and press. Romney's standing in polls has plunged in recent weeks. Unfavorable views of the former governor are up by a remarkable 15 percentage points in the past two weeks, with 49 percent of people deeming him unfavorable, the worst of this campaign cycle, according to an ABC News/Washington Post poll released today. Meanwhile, President Obama's favorability is at his best in more than a year. Fifty-three percent view the president favorably versus 43 percent who don't.
Romney's rivals, themselves far wealthier than the average American, were cautious in commenting on the former governor's tax returns, given that most oppose tax increases on any income group.
Santorum said this morning he had not seen Romney's records, but added that his wealth was not news to him.
"We know Mitt Romney is a wealthy man. I'm not going to be critical of someone because they have been successful," he told reporters today after a town hall in Okeechobee, Florida. "We hope we all can be successful and we should have a tax code that people who have that wealth should deploy that wealth to create jobs."
Posted at 01:24 PM ET, 01/24/2012
By Greg Sargent
Now that Mitt Romney has released his tax returns for 2010, we can have a stab at answering another key question. What would Romney himself pay in taxes if his tax policies become law?
In 2010, Romney enjoyed an income of $21.7 million. Of that amount, he paid about $3 million in taxes — a tax rate of just under 15 percent.
Citizens for Tax Justice, which is liberal-leaning but nonpartisan, supplied me with its analysis of what Romney would pay out of his 2010 income in taxes under various scenarios. The column to the right is what Romney would pay under his own plan:
The column to the left represents what Romney would pay under current law — if we did nothing and allowed the Bush tax cuts to expire. He’d pay $5.5 million out of $21.7 million, or around one-fourth.
The column in the middle represents what Romney would pay if Obama’s 2011 proposals pass. He would pay less than if we did nothing and just let the Bush tax cuts expire, because Obama would raise taxes on capital gains and dividends from 15 percent to just 20 percent (letting the Bush cuts expire would hike taxes on dividends to 39.6 percent). Under Obama’s plan, then, Romney would pay just under $5 million in taxes — around 23 percent.
And the column to the right represents what Romney would pay under his own proposals to keep the Bush tax cuts for the rich, retain the 15 percent tax rate on investments, and repeal the Medicare tax in health reform. His tax burden would remain at just over $3 million out of 21.7 million.
As you can see, the amount Romney pays drops substantially as you move from left to right.
This is about more than Romney’s tax burden; it goes to the very heart of what this election is all about. The GOP is set to nominate someone who not only disagrees with Obama about what constitutes fair taxation. Romney personally embodies, and personally benefits from, everything that Obama and Dems will allege is unfair about our current tax system and all the ways the economy is rigged for the rich, and against the middle class.
Romney believes that this Dem argument about this tantamount to a call for an “entitlement society,”or a call for “equal outcomes.” Romney is a deeply flawed messenger for that message, given how enormously he benefits from the status quo, under which some people enjoy far more equal outcomes than others.
“It’s hard to think of a more entitled person,” says Robert McIntyre, the director of Citizens for Tax Justice.
In his State of the Union speech today, Obama will not name Romney. But he will advance an argument that is all about Romney and the rest of his class. As Robert Borosage put it so well today:
Mitt Romney argues that the president wants to transform America into an entitlement society, whereas he wants to return it to an American opportunity society.
The president would be well advised to take this on. Make the case that the entitlement crisis America faces comes from the sense of entitlement by the wealthiest Americans that they can pocket all the rewards of growth, and use their wealth to rig the rules so they don’t pay their fair share back to society.
And then argue forcefully that opportunity requires investment in rebuilding the country, and in people – in education and training, in early childhood nutrition, in affordable health care and retirement security, in a safety net when things go bad. Those who would shred public investments in our future would destroy the broad middle class that, in fact, is the triumph of American democracy.
No one is a better personification of that argument than Barack Obama. No one a better foil than Mitt Romney. Let’s get that on.
The above chart captures this perfectly. Romney is the perfect antagonist in this morality play.
January 24, 2012
Mitt Romney thinks he pays enough in taxes, and Newt Gingrich thinks it's too much. What does President Obama think?
Mitt Romney has now disclosed that he paid only 14.5 percent of his reported income in federal income taxes in 2010. That’s no surprise. My group, Citizens for Tax Justice, predicted as much last fall, based on Romney’s previous disclosure that almost all of his 2010 income came from capital gains and dividends taxed at the low 15 percent top rate.
Newt Gingrich insists that this is not fair. Touting his own “flat tax” proposal on January 17, Newt said, “I think we ought to rename our flat tax, we have a 15 percent flat tax, so this would be the ‘Mitt Romney flat tax.’ All Americans would pay the rate Mitt Romney paid. I think it’s terrific.”
Putting aside the fact that Newt’s preposterous flat tax would slash federal revenues by $18 trillion over the next decade, there’s another noteworthy flaw in his argument. Gingrich’s actual “flat tax” proposal would cut Romney’s tax rate to zero (because it exempts all investment income from tax).
With the two leading Republican presidential contenders arguing over whether super-wealthy investors should pay 15 percent or zero percent in federal taxes, it would seem that President Barack Obama has a potent campaign issue against either of them.
If we stick with current law, then starting in 2013, Romney will have to pay a federal tax rate of about 26 percent. That’s due in part to the scheduled expiration of the Bush tax cuts, which have temporarily reduced the top capital gains tax rate from 20 percent to 15 percent and cut the top dividend tax rate to 15 percent as well (down from 39.6 percent). In addition, the Affordable Health Care Act will make Romney pay a 3.8 percent Medicare tax on his investment income (previously, investment income had been exempt from the Medicare tax).
Sadly, Obama hasn’t yet proposed to let all of the Bush tax cuts for the rich expire. In particular, his proposals so far would let the wealthy keep almost all of their dividend tax cut. But even if Obama doesn’t go beyond what he’s proposed in the past (and gets his way), then Romney would pay about a 23 percent federal tax rate starting in 2013.
On the other hand, if Obama means what he implies about the so-called Buffett Rule, then to keep up with the tax rate paid by Warren Buffett’s now-famous secretary, Romney would have to pay about a 30 percent rate.
On a related, happy note, Obama let slip the other day that he now wants corporate tax reform to raise significant revenue. Since he had earlier indicated that he thought corporations are paying just about the perfect amount in total taxes right now, this sounds like a major and favorable evolution in Obama’s thinking.
Of course, regarding all these important tax issues, we’ll have to see what Obama says in his State of the Union address tonight, in his upcoming budget proposals, and during the campaign.
But, possibly, Hooray!
by Ben Jacobs Jan 24, 2012 4:58 PM EST
We knew that candidate Romney enjoyed a tax rate about half that of Warren Buffett’s secretary—what’s alarming is that he didn’t have to do much of anything to enjoy that bracket but be rich in the first place.
Mitt Romney’s tax returns today contained a scandal. The disclosure that the former Massachusetts governor made $21.6 million in 2010 while paying an income tax rate of just under 14 percent may raise eyebrows, but it’s not a shock. Romney has already admitted that his tax rate is “about 15 percent.” It’s also not a secret that Romney, who is known to be worth upwards of $200 million, is rich. But what is scandalous is that Romney, despite his wealth, pays a lower tax rate than most Americans.
Mitt Romney talks to the press after holding a round table on housing issues in Tampa, Florida, Jan. 22, 2012, Emmanuel Dunand, AFP / Getty Images
According to Larry Zelenak, a professor of tax law at Duke University School of Law, who has reviewed Romney’s 2010 tax return, “the main takeaway is actually that somebody in Romney’s position doesn’t have to do anything very aggressive to get extremely good tax treatment.” In fact, because of the current state of U.S. tax laws, a person as wealthy as the former Massachusetts governor, “doesn’t need to do anything fancy.”
This is reinforced by Rebecca Wilkins of Citizens for Tax Justice, a tax policy think tank in Washington, D.C. She notes that many of the steps that Romney has taken in his return are measures that are only effectively available to the wealthy. Few people “have enough money to justify off-shore accounts, charitable trusts or family foundations. They are expensive to do and you need an attorney and an accountant” to set them up and manage them.
Perhaps the most gaping loophole in current law that Romney has taken advantage is the treatment of “carried interest.” This is because managers of private equity funds, such as Bain Capital, the private equity firm Romney founded, do not receive a salary but take a percentage of the fund’s profits instead, which is taxed as capital gains at 15 percent, even though as Zelenak points out, “it’s clearly personal service,” which would be taxed at a much higher rate. This makes up a significant percentage of Romney’s income. Wilkins notes “most of the income is capital gains, which comes through Bain, all of which is probably carried interest.”
However, Romney’s returns still raise a few question marks. The IRS has imposed tough disclosure standards on “reportable transactions.” These are transactions that the IRS is interested in and have a higher potential for being “tax shelter type transactions” described Zelenak. Romney did not engage in these transactions personally. Instead, they were undertaken by entities he invested in, including those run by Bain Capital and Goldman Sachs. However, there is little that can be deciphered about these transactions as the disclosures in Romney’s returns refer back to the information filed by each fund he invested in, none of which is publically available.
‘Romney is a rich guy, and rich guys are all unusual in their own unusual ways.’
The other quirk of note in the information received today is that Romney filed over 50 forms that report transactions with foreign entities, which is unusual according to Wilkins. While “everyone [as wealthy as Romney] has some foreign stock” she said, Romney had far more foreign transactions than would be expected. While much of these foreign transactions were driven by Romney’s ongoing interests in Bain, it’s hard to get full picture “just from the disclosure forms.” But the fact that Romney has maintained accounts in countries known as tax havens, like Switzerland or the Cayman Islands, will draw scrutiny regardless. But these are not inherently red flags. After all, as David Goldberg, a tax law professor at the University of Maryland School of Law points out, “Romney is a rich guy, and rich guys are all unusual in their own unusual ways.”
It’s still unlikely that those investments reveal anything too unseemly—after all, Romney is, as he has reminded us, “running for office, for Pete’s sake.” But this is still not a closed book. The former Massachusetts governor only released a limited amount of data, two years worth of returns without any supporting information from any partnership that he invested in. Not only does this reveal an incomplete picture, but the hundreds of pages he released will still need more time to be fully analyzed. However, Romney has long maintained that he’s fully complied with tax law, and there is nothing in his returns so far that indicates otherwise. But the fact that his tax rate is about half that of Warren Buffett’s now famous secretary show that the scandal isn’t that Romney has done anything wrong. Instead, the real scandal is that it’s all legal.
During the GOP primary, Mitt Romney has come under fierce attack for parking millions of dollars of his personal wealth in investment funds set up in the Cayman Islands, a notorious Caribbean tax haven. We speak with Tax Justice Network USA chair Jack Blum, a former top congressional investigator of financial crimes, who says tax evasion could seriously cripple the already struggling economy. Blum appears in "We’re Not Broke," a documentary that premiered at the Sundance Film Festival. The film examines widespread corporate tax evasion in the United States and the increasing role of offshore tax havens. "Has [Romney] cheated? No," Blum says. "What he’s done is take full advantage of a system that has been structured the way it is because of political influence and a tremendous amount of lobbying money on Capitol Hill... We must not only rewrite the Internal Revenue Code, but we must get a fair contribution from the very wealthy and from corporations, and that is the only way to balance the budget." [includes rush transcript]
AMY GOODMAN: We’re broadcasting from Park City, Utah, from the Sundance Film Festival. Tonight’s State of the Union address by President Obama comes just as a new Pew survey finds 86 percent of Americans say strengthening the economy should be the top priority of the President and Congress. That was the main subject of last night’s Republican primary debate as Mitt Romney went after his rival Newt Gingrich.
MITT ROMNEY: I think it’s about leadership, and the Speaker was given an opportunity to be the leader of our party in 1994. And at the end of four years, he had to resign in disgrace. Now, in the 1970s, he came to Washington. I went to work in my first job in the 1970s at the bottom level of a consulting firm. In the 1990s, he had to resign in disgrace from this job as speaker. I had the opportunity to go off and run the Olympic Winter Games. In the 15 years after he left the speakership, the Speaker has worked—been working as an influence peddler in Washington.
AMY GOODMAN: Before Mitt Romney lost to Newt Gingrich in Saturday’s South Carolina Republican presidential primary, he came under fierce attack for parking millions of dollars of his personal wealth in investment funds set up in the Cayman Islands, a notorious Caribbean tax haven. Meanwhile, official documents reviewed by ABC News show that Bain Capital, the private equity partnership Romney once ran, set up some 138 secretive offshore funds in the Cayman Islands.
Well, today we’re turning to a former top congressional investigator of financial crimes, who says tax evasion could seriously cripple the already struggling economy. Jack Blum appears in We’re Not Broke, a documentary that has premiered here at the Sundance Film Festival in Utah. The film examines widespread corporate tax evasion in the U.S. and the increasing role of offshore tax havens. Jack Blum is a lawyer and chair of Tax Justice Network USA.
Jack, welcome to Democracy Now! OK, the debate is heating up, primarily between Newt Gingrich now and Mitt Romney. Talk about Mitt Romney and his private equity firm Bain Capital.
JACK BLUM: Bain Capital is a firm that specializes in taking over other companies and supposedly putting them on track to success and then selling the companies off. But this industry is built on tax dodgers of various kinds. So, typically, the money that’s used is borrowed money, and the borrowings are secured by the company that they’re buying. Now, what this does is create tremendous tax deductions for interest payments on the loan. The fascinating thing is that the partnerships that do this are also offshore partnerships. They’re set up in the Cayman Islands.
And they’re set up there for three different reasons. First, tax. There is no tax in the Cayman Islands, and there’s a system of deferral of tax, as long as it’s kept offshore. The second reason for being in the Cayman Islands is no disclosure. You can’t find out who the other partners are. You can’t find out anything about how this partnership is put together. And finally, the third reason is no regulation. So there’s no a Securities and Exchange Commission filing. There’s nothing that will tell us what’s really going on in the partnership.
And finally, if he is one of the partners who’s a manager, he takes his income—this is the income he gets for managing other people’s money—and that comes to him in the form of capital gains, because he’s allowed to have what’s called a carried interest. And the carried interest pays a tax rate of 15 percent. He doesn’t even pay Social Security tax.
Now, what’s unbelievable here is that we have a debate going on in the country about firing teachers, firing firemen, firing public officials, because we’ve got to balance the budget. And that debate is being led by Republicans. And these Republicans are saying, "Got to cut the budget, or else we sink." Nobody, and this is both Republicans and Democrats, talk about the missing revenue.
AMY GOODMAN: The issue of corporations paying taxes, the Republicans refer to as a job killer.
JACK BLUM: Well, the truth is that the companies that have not paid taxes are the ones who lay people off. So, Bank of America, which made quite a bit of money last year—had a lot of that written off because of loss carryforwards, but still made a lot of money—actually got a refund from the government and, the day its numbers were announced, fired 30,000 people in a restructuring. So, there’s a mythology here that somehow this system of subsidizing companies by giving them either zero or near zero tax rates through these various loopholes is going to create jobs, is so much nonsense. And there’s now an effort underway, and it’s almost comical, to repatriate funds of the companies moved offshore through transfer pricing and other techniques, and they want to repatriate it at a 5 percent tax rate, arguing that that is going to create jobs. Well, we did it before. And in fact, the companies who repatriated funds laid off thousands and thousands of people.
AMY GOODMAN: Talk about Mitt Romney’s tax returns.
JACK BLUM: I haven’t seen them. But what I can say is that he is paying less than average middle-class Americans by far. And he’s doing that because all of his income comes in as capital gains. Now, has he cheated? No. What he’s done is take full advantage of a system that has been structured the way it is because of political influence and a tremendous amount of lobbying money on Capitol Hill.
AMY GOODMAN: Is all of this legal?
JACK BLUM: Yes. And that, of course, is the real underlying problem that we confront. It’s legal, and it is the result of an incredible amount of money being spent on lobbying. There’s a recent study done by Citizens for Tax Justice, who put together numbers that show the companies that have taken advantage of these tax schemes are spending upwards of $2 billion a year in lobbying. That’s how they get the breaks. And it’s this congressional campaign money, it’s the ability to get access to the members, the ability to control and dictate what the tax laws will look like, that gives them the opportunity to engineer those laws, to take full advantage and save huge amounts.
AMY GOODMAN: What do you think has to happen?
JACK BLUM: We’ve got to start taxing corporations. Right now, the average American is being asked to subsidize the corporations, pay a lot of tax, and not get any government services. What creates wealth is the commons. What creates wealth is the infrastructure in America. What creates wealth is our educational system. These corporations, that take full advantage of it, don’t want to help pay for it. And that has to be corrected. But until we get our hands around the problem of campaign contributions, and until the public understands what’s going on, that’s going to be very difficult. And the rhetoric in this campaign, this business of saying the problem is that we’ve got to cut, we have to balance the budget, and not discussing this revenue issue, is nothing short of insane.
AMY GOODMAN: Where is Obama when it comes to leadership on this issue?
JACK BLUM: When he was inaugurated and when he was campaigning, he said he’d straighten up the mess that the tax code is. He didn’t do it. And he’s surrounded by a group of advisers who don’t want to tackle these problems, I think, because many of them come out of the very community and the very law firms that have created the problem. Now, in the film, we show him bringing many of the corporate leaders, who are the heads of companies that don’t pay any tax, in to a circle of people who are advising him on the economy. Well, I can assure you they’re not telling him that the way to solve the economic problems is to collect tax from their companies.
AMY GOODMAN: Doesn’t this also have to do with campaign contributions? He says he’s going—they’re going to raise a billion dollars. That’s the Democrats alone. So the Republicans express the philosophy outright. The Democrats rely on the same amounts of money from the corporations that they fear they won’t get.
JACK BLUM: OK, the congressional Democrats do. I should say, to his credit, Obama has said he won’t take contributions from lobbyists, and corporate contributions are prohibited. However, if you look at the congressional side, that’s a whole different story. But really, the reason for bringing these people in as advisers is, at first, to neutralize their desire to pour money to the other side, but then also to give the appearance of being business-friendly and to make sure that the congressional Democrats continue to get the funding they need to get elected. And when we’re running billion-dollar campaigns on all sides, this is pretty amazing stuff.
AMY GOODMAN: What do you want to hear President Obama say in the State of the Union address?
JACK BLUM: That we must not only rewrite the Internal Revenue Code, but we must get a fair contribution from the very wealthy and from corporations, and that that is the only way to balance the budget.
AMY GOODMAN: Citizens United, how does that fit into this picture?
JACK BLUM: We have an amazing situation as a result of Citizens United. "Corporations are people," says Mitt Romney in one of his statements. They’re not. Corporations are a special privilege granted to a group of people so that they can invest money without the fear of losing if the investment goes bad. They’re not people. And Citizens United has allowed corporations to get in the act and contribute to these funds, which are, quote, "independent funds," that spend unlimited amounts of money. And that sort of takes control of the election process. Now, that can’t be allowed. What we have developed is a system of representation that is by money talking and no taxation, which is absolutely the reverse of where this republic started.
AMY GOODMAN: How do you talk about tax justice? How do you change the conversation in this country? You’re featured in a film here at the Sundance Film Festival called We’re Not Broke. That’s going to surprise a lot of people.
JACK BLUM: Well, of course, because there’s been this drumbeat of "We’re broke. We’re broke. We’re broke. Fire everybody." The way we’re going to change that is to show people what’s going on. When people saw this film, when people began to understand that corporations like Google and Apple don’t pay U.S. federal tax, their jaws dropped. Now, how you can solve these budget problems and not talk about that is unfathomable. And we’re going to get them talking about it by looking at those tax returns and looking at what’s really going on.
And this film shows not only the question of how that money has not been paid, but it also shows young people all over the country spontaneously beginning to understand the issue and demonstrating. So, a group called US Uncut stepped forward and began to demonstrate in front of some of these companies, saying, "Pay your fair share of taxes." And that morphed into some of the folks who are in the Occupy movement. So I think there are groups—there are many groups that are involved now in trying to bring this message across. Tax Justice Network has worked with a coalition called the FACT Coalition. It’s more than 40 different non-profit groups—some conservative, some liberal, some religious, some labor. And they’re all talking about the issue of, we have got to get back to a point where there’s tax collected and where government services are provided based on taxes being collected.
AMY GOODMAN: Jack Blum, I want to thank you very much for being with us, former top congressional investigator of financial crimes, lawyer and chair of Tax Justice Network USA.
This is Democracy Now!, democracynow.org, The War and Peace Report. Two State of the Union addresses ago, President Obama promised a nuclear renaissance. We’ll look at The Atomic States of America. Stay with us.
Ryan Witt, Political Buzz Examiner
January 24, 2012
After at first refusing to release any tax returns GOP presidential candidate Mitt Romney finally relented today by making public his 2010 tax return. Romney’s father actually released 12 years of tax returns when he ran for president, and Romney’s opponents are still likely to press for the disclosure of more years in the coming months. Still, one year alone is providing plenty of reading material for reporters and interesting revelations for the public. Below are perhaps the five most stunning facts about Mitt Romney’s taxes.
#1 – Romney made more money in one day than the average American makes in a year, yet paid a lower tax rate than many middle-class Americans
Romney made an income of $21.7 million in 2010. As the Bloomberg notes, this means that Romney made more in one day ($59,452) than the average American makes in one year (approximately $35,000). Romney’s income over one week would put him in the top 1% of wage earners in the country.
But alas this fact alone is not that shocking. The real stunner is the fact that Romney paid an effective tax rate of only 13.9% on this tremendous income. Romney’s tax rate is actually below that of many middle-class Americans who make only $50,000 per year. Romney’s chief GOP opponent, Newt Gingrich, made over $3 million in 2010, but paid a tax rate over 30%. President Obama made $1.8 million in 2010, and paid a tax rate of 23%. Both men made less than one-seventh of what Romney made, yet paid a much higher tax rate.
#2 – Romney made no income from "wages" and therefore avoided almost all Social Security and Medicare taxes
Romney low tax rate can be explained in large part by the source of his income. Almost all of Romney’s income was made off of capital gains, or investment income. As Warren Buffet put it, both Romney and he effectively make money by simply pushing their large sums of money around. While teachers, accountants, and construction laborers work 40 hours a day to earn $1,000 per week, Romney can make that sum in just a few hours by clicking some computer keys.
In addition, Romney is able to escape a number of taxes because of his source of income. A normal laborer would be taxed for Social Security (12.4%) and Medicare (2.9%) when including the employer contribution. Romney pays none of these taxes simply because the income is from "capital gains" rather than "wages."
#3 – Romney's tax return is 550 pages long and details at least four foreign bank accounts
Needless to say Romney is not using the 1040EZ form to fill out his tax returns. The 2010 return alone is 550 pages long and details accounts that Romney has or once had in Luxembourg, Ireland, Switzerland, and the Cayman Islands. These countries are historically known as "tax shelters" where many Americans put their money to avoid paying higher taxes domestically.
Conservatives like Romney often complain about the complications of the tax code, but the 2010 return shows that Romney and his tax advisors have effectively used the code to lower his tax rate tremendously. Romney takes advantage of a number of very complex deductions, including one which allows him to rollover his investment losses from one year over to later years in order to offset his income.
#4 – Romney donated $7 million over the past two years
The tax return is not all bad for Romney. On average, the richest Americans give less than one-half of one percent of their income to charity. Romney, in contrast, donated over 15% of his income to charity in 2010 and 2011, almost 30 times as much as the average person in his tax bracket. Romney donated a total of $7 million over the last two years, over $4 million of which went to the Mormon Church.
Of course, Romney was able to take advantage of these charitable contributions by using them as deductions on his taxes, but he still certainly gives away much more of his wealth than most of the top 1%.
#5 – Romney would pay a much lower rate under his own tax plan, as well as Newt Gingrich’s tax plan
As low as Romney’s tax rate is, it would actually be lower if he or his Republican rival had their way. Romney has proposed a plan which would lower the top tax rate and also lower corporate income taxes, which tends to benefit wealthy shareholders like himself. Under on calculation by the Citizens for Tax Justice, Romney may end up paying less than half of his current rate if his own tax plan is passed.
But the real shocker is Romney’s tax rate under Newt Gingrich’s plan. As Romney noted in last night’s debate, he may very well pay no taxes at all under Gingrich’s plan. Gingrich would altogether eliminate taxes on capital gains, dividends, and interest income, which is how Romney makes almost all of his income.
A lower unemployment rate isn't enough. Americans need work that pays the bills.
By Jonathan Tasini
January 24, 2012
Politicians bickering over private equity's impact on jobs and how to bring down the high unemployment rate are entirely missing the point about the crisis facing working Americans. The predicament we face isn't simply that there are too few jobs; it's also that an increasing number of workers don't have the kind of job that can pay the bills.
While productivity has grown by more than 80% over the last 30 years, wages have effectively been flat for 80% of Americans. So, although we're making stuff faster and more efficiently, the benefits of that hard work have not trickled into the pockets of the people who do it.
Let's turn first to the intensifying debate over Mitt Romney's role as a private equity manager. It's of course ludicrous that Newt Gingrich and Rick Perry — two veteran advocates of a vehemently anti-union, free-market agenda that laid the foundation for the newly coined "vulture capitalism" — condemned those principles while campaigning in New Hampshire and South Carolina.
But equally absurd is Romney's defense that, at the end of the day, his company, Bain Capital, created more jobs than it destroyed. Even if he's telling the truth by some measures, the fact is that private equity buyouts often enrich those who arrange them by sharp cost-cutting, including dismantling pay and benefits for most of the workers who remain or new hires who join the more "efficient" enterprise. It's simple math: To service the huge debt taken on in virtually every buyout, workers take cuts. And the new jobs aren't necessarily a path to the American dream.
Take Staples, which Romney trumpets as one of his successes. The company certainly pays some of its employees well: Staples Chairman and Chief Executive Ronald L. Sargent received a total pay package of more than $15 million in 2010. But jobs in retail — one of the fastest-growing job sectors in recent decades — tend to pay poorly, and Staples jobs don't seem to be an exception to that rule.
Although the company doesn't publish its wage scale, the website glassdoor.com, which allows workers to post their salaries anonymously to try to give a picture of wages at a company, suggests that the average Staples sales associate or EasyTech associate makes less than $9 an hour. An employee working a 40-hour week, 52 weeks a year at that rate would make significantly less than the 2010 federal poverty level threshold for a family of four of $22,314. So, although Romney likes to claim credit for creating jobs, he needs to be asked how many of those jobs were ones that allowed employees to make ends meet.
And even that question doesn't get at another issue: the number of jobs that were lost as the growth of Staples and similar companies drove mom-and-pop stationery shops and office supply stores across the country out of business.
Republicans, though, aren't alone in muddying the waters. A few days ago, the president held a political photo op, praising several companies for bringing back jobs from overseas: so-called in-sourcing. But he did not address two ugly truths — and the uninformed, lazy news media did not demand he do so.
First, companies are coming back to the United States because wages here are dropping, in real terms. At the same time, lower-wage corporate nirvanas such as China are no longer as cheap an alternative as they once were, partly because the sea of people who worked for next to nothing for so long have had enough and are rising up in protest.
Second, most of the jobs coming back are not high-wage, union jobs with full healthcare and pensions. In fact, with concerted efforts by Republican governors in the Midwest to eviscerate union rights, times have never been better for corporate leaders seeking to lower labor costs. With labor costs in the U.S. dropping relative to those in the Third World, the president's offer of tax incentives to other companies that in-source is unnecessary. As Citizens for Tax Justice points out, using a 2007 Bush administration study, corporations based in the United States already have plenty of tax incentive to locate here because "the United States takes a below-average share of corporate income in taxes compared to other developed countries."
Recent conventional wisdom holds that the president's reelection chances may have slightly improved because the unemployment rate has inched down to 8.5%. But that is a deceptive number. The true unemployment rate is over 15% if you include what the Department of Labor calls "all persons marginally attached to the labor force, plus total employed part time for economic reasons." In English, that translates into people who want to work but are not looking right now along with people who don't have full-time work, many of whom would like to.
If you add those people to the people who have full-time work at or just above the minimum wage, at least 1 in 5 Americans — 30 million people — does not have a decent job. Which explains why, according to the Census Bureau, 46 million people — or about 15% of Americans — live in poverty, the highest percentage since 1993.
There is a serious discussion we need to have about American jobs that takes into account not just the quantity but also the quality. But that isn't a conversation leaders of either party are interested in having.
We need to face up to the reality that the economic principles that have been promoted for decades are an abject failure, at least if you measure success by whether people who work hard can support their families and make ends meet.
Published: Tuesday, January 24, 2012, 9:24 AM Updated: Tuesday, January 24, 2012, 11:13 AM
By Tarryl Jackson | Jackson Citizen Patriot
CMS Energy was named one of the "Dirty Thirty" U.S. corporations that have dodged corporate income taxes, according to a new report.
The company was one of thirty corporations that collectively received $67.9 billion in tax subsidies over the 2008-2010 period, according to the Representation Without Taxation report by the U.S. PIRG Education Fund and Citizens for Tax Justice.
These companies spent nearly half a billion dollars to lobby Congress on issues, including tax policy, the report stated.
The last time CMS Energy paid federal taxes was 2008. That year, it paid $4 million.
CMS Energy received $481,200,000 in tax subsidies and spend $3.5 million in lobbying expenses in the 2008-2010 time period, according to the report.
Two other Michigan companies, DTE Energy and Con-way, were also on the list.
By Pat Garofalo and Igor Volsky on Jan 23, 2012 at 9:53 pm
Last week, 2012 GOP presidential contender Mitt Romney finally admitted that his tax rate is around 15 percent, due to the fact that the overwhelming majority of his income comes from investments. Despite paying a lower rate than many middle class families, Romney said during a GOP primary debate tonight in Florida that he is “proud of the fact” that he pays “a lot of taxes.” Watch it:
Romney added that “I’d like to see our tax rate come down,” and indeed, under the tax plan that Romney has put forward, his own taxes would be cut nearly in half. Under current law, Romney would pay about a 24 percent tax rate in 2013. However, if his own plan were in place, that rate would fall dramatically:
[Citizens for Tax Justice] calculated what Romney would pay if his own plan passed. That is, if you kept the Bush tax cuts in place, including keeping the capital gains tax at 15 percent, and scrapped the Medicare tax, as Romney wants to do.
Under that system, Romney would pay a rate of a little under 15 percent — because virtually all his income is from capital gains and dividends.
The group calculates that this means Romney’s plan would give him a tax cut of more than 40 percent.
Overall, the wealthy would do very well under Romney’s tax plan, with millionaires receiving a $150,000 annual tax cut. In fact, Romney’s proposed tax cut for millionaires is twice the size of the Bush tax cuts.
There is a lot of greed in this country. But it is not greedy for middle-class workers to want living wages, medical care, a pension and good education for themselves and their families. It is greedy to want more status symbols and conspicuous consumption.
What have the recent super rich done for their extreme wealth? Most do not produce a product nor create a service; they raid corporations, putting people out of work and communities at risk, while the raiders sell off assets and fire workers to increase the raiders’ wealth.
The wealthiest 20 percent own 85 percent of the country’s wealth but only pay 60 percent of the total federal, state and local taxes, according to the Citizens for Tax Justice. Also, of those whose incomes were over $200,000, 22,256 paid no income tax in 2008. Those in the top 1 percent pay income tax at a rate of 17 percent while the lower 80 percent pay at a rate of over 25 percent.
A recent letter writer said the wealthy pay 90 percent of the taxes. That misinformation might have come from the right-wing talk media. He did not cite any source.
Just as there are many wealthy individuals who don’t pay any income taxes there are many profitable corporations that do not pay income taxes and even have received government subsidies.
The greedy are not the middle-class union workers, but the very wealthy who are raiding companies, paying less taxes, using tax loopholes, destroying jobs, cutting wages and benefits. When will the middle class realize that they are part of the 99 percent?
Vera Boone Twin Lakes
Jan 23, 2012 12:00 AM EST
Mitt’s problem isn’t that he’s rich. It’s that he can’t seem to relate to voters who aren’t.
One of the more hackneyed political tropes is the “Have a Beer” test. As Sen. Al Franken has pointed out, you’re not actually going to have a beer with the president, but you are going to have to live under the policies he enacts. And yet there is something about the power of personal appeal. The more likable candidate nearly always wins the presidency. Yes, the massively unlikable Nixon did defeat the charming Hubert Humphrey in 1968. That’s the exception that proves the rule.
Truth is we want a balance of majesty and accessibility in our president. After the affable but disastrous George W. Bush, you’d have thought the “Have a Beer” test would be discredited forever. And while in Barack Obama we elected an anti-Dubya—a leader of strong intellect and erudition—we also elected a guy whose preferred method of resolving a dispute between a cop and a citizen was over a mug of beer.
Obama is at his best when he’s a regular guy. At heart, he’s still a jock. He watches ESPN’s Sports-Center religiously, secretly coaches his daughter’s basketball team, and loves nothing better than goading his friends when they miss a shot on the court. People who have actually had a beer with him say he’s charming and down-to-earth.
Conversely, he is at his worst when he lapses back into pedantic, professorial mode. This usually happens when he’s been cooped up in Washington too long. The more he’s on the campaign trail, the better he gets.
Not so Mitt Romney. When he tries to relate to ordinary folks, he looks like a debutante at a cow-chip-tossing contest: he just doesn’t fit in, and the harder he tries, the more ridiculous he seems. (While Romney doesn’t drink because of his strong faith, you get the feeling he’d even be stiff over a chocolate shake.)
And that’s the main reason why his tax returns are such a big problem for him. It’s not that he’s rich. Presidents from George Washington to George W. Bush have been wealthy. Teddy Kennedy, against whom Romney ran in 1994, loved to tell the story of a trip to a factory gate in his first campaign. He was shaking hands with the men as they left the graveyard shift. One of them stopped and looked at Kennedy’s uncalloused hand. “They say you’ve never worked a day in your life,” he growled. Kennedy looked him straight in the eye and said, “I suppose that’s true.” The man smiled, impressed with Kennedy’s candor. “Son,” he said, “you ain’t missed a damn thing.” Teddy Kennedy was a millionaire any factory worker would have loved to have had a beer with.
Joe Raedle / Getty Images
So Mitt is wrong when he says his problem is people who practice the “bitter politics of envy.” His real problems are how he got rich, what he wants to do for the rich if elected, and how he relates to middle-class Americans.
Romney was born rich and spent his life getting richer. Good for him. But he did it in part through buying up companies, loading them up with debt, paying himself millions, and then ditching the companies. Perfectly legal. But politically problematic. When the best metaphor you can come with is “creative destruction,” you know you’re in trouble. Because those middle-class working people whose lives you destroyed—they don’t give you style points for creativity.
Which leads inevitably to a discussion of what Romney might do about inequality as president. The short answer: make it worse. Citizens for Tax Justice, the nonprofit group that first sussed out that Romney pays an estimated 14 percent tax rate, has crunched some more numbers. They guess (and without tax returns all anyone can do is make educated guesses) that if candidate Romney’s tax proposals were enacted into law, Romney himself would gain anywhere between $736,000 and $4.1 million in a given year. That’s a lot of money for anyone—especially someone who prides himself on his personal parsimony, and points to his frugality as part of his Everyman cred.
And so we’re back to the “Have a Beer” test. Imagine a guy with hundreds of millions in the bank (again, some of it from laying off working folks) telling a bunch of laid-off working folks, “I’m also unemployed.” How clueless, how clumsy, how cloying can you get?
Perhaps it’s personal; perhaps it’s cultural; perhaps the Reg’lar Guy chip wasn’t installed at the factory. Whatever the reason, Mitt lacks the common touch. And that could have Republicans crying in their beer come November.
By Douglas Turner
Published:January 23, 2012, 12:00 AM
Updated: January 23, 2012, 6:29 AM
WASHINGTON — President Obama flew to Disney World last week in an unintended caricature of his posture as a jobs president. In Florida, he pushed for careers in tour-guiding and cart-driving in the low-paying tourism industry.
It was smarter flying to the Magic Kingdom than to Rochester, where Kodak’s bankruptcy announcement underscored the nation’s continuing slide as a manufacturing economy.
Earlier this month, the White House announced a series of “insourcing” forums with employers. The administration is handy with facile talk. Back in 2009, Obama, announcing a new framework to restore lost factory jobs, said: “America’s manufacturers are at the heart of our country’s economy, providing good-paying jobs for millions of American families.”
But since 2000, the country has lost 5.8 million manufacturing jobs, except for a tiny up-tick of 335,000 in the last two years. New York State showed a loss of 4,700 jobs in 2011. And construction employment in New York is down 50,000 jobs, or 14 percent from February 2008.
Before the insourcing slogan, there was White House job czar Ron Bloom, who was also auto czar. Bloom left quietly last October. Who knew where he was or what he did for two years? Bloom was replaced by Jeffrey Immelt, head of GE.
GE under Immelt was a major outsourcer of jobs. And in the three years before taking over Bloom’s role, Immelt’s GE made more than $10 billion, spending $79 million on lobbying while paying zero taxes, according to a report by Citizens for Tax Justice and Public Interest Research Group. Immelt recently opposed Obama’s tax increase policies by saying tax cuts are needed to create American jobs.
Among issues missing from the discussion is the outsourcing by American companies of high-paying research and technology jobs to China and other Asian markets. A division of the National Science Foundation last week reported U. S. firms sent nearly 700,000 such jobs overseas on President George W. Bush’s watch.
Still, it has been Obama’s responsibility to stop the bleeding, and he doesn’t seem to have done it. Obama has failed utterly to deal with China, the terminal for most of these lost factory and high-tech jobs.
Obama has “left 1.3 million jobs on the table because he has failed to combat the most protectionist, the most unfair trading policies ever mounted in the history of the world,” Robert E. Scott, a senior analyst for the Economic Policy Institute, told me.
Scott was of course referring to China, whose currency manipulation gives its exports a 25 percent to 30 percent advantage over ours.
For the sixth time, Obama, like Bush, refused to charge China with illegal currency games last month. His decision was disclosed two months late; quietly posted the Tuesday after Christmas.
Whatever Obama’s doing is “too little and too late,” said Scott. Asked why Obama won’t confront China, Scott answered, “he’s too close to Wall Street.” The EPI is a progressive, labor-backed think tank.
Obama did not help the jobs picture with his rejection of the proposed, privately built Keystone XL oil pipeline from Canada to refineries in Texas. Canada is taking the decision as an excuse to sell more energy to China, and less to the United States.
The State Republican Committee is criticizing Sen. Kirsten Gillibrand, D-N. Y., for her sponsorship of the Protect Intellectual Property Act, charging she took $610,000 from the entertainment business to support the bill. But after Wikipedia and other sites blacked out to protest PIPA, she and Sen. Charles E. Schumer, another sponsor, said they are rethinking their support. Internet users said it would give government too much control over the Net.
Date: Saturday, January 21, 2012, 10:25am EST - Last Modified: Saturday, January 21, 2012, 10:52am EST
U.S. Public Interest Research Group and Citizens for Tax Justice has released a list of 30 corporations that spent more to lobby Congress than they did in taxes.
The report, Representation without Taxation: Fortune 500 Companies that Spend Big on Lobbying and Avoid Taxes, focuses on an area the group that corporate power and influence is on full display: corporate tax policy.
"By exploiting loopholes and special provisions in the tax code, 280 consistently profitable Fortune 500 companies paid about half the statutory corporate tax rate while spending $2 billion to lobby Congress on tax policy and other issues," according to the groups.
The report also looks at what it calls the "Dirty Thirty" particularly aggressive tax avoiders that spent more on federal lobbying than income taxes between 2008 and 2010.
Note: Click here to see all 30 companies ranked on "Dirty Thirty" list.
"Corporations should not be able to shirk their tax burden by using gimmicks to game the tax code," said Dan Smith, U.S. PIRG Tax and Budget Associate, who co-authored the report. "When corporations don't pay, ordinary taxpayers and responsible small businesses are left to pick up the tab. The fact that so many corporations can spend more money lobbying than they pay in taxes makes a mockery of our tax code and our democracy."
The "Dirty Thirty" companies all told made $163.7 billion in profits while paying zero dollars in federal income taxes and collecting a total of $10.6 billion in various tax rebates. Meanwhile, they collectively spent $475.7 million in lobbying expenses for the three year period.
"On the second anniversary of Citizens United, corporate tax dodging should be seen as a cautionary tale. In the wake of that disastrous decision, special interest influence will only continue to grow and policy will reflect that unless we get corporate money out of elections," added Blaire Bowie, U.S. PIRG Democracy Advocate.
"Many lawmakers insist that there is a budget crisis and that Americans must sacrifice some of the essential public services they depend on. But Congress has yet to make sure corporations pay their fair share in taxes," said CTJ director Robert McIntyre. "The most plausible explanation for this inaction is the power of corporate money in politics. Campaign contributions and highly-paid lobbyists give corporate executives a louder voice than the millions and millions of working families who wonder why they pay more in taxes than GE, Boeing , Wells Fargo , Verizon , and dozens of other huge, profitable corporations, all put together."
Many of the companies on the list have operations in the Dayton region, including Navistar International Corp. , which has a truck assembly plant in Springfield, and Duke Energy , which services power customers in Warren and Butler counties.
In a report released this week, Pepco Holdings Inc. was named the top company on the list with what the group said was a -57 percent effective tax rate.
Based on corporate taxes, U.S. PIRG claims that between 2008 and 2010, Pepco paid a negative federal tax rate, which returned $508 million in tax rebates despite making $882 million in domestic profit over the same period.
Bob Hainey, manager of media relations at Pepco, told the Washington Business Journal that Pepco paid $1.2 billion in real estate taxes, payroll taxes, personal property taxes, delivery taxes, use taxes and gross receipts tax between 2008 and 2010.
"Over the three-year period noted in the report, (Pepco) invested approximately $2 billion of capital into its operations of which over 50 percent of this amount was allowable as a current deduction against taxable income," Hainey said in a statement.
He also states that policy actions such as accelerated depreciation are economic incentives, not "loopholes" that "policy makers put in place to achieve economic objectives â€“ stimulate investment and create jobs."
Fortune 500 companies paid more for lobbying than they did in taxes.
January 21, 2012
With the second anniversary approaching of the Supreme Court’s decision in the Citizens United case, NHPIRG and Citizens for Tax Justice reveal 30 corporations that spent more to lobby Congress than they did in taxes.
The report, Representation without Taxation: Fortune 500 Companies that Spend Big on Lobbying and Avoid Taxes, takes a close look at corporate tax policy. By exploiting loopholes and special provisions in the tax code, 280 consistently profitable Fortune 500 companies paid about half the statutory corporate tax rate while spending $2 billion to lobby Congress.
The report also points to the “Dirty Thirty” particularly aggressive tax avoiders that spent more on federal lobbying than income taxes between 2008 and 2010. Twenty-nine of these corporations actually received a net tax rebate during the three year period of the study.
“Special interest influence will continue to grow and drown out the voices of ordinary Americans, and our tax policy will continue to reflect that unless we get corporate money out of elections,” said NHPIRG consumer advocate Addie Shankle.
At least 22 of the thirty companies studied had subsidiaries in tax haven countries. The “Dirty Thirty” companies made $163.7 billion in profits while paying zero dollars in federal income taxes and collecting a total of $10.6 billion in various tax rebates. Meanwhile, they collectively spent $475.7 million in lobbying expenses for the three year period.
Deborah DeMoulpied from BonaFide Green Goods in Concord, had this to say, "Big corporations are not paying their fair share. So we have to pay taxes and they don’t. And chances are that they’re taking their businesses out of America and Americans are loosing their jobs, and in these hard economic times. I’m totally opposed to Citizens United. I do not believe that corporations are people and it’s a shame that that same money could not be better spent helping other Americans. It’s ludicrous that the amount of money spent on lobbying ... when we have so many people in need."
Angella Chen runs a small hair salon in Manchester, and she says that when she hears reports of how corporations spend on lobbying she can’t relate. She said that if her business picked up, she’d like to hire a hair dresser for the empty chair in her salon, not a lobbyist.
“I would not be hiring a lobbyist. I can barely afford to take care of my business. The smaller folks still have to pay taxes. I wish I could do more for the community, but a lot of my clients have lost their jobs and I am just trying to stay afloat. A lobbyist - how do you pay someone?”
The offices of both our congressmen and our senators were contacted and invited to comment as generally or specifically as they’d like on offshore tax havens, corporate tax loopholes, or corporate money in our elections. Spokespeople for both U.S. Rep. Charles Bass and U.S. Rep. Frank Guinta returned our emails promptly but politely declined to provide any statement or comment, as did a spokesman for U.S. Sen. Jeanne Shaheen. Phone calls and emails to U.S. Sen. Kelly Ayotte were not returned.
By Michael Scherer | @michaelscherer | January 20, 2012
The tax proposals of Newt Gingrich could yield a windfall in tax savings, both for himself and his primary opponent, Mitt Romney, if they were enacted into law, according to a new analysis by the liberal group Citizens For Tax Justice.
The reason is simple: Gingrich has proposed zeroing out capital gains taxes, which would effectively reduce Mitt Romney’s tax burden to zero, according to the analysis, saving Romney millions of dollars a year. Gingrich himself would also benefit from a reduction in the regular income rate from more than 30 percent for high-income individuals to a standard 15 percent rate. “Gingrich is complaining about Romney paying less than the American people, but he wants him to pay nothing,” says Bob McIntyre, who did the analysis.
In recent days, Gingrich has had some fun with Mitt Romney’s tax returns at his rival’s expense. “I think we ought to rename our flat tax,” Gingrich said at a campaign stop in Columbia, S.C., this week, “so this would be the ‘Mitt Romney flat tax.’ All Americans would pay the rate that Mitt Romney paid. I think it’s terrific.” Gingrich did not add that his plan would also provide a huge boost to Romney’s own pocketbook, effectively reducing his income tax rate to nothing by eliminating taxes on capital gains and dividends for all earners.
Under McIntyre’s analysis, based on estimates provided in financial disclosure forms, Romney paid an estimated $3.3 million in income taxes in 2010, on estimated income of more than $20 million. If Gingrich’s proposed rules had been in effect, Romney would have paid no income tax, since his deductions would have more than compensated for his non-capital gains sources of income.
Gingrich would also benefit from his own policies. In 2010, Gingrich pain about $990,000 in income taxes, or about 31.5% of his gross income, according to his recently released income tax forms. If his own plan had been in place, Gingrich would have paid just $450,000 in 2010, or less than half as much, McIntyre said.
Romney’s tax plan would also zero out taxes on capital gains, but only for families making less than $200,000 a year, disqualifying Romney and other high-income investors from the windfall. Under the same plan, Bush’s 2001 and 2003 tax breaks would be permanently extended, and the estate tax would be eliminated along with assessments included in Obama’s health reform law, thus decreasing both Romney’s and Gingrich’s tax burden in the long term.
The Gingrich campaign released its candidate’s tax returns while Gingrich was standing next to Romney on stage at Thursday’s debate. The move, among other things, had the effect of highlighting Romney’s wealth, which Romney has had a difficult time speaking about in public in recent months. Romney reacted defensively. “I know there are some who are very anxious to see if they can’t make it more difficult for a campaign to be successful,” Romney said. “I know the Democrats want to go after the fact that I’ve been successful. I’m not going to apologize for being successful.” Earlier this week, Romney told reporters that he pays about 15% of his total income in federal taxes, a number that closely matched the 14% that McIntyre had estimated in October, based on a review of Romney’s financial disclosure forms.
Romney has said he plans to release his tax returns to the public in April, after he has filed his 2011 returns. He says he has not yet decided how many years of returns he will release.
Listen to Slate's show about the South Carolina primary, the Keystone Pipeline XL decision, and SOPA/PIPA protests.
By Emily Bazelon, John Dickerson, and David Plotz
Posted Friday, Jan. 20, 2012, at 1:44 PM ET
Become a fan of the Political Gabfest on Facebook. We post to the Facebook page throughout the week, so keep the conversation going by joining us there.
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Join David, John, and Emily at the 92YTribeca for a Gabfest live show on Feb. 15. For details and tickets, click here.
On this week’s Slate Political Gabfest, Emily Bazelon, John Dickerson, and David Plotz discuss the suddenly-exciting South Carolina primary, President Obama’s decision not to approve the Keystone oil pipeline from Canada, and the protests over the Internet piracy bills known as SOPA and PIPA.
Here are some of the links and references mentioned during this week's show:
John’s Slate piece on the last South Carolina debate.
The latest polls showing that Gingrich has started to close in on Romney in South Carolina.
The ABC News interview with Newt Gingrich’s second wife, Marianne, in which she claims Gingrich asked for an open marriage.
The Esquire feature on Marianne Gingrich from 2010.
John’s Slate piece on whether or not Romney’s wealth prevents him from connecting with voters.
The Citizens for Tax Justice report calculating that Romney’s tax plan would cut his own taxes by almost half.
The Stop Online Privacy Act and the PROTECT IP Act.
The Wikipedia black-out web page about SOPA and PIPA.
Matt Yglesias’ Slate piece arguing that some copyright infringement can be good for the economy.
Emily chatters about the decision by the Supreme Court to reject cases that would clarify when schools could punish kids for slandering each other on social media.
John chatters about a Washington Post piece finding that self-esteem boosting does not improve children’s performance in school. He also gives a shout-out to the Culture Gabfest.
David chatters about a Men’s Journal interview with Mark Wahlberg, in which he claimed he would have stopped 9/11 had he been on the plane.
The e-mail address for the Political Gabfest is firstname.lastname@example.org. (E-mail may be quoted by name unless the writer stipulates otherwise.)
Podcast production by Andrew Bouvé and Dale Willman. Links compiled by Aviva Shen.
Dina Spector | Jan. 20, 2012, 11:02 AM
The "Occupy Wall Street" movement may have settled down since last October, but a new study comparing 30 U.S. corporations' effective tax rates to the amount spent lobbying Congress should fire up the 99 percent.
The report by Citizens for Tax Justice examined 280 Fortune 500 companies that were profitable between 2008 and 2010. Although the corporate tax rate is 35 percent, it found the average tax rate for the U.S. firms was 18.5 percent.
The report identified 30 companies — the "Dirty Thirty" — that were particularly crafty at dodging taxes, including 29 firms that had a negative tax rate over the three-year period, while spending a combined half a billion dollars to lobby Congress.
According to the report, here's how companies—including GE, which enjoyed a -45% tax rate—get away with paying less than nothing:
Most simply, a company enjoys a negative tax rate if it gets a net tax rebate from the federal government. Corporations achieve negative tax rates in a few different ways. If a company had excess tax deductions or credits in a given year, it can “carry” them back to a previous year, when it did not enjoy excess deductions, and thereby get a refund check from the federal government.
A company may also not receive tax benefits claimed one year until a later year. This happens when the corporation’s tax attorneys claim a tax benefit they don’t expect the IRS will eventually grant them. Since they aren’t counting on it, the benefit isn’t reported in that earlier year’s annual report to the SEC. If the IRS unexpectedly grants them their wish in a later year, the benefit gets reported as a decrease in the income taxes it has to pay the year it was received.
This was a major way that GE was able to achieve a negative tax rate over the three-year period of the study.
Corporations also got around paying taxes by shifting U.S. profits to offshore tax havens (like the Cayman Islands) to avoid U.S. tax obligations.
Posted by Ezra Klein at 09:00 AM ET, 01/20/2012
In 1980, the year Ronald Reagan was running for president, the annual deficit was 2.7 percent of GDP. In 2000, the year George W. Bush was running for president, the deficit didn’t exist. This year, the deficit is projected to reach 7 percent of GDP. That’s a problem for President Obama. But it’s also, in ways that are not yet fully appreciated, a problem for Mitt Romney. It’s why the combination of his tax returns and his tax plan are proving so tough for him.
Large deficits raise one question: Who will pay to close them? Romney’s tax returns and his tax plan give an unusual, and not particularly popular, answer: low-income Americans and seniors.
Romney’s tax returns show that many wealthy Americans already pay surprisingly low tax rates. But his tax plan cuts those rates even further. According to an analysis by the left-leaning group Citizens for Tax Justice, Romney’s tax plan would cut his own taxes in half. That leaves two possible pots of money for deficit reduction: defense spending and domestic programs. Romney opposes further cuts to defense spending. That leaves domestic programs, which disproportionately benefit low-income Americans and seniors.
That’s a tough sell. When Reagan ran for office, deficits weren’t a major problem. When Bush ran for office, they weren’t a problem at all. That’s part of why their tax cuts appealed to the electorate: They seemed affordable, even free. But Romney is running for office at a time when both new spending and new tax cuts will clearly require commensurate sacrifice elsewhere in the budget. And his tax cuts, as a percentage of GDP, are three times as large as Bush’s 2001 tax cuts. So put his returns and his cuts together and Romney is saying that, at a 15 percent effective federal tax rate, people like him are paying too much to close the deficit, and one of his policy priorities will be making sure they pay less going forward.
Romney isn’t offering free money this year. He’s offering a redistribution of anticipated sacrifice. And he’s redistributing away from his class and toward groups that are less able to bear it financially, and more sympathetic to most voters.
By Tom Nicolson
January 20, 2012 1:28 PM GMT
Republican nominee frontrunner, Mitt Romney, is enduring his worst week of the presidential campaign as further details of his tax affairs, which have come under increasing scrutiny ahead of the South Carolina primary, were uncovered.
A Newt Gingrich PAC is using clips from anti-Romney documentary "King of Bain: When Mitt Romney Came to Town" to go after the GOP frontrunner, accusing him of being a corporate raider who gutted companies and ruined lives for maximum profit.
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ABC News investigative unit discovered that up to $30 million of Romney's personal wealth was deposited in the Cayman Islands to avoid paying US tax, when he worked at his former investment fund, Bain Capital.
But Romney's campaign team quickly released a statement after the report went viral claiming that the money was not put there to avoid tax and that exactly the same tax would have been charged if the money had been deposited into a fund in the USA.
A spokeswoman for the Romney campaign, Andrea Saul, said: "ABC is flat wrong. The Romneys' investments in funds established in the Cayman Islands are taxed in the very same way they would be if those funds were established in the United States."
But 24 hours after the statement was released, questions still remained unanswered as to why the money was put there in the first place if that was the case.
In a further blow, the Citizens for Tax Justice suggested that offshore accounts cost the US Treasury over $100 billion a year at a time where the federal government has to make severe cuts.
Questioned during the South Carolina debate whether he would follow in his father's footsteps and publish all of his tax returns over the last 12 years, Romney said: "Maybe" which was met by a chorus of boos.
The former governor of Massachusetts has refused to agree to publish his tax records prior to the April but is under increasing pressure from the media, rival candidates and supporters to do so. Rival candidate for the GOP nomination, Newt Gingrich said during the presidential debate that the people have a right to know before a candidate is chose to run against Barack Obama for the White House in the autumn.
Earlier in the South Carolina campaign, Romney admitted that he paid a fraction of tax compared to the rest of the working American public.
Bruce Krasting, My Take On Financial Events | Jan. 20, 2012, 8:35 AM
The Treasury Department emailed its fans a blog entry setting out its position on extending the debt limit. The very fact that the Treasury Department feels the need to post blogs on this topic worries me. They wouldn’t be doing this if they actually thought that passing the ceiling was a slam-dunk.
Dr. Jan Eberly made numerous arguments as to why the debt ceiling should not be an issue at all. Some were valid. As part of the last go around on the debt ceiling there was an agreement to cut spending. The terms of that deal led to $2T of budget cuts. That being done, there's no valid reason to dispute the matter. At least that is the position of Treasury.
Possibly, the Treasury's own mind-set will trip it up. It acts like it hasn't gotten the memo on what the debt ceiling issue means to most folks. Read what Eberly had to say about the consequences of failing to raise the ceiling:
Treasury NotesReally Jan? I don’t think this is correct. Changes in the trajectory of the debt ceiling would most certainly have a significant effect on revenues, spending, the size of the deficit and the amount of outstanding debt.
I think the debt ceiling will be increased. It’s politically the wrong time for this fight. But in a year from now the gloves will come off. They have to. At some point the Administration will have a tough fight on their hands, and it won't win any arguments pretending that the size of the debt does not directly impact spending. That’s exactly what this debate is all about.
The Shitty 30
Citizens for Tax Justice has a report out on one of my hot-button topics. Corporate taxes. They produced a list called the Dirty Thirty. The time span covered 2008 – 2010. The results compare 30 companies' actual tax rates to how much the contributed to lobbyists. The list:
I don’t think these companies are actually cheating on their taxes. But they are cheating the American public. They are allowed to avoid paying taxes (and getting monstrous refunds to boot) because of the tax code. The problem is that the same folks who run these companies are also creating the tax laws that they greatly benefit from.
The best proof of that is #2 on the list. GE has a negative tax rate of 45% on over $10b of domestic income. Shameful. Yet the boss at GE, Jeff Immelt, is best buds and a senior adviser to the President. Shameful.
Not that long ago Bank of America got hit with a shovel from its customers after it tried to jack up fees. BAC was on the nightly news and the blogs. It folded under the pressure. The CEO of BAC (what’s his name) acknowledged today that it was the backlash from consumers that forced the change in policy.
It worked perfectly with BAC. Public outrage and customers closing their accounts forced good old what’s-his-name to change direction. I wish it was as easy with the likes of GE. BAC was stealing nickels and dimes. GE is in it for the billions.
Dead End in Health Care?
An interesting report from the CBO today examines various efforts to contain the costs of delivering healthcare. The report reviews 34 separate programs over a twenty-year period.
The conclusion after this multi-decade, multi-billion dollar effort?
The evaluations show that most programs have not reduced Medicare spending
In nearly every program involving disease management and care coordination, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program
It wouldn’t be fair to blame the caregivers or the administrators for the failures. The patients were suffering from chronic heart/lung diseases and diabetes. There are no “cheap” alternatives in treating these conditions.
The cost of healthcare in general, and Medicare in particular, will eventually sink the country. I don’t see any disagreement on that conclusion.
We will hear plenty on this topic over the next 10 months. Both Reds and Blues will claim that waste and inefficiency are the problem. That “They” have a plan to contain the costs and make the problems go away. Don’t listen to them. The CBO says so.
We need a Plan B. It will not be a very pleasant discussion at all.
By Alex Seitz-Wald on Jan 20, 2012 at 5:00 pm
Much has been said in recent days after Mitt Romney revealed that his effective tax rate is close to 15 percent — below that of many middle-class Americans — because much of his income comes from investment gains, which are taxed at lower rates than normal wages.
But Flyod Norris reminds us in the New York Times today that “unearned income” from investments was not always taxed at a lower rate than earned income. For two years, thanks to Republican icon Ronald Reagan, capital gains and earned income were treated equally:
For most of the history of income taxes in America, long-term capital gains — defined at different times as investments held for minimum periods of as little as six months and as long as 10 years — have been taxed at substantially lower rates than top ordinary income tax rates.
There was, in fact, only one time that capital gains were taxed at the same rates that were paid by people who earned their money by working. That was during the years 1988 to 1990, as a result of the Tax Reform Act of 1986 — a law championed by President Ronald Reagan.
Reagan’s Vice President, George H.W. Bush, convinced Reagan and Congress to lower the rate again as he was preparing to run for the presidency, and the capital gains rates was subsequently lowered to today’s rate of 15 percent by his son, President George W. Bush, as part of his 2003 tax cut. As Citizens for Tax Justice has noted, Reagan’s tax increase did not cause investment to fall, as many anti-tax ideologues had predicted.
Jan 20 2012, 5:04 PM ET 98
What's so special about the Cayman Islands? What's a tax haven? Can I have one, please? The answers to these questions and more.
615 romney bain.jpg
Mitt Romney has millions of dollars spread around at least a dozen investment funds run by Bain Capital out of the Cayman Islands, a notorious tax haven, as ABC News reported on Wednesday. This raises some tricky questions, including but not limited to: Isn't this awfully suspicious? How does a tax haven work? And, should I get one? The short answers are, respectively: No, it's complicated but we'll explain, and probably not.
Is Mitt Romney hiding his money illegally?
No. Moving your money to an obscure tax-haven sounds suspicious, but as far as anybody knows, Romney's investments are above board. If he was trying to hide his money, he'd be doing a pretty terrible job, considering all this information was discovered through public documents.
Before get into why some of Romney's money is on vacay in the Caribbean, we should talk about who actually controls his investments. Technically, Romney isn't supposed to have a say in where his fortune goes. To avoid potential conflicts of interest when he became governor of Massachusetts, Romney put his wealth in a "blind trust," which he supposedly has no hand in managing.
Romney doesn't control his own money? So, who does?
The trust is run by Romney's longtime lawyer, Bradford Malt. Back in 2007, when the issue of Romney's offshore investments first came to light, Malt told the Los Angeles Times that he had invested in a number of foreign funds, including one located in the Caymans. As he put it:
"I don't care whether it's the Cayman's or Mars, if it's organized in the Netherlands Antilles or the Jersey Islands," he said. "That means nothing to me. All I care about is whether it's a good fund or a bad fund. It doesn't affect his taxes."
Wait, if he's Romney's lawyer, how "blind" is this trust, really?
Good question! After all, Malt even invested $1 million of Romney's money in a fund run by the candidate's own son, Tagg. As ABC has reported, Romney's blind trust probably wouldn't be up to snuff for a federal elected official. His campaign has acknowledged so much. But since it was organized in Massachusetts, he got to meet a lower bar. To the best of anyone's knowledge, though, Romney isn't calling the shots on his investment portfolio.
What is a tax haven for, exactly? And why would Romney need one?
Remember, Romney's Cayman investments are in private equity funds run by his old employer, Bain Capital. So you need to start by asking why Bain Capital wants to be somewhere like the Caymans.
For a private equity firm like Bain, an offshore tax haven is like a very expensive resort where American money can easily meet foreign money, then mingle. They're appealing for foreigners, who get to profit off American assets while avoiding the IRS entirely. And they're appealing for Americans, who get to pay lower taxes on certain types of investments.
That's sounds really simple!
Oh lord, no it isn't. If you really want to understand how a tax haven works for an American, stay with me for a few paragraphs.
Some of the biggest investors in the United States are tax-exempt organizations, like college endowments and public pension funds. But when it comes to putting their money with private equity, they have a problem. That's because tax-exempt organizations aren't allowed to use borrowed money to make financial investments, or run a for-profit business on the side. Otherwise, they're subject to a special "unrelated business income tax," which maxes out at 35%.
This is where the Caymans and other tax havens come into play, as Rebecca Wilkins, senior counsel of Citizens for Tax Justice, explained to me. To help pensions and their ilk avoid the unrelated business income tax, firms like Bain set up feeder corporations in the U.S. that exist entirely to funnel money to an offshore fund. The American client invests in the feeder corporation, which then sends their money to the Caymans. The profits come back through the same route. Presto chango, their money is no longer subject to high corporate taxes, since they're not directly buying a company, or taking on debt. This (completely legal) trick is one of the reasons public pension funds are among the largest investors in private equity firms.
Sounds great. I want to invest in a Caribbean tax haven!
Because there's no way you're going to stuff a hundred million dollars inside a tax-free account. As the Wall Street Journal reported yesterday, Mitt Romney keeps between $20.7 million and $101 million in a tax-exempt IRA account. It's pretty unusual for an IRA to grow that large. But part of Romney's is invested in high-return Bain funds. Those private equity profits would ordinarily be subject to unrelated business income taxes. According to the paper, "Tax experts say that might explain why Mr. Romney's IRA includes holdings in Bain entities based in offshore locations," including a Cayman Islands fund worth up to $25 million. Essentially, he could be using the same tricks as a pension to save on his IRS bill.
So Romney is saving a ton of money this way?
Possibly. Romney doesn't have to pay annual taxes on his IRA returns. But when he does eventually withdraw the money, he'll have to pay taxes as if it were ordinary income, instead of the low, low 15% capital gains rate he would otherwise owe on investment returns. So he gets to build up his money tax free, but the tax man will eventually get a bite.
By JohnThomas Didymus
Jan 19, 2012
As the GOP presidential nomination race heats up, questions are being asked about Mitt Romney's personal wealth, especially his offshore investments. Romney has admitted he has millions stashed away in the Cayman Islands, widely known as a tax haven.
According to The Washington Post, Romney has not provided details of his offshore investments or about other investments he has outside the United States. But a report by ABC News says, "there are...reasons Romney may not want the public viewing his returns...Romney has used a variety of techniques to help minimize the taxes on his estimated $250 million fortune...Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans."
ABC News points out that Cayman is a "notorious Caribbean tax haven," implying that Romney is investing in the Cayman Islands to avoid paying tax in the U.S. Jack Blum, a Washington lawyer, commented, "His (Romney's) personal finances are a poster child of what's wrong with the American tax system."
But USA Today reports that Andrea Saul, Romney's campaign spokeswoman, said: "ABC is flat wrong. The Romneys' investments in funds established in the Cayman Islands are taxed in the very same way they would be if those funds were established in the United States. These are not tax havens and it is false to say so."
ABC News, however, reports that Rebecca J. Wilkins, a tax policy expert with Citizens for Tax Justice, said the U.S. government loses an estimated $100 billion a year because of tax havens. Wilkins said, "the primary advantage to setting those funds up in an offshore jurisdiction like the Cayman Islands or Bermuda is it helps the investors avoid tax. It helps foreign investors avoid taxes in their home country, so it's not illegal or improper to set those funds up in a foreign jurisdiction, but it makes it more attractive to investors because it helps them avoid paying taxes on that income."
USA Today reports that about $250 billion in tax revenue is lost annually by governments worldwide to tax havens and Cayman Islands is ranked among the top tax havens because of secrecy of investments.
Romney is believed to be worth about $190 million to $250 milliion.
Opponents cash in
Of course, Mitt Romney's opponents have seized on the information to launch attacks on him, though The Washington Post says the attacks may not be effective in the "business-friendly environment of the Republican Party electorate."
Newt Gingrich, Romney's top opponent in the South Carolina primaries, has taken a shot at the former Governor of Massachusetts. According to Gingrich, he would be renaming his flat tax the "Mitt Romney 15 percent flat tax.'" Gingrich's statement comes after the revelation that Romney pays tax at a 15 percent rate.
Romney responded to a question put to him Thursday morning about releasing his tax returns. He said he will release the returns but not until April, that is, long after the party has chosen its presidential candidate. Romney said: “You’ll hear more about that. April."
The Washington Post reports that questions about the details of Romney's personal wealth have nagged his presidential campaign, and in recent times he has been forced to make disclosures that raise uncomfortable questions. Many eyebrows were raised when Tuesday, he revealed that he pays an effective task rate of about 15 percent. This is less than what Americans who receive paycheck pay. He also raised questions when he disclosed that he does not earn "much" from speech-making fees, only about $373,327 for 12 months in 2010 to early 2011.
Scrutiny of Romneys private wealth could not come at a worse time, The Washington Post comments. Romney needs sustained momentum to ride over challenges in the ongoing primaries. Unfortunately, Romney, in recent times, has been giving his opponents opportunity to attack him with insinuations that he is a wealthy man out of touch with the circumstances of ordinary Americans. He gave that impression especially with his recent comment about health insurance companies that, “I like being able to fire people who provide services to me.”
Led by General Electric’s CEO Jeffrey Immelt, President Obama’s Council on Jobs and Competitiveness released a report yesterday suggesting major changes to the US corporate tax code which they say would stimulate the economy and create jobs. The 27-member body recommends widening the corporate tax base and decreasing rates. It also suggests that the US change to a territorial corporate tax system, which would exempt most taxes on foreign income brought into the US. Those Council members in support of this argued that currently, to avoid taxation, US corporations invest less of their foreign income in the US than they would like to. Accounting Today reports that not all members agree that this shift will result in an economic stimulus and want safe-guards against more tax loopholes. It is not likely, though, that a body led by a General Electric CEO will make significant strides in increasing the corporate tax rate. In the three years before Jeffrey Immelt joined the President’s Council on Jobs in 2011, GE made over $10 billion in profit, spent $79 million on lobbying, and paid zero dollars in taxes. GE’s tax exploits have landed it on the 2008 – 2010 Dirty Thirty list of corporations that spent more money on lobbying than taxes over the three year period. US PIRG and Citizens for Tax Justice compiled the list as part of their joint report, “Representation Without Taxation: Fortune 500 Companies that Spend Big on Lobbying and Avoid Taxes.” GE is not the only household name that made it onto the Dirty Thirty list. Verizon Communications secured a spot for receiving tax rebates from the government while spending $52 million on lobbying over three years. Wells Fargo also rang in a negative tax rate and spent $11 million to influence Congress. PG&E, the energy giant responsible for a natural gas pipeline explosion in Northern California that killed eight people, is also on the list. From 2008 to 2010 PG&E spent $70 million to lobby Congress, raked in over $4 billion in profit and paid zero dollars in taxes.
Frontrunner for the Republican presidential nomination Mitt Romney has been under fire over in the United States for not being entirely open about his tax arrangements – and it is clear why.
The former Massachusetts Goverbor stashes an awful lot of his wealth and income away from the yes of the American Treasury and in the Cayman Islands – international tax haven and overseas British territory, or in old-fashioned language, a colony of the British Empire.
Mitt-RomneyAs American broadcaster ABC has reported:
“Mitt Romney has millions of dollars of his personal wealth in investment funds set up in the Cayman Islands, a notorious Caribbean tax haven.
“As the race for the Republican nomination heats up, Mitt Romney is finding it increasingly difficult to maintain a shroud of secrecy around the details about his vast personal wealth, including, as ABC News has discovered, his investment in funds located offshore and his ability to pay a lower tax rate.
“His personal finances are a poster child of what’s wrong with the American tax system,” said Jack Blum, a Washington lawyer who is an authority on tax enforcement and offshore banking.
“On Tuesday, Romney disclosed that he has been paying a far lower percentage in taxes than most Americans, around 15 percent of his annual earnings. It has been Romney’s Republican rivals who have driven the tax issue onto center stage.
“But tax experts tell ABC News there are other reasons Romney may not want the public viewing his returns. As one of the wealthiest candidates to run for president in recent times, Romney has used a variety of techniques to help minimize the taxes on his estimated $250 million fortune.
“In addition to paying the lower tax rate on his investment income, Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry.
“Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans.
“Official documents reviewed by ABC News show that Bain Capital, the private equity partnership Romney once ran, has set up some 138 secretive offshore funds in the Caymans…
“Tax experts agree that Romney remains subject to American taxes. But they say the offshore accounts have provided him – and Bain – with other potential financial benefits, such as higher management fees and greater foreign interest, all at the expense of the U.S. Treasury. Rebecca J. Wilkins, a tax policy expert with Citizens for Tax Justice, said the federal government loses an estimated $100 billion a year because of tax havens.
“Bain’s presence in the Cayman Islands is not something the firm advertises. The Los Angeles Times first disclosed Romney’s offshore accounts in 2007, during his initial run for the presidency.
“ABC News found references to the firm’s accounts in the Caymans in the footnotes of securities filings. When ABC News went to the office address listed for Romney’s Bain funds, lawyers in the Caymans were not eager to answer questions.”
Mitt Romney has been widely tipped as almost a dead cert to win the nomination. But with the Iowa caucus having been finally declared for Rick Santorum, and the withdrawal of Rick Perry allowing a consolidation of the anti-Romney vote, it seems that there is a lot more blood, sweat and dollars to be spent by the former financier before he wraps up the nomination.
Meanwhile, with British overseas territories being brought squarely into the centre of the American political debate on how the super-rich can game the system to their advantage, the goings on in the likes of the Anguilla, the Virgin Islands and Nevis will come under more scrutiny than ever before.
The super-rich GOP frontrunner is already taking heat for his 15 percent tax rate. But the real fireworks may start when he releases his tax documents in April
posted on January 19, 2012, at 9:57 AM
ABC News reports that Mitt Romney has millions of dollars parked in offshore tax havens like the Cayman Islands, potentially creating a big political problem for the Republican.
ABC News reports that Mitt Romney has millions of dollars parked in offshore tax havens like the Cayman Islands, potentially creating a big political problem for the Republican. Photo: Joe Raedle/Getty Images SEE ALL 58 PHOTOS
Best Opinion: ABC News, New York, Fortune ...
"How did a campaign as well run as Mitt Romney's so badly botch the issue of his tax returns?" asks Ruth Marcus at The Washington Post. It was inevitable that he would have to release at least this year's tax return. And "by choosing to pull off the Band-Aid with excruciating slowness" — first saying he wouldn't make his tax documents public, then saying he might, then admitting that his effective tax rate is about 15 percent, a lower rate than families earning $50,000 a year — Romney has "guaranteed maximum attention to the tax issue." But the biggest damage could still be ahead, when he actually releases his tax returns in April. Here, four ways Romney's tax records could cripple his run for the White House:
1. Romney could have big money in dodgy offshore tax havens
"Romney has used a variety of techniques to help minimize the taxes on his estimated $250 million fortune," but one of the most damaging could be that he has millions parked in a "notorious Caribbean tax haven," the Cayman Islands, according to ABC News. The Romney camp insists that Mitt pays taxes the same way no matter where his investments are housed. But ABC reports that the sort of "secretive offshore funds in the Caymans" that Romney has invested in through his old firm, Bain Capital, cost the feds an estimated $100 billion per year. "Maybe there's a nuanced interpretation here that leaves Romney completely faultless in every way," says Dan Amira at New York, "but, unfortunately for Romney, most Americans don't have a nuanced understanding of offshore taxation schemes."
2. He likely benefits from an "unconscionable" tax loophole
Romney's tax returns could shine an unwelcome spotlight on a giant "carried interest" loophole, says Dan Primack at Fortune. In "Romney's private equity portfolio are dozens of funds" managed by Bain, and "it is entirely possible that Romney didn't personally invest a dime into any of those funds." But whenever these funds complete a successful investment, Romney likely gets paid "carried interest," essentially a share of the profits, which is then taxed at just 15 percent. If that's the case, "Romney could be receiving a massive IRS reward for risk-taking, without having actually taken any risk." This carried interest boondoggle is an "unconscionable" sop to super-wealthy private equity managers, says John Cassidy at The New Yorker. And in defending the loophole and pushing "even more tax cuts skewed to the rich," Romney is becoming the face of the 1 percent. Come April, "we shall see how the American public reacts to this face."
3. America will see how much Romney's own tax plan would benefit him
Romney's annual income is somewhere between $6 million and $40 million, and once we have exact tax figures from his return, we can estimate how much Romney's own taxes would fall if he's elected and gets his way on tax policy, says Greg Sargent at The Washington Post. According to Citizens for Tax Justice, "Romney's plan would give him a tax cut of more than 40 percent" compared to Obama's favored tax policies. So essentially, says Matt Miller at The Washington Post, "Romney believes the best-off Americans should be completely exempt from participating in the wrenching burden other Americans will need to help shoulder (via taxes and spending cuts) to get the country's fiscal house in order."
4. The ghost of Romney's father is hovering over him
Romney and his accountants can scramble to make this year's tax return look good, but Mitt will face strong pressure to release past years' returns, too — and it's too late to change those, says Reid Epstein at Politico. Obama, for example, disclosed six years' worth of tax returns in March 2008, and has continued releasing them every year since. "Making it worse — the person who set the precedent of releasing returns that every major presidential candidate has since followed was Romney's own father, who put out 12 years' worth a year before his own 1968 run." George Romney also "exemplified a lost species of American business leader," who "felt some sense of restraint when it came to compensation," says The Washington Post's Matt Miller. Mitt Romney's tax returns will offer "a window into his public values," and its a good bet Mitt's won't compare favorably with his father's.
Published: Thursday, January 19, 2012, 7:00 AM
Stacy Jones/The Star-Ledger
Thirty companies, including Morris Township-based Honeywell International, made a tax advocacy group’s list of corporations it says that spend big bucks on lobbying and save millions in federal tax subsidies annually, according to a report released yesterday.
Honeywell used offshore subsidiaries and tax loopholes to pay a negative tax rate between 2008 and 2010, according to the report.
The company reported $5 billion in domestic profits and received $1.75 billion in federal tax subsidies, making its effective tax rate negative 0.7 percent the group reported, citing 2010 10-K reports for the company.
The global manufacturing conglomerate’s lobbying expenses totaled $4.7 million in 2008, $7 million in 2009, $6.5 million in 2010 and $4.9 million through 2011’s third quarter according to OpenSecrets.org, a website run by the Center for Responsive Politics.
Most years the company, which makes everything from home thermostats to aircraft parts, funneled its lobbying dollars towards the manufacturing and distribution industry.
Reached yesterday, Honeywell spokeswoman said the company obeys all applicable tax laws.
"Honeywell adheres to the tax laws of all jurisdictions in which it operates, is subject to ongoing review by tax authorities and is compliant in all respects," she said.
The U.S. Public Interest Research Group, a D.C.-based nonprofit, used tax data collected by the Citizens for Tax Justice and lobbying data from the Center for Responsible Politics to compile its "Dirty Thirty" list in a report titled "Representation Without Taxation."
The findings make a strong argument that the corporate tax code offers corporations too many tax loopholes, said Gideon Weissman, a New Jersey-based spokesman for the research group.
The report claims that most of the companies that made its list, including Verizon Communications, Wells Fargo and Consolidated Edison, avoid paying taxes on earnings by keeping money in "offshore tax havens," or subsidiaries.
"When corporations don’t pay, ordinary taxpayers and responsible small businesses are left to pick up the tab," he said.
Honeywell has five such subsidiaries, according to the study.
Four New Jersey congressmen, including Rep. Rob Andrews (D-1st Dist.), Rep. Rush Holt (D-12th Dist.) and Rep. Donald Payne (D-10th Dist.), currently co-sponsor the Stop Tax Haven Abuse Act (HR 2669), which would create new rules to deter offshore transactions designed to avoid U.S. income taxes.
"As New Jersey’s only member of the House Committee on Ways and Means, I know it is clear as day that we must reform the tax code to ensure a fair economic policy," said Rep. Bill Pascrell (D-8th Dist.).
Written by: Ralph Nader
January 19, 2012
The editor of The Hill, a newspaper exclusively covering Congress, said that Congress was not going to do very much in 2012, except for “the big bill” which is extending the payroll tax cut and unemployment compensation, which expire in late February. That two month extension will likely reignite the fight between Democrats and Republicans that flared last month.
In 2012, Congress, the editor implied, would be busy electioneering. That is, the Senators and Representatives will be busy raising money from commercial interests so they can keep their jobs. There won’t be much time to change anything about misallocated public budgets, unfair tax rules, undeclared costly wars, and job-depleting trade policies that, if fixed, would increase employment and public investment.
So this year, Congress will spend well over $3 billion on its own expenses to do nothing of significance other than shift more debt to individual taxpayers by depleting the social security payroll tax by over $100 billion so both parties can say they enacted a tax cut! That is what the Democrats in Congress and the President call a significant accomplishment.
Will someone call a psychiatrist? This is a Congress that is beyond dysfunctional. It is an obstacle to progress in America, a graveyard for both democracy and justice. No wonder a new Washington Post-ABC news poll found an all time high of 84 percent of Americans disapprove of the job Congress is doing.
Both Republicans and Democrats say they want to reduce the deficit. But they are avoiding, in varying degrees, doing this in any way that would discomfort the rich and powerful. One would think that, especially in an election year, the following legislative agenda would be very popular with the voters.
First, restore the taxes on the rich that George W. Bush cut ten years ago which expanded the deficit. So clueless are the Democrats that they have not learned to use the word “restore” instead of the Republican word “increase” when talking about taxes that were previously cut for the millionaires and billionaires.
Second, collect unpaid taxes. The IRS estimates that $385 billion of tax revenues are not collected yearly. If the IRS budget increased and more people were hired, every dollar it spent would return $200 from tax evaders, including corporations and the wealthy. When taxes are not collected, the large majority of honest taxpayers are left with the unfair consequences. Imagine that money being applied to jobs that repair our crumbling public works.
Third, end the outrageous corporate loopholes that allow profitable large corporations to pay just half of the statutory tax rate of thirty-five percent. More than a few pay less than five percent and many pay zero on major profits. During a recent three year period, according to the Citizens for Tax Justice, a dozen major corporations such as Verizon and Honeywell paid no taxes on many billions of profits, and the legendary tax escapee, General Electric, managed to pay zero and even receive billions in benefits from the U.S. Treasury.
Fourth, do what most U.S. soldiers in the field have believed should have been done years ago–get out of Afghanistan and Iraq and nearby countries like Kuwait where thousands of U.S. soldiers based in Iraq have moved.
Fifth, to increase consumer demand, which creates jobs, raise the federal minimum wage from the present level of $7.25–which is $2.75 less than it was way back in 1968, adjusted for inflation–to $10 per hour. Businesses who keep raising prices and executive salaries (eg. Walmart and McDonalds) since 1968 should be reminded of their windfall in that period.
In addition, President Obama can urge mutual and pension funds and individual shareholders to demand higher dividends from companies like EMC, Google, Apple, Cisco, Oracle and others firms hoarding two trillion dollars in cash as if this money was the corporate bosses’, not the owner-shareholders. More dividends, more consumer demand, more jobs.
Want to know why Congress doesn’t make such popular and prudent decisions for the American people? Because the people are not objecting to all the power that their Congressional representatives and their corporate allies have sucked away from them. Because the people are not putting teeth and time into the “sovereignty of the people” expressed in the preamble to our Constitution which begins with “We the people,” not “We the corporation.”
So citizens, it’s your choice. If you don’t demand a say day after day, you’ll continue to pay day after day.
By the way, the Congressional switchboard number is 202-224-3121.
His dad released 12 years of records when he ran for president. Mitt's only promising one. How about six?
By Joan Walsh
Mitt Romney’s tax return troubles are only getting worse. I think he’s trying to inoculate himself from some of the blow back he’s sure to get when he finally releases them – one year only, 2011, and not until April – by warning us about some of what’s in them. On Tuesday he said he only pays around 15 percent in taxes because the bulk of his interest comes from investment, which are taxed at a much lower rate than income. He also told us he makes some money in speaking fees, but it’s “not very much.” Only $374,000, which puts him in the top one percent of American earners – even before you add in all that investment income. He really is the perfect front man for the interests of the top one percent.
On Wednesday ABC News reported that Romney and his former employer Bain Capital have millions in offshore accounts in the Cayman Islands, which help reduce their tax rates, though they don’t eliminate U.S. taxes. Citizens for Tax Justice told ABC that offshore accounts cost the U.S. Treasury some $100 billion a year. The Romney campaign is pushing back on the ABC News report, confirming the candidate has investments in Cayman Islands funds while insisting they aren’t taxed at a lower rate. But the campaign would not say how much was invested in overseas tax havens, or why. The steady flow of news and rumors about Romney’s wealth and taxes will continue. His evasions only make every tidbit more newsworthy. He’s got to release his tax returns – and he ought to release more than one year’s.
Unbelievably, even his supposed ally New Jersey Gov. Chris Christie said Romney should release his tax returns today, in appearances nominally scheduled to boost the former Massachusetts governor. Even Christie acknowledged the normal protocol is to release them going back several years:
The way that I’ve conducted myself in my public life all along is I’ve released all of my tax returns. And I did it during the campaign — went back a number of years and released my tax returns. And I released them every year after I filed them — right after I filed them — to the public in New Jersey so they can see everything. And I think that’s the right way to go and that’s what I would tell Governor Romney to do. Now, he says he’s going to release them in April. I hope he does. The fact of the matter is, that’s what I would advise him to do.
On Hardball Wednesday I noted that Mitt’s father George Romney released 12 years of tax returns, when he ran for president in 1968, and they showed he didn’t avail himself of many loopholes commonly used by the wealthy to minimize what they pay. If Mitt wants to be half the man his father was, I joked, he should release six years. That was probably unfair. In this hypercharged political environment, when there’s new interest and outrage over the way the super-wealthy have rigged tax rules and other regulations for themselves, it would take courage to release six years. But Romney doesn’t have much of an alternative. One year, 201l, certain won’t do; everyone knows that gives him time to clean up his accounting, minimize his use of loopholes and maximize his one-year tax rate. Twelve years is a politically unrealistic demand but one year would be politically foolish.
By: Rachel Baye | 01/18/12 8:05 PM
Examiner Staff Writer
Pepco spent more lobbying Congress than it paid in taxes between 2008 and 2010, a new report shows.
The electric utility paid $3.8 million to lobbyists in that period, while it paid no taxes. In fact, it made $508 million in profits from federal tax rebates -- paying an effective tax rate of negative 57.6 percent, according to the report by the U.S. Public Interest Research Group and Citizens for Tax Justice.
Pepco, named "the most hated company in America," was one of 30 corporations listed in the report that collectively made nearly $164 billion in U.S. profits and received $67.9 billion in tax subsidies between 2008 and 2010. It was one of 29 corporations that paid an average negative federal tax rate, effectively profiting from corporate incentive programs.
The report comes about a month after Pepco -- which provides power to 778,000 residents and businesses in the District of Columbia, Montgomery County and Prince George's County -- asked for a $68 million rate increase.
Pepco leads list of businesses not paying state income taxes (12/8/11)
Maryland fines Pepco $1 million for unreliable service (12/21/11)
Pepco 'most hated' company in America (7/11/11)
Last month the Maryland Public Service Commission also issued Pepco a $1 million fine for subpar service.
"Loopholes and special carve-outs in the tax code allow many of the nation's most profitable corporations to pay considerably less in taxes than the 35 percent statutory federal corporate income tax rate," the report says. "There are thousands of perfectly legal ways that corporations lower their tax burden, most of which serve no public interest purpose."
By lobbying Congress, these companies are able to craft a tax code that benefits them, PIRG said.
But Pepco spokesman Bob Hainey called the tax rebates "economic incentives" that create jobs and encourage investment.
For the most part, Pepco's 2011 lobbying efforts were not aimed at tax breaks.
Pepco lobbied on one tax-related issue, the Withholding Tax Relief Act of 2011, congressional lobbying disclosure documents reveal. That bill, which died in October, would have repealed the requirement that government entities withhold a portion of payments to vendors.
Most of Pepco's lobbying in the first three quarters of 2011 -- the latest months available -- was on issues related to Environmental Protection Agency regulations.
Eric Randall Jan 18, 2012
Mitt Romney keeps millions of dollars in funds based in the Cayman Islands, a notorious tax shelter, reports ABC News, and while they don't think he's ducking U.S. taxes, the story is another reminder than the guy is very rich. ABC News's team reports Romney invested up to $8 million in funds listed in the Caymans and may have between $5 and $25 million more there in another account. Romney's campaign says none of that money goes untaxed by the American government, and ABC News doesn't really contest that claim, so no one's saying he's doing anything illegal. But the chief point seems to be that this won't look great for Romney because people generally set up funds in the low-tax Caymans to help other people avoid American taxes. They quote Rebecca J. Wilkins of Citizens for Tax Justice:
"It helps U.S. investors avoid U.S. tax," said Wilkins, "it helps foreign investors avoid taxes in their home country, so it's not illegal or improper to set those funds up in a foreign jurisdiction, but it makes it more attractive to investors because it helps them avoid paying taxes on that income."
As with debates over layoffs at Bain and paying 15 percent on your taxes, this feels like another issue where Romney made the same understandable decisions as a business leader and wealthy individual that don't look good when you're running for president while millions of people are unemployed.
Want to add to this story? Let us know in comments or send an email to the author at email@example.com. You can share ideas for stories on the Open Wire.
Topics: Cayman Islands, Mitt Romney, Mitt Romney finances
By MATTHEW MOSK, BRIAN ROSS (@brianross) and MEGAN CHUCHMACH (@megcourtney)
Jan. 18, 2012
Although it is not apparent on his financial disclosure form, Mitt Romney has millions of dollars of his personal wealth in investment funds set up in the Cayman Islands, a notorious Caribbean tax haven.
A spokesperson for the Romney campaign says Romney follows all tax laws and he would pay the same in taxes regardless of where the funds are based.
As the race for the Republican nomination heats up, Mitt Romney is finding it increasingly difficult to maintain a shroud of secrecy around the details about his vast personal wealth, including, as ABC News has discovered, his investment in funds located offshore and his ability to pay a lower tax rate.
"His personal finances are a poster child of what's wrong with the American tax system," said Jack Blum, a Washington lawyer who is an authority on tax enforcement and offshore banking.
On Tuesday, Romney disclosed that he has been paying a far lower percentage in taxes than most Americans, around 15 percent of his annual earnings. It has been Romney's Republican rivals who have driven the tax issue onto center stage. For weeks, Romney has cited a desire for privacy as his reason for not sharing his tax returns -- a gesture of transparency that is now expected from presidential contenders.
"I can tell you we follow the tax laws," he said recently while on the campaign trail in New Hampshire. "And if there's an opportunity to save taxes, we like anybody else in this country will follow that opportunity."
But tax experts tell ABC News there are other reasons Romney may not want the public viewing his returns. As one of the wealthiest candidates to run for president in recent times, Romney has used a variety of techniques to help minimize the taxes on his estimated $250 million fortune. In addition to paying the lower tax rate on his investment income, Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans.
Official documents reviewed by ABC News show that Bain Capital, the private equity partnership Romney once ran, has set up some 138 secretive offshore funds in the Caymans.
Romney campaign officials and those at Bain Capital tell ABC News that the purpose of setting up those accounts in the Cayman Islands is to help attract money from foreign investors, and that the accounts provide no tax advantage to American investors like Romney. Romney, the campaign said, has paid all U.S. taxes on income derived from those investments.
"The tax consequences to the Romneys are the very same whether the fund is domiciled here or another country," a campaign official said in response to questions. "Gov. and Mrs. Romney have money invested in funds that the trustee has determined to be attractive investment opportunities, and those funds are domiciled wherever the fund sponsors happen to organize the funds."
Bain officials called the decision to locate some funds offshore routine, and a benefit only to foreign investors who do not want to be subjected to U.S. taxes.
Tax experts agree that Romney remains subject to American taxes. But they say the offshore accounts have provided him -- and Bain -- with other potential financial benefits, such as higher management fees and greater foreign interest, all at the expense of the U.S. Treasury. Rebecca J. Wilkins, a tax policy expert with Citizens for Tax Justice, said the federal government loses an estimated $100 billion a year because of tax havens.
Blum, the D.C. tax lawyer, said working through an offshore investment vehicle allows the investor to "avoid a whole series of small traps in the tax code that ordinary people would face if they paid tax on an onshore basis."
Wilkins agreed, saying the "primary advantage to setting those funds up in an offshore jurisdiction like the Cayman Islands or Bermuda is it helps the investors avoid tax."
"It helps U.S. investors avoid U.S. tax," said Wilkins, "it helps foreign investors avoid taxes in their home country, so it's not illegal or improper to set those funds up in a foreign jurisdiction, but it makes it more attractive to investors because it helps them avoid paying taxes on that income."
Bain Accounts in the Cayman Islands
Bain's presence in the Cayman Islands is not something the firm advertises. ABC News found references to the firm's accounts there in the footnotes of securities filings. When ABC News went to the office address listed for Romney's Bain funds, lawyers in the Caymans were not eager to answer questions.
Asked if he could confirm the existence of the Bain accounts, David Byrne, the chief marketing officer for the law firm Walkers, listed on documents as Bain's Caymans' representative, said he could not. "No, I can't at all," said Byrne. "Unfortunately, I can't comment at all on that."
There is now less secrecy than there was even two weeks ago surrounding Romney's tax rate. The money he made through Bain investments was taxed as capital gains at a 15 percent rate, instead of the higher tax rates borne by most Americans. Newt Gingrich told reporters Wednesday that his income was taxed at 31 percent.
The so-called "carried interest" rule has been the source of extensive debate in Washington, with opponents criticizing the allowance to tax those earnings at 15 percent a glaring loophole that benefits only the wealthiest Americans. Under the carried interest rule, income that is determined to be capital gains – like the profit reaped by hedge fund managers -- is subject to the lower 15 percent rate.
Wilkins said Romney's arrangements reminded her of the now famous remarks by billionaire financier Warren Buffet, who revealed in 2007 that he was paying taxes at a lower rate than his receptionist.
"Well, I think it's the issue that is sort of on the front page every day, when we look at the Occupy Wall Street movement and that people are really losing patience with the idea that a lot of multinational corporations have and a lot of wealthy people have that while they benefit from everything this country has to offer … they don't seem to be willing to pay their fair share," she said.
January 18, 2012 2:56 PM
By Sharyl Attkisson
As the economy tanked, some Fortune 500 firms raked in huge profits, all while benefiting from government tax breaks.
The new report is from the left-leaning U.S. Public Interest Research Group and Citizens for Tax Justice. They highlight companies they call "especially aggressive at dodging taxes and lobbying Congress: the Dirty Thirty."
One-third of them are energy companies. Together, between 2008 and 2010, they reported $164 billion in U.S. profits. Yet the report says most paid what amounts to a negative tax rate, meaning they got more in tax rebates than they paid in taxes. And they spent close to half a billion dollars lobbying Congress.
Read the report (PDF)
"The fact that the dirty 30 corporations that we identify here were able to literally spend more money lobbying Congress than they did in taxes really makes a mockery of both our tax code and our democracy," Dan Smith of the Public Interest Research Group said.
One way these big winners avoid taxes, the report says, is by using exotic tax havens that are sometimes nothing more than post office boxes.
The "Ugland House" in the Cayman Islands houses 18,857 "corporations."
Wells Fargo has 58 subsidiaries in tax havens and spent $11 million lobbying Congress between 2008 and 2010. So even with $49 billion in U.S. profits during that same time period, the report says the company paid what amounts to a negative tax rate: receiving more in federal tax breaks than it paid in taxes.
Wells Fargo told us its acquisition of financially distressed Wachovia in 2008 and the related loan losses resulted in an unusual tax period during the years reviewed by this report. "The truth is that over the past 10 years Wells Fargo has paid more than $30 billion in income taxes to federal and state authorities and billions more in other taxes, and it fulfills all tax obligations," said a spokesman. He added that in 2011, "Wells Fargo expects to pay an estimated $4 billion of federal and state income taxes."
Other big names on the list:
GE with $10 billion in U.S. profits and $84 million spent on lobbying between 2008 and 2010. The report says its effective tax rate was negative 45 percent. GE said "the report is misleading" but wouldn't elaborate.
Pepco with $882 million in profits, $3.8 million spent lobbying between 2008 and 2010. What was its tax rate? The report says: negative 57 percent.
Pepco told us they made use of legal "incentives to invest and stimulate the economy...not loopholes" and they helped "lower overall customer rates."
One of the companies named in the report said on background, "The U.S. tax system needs to be reformed to close loopholes while allowing U.S. companies to compete globally by lowering the corporate rate and providing a territorial system like every other major country in the world."
Fiscally conservative Americans for Prosperity says don't blame the companies -- just the system.
"What we really ought to do is have a rate that's the same for everyone that's fair, that's simple, that's understandable, that doesn't create that incentive for, you know, companies to invest a huge amount of money and time in tax policy instead of in creating value," the group's Phil Kerpen said.
The report looked at over half of the Fortune 500 companies and found they got $223 billion in tax subsidies and ended up paying what amounts to about half the 35 percent corporate tax rate. Had they paid the full rate on profits, there would've been an extra $67.9 billion in the U.S. treasury. That's about $481 for each American taxpayer.
SCHULTZ: Mitt Romney stands to gain a lot from his own tax policies. Citizens for Tax Justice broke down the tax proposals of President Obama and Mitt Romney. Now, under the president`s plan, Romney would be taxed at 24 percent.
But wait a minute, under his own plan, he would be taxed at less than 15 percent. Good deal, huh?
See the Highlights on Youtube
Posted at 12:02 PM ET, 01/18/2012
By Greg Sargent
The revelation that Mitt Romney pays a tax rate of around 15 percent opens the door to another question: How much would his own taxes fall under the tax plan he would pass if elected president?
Here’s the answer, according to a new analysis by Citizens for Tax Justice that was provided to me this morning. Under his plan, Romney in 2013 would see his taxes cut by nearly half of what they would be if you use current law as a baseline.
Another way to put this: If Romney, whose wealth is estimated at as much as $250 million, is elected president and gets his way on tax policy, he would pay barely more than half as much in taxes than he would if Obama is reelected and gets his way — and the Bush tax cuts on the wealthy expire and an additional Medicare tax as part of the Affordable Care Act kicks in.
Here’s how Citizens for Tax Justice, which is liberal leaning but nonpartisan, calculated this finding. It’s based on Romney’s 2011 financial disclosure form for the year 2010, which reported that Romney made an annual income that year of between $6.6 million and $40 million.
Some of that was based on royalties, salary, and interest, which would have been taxed at 35 percent, though that payment was minimized dramatically by deductions. A far bigger chunk was in and capital gains and dividends, which would have been taxed at the lower rate of 15 percent.
Citizens for Tax Justice first calculated what Romney would pay in 2013 under current law. That assumes that the Bush tax cuts would expire, driving the 15 percent rate on capital gains up to 20 percent, and that the top rate on other income, including dividends, would go up to 39.6 percent. It also assumes he’d be subjected to health reform’s new Medicare tax on investment income.
Under that regime, Romney would pay an overall tax rate of around 24 percent.
The group then calculated what Romney would pay if his own plan passed. That is, if you kept the Bush tax cuts in place, including keeping the capital gains tax at 15 percent, and scrapped the Medicare tax, as Romney wants to do.
Under that system, Romney would pay a rate of a little under15 percent — because virtually all his income is from capital gains and dividends.
The group calculates that this means Romney’s plan would give him a tax cut of more than 40 percent.
“This doesn't even include Romney’s proposal to cut corporate taxes from 35 percent to 25 percent, which would primarily benefit wealthy shareholders like himself,” Robert McIntyre, the director of Citizens for Tax Justice, tells me.
January 17, 2012
By NICHOLAS CONFESSORE, DAVID KOCIENIEWSKI and ASHLEY PARKER
Under growing pressure from rival Republicans to release his tax returns, Mitt Romney said on Tuesday that he paid a tax rate approaching 15 percent on his millions of dollars in annual income but said he would not make public his full return until April.
His effective tax rate was “probably closer to the 15 percent rate than anything,” Mr. Romney said at a campaign stop in South Carolina, noting that most of his considerable income over the last decade has come from investments rather than from earned income like salary. He also characterized as “not very much” the $374,327 he reported earning in speaking fees last year, though that sum would, by itself, very nearly catapult most American families into the top 1 percent of the country’s earners.
Mr. Romney mentioned the 15 percent figure in response to a question at a news conference, leaving uncertain whether his comment was unplanned or a deliberate effort to begin airing the issue ahead of a general election campaign. But his remarks on Tuesday drew immediate criticism from the Obama administration and Republican rivals, and are likely to cement Mr. Romney’s place as an unwilling emblem of the intensifying national debate over taxation and income inequality, which burst into the campaign this month when rival candidates began attacking Mr. Romney’s career in the leveraged buyout business.
Mr. Romney’s admission left unclear — and his campaign declined to clarify — whether the 15 percent he was referring to represented his overall tax burden or simply his federal income taxes. That makes it hard to compare the figure with the tax burdens of a typical middle-class American — or of Mr. Romney’s opponents. President Obama reported paying an effective federal tax rate of 26 percent on his 2010 family income.
But in acknowledging that most of his income comes from investments, Mr. Romney underscored a fact likely to figure prominently in attacks from Mr. Obama and other Democrats in the coming months: He is among the small percentage of very wealthy Americans who have benefited enormously from shifts in federal tax policy that have pushed federal tax rates on investment income well below the top 35 percent rate for wages and salaries, which constitute most earnings for the vast majority of people.
“The low taxes on capital gains and dividends are why people who make a ton of money, which is largely from investment income, do awfully well,” said Robert McIntyre, the director of Citizens for Tax Justice, which advocates more progressive taxation. “The Warren Buffetts, the hedge fund managers — they pay really low tax rates.”
Indeed, Mr. Romney probably pays a lower overall rate than many other wealthy Americans. They typically take home more ordinary income from salaries and wages than does Mr. Romney, who left Bain Capital in 1999 and joked to a group of voters last year that he was “unemployed.”
Like other people who amass great wealth at hedge funds or private equity firms, Mr. Romney earned much of his money at Bain in the form of “carried interest,” a share of the profits earned by investors in Bain funds, which current federal rules treat as long-term capital gains taxed at a 15 percent rate. A significant portion of his family’s wealth remains locked up in Bain funds, from which the Romneys draw income on their own investments with the firm, as well as a share of Bain’s profits. The Romneys also derive significant income from other investments and mutual funds.
During 2010 and the first nine months of 2011, the Romney family had at least $9.6 million in income, according to a financial disclosure filed in August, and possibly much more.
Democrats have been calling on Mr. Romney to release his tax returns since early December. But it was criticism in recent days from fellow Republican presidential candidates, including Newt Gingrich and Gov. Rick Perry of Texas, that seemed to jar Mr. Romney, who during Monday night’s debate suggested he would be open to releasing his returns in April without promising to do so.
That answer provoked a fresh attack from Mr. Gingrich on Tuesday morning, when he suggested that Mr. Romney might be hiding something from voters in South Carolina.
“If you’re a South Carolinian, you say, ‘Wait a second, why don’t you want me to know about it? Why are you going to wait until after I’ve voted?’ ” Mr. Gingrich said during a television interview on Tuesday.
Democrats, meanwhile, redoubled their attacks on Mr. Romney as out of touch with the economic concerns of the middle class.
“We won’t be waiting until he reveals his returns in April to remind voters that Romney’s tax policy would keep taxes low for millionaires like himself, putting a burden on the middle class,” said Bill Burton, a spokesman for Priorities USA Action, a “super PAC” supporting Mr. Obama.
At the White House on Tuesday, President Obama’s spokesman said Mr. Romney’s acknowledgment that he paid a 15 percent tax rate underscored an unfairness in the tax code that Mr. Obama was concerned about.
“This only illuminates what he believes is an issue, which is that everybody who’s working hard ought to pay their fair share,” said Jay Carney, the spokesman. “That includes millionaires who might be paying an effective tax rate of 15 percent when folks making $50,000 or $75,000 or $100,000 a year are paying much more.”
Mr. Gingrich, who has criticized Mr. Romney’s work at Bain for causing plant closings and layoffs, has called on Mr. Romney to release his tax returns and has pledged to release his own returns this week. Mr. Perry has been urging Mr. Romney to release his returns since October, when he released his own most recent return.
President Obama’s tax return for 2010 showed he and his wife, Michelle, earned $1,728,096 in that year, most of which came from the sale of Mr. Obama’s books, including “The Audacity of Hope.” The couple, who filed jointly, paid $453,770 in federal taxes and got a refund of $12,334.
Even among presidential candidates, a typically a well-to-do group, Mr. Romney stands out: His fortune of between $190 million and $250 million makes him one of the wealthiest men to run for president in modern times.
His income during the last decade has included millions of dollars from Bain Capital, which has continued to pay Mr. Romney a share of the firm’s corporate buyout and investment profits since he left the firm. That income, too, would likely be taxed at 15 percent, because of federal regulations that treat fees to private equity and hedge fund managers as investment income.
As a candidate, Mr. Romney has also advocated tax policies that would significantly benefit people who, like him, derive most of their income from investments.
Assuming Congress does not act to extend the Bush-era tax cuts, the rate for capital gains income is set to return to 20 percent for the 2013 tax year, while the rate for dividend income will jump to 39.6 percent. But in his economic plan, Mr. Romney calls for making permanent the Bush-era tax cuts on capital gains and dividend income, keeping them both at the current rate of 15 percent.
Kitty Bennett, Michael D. Shear and Alicia Parlapiano contributed reporting.
By Matt Viser
Globe Staff / January 18, 2012
FLORENCE, S.C. - Mitt Romney said yesterday that he has been paying close to a 15 percent tax rate on his income in recent years, a rate that is lower than what many Americans pay and one that fueled further attempts by his Republican rivals to cast the former Massachusetts governor - the wealthiest candidate in the race - as out of touch.
With just four days left before the primary in South Carolina, which is beset by high unemployment and typically ranks among the nation’s poorest states, Romney faced intensifying scrutiny of his wealth, how he earned it, and how he talks about it.
He also is being placed at the center of a national debate over taxes and wealth that is likely to escalate as the campaign marches closer to the general election. The battle has been highlighted by the Occupy Wall Street movement, as well as by business magnate Warren Buffett, who has argued that, as a billionaire, he should not be taxed at a lower rate than his secretary.
Romney’s statement that he is paying about 15 percent is the most specific he has ever been about his taxes, and it comes after increased pressure to reveal more about his income before Republican voters decide on their nominee for president. He also said he planned to release his 2011 return in April. In all his years seeking office, Romney has never released his tax returns.
“What’s the effective rate I’ve been paying?’’ said Romney, in response to a question at a press conference yesterday. “It’s probably closer to the 15 percent rate than anything. Because my last 10 years, I’ve - my income comes overwhelmingly from investments made in the past, rather than ordinary income.’’ Ordinary income refers to wages, or earned income.
“I got a little bit of income from my book, but I gave that all away,’’ he added. “And then I get speaker’s fees from time to time, but not very much.’’
According to his most recent financial disclosure statement, he earned nearly $375,000 for nine speaking engagements from February 2010 to February 2011. The fees ranged from $11,475 to $68,000. Those statements also show his assets total $190 million to $250 million.
Many Americans pay taxes on the wages they earn from employment at rates from 10 percent to 35 percent, based on their income levels. But investment income - such as dividends and capital gains - is treated differently under the tax code, allowing investors to pay a 15 percent rate on their earnings.
In addition to his own investments, Romney has benefited from a retirement agreement with Bain Capital. Bain managers qualify for a 15 percent tax rate on “carried interest,’’ or profits made on their investment deals, instead of paying higher earned income taxes. Under the deal, Romney received payouts from Bain for at least a decade after he left the firm in 1999. When asked last month if he took advantage of the lower 15 percent rate for this and other income, he said, “I can tell you we follow the tax laws, and if there’s an opportunity to save taxes, we, like anybody else in this country, will follow that opportunity.’
Bob McIntyre, director of Citizens for Tax Justice, said Romney’s tax rate highlights the tax advantages that are available to the wealthy but are generally not utilized by the middle class, who have fewer investments and are often taxed at higher rates.
“The fact that his Bain Capital income, even though it’s work income, has been treated as investment income, has been pretty controversial,’’ he said. “Why do people who make $100 million pay lower taxes than their secretary? And Romney’s one of those people who does pay less.’’
Douglas Holtz-Eakin, who was John McCain’s economic adviser in 2008, defended Romney yesterday, saying he was becoming a scapegoat for a tax policy that critics don’t like.
“I just don’t see why Mitt Romney bears the brunt of that,’’ said Holtz-Eakin, who is not advising any candidates this campaign. “He complied with the tax code. He’s paying the right amount.’’
He also thinks the 15 percent tax on investments is a fair way to levy taxes while still encouraging economic activity. Romney’s wages were initially taxed, so his investment income should not be taxed highly a second time, Holtz-Eakin asserted.
In their tax policy blueprints, Ron Paul, Rick Perry, and Newt Gingrich all call for reducing taxes on investment income from 15 percent to zero, which would benefit investors such as Romney. Rick Santorum has called for a maximum rate of 12 percent; Romney’s plan would keep the rate at 15 percent for the wealthy, but exempt from capital gains taxes households with income of less than $200,000.
Most observers have thought Romney’s wealth would be a major touch point in a general election, but the issue is breaking open during the Republican nominating process.
Romney yesterday said he would release his tax return in April, and suggested the return would cover only one year. “If I’m the nominee, people will want to see the most recent year, and see what happened in the most recent year and what things are up to date,’’ he said.
Gingrich yesterday called “nonsensical’’ Romney’s explanation for not releasing his tax returns until at least April, when the nominating contest could be effectively over. And Perry called on Romney to release all tax returns going back at least six years - not just the most recent year.
Perry, the Texas governor, has been releasing his returns annually, and Gingrich’s staff said he is planning to release his soon, possibly today. Santorum’s communications director, Hogan Gidley, said the former Pennsylvania senator plans to release his tax returns but cannot specify a timeline.
Santorum said, “I’m not going to criticize Mitt Romney for what he does or doesn’t pay in taxes. I am going to criticize the tax code. Mitt Romney is doing what everybody else does with a ridiculously complex tax code, and that’s find loopholes.’’
The Paul campaign did not respond to questions about whether the Texas congressman would release his returns.
According to the Christian Science Monitor, Perry paid a tax rate of 23.4 percent on his 2010 income. Rates for the other candidates will not be known until they make their returns public.
The White House seized on Romney’s comments as a way to drive home a point that is sure to be highlighted in the months leading up to November. President Obama has been hoping to make his case that tax cuts for the wealthy should expire at the end of this year and should be extended for everyone else.
“This only illuminates what he [Obama] believes is an issue, which is that everybody who’s working hard ought to pay their fair share,’’ White House press secretary Jay Carney said yesterday at a briefing, while also saying Romney should release his tax returns. “That includes millionaires who might be paying an effective tax rate of 15 percent when folks making $50,000 or $75,000 or $100,000 a year are paying much more.’’
Although Romney has significant momentum - he won the first two nominating contests, and has been leading in the final days in South Carolina - he has struggled whenever issues come up about his wealth and how he can relate to average working Americans.
His biggest debate gaffe in otherwise smooth performances was over making a $10,000 bet with Perry. Before the New Hampshire primary, Romney said he understood what it was like to fear a pink slip and then said, while talking about health insurance companies, “I like being able to fire people who provide services to me.’’
Romney also said that his father told him never to run for office if he needed the income to pay his mortgage, a comment that supporters say would exclude career politicians but one that critics say would mean only the wealthy would be able to hold office. (His father, George Romney, released a dozen years of his tax returns when he was running for president in 1968.)
But questions over Mitt Romney’s tax returns seem to be gaining traction. Although he has not released them in the past, he did challenge Senator Edward M. Kennedy to release his in their 1994 US Senate race. Because Kennedy never did, neither did Romney.
Obama released six years of his tax returns March 25, 2008, trying to pressure his then-Democratic rival Hillary Clinton to do the same. Eventually she released hers. Senator John McCain released two years worth of his tax returns on April 18, 2008.
By Bernie Becker - 01/18/12 05:00 AM ET
President Obama faces a difficult choice in his upcoming budget: Stick with his policy of raising taxes on families making more than $250,000 annually or boost that threshold to $1 million.
The president’s decision has major political ramifications, as Democrats and Republicans are expected to clash repeatedly this election year over taxes.
Following historic Republican gains in the 2010 election, many congressional Democrats embraced the $1 million figure over fears that the GOP had gained the upper hand by criticizing the $250,000 mark.
Democrats like Sen. Charles Schumer of New York have suggested that many families making $250,000 are not rich. He has acknowledged that Republicans scored political points by arguing that raising taxes on individual income above $200,000 and couples making more than $250,000 would hit a fair amount of small businesses.
But while the president has adopted rhetoric calling on millionaires to pay their fair share, his proposals on the Bush tax cuts haven’t budged from $250,000. And if that approach continues, the Republican presidential nominee could use Schumer’s words against Obama in the 2012 general election.
“They are not rich, and in large parts of the country, that kind of income does not get you a big home or lots of vacations or anything else that’s associated with wealth in America,” Schumer said in October. “They are firmly in the middle class. Same with small-business owners in that level.”
With the Bush-era tax rates scheduled to expire at year’s end, Obama must spell out what he wants Congress to do in his budget request that is expected to be released early next month.
Obama, dating back to his days as an Illinois senator running for the Oval Office, has steadfastly called for allowing the Bush rates to expire at family income above $250,000 a year. It worked for him in 2008, though some think it could be a liability as the president seeks his second term.
Congressional Democrats believe they have had success in recent months pounding Republicans for siding with millionaires and billionaires over the middle class— leading some to claim that the $1 million threshold offers better messaging opportunities than the $250,000 mark.
Mark Mellman, a Democratic pollster and a columnist for The Hill, said many polls have shown that a majority of voters back allowing the Bush cuts to expire at income above the $250,000 mark.
“But when you get into the heat of the political back-and-forth, the bright line at 250 becomes smudged,” Mellman said. “It’s easier to maintain that bright line at a million. We have a word for millionaires.”
Key figures on the left agree, including Rep. Raúl Grijalva (D-Ariz.), a co-chairman of the Congressional Progressive Caucus. In an interview with The Hill last March, Grijalva said Democratic lawmakers wanted to avoid “nuance” on what the tax-income bar should be. “ ‘Millionaires’ sets a starker option,” he said at the time.
And last April, House Minority Leader Nancy Pelosi (D-Calif.) floated a plan to raise rates only on incomes above $1 million a year.
There are pros and cons for Obama on both the $250,000 and $1 million thresholds. If he sticks to the former, his budget plan would haul in revenue that could be used for new initiatives and/or deficit reduction. But he could be criticized by conservatives for being to the left of Pelosi.
If Obama embraces the Pelosi and Schumer approach, Republicans would likely accuse the president of playing election-year politics. However, his reelection campaign would arguably be in a position to play offense on tax policy against the GOP nominee.
Mitt Romney, the Republican presidential front-runner, supports extending all of the Bush tax rates.
Many Capitol Hill observers expect the debate over the tax rates to be settled in the post-election lame-duck session. But the party that wins the message war on taxes is expected to do well on Nov. 6, when control of the White House and Congress will be up for grabs.
Democratic operatives note that the Bush tax rates are just one part of their strategy to frame Republicans as too beholden to the wealthy.
Obama, for instance, came out last year with his so-called “Buffett Rule,” which stated that people making north of $1 million a year should not pay a lower percentage in taxes than middle-class families.
“The Bush tax cuts are one conversation,” said Karen Finney, a former spokeswoman for the Democratic National Committee and columnist for The Hill. “The talk about millionaires and billionaires is a broader conversation about having people pay their fair share.”
Republicans are expected to lean on a line they used for much of 2011 — that the Democratic push to raise taxes on the highest earners would hurt job creators and stifle the economy’s growth. GOP officials also point out that Obama agreed to extend the Bush tax rates at the end of 2010, a move that infuriated liberals.
GOP officials claim that the $1 million mark would still hit small firms.
After Senate Democrats proposed paying for an extension of the payroll tax with a surtax on millionaires, House Speaker John Boehner’s (R-Ohio) office cited an analysis from the nonpartisan Joint Committee on Taxation that stated that roughly a third of small-business income in 2013 would be hit by the levy.
Obama has given no hint that he will move off of $250,000. He included that figure when he rolled out a plan to pay for his jobs bill and reduce the deficit.
Some liberal groups believe it would be irresponsible for policymakers to extend the Bush-era rates for income up to $1 million.
The White House has said that cutting off the Bush tax cuts for individual income over $200,000 a year and family income above $250,000 a year would save roughly $866 billion over a decade. But Steve Wamhoff of Citizens for Tax Justice, a group with significant union ties, says about half of that revenue would be lost if the Bush rates were extended for income up to $1 million.
By keeping the line at $250,000, Obama could also keep the $1 million threshold as a natural compromise with GOP lawmakers who want to see the Bush-era rates made permanent.
“The president’s position has always been to draw the line at $250,000, and it’s perfectly consistent for him to stick with that in his next budget proposal,” said a Democratic leadership aide. “But that doesn’t mean the coming debate with Republicans can’t or won’t be centered around whether millionaires and billionaires should get another tax cut next year.”
Election years are usually more about politics than policymaking, and from a message standpoint, $1 million has worked well, Democrats say.
“I think it’s been pretty effective,” said Michael Bocian, a Democratic pollster and consultant. “When it comes down to it, Republicans have showed very little willingness to ask the wealthy to share in the sacrifice.”
January 18, 2012 1:55 PM
By Steve Benen
In the wake of his concession yesterday that he pays a lower tax rate than much of the American middle class, Mitt Romney has renewed discussion about his “15% problem.” As Alec MacGillis put it, “The country is going to spend much of the next year talking taxes. And leading one side of the debate is going to be a silver-templed exemplar of how inequitable the system has become. Again: is this really the man Republicans want for this moment?”
But as I’ve been arguing for a few weeks, it’s only half the problem.
To be sure, the fact that Romney, who amassed a vast fortune as head of a vulture-capitalist firm, is able to take advantage of tax loopholes to pay a lower rate is a political nightmare. In a debate over tax fairness and income inequality, Romney is practically a case study for What’s Gone Wrong.
But the second part of this is more forward-looking: what does Romney intend to do about the problem if he’s elected? As Greg Sargent reported today, citing a new analysis by Citizens for Tax Justice, Romney has no interest in correcting a wrong — rather, he intends to give himself an enormous tax cut.
Under his plan, Romney in 2013 would see his taxes cut by nearly half of what they would be if you use current law as a baseline.
Another way to put this: If Romney, whose wealth is estimated at as much as $250 million, is elected president and gets his way on tax policy, he would pay barely more than half as much in taxes than he would if Obama is reelected and gets his way — and the Bush tax cuts on the wealthy expire and an additional Medicare tax as part of the Affordable Care Act kicks in.
Robert McIntyre, the director of Citizens for Tax Justice, added, “This doesn’t even include Romney’s proposal to cut corporate taxes from 35 percent to 25 percent, which would primarily benefit wealthy shareholders like himself.”
One could argue that Romney’s “15% problem” isn’t really his fault. He’s taking advantage of a tax system that’s already badly flawed, but which he wasn’t responsible for creating. The Romney example helps make clear how unjust the status quo really is, and the fact that he’s hiding his tax returns only makes this worse, but it’s not fair to blame him for loopholes, shelters, and tax breaks he didn’t create.
But one should absolutely blame him choosing to ignore the problem and vowing to make it worse.
On a related note, the DNC released a new video overnight on coverage of Romney’s tax issue. It’s probably not what the Republican frontrunner was hoping for.
First Posted: 1/18/12 12:53 PM ET Updated: 1/18/12 12:53 PM ET
WASHINGTON -- Pepco is not only the most hated company in America. According to a new report, the D.C.-area electric utility is also one of the "Dirty Thirty" -- one of 30 Fortune 500 corporations that pay less in federal income taxes than it spends on federal lobbying.
The report, put out by the U.S. Public Interest Research Group and Citizens for Tax Justice, finds that Pepco Holdings -- the only D.C.-headquartered company on the list -- has an effective federal tax rate of negative 57.6 percent. (Companies with negative tax balances are getting more in refunds, rebates and credits than they pay in a year.)
The power company, fined $1 million by the Maryland Public Service Commission in December for its unreliable service, paid $3.8 million in lobbying expenses while paying negative $508 million in taxes, according to the report.
The report contains some policy recommendations that are a little tenuously connected to the information about how much companies spend on lobbying versus how much they spend (or don't spend) on taxes. Among the recommendations are that offshore tax "loopholes" be closed and that any company's political spending be disclosed and/or approved by shareholders.
Most Occupy-friendly of all is the recommendation that Citizens United v. FEC, decided two years ago today, be overturned.
Citizens for Tax Justice put out another report about Pepco's negative tax rate last November. Pepco's response to that report was that the company paid all the taxes it owed, and that its tax rate relates to legitimate policy objectives designed "to encourage economic investment and create jobs."
Pepco's lobbying disclosures, published on Opensecrets.org, show that Pepco lobbied on one tax issue in 2011: The "Withholding Tax Relief Act of 2011," which would have ended the requirement that government entities withhold 3 percent of payments due to vendors. That bill was filibustered in October.
By Pat Garofalo on Jan 18, 2012 at 10:35 am
The GOP 2012 presidential candidates are headed to South Carolina for its Saturday primary largely in lockstep about economic policy. Across the board, the candidates have proposed tax plans that would give huge tax cuts to the already wealthy and blow a hole in the federal budget, while doing next to nothing for the middle class.
In South Carolina specifically, the candidates’ plans would give tens of thousands of dollars (or hundreds of thousands, depending on the plan) in tax breaks to the richest 1 percent of Americans. Citizens for Tax Justice broke down the plans by candidate and income percentage:
As the table shows, the smallest tax break for the richest 1 percent in South Carolina would be Mitt Romney’s, at about $69,000. Newt Gingrich wins the race for largest tax break for the 1 percent, at more than $212,000. In South Carolina, where the median income is about $43,000, the richest 1 percent have an average income of about $945,000.
Overall, the GOP candidates’ tax plans give tax breaks to the wealthy that are up to 270 times as large as those they deign to give to the middle class. Several of them, in fact, would raise taxes on many middle class families. Romney, for instance, would raise taxes on half of middle class families with children, due to his elimination of an expanded child tax credit implemented by President Obama.
Published: 19 January, 2012, 01:28
Did it take hard work and determination for GOP presidential hopeful to become a millionaire many times over? It might have, but the fact that he paid lower the tax rate as members of the middle class didn’t help either.
Former Massachusetts Governor Mitt Romney tip-toed around the topic of his personal finances during Monday night’s Republican Party debate, but reporters covering the campaign trail in South Carolina have remained persistent in picking on Romney for his unwillingness to disclose his tax records. From the debate stage in Myrtle Beach, SC on Monday, Romney danced around questions about his income tax records, saying only that he would “probably” disclose them in the coming months but refusing to straight up insist that they would be published for the public.
On Tuesday, however, a little bit more of Mitt’s personal income was revealed after some grilling by members of the media elsewhere in the state.
Quizzed by reporters a day after the debate, Romney acted uncertain about how much he has been paying in taxes, but told members of the media that the figure was roughly 15 percent. In the top tax bracket, where Romney presumably belongs as a multi-millionaire, others are expected to pay 35 percent.
Who does pay 15 percent? That federal tax bracket is reserved for those making under $34,000.
"What's the effective rate I've been paying?" asked Romney on Tuesday. "It's probably closer to the 15 percent rate than anything because my last 10 years, my income comes overwhelmingly from some investments made in the past, whether ordinary income or earned annually.”
While Romney could certainly find loopholes to keep his carried interest made off of his share of Bain Capital’s profits subjected to only such a rate, the rest of his income — which annually accounts for hundreds of thousands of dollars— should be expected to be a bit higher. The tax rate for those that rake in more than $379,150 in taxable income was at 35 percent in 2011.
The candidate said on Tuesday that that wasn’t all of his income, either. "I get speaker's fees from time to time, but not very much," said Romney.
What constitutes “not very much”? Less than a year ago in February 2011, Romney made around $375,000 for delivering only nine speeches, roughly equating to around $41,000 per address. Per 2010 statistics obtained by the US Census Bureau, Romney was earning only around $8,000 less for each speech than what the median household income was for every wage-earner in America.
Romney’s actual worth is unconfirmed, but for his role at Bain Capital he is thought to have collected a fortune to the tune of around 250 million dollars. In 2010 alone, USA Today estimated that he made upwards of $38.8 million, with half of that being taxed well below the 35 percent reserved for his class.
The only thing it would seem that Mitt Romney has with the average American is that they are, somehow, paying nearly the same tax rate. Somehow, however, Romney seems to be paying even less than Middle America.
Tax expert Martin Press tells USA Today, "It's dividends, capital gains and maybe a little tax sheltering" that allow Romney to get away with landing in such a low bracket. If Romney wins the race to the White House, it could be even lower.
If he wins the presidency and implements his proposed tax plan during his first year in office, Mitt Romney’s 2013 taxes would be cut by nearly half of what current law calls for. Of course, a comparison isn’t all that applicable unless you assume Romney is paying what he should already. A report from Citizens for Tax Justice reveals that if Romney pays as per what his own plan calls for, Bush-era tax cuts will stay, capital gains income will continue to be taxed at 15 percent and the Medicare tax will be nixed entirely — leaving the former governor paying a little under 15 percent, total.
“This doesn't even include Romney’s proposal to cut corporate taxes from 35 percent to 25 percent, which would primarily benefit wealthy shareholders like himself,” Robert McIntyre, the director of Citizens for Tax Justice, tells the Washington Post.
From the debate stage on Monday, Romney was far from committed when it came to disclosing how he got away with such a low rate.
“I hadn’t planned on releasing tax records because the law requires us to release all of our assets, all the things we own. That I have already released. It’s a pretty full disclosure,” said Romney. “But, you know, if that’s been the tradition and I’m not opposed to doing that, time will tell. But I anticipate that most likely I am going to get asked to do that around the April time period and I’ll keep that open.”
When a debate moderator asked him for a second time if he would release his records, Romney once again refused to give a yes or no response.
“I think I’ve heard enough from folks saying, look, let’s see your tax records. I have nothing in them that suggests there’s any problem and I’m happy to do so. I sort of feel like we are showing a lot of exposure at this point. And if I become our nominee, and what’s happened in history is people have released them in about April of the coming year and that’s probably what I would do,” he said.
Republican rival Newt Gingrich attacked Romney at the debate, saying that the people of South Carolina need to know the facts before the vote in the upcoming primary. “So I hope you’ll put your tax records out there this week so the people of South Carolina can take a look and decide if, you know, we’ve got a flawed candidate or not,” said Speaker Gingrich.
On Tuesday, Romney said he will eventually release his tax information, but did not provide a date.
Romney’s refusal to come clean now has only fueled the fire that the millionaire capitalist has gone to great lengths to keep himself taxed as little as possible. In the days leading up to the South Carolina primary this weekend, it will sure to come up again in interviews, but don’t expect Romney to answer anytime soon.
“No wonder he doesn’t want to disclose his tax returns before he wins South Carolina on Saturday. I don’t blame him,” Robert Lenzer of Forbes writes in a blog this week.
January 17, 2012, 3:01 pm
By DAVID FIRESTONE
Having strongly suggested at Monday night’s debate that he would release his 2011 tax returns in April, Mitt Romney needs to begin inoculating himself against the backlash that will almost inevitably ensue when the public sees how much annual income he has, where it comes from and how little tax he pays on it. He started this process Tuesday morning, when he told reporters in South Carolina that his effective tax rate is about 15 percent.
An effective tax rate of 15 percent means that most of his income comes from investments, as he acknowledged Tuesday. The rate on such capital gains income is far lower than the top rate of 33 percent on ordinary income, the kind that most people who receive paychecks have to pay. (Investment income is also not subject to the payroll tax.)
As a result, Mr. Romney is one of the 200,000 millionaires in America who pays a rate less than that of a taxpayer making $100,000. And if his rate turns out to be lower than 15 percent (a feat usually achieved through various tax avoidance schemes), he will be one of the 22,000 millionaire households paying less than half the rate of a middle-class family. (Based on the vague information Mr. Romney has already disclosed about his 2010 income, Citizens for Tax Justice estimated last year that his rate would be 14 percent.)
If that is the case, he would be subject to the “Buffett rule”—a new minimum tax rate for people making over a million per year— proposed by President Obama. Mr. Romney opposes the rule, and any other effort to raise taxes on the wealthy. When asked about it, he routinely deflects the question and says that government needs to be shrunk. But once it is clear that such a rule would directly affect him, he won’t be able to bat it away quite as easily. The Super PAC supporting President Obama already has a video out entitled “the Romney rule.”
There may be another reason why Mr. Romney is already trying to build up immunity to the coming Democratic onslaught over his income. As The New York Times reported last month, he negotiated a retirement deal with Bain Capital, the private equity firm he ran, that provides him with a substantial share of Bain’s profits every year. That probably means he can take advantage of the low 15 percent tax rate on carried interest, the special tax break for hedge fund and private equity managers. (Hedge-fund partners like to claim they deserve an investment-level break because they put their money at risk, but most people outside the business—including the United States Tax Court—have said that it is really pure compensation.)
If true — and this may become clearer depending on how much of his tax return he releases — he will then displace Warren Buffett as the country’s most prominent example of elite tax treatment. Mr. Obama has proposed ending the break on carried interest, one of the principal reasons why the incomes of the very richest Americans has soared in recent years, at a time when ordinary American incomes have been stagnant or fallen behind. The president is certain to amp up his demand once it is clear it will directly affect his likely opponent in the general election. The concept of income inequality is about to become far less abstract.
By ALEXANDER BURNS |
1/17/12 12:15 PM EST
The Democratic National Committee is dialing up its taxes-themed attack on Mitt Romney, going from accusing Romney of wanting a tax system that favors rich people, to accusing him of wanting a system rigged for his personal advantage:
This morning, Mitt Romney admitted that he paid “closer to the 15 percent” tax rate, far lower than the typical family. It should be no surprise then that Romney opposes the Buffett rule that says millionaires should not pay a lower tax rate than their secretaries. While President Obama supports closing these tax loopholes, Romney would keep them open. And now we see why: he is benefitting from them.
TODAY, ROMNEY ADMITTED HE PAYS “CLOSER TO THE 15 PERCENT” TAX RATE SINCE HIS INCOME COMES FROM “INVESTMENTS,” NOT “ORDINARY” OR “EARNED” INCOME…
Romney: “It’s Probably Closer To The 15 Percent Rate.” ROMNEY: “What’s the effective rate I’ve been paying? It’s probably closer to the 15% rate than anything because my last ten years, I’ve, my income comes overwhelmingly from investments made in the past rather than ordinary income, or rather than earned income, annual income. I got a little bit of income from my book, but I gave that all away. And then I get speaker’s fees from time to time, but not very much.” [Romney Press Avail, Florence, SC, 1/17/12]
…WHILE A PERSON MAKING $60,000 A YEAR PAYS NEARLY 30 PERCENT
CTJ: A Single Person Earning $60,000 In 2011 Who Does Not Itemize Deductions Would Pay An Effective Tax Rate Of Nearly 30 Percent. “A single person with $60,000 of wages in 2011 who doesn’t itemize deductions will pay federal income taxes of about $8,750 and payroll taxes of $9,180, for an effective federal tax rate of 29.9%.” [Citizens for Tax Justice, 9/27/11]
The research hit goes on for a while, and reminds me a bit of the 2010 California governor's race, when Democrats attacked Meg Whitman not merely as an incredibly wealthy person, but as an incredibly wealthy person whose policy platform was designed to benefit her financially.
UPDATE: The Dem super PAC Priorities USA Action is also recirculating this video, from October, which introduced a coinage I suspect we'll be hearing more of: "The Romney Rule." As in, "The Buffett Rule," but for Mitt Romney.
By Maeve Reston
January 17, 2012, 9:10 a.m.
Reporting from Florence, S.C.—
Amid a controversy fueled by his opponents over whether he plans to release his income tax returns, Mitt Romney acknowledged Tuesday that he’s been paying a tax rate of close to 15% in recent years.
"What's the effective rate I've been paying? It's probably closer to the 15% rate than anything," Romney told reporters during a press conference after a lightly attended Tuesday morning rally here. Over the last 10 years, he said, "my income comes overwhelmingly from investments made in the past, rather than ordinary income or rather than earned annual income."
The former Massachusetts governor, who spent 25 years in the private sector as a consultant and at a private equity firm that he co-founded, noted that he “got a little bit of income” from his book, but “gave it all away.” He also said he had earned fees for the speeches he has delivered “from time to time, but not very much.”
The top income tax rate for most Americans is 35% -- although Romney said Monday night he'd like to see it reduced to 25%. But income from investments is taxed at a capital gains rate of 15%.
According to the Citizens for Tax Justice, a Washington tax-reform advocacy group, the average American earning $60,000 a year with no deductions is taxed at about a 30% rate.
Some of Romney’s GOP rivals, along with President Obama’s backers, have attempted to use Romney’s wealth as a cudgel against him--arguing that he is out of touch with the concerns of struggling Americans. As the other GOP contenders try to halt Romney’s progression toward the Republican nomination, several have criticized Romney’s tactics when he headed the private equity firm Bain Capital. In recent days, they have ramped up pressure on Romney, whose wealth is estimated to be as much as $250 million, to release his tax returns.
During Monday night’s debate in Myrtle Beach, Texas Gov. Rick Perry said it was important for Romney to release his tax returns "so the people of this country can see how you made your money" and decide "if we've got a flawed candidate or not." Romney replied that he would “probably” release his tax returns in April.
“In prior races for president the tradition has been that the nominee releases his tax returns in tax season, in April,” Romney told reporters in Florence on Tuesday morning. “And I know that if I'm the nominee, people will want to see the most recent year, and see what happened in the most recent year and what things are up to date.”
“So rather than sort of have multiple releases of tax returns, why, we'll wait until the tax returns for the most recent year are completed, then release them.”
Jan 17 2012, 10:31 AM ET
Pat Garofalo - Pat Garofalo is Economic Policy Editor for ThinkProgress.org at the Center for American Progress Action Fund.
Mitt Romney likely gets a huge tax break on his income, even though he's a mega-millionaire, because of a strange and unfair law that gives special privileges to private equity managers (Read the case for private equity here)
Presidential frontrunner Mitt Romney has been taking a shelling from both sides of the aisle for his time spent at Bain Capital, the private equity firm he headed in the 1980s and '90s. While running Bain, Romney practiced what Rick Perry has called "vulture capitalism," and his critics have accused him of leveraging his bought-up companies with debt and using that debt to pay dividends to investors before finally leaving the companies bankrupt and hemorrhaging jobs.
Romney's largely basing his campaign on his time in the private sector, so the work Bain did during his tenure (and what has gone on there since) has garnered a significant amount of attention. The other GOP presidential candidates, as well as many Democrats, have piled on to portray Romney as the second coming of Gordon Gekko, while conservative commentators have come racing to his defense.
The record of private equity firms, such as Bain Capital, suggests that their creative destruction might add value to the economy, but sometimes leaves companies stripped while investors walk away with millions. But the real scandal at the heart of the industry is the way in which private equity managers receive special treatment in the tax code.
Managers of private equity firms like Romney are often paid under an arrangement in which they receive both a set fee for their management, as well as a share of the profits that the firm makes for investors. While their management fees are taxed at normal income tax rates, the share of investor gains that go to a private equity manager (called "carried interest") are treated as capital gains, and thus taxed at a top rate of 15 percent. (Hedge fund managers and partners in real estate ventures also benefit from receiving carried interest.)
The argument for a lower capital gains rate is that it encourages investment. Whether that's true or not, private equity managers are allowed to pay the capital gains rate on the profits they make managing someone else's money, not for any risk that they take themselves. Treating carried interest as capital gains is an unjustifiable tax break that needs to be eliminated.
Congress has attempted to close the carried interest loophole on a number of occasions, with the Democrats passing legislation to close it three times when they controlled the House of Representatives. But intense lobbying and Senate intransigence has kept the tax giveaway in place.
Senate Republicans like Sen. Orrin Hatch (R-UT) claim that changing the tax treatment of carried interest would somehow cause a drop in private equity activity. But as the venture capitalist Fred Wilson put it, closing the carried interest tax loophole won't dry up any money for investments, because the tax on the source of capital wouldn't be changing.
"Wealthy families, endowments, pension funds, and the like, will still put the capital in the places where they will get the highest after tax return," Wilson explained. "And the fund managers will still have to compete with each other to get access to that capital and their incentives will still be to produce the highest returns they can produce, regardless of whether they are paying capital gains or ordinary income on their fees."
Former Office of Management and Budget Director and current Citigroup Vice Chairman of Global Banking Peter Orszag said that the carried interest loophole is akin to a famous actor's portion of a movie's revenue being taxed as capital gains, a proposition that most people would hopefully find absurd. Citizens for Tax Justice opined that carried interest "is clearly compensation for services and not a return on investment," and that private equity managers "should pay income taxes at ordinary rates on their compensation, just like everyone else, from the folks who sweep their floors or answer their phones to CEO's exercising stock options and professional athletes getting playoff bonuses."
Thanks to a lucrative retirement package, Romney is still making millions from Bain, much of which is likely being taxed as carried interest. (While Romney has refused to make his tax returns public, he's said that all of his income is taxed at investment rates.) Analysts have estimated that Romney's tax rate is about 14 percent, lower than that of many middle class families.
Leaving aside the questions over whether Romney and Bain's modus operandi adds value to the economy, there's certainly no value added by letting private equity managers treat the paycheck they receive from investors as capital gains: that particular tax loophole just lets very wealthy money managers avoid paying the top tax rate, for no real reason.
By Pat Garofalo on Jan 17, 2012 at 11:35 am
Citizens for Tax Justice a few months ago estimated that Mitt Romney, due to most of his income coming from investments, pays a tax rate of around 14 percent, a far cry from the 35 percent top income tax rate. Romney then confirmed that the bulk of his income does, indeed, come from investments (and is thus subject to the top capital gains tax rate of 15 percent), but he has refused to release his tax returns in order to reveal the definitive tax rate that he pays.
However, during a press conference on the campaign trail today, Romney did give a glimpse into his finances, confirming that he pays “closer to the 15 percent rate”:
Q: What’s the effective rate you’ve been paying?
ROMNEY: What’s the effective rate I’ve been paying? It’s probably closer to the 15 percent rate than anything, because my last ten years, I’ve, my income comes overwhelmingly from investments made in the past, rather than ordinary income, rather than earned annual income.
As Center for American Progress Director of Fiscal Reform Seth Hanlon has explained, the latest data shows that “many middle-class families paid much more [in taxes] than the 17.5 percent average paid by the very rich.” When President Obama suggested the “Buffett rule,” aimed at ensuring that millionaires can’t pay lower taxes than middle class families, Romney derided it as “class warfare,” and “the wrong way to go.”
One of the reasons Romney is able to drive his tax rate down so low is that he is still earning money from his private equity firm, Bain Capital, that is likely subject to a pernicious tax loophole. This loophole lets wealthy money mangers like Romney pay the capital gains tax rate on profits they make investing other people’s money, turning the justification for having a lower capital gains tax rate completely on its head.
During the same press conference, Romney said that he only makes some income from speaker’s fees, “but not very much,” which is money that would be taxed at normal income tax rates. From Feb. 2010 to Feb. 2011, Romney earned $362,000 in speaker’s fees.
Published on Thursday, January 5, 2012
by Lisa Graves
Thousands of Indiana workers rallied outside, and inside, their state capitol on Wednesday to speak out against Governor Mitch Daniels' renewed effort to force through so-called "right to work" legislation designed to undermine labor unions and workers' rights protected by collective bargaining. ["This bill is no native born Hoosier idea," says Graves. "It tracks key provisions of 'model' legislation secretly voted on by corporations and politicians..." ] "This bill is no native born Hoosier idea," says Graves. "It tracks key provisions of 'model' legislation secretly voted on by corporations and politicians..."
One Victory for Democracy--Restored Access to the Indiana Capitol
Workers won a victory Wednesday when the Governor rescinded new restrictions that had been created to limit the rights of Indiana citizens to freely access their state capitol building. Prior to last year's protests, citizens in Indiana, Wisconsin, and other states had long enjoyed easy access to their state houses to express their views on legislation, but in Indiana as with Wisconsin and other states, partisan political leaders imposed supposedly "safety-based" restrictions to limit citizens exercising their freedoms of assembly and speech. On Wednesday, faced with thick lines of constituents winding down the streets of the capitol, the state lifted the 3,000-person cap on the number of people who could enter the building where legislation is being pushed to restrict workers rights.
The Battle Against another Anti-Labor Bill with "ALEC" Corporate DNA
Thousands of taxpayers arrived from across the state, along with a small number of counter-protestors, in response to the announcement that the Indiana legislative leaders were planning to push through a so-called "right to work" bill, which has been called the "right to work for less" bill by opponents.
Although ALEC calls itself the largest organization of state legislators, it is bankrolled by some of the biggest global corporations in the world, such as Koch Industries, Exxon Mobil, and other companies from outside of Indiana. About 99% of the funding for ALEC's operations come from corporations and sources other than legislative dues, which are $50 per year. ALEC legislators often introduce legislation, voted on behind closed doors by ALEC corporations and politicians, cleansed of any reference to the fact that the bills were pre-approved and pre-voted on by corporations. The current corporate co-chair for Indiana is the North Carolina-based Duke Energy Company, which is tasked by ALEC with raising money from corporations for "scholarships" for ALEC politicians to attend vacation conventions at fancy resorts with schmooze and booze events with corporate lobbyists.
Duke Energy came under fire last year in Indiana for trying to pass off onto customers hundreds of millions in over-budget costs for the Edwardsport Plant in Knox County. That coal gassification plant has gone so far over budget, to the tune of a billion dollars, that the state of Indiana has been looking into whether there was fraud or concealment. Duke has also been called out for paying no net taxes between 2008 and 2010 on over $5 billion in pre-tax profits, according to the Corporate Tax Dodgers Report of the Citizens for Tax Justice (which is uploaded below).
Duke's state co-chair for ALEC is Senator Jim Buck of Kokomo, who also sits on ALEC's Board of Directors, which approves "model" legislation in every area of the law. He is the co-chair of the ALEC Tax Task Force, which has previously opposed taxes on windfall profits of global energy companies and sought to eliminate combined reporting for corporations, thus making it easier for companies to use gimmicks to hide profits out of state.
State Rep. David Wolkins of Winona Lake is also an ALEC statewide co-chair, along with Senator Buck and Duke Energy. He is also the co-chair of ALEC's Energy Task Force, and in 2011 ALEC named him a "State Legislator of the Year" for advancing ALEC's vision. (In some prior years, legislators receiving this designation also received cash "awards," although it is not certain if Wolkins did.)
Indiana is now playing a central role in ALEC's agenda. The Chairman of ALEC's Public Sector Board this year is Representative David Frizzell of Indianapolis, who has also been a member of ALEC's Health Task Force. In all, at least 17 Indiana representatives and five state senators are members of ALEC Task Forces, along with an unknown number of other legislators who do not have these known leadership roles with ALEC corporate partners. Representative Richard McClain of Logansport, who introduced H.B. 1104, the latest version of "Right to Work" introduced in the state, is also a member of the ALEC Tax Task Force, along with Senator Buck.
How Close Is HB 1104 to the Bill Voted on by ALEC Corporations?
The Indiana bill, which was introduced on the first day of the legislative session this year, contains provisions very similar to the ALEC "model" bill. The Center for Media and Democracy (CMD), which publishes PRWatch, analyzed and exposed over 800 ALEC-approved bills or resolutions last year, including the "Right to Work Act." The Indiana bill, HB 1104, has key operative language that echoes the ALEC bill at CMD's ALECexposed.org. (A mark-up of the model Right to Work Act is also available below, along with a copy of HB 1104, with terminology in common highlighted on the Indiana version.)
Both "Right to Work" bills would make it a crime to violate the bills' bar on a union requiring a worker to pay dues when the worker's rights are protected by a union-negotiated collective bargaining agreement. Both bills would require state prosecutors to investigate violations and enforce the criminalization of dues collection that has historically protected against free-riders taking advantage of the benefits and rights negotiated by union representatives without paying any dues. And, both bills also authorize civil lawsuits for violating the new rules, if enacted, including damages, injunctive relief, and attorney's fees, "in addition to any other remedies and penalties." Protestors in Indiana and elsewhere have objected to such "punitive" legislation and consider this to be part of a "War on Workers."
Although the ALEC bill and the Indiana bill have some minor differences in the setting forth of these provisions, these three core elements of "Right to Work" legislation are substantively the same and have the same effect. The only major substantive difference is that the new Indiana bill would impose these restrictions as a "pilot program" rather than state-wide immediately, unlike the ALEC bill. In the view of CMD, the bills' core operative terms and requirements are sufficiently similar to say that the Indiana bill shares ALEC DNA, even though it is not identical in its layout or in every detail.
The common operative components are not surprising because the ALEC "model" legislation for "Right to Work" was approved by ALEC corporations and politicians through one its task forces well over a decade ago. Its core components--criminalization, mandatory criminal enforcement, and civil liability--have been proposed in dozens of states, although they have not passed everywhere proposed. The so-called "Right to Work" agenda has also been pressed by long-time ALEC member, the Right to Work Committee, and the corporations that underwrite anti-labor legislation across the country.
In fact, one of ALEC's first agenda items after its founding in the mid-1970s was advancing the "Right to Work" agenda, as documented in the image below. Both ALEC and the Right to Work Committee also trumpeted the passage of the extremely controversial Idaho "Right to Work" legislation in 1985. At the time, an ALEC Board Member--the Speaker of the Idaho House of Representatives Tim Stivers--was instrumental in the adoption of the bill in his state and even defied a court order against its adoption, after the bill had been vetoed by the governor and challenged in court. The Idaho law is virtually identical to the ALEC model bill, and it has the same core provisions of criminal and civil liability and mandatory prosecution for violating the bar on union dues collection from free-riders, as does the Indiana bill.
Criminalizing Union Dues Collection, even in Parts of Indiana?
Unless opponents of the bill continue to deny the legislature the quorum needed to pass the bill or secure additional allies, Governor Daniels may sign into law this punitive bill that essentially reverses over 60 years of protections for unions and the workers they represent. Indiana has a deep tradition of trade union activities in the state that have sought to protect working families from corporate abuses and unfair practices. Governor Daniels, who served as an advisor to President Ronald Reagan, was working for Senator Lugar when the President rebuked the Polish Soviet era regime for its criminalization of the Solidarity union activities, noting that "the right to belong to a free trade union" is "one of the most elemental human rights."
In rallying in Indianapolis, workers are seeking to have their voices heard on these rights in the halls of power. They are asking that their lives and experiences be respected and not simply ignored by the majority in the legislature who have received indoctrination against labor rights in ALEC workshops and from corporate lobbyists with virtually unlimited access to their representatives. They are asking their elected representatives to stand with the 99% and not the 1%.
Some proponents of the long-standing ALEC "Right to Work" agenda continue to cite studies making unreliable claims about the economic impact of such laws, studies that are almost always funded by corporate CEOS, their foundations, or companies that oppose "unionism" as an ideological matter. Meanwhile, numerous careful analyses have documented the claimed benefits and the actual consequences of such laws and have found the quite natural result of weakened unions to be diminished wages and benefits for workers.
Even some conservatives have objected to how such laws interfere with private contracts between employers and employees, because "[m]andating that employees should have the 'right' to work outside of those contracts is unfair to employers, unions, and individuals. Anyone considering themselves ideologically libertarian, or even a believer in small government and laissez-faire capitalism, should oppose "Right to Work" laws on the grounds that any employer should have the right and freedom to enter into labor contracts with whomever they wish." Even a "pilot" program would interfere with private contracts and unsettle negotiated agreements while setting a precedent for weakening this "essential human right" statewide. Indiana workers are asking their representatives not to take any actions that will further depress the wages of workers and harm working families struggling to make ends meet by embracing the siren song of the ALEC "Right to Work" agenda.
1/17/12 04:30 PM ET
Taxes and democracy are two oft-maligned activities that Americans dearly depend on. "Indeed it has been said," noted Winston Churchill, "that democracy is the worst form of government except all those other forms that have been tried from time to time." He might just as easily have been talking about the responsibility of paying taxes.
Two years ago the Supreme Court's misguided Citizens United decision struck down long-standing Congressional limits on the political power of large corporations by vastly expanding the legal metaphor that "corporations are people." Now there is fresh evidence that corporate influence over Congress makes it easy for those same corporations to avoid their civic duty of paying taxes.
A new report identifies thirty Fortune 500 corporations that pay less in federal income taxes than they spend on federal lobbying.
You read that right. These companies - dubbed the "Dirty Thirty" - exploited loopholes in the tax code so aggressively that all but one of them enjoyed a negative tax rate over the three year period of the study, while together spending nearly half a billion dollars to lobby Congress on issues including tax policy. Instead of paying for the public structures such as roads, police and education which make their profits possible, they collected $10.6 billion in tax rebates from the federal government. Had these thirty companies paid the statutory 35 percent corporate tax rate, the Treasury would have collected an additional $67.9 billion.
Every dollar in taxes avoided by these Fortune 500 companies is a dollar that must be cut from public programs, added to the national debt, or paid in the form of higher taxes by ordinary taxpayers.
The companies in the Dirty Thirty include household names like General Electric, Verizon, Mattel, Wells Fargo, Dupont and FedEx. There's no avoiding how the story at each of these companies represents a mockery to both our tax system and our democracy.
The tax data in the report comes from companies' own Security and Exchange Commission filings, which also list some of their subsidiaries in offshore tax havens. By focusing their study only on corporations that reported profits across all three years, the authors ensure that the companies cannot credibly claim these findings merely reflect quirky tax timing or deferrals.
Taxation is like a canary in the coal mine for the post-Citizens United era. Tax legislation is particularly vulnerable to the influence of powerful corporations. Most Americans pay little attention to the arcane rules of corporate taxation. Although special tax giveaways have the same bottom-line effect on the budget as direct spending, they are subject to far less democratic oversight. And unlike direct spending proposals, special tax favors are usually not considered against competing spending proposals or with consideration of how other ordinary taxpayers must pick up the tab. Once tax giveaways are on the books, they usually don't need to be reapproved each year the way budget allocations do. Instead they tend to remain on the books indefinitely unless lawmakers can be strongly nudged by public outrage to remove them.
Towards that end, the study, which is produced by the U.S. Public Interest Research Group and Citizens for Tax Justice, recommends a number of immediate reforms to close offshore tax loopholes and limit corporate money in elections. While working toward overturning the Citizens United decision, these are good steps toward taking back our democracy and our tax system.
Calls for the GOP presidential candidate to release his tax returns are likely to increase
By Corbin Hiar
Mitt Romney, who made millions buying and selling companies for a private equity firm, pays an effective tax rate that is lower than a family earning less than $70,000.
“It's probably closer to the 15 percent rate than anything,” Romney told reporters in South Carolina Tuesday, when asked about his taxes.
The Bain Capital founder and current GOP presidential front-runner has been under pressure to release his tax returns. Romney is estimated to be worth as much as $264 million. If he had earned all that cash from salaried work, he would likely be in the top federal tax bracket of 35 percent.
But because private equity partners and hedge fund managers make most of their money from carried interest — a cut of profits off investments that are taxed at the lower 15 percent capital gains rate — the Romney household likely pays a lower overall tax rate than many middle class American families.
But not all of Romney's earnings are taxed at the capital gains rate. The $374,328 in speaker's fees that the former Massachusetts governor disclosed in his candidate financial disclosure filing will likely be taxed at the higher 35 percent rate when he files in April.
Romney told reporters Tuesday that the money he made from his paid appearances was “not very much,” a quote that has already found its way into an attack ad from American Bridge, a Democratic-aligned super PAC.
Even before admitting his low tax rate, Democratic groups had targeted Romney over the carried interest loophole. In October, the Democratic super PAC American Priorities renamed it the “Romney Rule” after an analysis from the advocacy group Citizens for Tax Justice estimated that Romney paid a rate of 14 percent.
Romney’s exact tax rate remains a mystery because he has so far refused to make public his federal income tax returns, a move most recent presidential candidates make routinely.
Fellow GOP presidential hopeful Newt Gingrich has promised to release his taxes by Thursday, two days before the upcoming South Carolina primary. Romney will only release his in April after filing his 2011 returns, he said Tuesday.
Other venture capitalists have succeeded in paying even less than the 15 percent capital gains rate.
Todd Dagres, a former partner at private equity firm Battery Ventures, managed to use the carried interest loophole to avoid paying income tax altogether in 2003 despite earning $3.5 million that year. This loophole, which critics say allows the rich to get richer, has enraged Occupy Wall Street protesters, hundreds of whom converged on the Capitol Tuesday to protest the role of money in politics as the House returned from recess.
“My income comes overwhelmingly from investments made in the past,” Romeny added in the Tuesday press conference. He may have been referring to the lucrative retirement package he secured when he left Bain Capital, the private equity firm he helped found in 1984.
Romney left Bain in early 1999, but continued to collect profits on deals made by the firm through February 2009, the the New York Times reported in December.
Jan 17, 2012 04:30 PM by Dennis DiClaudio
Oh my God! The entire Internet seems to be going crazy today after Mitt Romney admitted to something that we all already know: That he pays less in taxes than most middle class families.
Well, to be clear, not that he pays less in taxes overall. Don't be ridiculous, you silly commoner. I mean, even one percent of his annual income is more than most of you make in five years.
No, what I mean is that he pays less in taxes per dollar most middle class people. Whereas most families of bourgeois sheep pay around 15.7 percent, he pays… Well, he pays less…
"What’s the effective rate I’ve been paying? It's probably closer to the 15 percent rate than anything, because my last ten years, I’ve, my income comes overwhelmingly from investments made in the past, rather than ordinary income, rather than earned annual income."
Citizens for Tax Justice estimates his tax rate at around 14 percent. But, hey, that's "closer to the 15 percent rate" than it is to, say, three percent.
As Center for American Progress Director of Fiscal Reform Seth Hanlon has explained, the latest data shows that "many middle-class families paid much more [in taxes] than the 17.5 percent average paid by the very rich." When President Obama suggested the "Buffett rule," aimed at ensuring that millionaires can’t pay lower taxes than middle class families, Romney derided it as "class warfare," and "the wrong way to go."
One of the reasons Romney is able to drive his tax rate down so low is that he is still earning money from his private equity firm, Bain Capital, that is likely subject to a pernicious tax loophole. This loophole lets wealthy money managers like Romney pay the capital gains tax rate on profits they make investing other people’s money, turning the justification for having a lower capital gains tax rate completely on its head.
You see, the reason why he gets to pay less in taxes is because so much of his income is coming from past investments. And the reason why he has so many past investments is because he had all that money just lying around the office. And he gets to keep all those piles of money because his tax rate is so low.
Now, you don't get that tax rate because you never thought to invest millions of dollars into a portfolio of companies. If you had, you'd be paying the same low tax rate as him.
So, stop complaining!
By Kim Dixon
WASHINGTON | Sun Jan 15, 2012 12:44pm EST
(Reuters) - UK-based Diageo, the world's biggest liquor company that sells Captain Morgan's rum, is enjoying a $2.7 billion subsidy from the U.S. Virgin Islands, aided in part by a tax break rubber-stamped by Congress annually with little public debate.
Recipients of more than $30 billion of tax breaks like these hope to catch a ride on the payroll tax legislation expiring next month, with special interests - from Diageo to Nascar racetrack owners to major U.S. banks - lobbying to win renewals of their preferences in the sprawling U.S. tax code.
Popular items like the research and development credit, enjoyed by most of corporate America, and smaller provisions, like a shorter write-off period for motorsports complexes that primarily benefits owners of Nascar tracks, are in the mix.
"Our criticism is it is on autopilot - once you get into that caboose, you catch a ride every year," said Steve Ellis, a vice president at Taxpayers for Common Sense, a nonpartisan federal spending watchdog group.
The hodgepodge of tax breaks, including the rum credit, has been sailing through Congress for years with bipartisan backing. But even with a Tea Party-infused Congress hostile to government spending, chances are slim in an election year that what some call a gravy train will be stopped.
"Politicians don't want to take the heat," said Republican Senator Tom Coburn, a frequent critic of special tax breaks.
Coburn and other lawmakers say it is a symptom of a much bigger headache - a sprawling tax code that badly needs a rewrite. Lawmakers are laying groundwork for an overhaul, but no one believes that feat can be achieved this year.
"The members' attitude is, 'let's wait until tax reform,' " to address the merits of each tax provision, said a staff member for a senior tax lawmaker who was not authorized to comment.
The last time lawmakers revamped the tax code was 1986. That
took years to do and came only after President Ronald Reagan made it a priority and was safely ensconced in a second term.
The tale of the Diageo deal highlights the unintended consequences of tax policy on autopilot.
When Congress again approved the tax breaks as a package with little debate, it was attached to post-financial crisis bailout legislation that gave billions of dollars to banks and auto companies in the midst of the recession.
The package included an annual tax subsidy, known as the rum "cover over," to Puerto Rico and the Virgin Islands, meant to spur economic development. The two U.S. territories are heavily dependent on rum production, dominated by Diageo, Fortune Brands and Bacardi.
Until a few years ago, the island governments gave about 6 percent of the subsidy to rum producers. In 2008 the Virgin Islands boosted that to nearly 50 percent in a deal with Diageo to lure a big production plant. So when Congress approved the extenders, it inadvertently helped fund a $2.7 billion 30-year deal that the Virgin Islands struck with Diageo.
"The Virgin Islands promised a huge percentage of future sales to build a distillery for Diageo to move Captain Morgan production from Puerto Rico to the Virgin Islands, so it really benefits Diageo," said Ellis of the taxpayers' group.
A spokeswoman for Diageo says the deal was separate and the only thing the congressional approval did was to increase the price by clearing the subsidy increase.
Still, some lawmakers said they were caught off guard and U.S. makers of spirits cried foul.
"Our view is that the extenders portion of the rum cover-over program didn't impact whether a deal was done with Diageo, but the total amount of money involved is still a lot of money," said Mark Brown, chief executive of Sazerac, the largest U.S. privately owned distiller, which counts Diageo as a major rival.
The rum tax break cost U.S. taxpayers about $262 million during its recent two-year renewal, according to congressional scorekeepers.
The tax break for tracks that run Nascar races lets "motorsports entertainment complexes" write down expenses for upgrades in seven years, compared to the typical 15-year period.
Dan Houser, chief financial officer of International Speedway Corporation, said the benefit puts them on a level playing field with publicly financed sports stadiums.
"Most lawmakers that I talk to understand and are supportive," he said. "But when it starts to play out in the press as the "Nascar tax break"' he said, he loses support.
The uncertainty from the annual tax extenders ritual deters new investment within race tracks, Houser said.
The package of tax extenders, which has expired in 2012, has grown over decades from a handful to 60 separate provisions.
Obama and lawmakers fought through the end of 2011 over renewing the payroll tax cut for workers, settling on a two-month fix. Businesses see a potential to attach breaks onto any deal that may emerge from the need to address the expiration of those tax cuts at the end of February.
"People are looking at the payroll tax legislation as a potential vehicle and kind of licking their chops," said Marc Gerson, a former tax attorney for House Republicans, now representing business interests at Miller & Chevalier.
The problem, as usual, is paying for the tax breaks. These provisions wound up on a yearly lease in part because the longer-term cost couldn't be stomached when enacted.
The difficulty of raising revenue has only gotten worse, with a $1.3 trillion deficit and several bouts of congressional brinksmanship in 2011 leading to a downgrade of U.S. debt.
Many lobbyists say they expect the tax breaks to be renewed this year retroactively, but that action may get delayed until the year-end debate over renewing lower tax rates enacted by Republican President George W. Bush.
"People aren't giving up, they have to keep trying," said Cathy Schultz, a lobbyist for big American companies at the National Foreign Trade Council, though she conceded the cost of the package was hurting efforts.
One big tax break that is on a yearly lease helps financial institutions defer taxes on some income, such as royalties from a patent, earned abroad. Critics say the provisions helps big banks and other firms dodge taxes.
That provision costs the government about $4 billion, according to the Congressional Research Service.
Schultz said lawmakers will likely hesitate to take away any of the tax provisions in an election year.
"They all have constituencies and people are going to be loathe to get rid of any, no matter how small," she said.
Bob McIntyre, president of Citizens for Tax Justice, a left-leaning tax research group, said that despite what lawmakers may say, many like having an expiration date stamped on tax breaks, to boost their political fundraising. A lawmaker "wouldn't want to extend them for too long or else he wouldn't get paid to do it," he said.
The tax breaks may get some scrutiny this year, perhaps a congressional hearing in the context of overall tax reform. But most see a real debate waiting until after the 2012 elections.
The recent expiration of once untouchable subsidies for ethanol, a corn-based fuel propped up by government funds for years, gives some reformers hope.
Scott Hodge, president of The Tax Foundation, a nonpartisan tax research group that pushes for lower taxes on business, said, "The fact they allowed the ethanol subsidy to expire tells me that even the biggest sacred cows are not eternal."
By David Cay Johnston
January 13, 2012
Big business is lobbying for a major cut in the corporate income tax rate, and both President Barack Obama and key congressional leaders are on their side. But the evidence that a rate cut will boost the economy is weak. What’s needed is comprehensive reform that includes a simpler, fairer and more transparent corporate tax code. But more on that later.
Consider what President George W. Bush‘s Treasury Department said in a report in 2007: big countries, such as the United States, receive far less economic benefit from lower corporate tax rates than smaller countries do. For large countries, cutting corporate tax rates “would result partly in increased capital inflow and partly in lower world interest rates.”
While other large countries have cut their corporate tax rates since then, lowering the U.S. rate would just encourage other countries to go even lower. Since we are cutting spending in the very areas that build wealth – education, infrastructure and research – a corporate tax rate cut would increase the pressure for further cuts in those areas, making us poorer.
The RATE Coalition, a group of 23 businesses and two trade associations, is among leading advocates for a cut in the corporate income tax rate from the current 35 percent. But it also wants that cut to be a part of fundamental reform.
A cut of 10 percentage points would increase economic output by 1 to 2 percentage points, the coalition says on its website, citing a study by economists Roger H. Gordon of the University of California San Diego and Young Lee of Hanyang University in Seoul. But Gordon told me that while the paper shows that “lower corporate tax rates are associated with more rapid economic growth,” that point comes with a caveat.
“We found these results only … for non-OECD (poorer) countries,” he emailed – there was no statistical relationship between lower corporate tax rates and faster economic growth among OECD countries, a coalition of 34 modern states spanning the globe and including the United States.
Ten of the RATE members have made detailed tax disclosures to shareholders, allowing Citizens for Tax Justice to compare their tax rates on profits earned in the United States to their rates on overseas profits. Its recent study showed that five of the 10 RATE members paid higher rates on their U.S. profits than on their foreign profits in 2008 through 2010. The other five paid lower U.S. tax rates.
Add up the figures from all 10 companies and their average U.S. tax rate was just 0.88 percentage points higher than their non-U.S. rate. That is not much of a difference, either to the companies or the U.S. economy.
The RATE Coalition has two chairs, one from each party, each with strong Washington ties. Its spokeswoman offered Democrat Elaine Kamarck, a public policy lecturer at Harvard’s John F. Kennedy School of Government, to answer questions. Kamarck said that the enduring economic doldrums and election year politics this year “almost inevitably lead to a big tax reform debate in 2013.”
“We see an interesting political consensus,” she said. Corporations want lower rates, the government needs more revenue and since the 1986 Tax Reform Act the corporate tax laws have become overgrown with favors, especially for multinational companies. Getting lower rates, she said, has to include removing many favors to level the playing field so profits are taxed evenly, not more for some industries and less for others as today.
Significantly, the RATE coalition, one of several corporate coalitions competing to shape changes in tax law next year, includes associations of retailers and railroads, both of whose tax issues are almost entirely domestic. Some of its members have spoken against the proposed tax holiday for bringing home untaxed overseas profits. The coalition does not oppose any repatriation deal for multinational companies, but says such a deal should be debated only in the context of fundamental reform.
Kamarck said she agreed with one of the major themes of this column – which is that our tax code was built for the national, industrial, wage economy of the 20th Century, creating problems for the global, services, digital economy of the 21st Century.
So why is the RATE Coalition not first promoting fundamental reform, a tabula rasa approach, and only then talking of tax rate cuts? That, she said, is just not politically doable in the next two years. Let’s hope she is wrong. Washington has done it before, in 1986. Why not again?
There's a new video out this week from a group called the RATE Coalition making the case for a lower corporate income tax. The video is worth watching -- not because it provides any original defense for changing the corporate tax code, but because this group is rapidly gaining influence in Washington (despite the fact that it was just started early last fall), and my guess is we'll be hearing much more from them in the near future.
The video starts off by arguing that, with a 35 percent corporate income tax rate, the U.S. is "on track to have the highest rate in the world." It's surprising to see the member corporations of the RATE Coalition complaining about high taxes, since many of them actually pay no income taxes at all: according to a recent report from the Citizens for Tax Justice, Boeing and Verizon (both members of RATE) paid absolutely no taxes on their incomes from 2008 to 2010. Another RATE member, Time Warner, paid no taxes in 2008 and paid an average of 3.8 percent in income taxes from 2009 to 2010.
And these RATE folks are not alone -- fully 78 of the 280 most profitable U.S. corporations had at least one income tax-free year between 2008 and 2010. By taking advantage of offshore tax shelters and piles of deductions and loopholes, these 280 corporations together paid an average of 18.5 percent in taxes on their incomes between 2008 and 2010, far below the 35 percent statutory tax rate and even less than the 20.4 percent rate paid by the average American household.
So, again, it's not clear how exactly the corporate tax rate is too high -- the only way some of these RATE guys could be treated any better by the corporate tax code is to have American taxpayers start actively subsidizing their profit margins.
All of this data on effective tax rates also makes clear how distorted their next claim is: according to RATE, excessively high corporate taxes are responsible for pushing American jobs overseas. But given that, according to the RATE Coalition's own video, the average corporate tax rate worldwide is 25 percent, the U.S. actually has an exceedingly competitive income tax.
While these distortions are obviously important to highlight, it's their last claim that I find most disturbing: the RATE video argues that U.S. corporate income taxes are "hurting America's growth potential." I'm not sure what they mean by "growth potential," but if they think that income taxes are hurting corporate profits, then this group is seriously delusional: corporate profits rebounded to their pre-recession heights way back in June of 2010, and just last week they literally set a new record, totaling $1.97 trillion in the third quarter of 2011. It's worth noting, however, that due to aggressive tax avoidance, federal revenues from corporate taxes remain well below their pre-recession levels.
Which brings me to my last point. The acronym "RATE" stands for Reforming America's Taxes Equitably. While corporate profits are busy breaking records in the wake of the recession, household income last peaked in 1999 and remains 7.1 percent below that peak today. You'd have to live in a world totally divorced from the realities of middle class life to think that "equitable" tax reform means handing out more perks to those with record-breaking wealth.
Of course, if you're an aggressive tax dodger based out of Wall Street, that might just be the kind of world you live in.
Date January 11, 2012
SHARPTON: Tell me, David, as Mr. Romney, when you look at the fact that Citizens for Tax Justice says his tax plan is a complete handout to the top 1 percent, while the poorest suffer, the bottom 20 percent would only get a 1 percent tax cut while the top 1 percent would get a 38 percent tax cut. That`s the analysis on the Citizens for Tax Justice.
By Pat Garofalo on Jan 10, 2012 at 5:05 pm
The 2012 Republican candidates are largely in lockstep when it comes to economic policy, wanting to give huge tax cuts to the rich and corporations while doing next to nothing to boost consumer demand or help the middle class and the unemployed who have been battered by the Great Recession. In fact, according to an analysis by Citizens for Tax Justice, the average tax cuts received by the richest 1 percent of Americans under the Republican plans would be 270 times as large as the cut received by the middle class:
The share of tax cuts going to the richest one percent of Americans under these plans would range from over a third to almost half. The average tax cuts received by the richest one percent would be up to 270 times as large as the average tax cut received by middle-income Americans.
Perry wins the award with a tax cut for the richest 1 percent that is 270 times larger than his middle class tax cut, while Gingrich’s is 190 times larger. Santorum and Romney pull up the rear with tax cuts for the rich that are 100 times larger than the cuts for the middle class, while CTJ did not analyze Jon Huntsman or Ron Paul’s plans. (CTJ uses a current law baseline, rather than a current policy baseline, to calculate its cuts. Using a current policy baseline, millions of middle class families would see a tax increase under Romney’s plan.)
CTJ also noted that “the cost of the tax plans proposed by Republican presidential candidates would range from $6.6 trillion to $18 trillion over a decade.” Therefore, “even the meager tax cuts that would go to low-income and middle-income taxpayers under these plans would almost surely be offset by the huge cuts in public services that would become necessary as a result.”
First Posted: 1/10/12 01:03 PM ET Updated: 1/10/12 06:17 PM ET
At a time when the federal government is starved for cash -- and facing layoffs and cuts in services across the board -- more and more corporations are sidestepping their traditional tax rate and keeping millions of dollars for themselves.
The number of U.S. corporations structuring their businesses in such a way that they can avoid higher taxes has skyrocketed in the past quarter century, The Wall Street Journal reports.
In 1986, about 24 percent of corporations were what's known as nontaxable businesses -- meaning the companies themselves pay no federal income taxes -- instead passing on the earnings to individual investors to pay taxes on. By 2008, these businesses accounted for about 69 percent of all corporations, a designation that can save companies hundreds of millions of dollars in a single year
Advocates for the business community have expressed frustration with the country's 35 percent corporate income tax rate, calling it unreasonably high. In practice, though, it's common for big businesses to pay much less, thanks to a cornucopia of tax-code loopholes and exemptions won by lobbyists.
The issue of corporate tax participation has become especially pressing in recent years, as the country struggles to manage its ballooning deficits. Corporate taxes for non-financial companies have fallen more than 13 percent since 2007, according to Bloomberg. At the same time, the national debt grew to $15.23 trillion from $9.13 trillion -- a number larger than the economy itself.
According to a recent analysis of nearly 300 Fortune 500 companies by the Citizens for Tax Justice, the average company was paying just 18.3 percent in taxes -- a little more than half the official rate. And by using techniques like industry subsidies, stock option packages, and moving assets overseas where they can't be taxed, 30 companies mentioned in the report -- including Wells Fargo, Verizon, Boeing and General Electric -- didn't pay a cent in federal taxes in 2008, 2009 or 2010, the report found.
The phenomenon affects state income taxes as well as federal. Last month, another study from the Center for Tax Justice found that corporate tax avoidance had cost states a combined $42.7 billion between 2008 and 2010 -- a period when budget shortfalls forced states to cut spending for health care, public schools and care for the elderly and disabled.
Updated 01/09/2012 06:35 PM
By: Steve Ference
It's been a hot-button topic, especially as Republicans vie to challenge President Obama in this year's election and Occupy protests continue in many parts of the country. The issue, the tax system. A coalition of New York groups made their case that the corporate tax system has to be fixed if some companies aren't paying their fair share. But fair share is of course, in the eye of the beholder. Our Steve Ference has the story.
ALBANY, N.Y. -- "When it comes to the budget deficit, ‘shared sacrifice’ has become cover to be able to attack the poor and vulnerable," said Bobby Tolbert, who said he is HIV-positive and fears possible cuts to medical and housing programs to keep state budget deficits in check.
Tolbert said, "Tax loopholes and corrupt bank investments, foreclosures, have turned the American dream to a nightmare.”
Tolbert joined a coalition of group, unions and teacher and services advocates to call on some corporations to pay more in taxes, what they say would be their "fair share."
Michael Kink, with the Strong Economy for All Coalition, said, "A large-scale new effort to raise over a billion dollars for this year's state budget."
They cite companies that they say pay a lower rate than the 4.1 percent a family of four in New York making $58,000 a year pays. According to Citizens for Tax Justice, American Express, Verizon, Goldman Sachs and News Corp hade billions in profits from 2008 to 2010, paying millions or hundreds of millions in taxes during the same time period to all states and local governments, but paying only a couple percent in taxes. Still, the stats aren't without their caveats.
Frank Mauro of the Fiscal Policy Institute admitted, "These might be wonderful citizens for New York. This is a national average, but we don't have a roadmap. What we need is transparency and we need disclosure at the state level - what are you paying in corporate income taxes?"
And they're also not without controversy. Verizon called it a "tired refrain" from the unions, but said that they pay their fair share, comply with all tax laws, and from 2006 to 2010 paid out more than $7.5 billion in state and federal taxes alone. Goldman Sachs told us they have no comment, but they had paid a higher rate, above 30 percent, before the economic downturn according to some reports. The other corporations did not return our calls and e-mails.
Now the question is will state leaders hear the message and then actually do something about it? Though, the governor did say broadly that he wants to make New York's tax system the fairest in the nation.
Kink said, "In the same way that last year the governor and legislature made a down payment on tax fairness by closing tax gaps between the rich poor and asking the tax reform and fairness commission to look at a long-term approach, this year we think the same thing can be done for corporate tax loopholes."
This, a battle over transparency, and which way to look through the budget shortfall prism, as corporations paying millions and even billions in total taxes say they're doing their part, and an increasingly vocal opposition claims those percentages need to be much higher to fill state coffers to pay for programs many depend on.
By Brandon Quinn
January 09, 2012
The 22nd annual People's State of the State rally, sponsored by the Hunger Action Network of New York State, took place in Academy Park outside the Capitol on Tuesday, Jan. 3.
Members of the New York State United Teachers, the Public Employee's Federation and participants of Occupy Albany called on Gov. Andrew Cuomo to address their concerns in his State of the State address.
This year's event was moved from State Street to the "hallowed ground of Occupy Albany" in a show of solidarity with the movement, according to Mark Dunlea, associate director of Hunger Action Network, and saw about 85 people turn out despite frigid 19-degree weather.
Many of their concerns were indeed addressed on Wednesday, receiving applause from the poverty and homeless advocates, while others points were either touched on briefly or skirted completely.
The main theme that all of Tuesday's speakers focused on were correcting what they called New York's income inequality, of which Dunlea said, "the richest 1 percent get 34 percent of the income."
The rally was kicked off with a song by Mary Nell Morgan, backed by about 25 members of PEF donning yellow hats and scarves, adapting songs like "Kumbaya" and "We Shall Overcome" to include lyrics such as "tax the rich my lord, Kumbaya."
On Tuesday, Andrew Pallotta, executive vice president of NYSUT, spoke to the "record budget cuts New York State public education" has undergone in the past year alone, asking those in the crowd, "how will New York compete in our knowledge based economy?"
Cuomo, in his State of the State address the next day, promised to become a "lobbyist for the school children," touching on the fact that every aspect of New York's school system from bus drivers to superintendents have a lobby, except students.
Other priorities discussed on Tuesday were a raise in the state's minimum wage to $10 an hour, the implementation of a single payer health care program similar to that of Vermont's, more funding for emergency food programs, and rectifying the state's budget deficit.
The proposed plan for eliminating the budget deficit was twofold: while occupiers called for cuts in military spending, Ron Deutsch, executive director of New Yorkers for Fiscal Fairness said his organization is "pushing a corporate income tax loophole closing agenda."
Deutsch wanted "the wealthiest corporations in our state to simply pay the taxes they owe," pointing to a 2009 study by Citizens for Tax Justice that showed 71 of the wealthiest 252 corporations in America — 12 headquartered in New York State alone — managed to pay zero, or less than zero, in income taxes over the analyzed three year period.
The study concluded this was "partially the result of tax avoidance strategies by corporations rather than the conscious design of policymakers," but emphasized that the tax burden then fell heavily on the shoulders of small businesses and individual citizens.
Natash Pernicka, executive director of The Food Pantries also spoke to the crowd Tuesday. She said "12 percent of the employed population of New York doesn't have the means to meet basic nutritional needs."
She went on to say that statewide use of emergency food programs has increased by 60 percent in the last four years.
Among other alarming statistics noted by Dunlea at the rally, the crowd was informed that one in seven New Yorkers are out of work and that in New York City alone, more than 45,000 people, 17,000 of them children, experience homelessness.
With people passing by the rally yelling things such as "get a job hippies," the participants were able to mix their very serious messages while poking fun at some of the public's perception of their cause with signs like, "Hey buddy, can you spare some change — to the system?"
Last Tuesday's rally ended with a unified chant of "tear down that Wall Street America. Tear down that Wall Street," a play on words from Ronald Reagan's famous challenge to Soviet leader Mikhail Gorbachev.
In response to Cuomo referencing the needs of the hungry in his address Wednesday, Hunger Action Network applauded Cuomo's words on ending childhood hunger, as well as ending the practice of fingerprinting for food stamps, which some say furthers the stigma placed on those who apply, but is eagerly awaiting action.
"We are encouraged to hear the governor say that no children should go to bed hungry, but hope he goes beyond expanding access to food stamps," Dunlea said Wednesday. "One of the best ways to end childhood hunger would be to increase access to, and benefits from, the Temporary Assistance for Needy Families program. Last year, Governor Cuomo instead delayed the promised three-year phased-in increase," said Dunlea on Wednesday.
While Dunlea praised Assembly Speaker Sheldon Silver Wednesday for placing a higher minimum wage as his top priority for 2012 — it has only been raised 10 cents in the last six years according to Silver — he was discouraged to find that "the harsh economic reality that many low and moderate income New Yorkers face was largely ignored." Dunlea wants to see a "public jobs initiative to replace the 500,000 jobs lost since 2007."
Two recent studies, both rather troubling on their own, are even more disturbing when the relationship between the two is considered.
The first is a study by Citizens for Tax Justice (CTJ) that shows tax avoidance at the state level. The CTJ study, which evaluated 265 large companies, determined that an average of 3% was paid in state taxes, less than half the average state tax rate of 6.2%. The ten states with 10 or more companies in the study all collected between 2.5% and 3.55%: Ohio, Texas, New Jersey, Pennsylvania, Illinois, Minnesota, Virginia, California, North Carolina, and New York.
CTJ notes that "these 265 companies avoided a total of $42.7 billion in state corporate income taxes over the three years." That's about $14 billion per year.
The second study, from the Center on Budget and Policy Priorities (CBPP), reports that "Elementary and high schools are receiving less state funding than last year in at least 37 states, and in at least 30 states school funding now stands below 2008 levels - often far below."
Combining CBPP figures with enrollment data from the National Center for Education Statistics reveals that total K-12 education cuts for fiscal 2012 are about $12.7 billion.
Corporate state tax avoidance is about $14 billion for one year.
State education cuts amount to about $12.7 billion for one year.
The connection becomes clearer with a look at the details. The figures for all 20 states represented by four or more companies in the CTJ tax avoidance study are listed at PayUpNow.org. A comparison with the CBPP study on education cuts shows that 19 of these 20 states cut education funding in Fiscal 2012. The nine states that increased educational funding were largely absent from the CTJ study, with a total of only 15 (out of 265) tax avoiding companies.
In general, the states with significant tax-avoiding corporations tended to make sizable cuts in education.
It might be argued that no direct connection exists between corporate state tax shortfalls and school cuts, or that the unpayed tax money might have been earmarked for other expenditures.
But the amounts of corporate savings and student loss are distressingly similar. Big companies refuse to meet their tax obligations, and our children end up paying through cuts to their educations.
It would deal with two key issues by lowering state corporate net income tax rate and closing some loopholes.
By Steve Mocarsky firstname.lastname@example.org
The debate about Pennsylvania’s high corporate taxes and how companies use loopholes to skirt them has been going on for years, but a bill that would address both issues has been languishing in committee for months.
In April, state Rep. Phyllis Mundy, D-Kingston, introduced House Bill 1396, which she says would close some loopholes and lower the state Corporate Net Income Tax rate by 2.5 percent over three years. But the bill hasn’t even been brought up for debate.
That might seem strange, given that many in the Republican majority have cited the state’s corporate tax rate of 9.9 percent – the second highest in the nation – as a reason for supporting an impact fee on Marcellus Shale gas drillers rather than a severance tax. State Rep. Tarah Toohil, R-Butler Township, made lowering the tax part of her campaign platform last year.
And a recent study by the Institute on Taxation and Economic Policy and Citizens for Tax Justice shows that at least 14 Pennsylvania-based corporations paid nowhere near the 9.9 percent tax rate after deductions. One example: H.J. Heinz Co. had nearly $1.6 billion in profits from 2008 to 2010 and paid $13 million in taxes, a rate of 0.8 percent.
It has been estimated the commonwealth loses about $500 million annually using the current corporate net income tax accounting methodology.
Delaware Loophole addressed
Mundy says the Delaware Loophole – one of the most well-known tax dodges – works like this:
A corporation operating in Pennsylvania sets up a shell company in Delaware. The shell company controls the trademarks, patents or other investments, and charges the parent corporation a royalty for using the trademarked name or patent. That allows the corporation in Pennsylvania to treat the payment as a business expense, which it then deducts from its income in the Keystone State, reducing its tax burden here.
The loophole would be closed by adopting “combined reporting,” which would require corporations and their subsidiaries to jointly file one tax report and pay taxes according to the amount of business activity conducted in Pennsylvania. Twenty-three other states have enacted legislation to close the loophole, Mundy said.
According to the state Department of Revenue, more than 70 percent of multistate corporations doing business in Pennsylvania paid nothing in corporate net income taxes in 2007, while an additional 10 percent paid $1,000 or less – about as much income tax as a family earning $33,000, Mundy said.
Mundy: Reed bill limited
Mundy said she was pleased that two Republicans were among her bill’s co-sponsors, but she’s frustrated that the Finance Committee “seems to only be taking up tax cuts and tax credits. I don’t see any momentum for tackling anything comprehensive, especially since it might result in higher taxes for some corporations.”
Mundy said state Rep. Dave Reed, R-Indiana, in October circulated requests for co-sponsors for legislation that would close the Delaware Loophole, but while calling it a “first step toward fixing the system,” she advised her colleagues not to support it because of its limitations.
“Corporations use hundreds of techniques to shift income from state to state, not just by utilizing the Delaware Loophole. … If Pennsylvania chooses to only close the Delaware Loophole, companies will ask their accountants to figure out how to move to plans B through Z. … In the meantime, some corporations will continue to game the system, paying less than their share, and making taxpayers pay more,” Mundy said.
In addition, the Reed bills put the onus on the Department of Revenue rather than the corporations themselves, so the department would probably need to hire more staff and have its computer system updated sooner, placing more burdens on the state budget, Mundy said.
“All his bill does is enable the Department of Revenue to go after companies they can prove are illegally using the Delaware Loophole,” she said.
Combined reporting criticized
Reed said he will introduce his business tax reform plan later this month with bipartisan support.
“Included within that proposal will be an ‘add-back’ provision that will bring an end to companies utilizing holding companies in other states to avoid taxation in Pennsylvania; this is similar to the methodology used in 23 other states,” Reed said.
Reed said the major criticism to Mundy’s combined reporting approach has been “the impact to job creators that are not engaged in such practices. Thus, we went with a surgical approach geared towards closing such a loophole without adding additional burdens on those already playing by the rules.
“Rep. Mundy appears more interested in creating partisan warfare as opposed to actually closing the loophole and leveling out the tax structure. She had four years with a Democratic governor and her party in the majority, but no action taken to finally close this loophole,” Reed said.
Toohil weighs in
Asked for her input on the issue, Toohil said in an email that the state’s current corporate tax rate “does a disservice to Pennsylvania by chasing out and keeping out large companies and family sustaining jobs.”
The Delaware Loophole, she said, “is a horse of a different color. Whether or not a massive recession is the time to close the loophole, and with the effect of perhaps driving corporations out of Pennsylvania, is an item that is being discussed. I am seriously evaluating the pros and cons of its closure,” she said.
Toohil added that it was important to note that “under eight years of the Rendell administration, the Democratic leadership failed to make any progress with the closure of the loophole.”
Meanwhile, the state Department of Revenue “does have a series of enforcement options” to pursue corporations that try to use loopholes illegally to avoid taxes, said department spokeswoman Elizabeth Brassell.
“We’re looking to do all we can under existing law,” she said.
Sat Jan 7, 2012 12:38AM GMT
The Internal Revenue Service estimates that U.S. companies and individuals failed to pay $385 billion in taxes they owed in 2006, an increase from $290 billion five years earlier.
The agency said the rate of compliance remained almost unchanged at 85.5 percent, down slightly from 86.3 percent in 2001. The IRS announcement today is the first update to the so-called tax gap estimate in five years. The gap grew because the income base expanded between 2001 and 2006, the agency said.
“Despite what seems to be increasing complexity, Americans' compliance remained steady,” Frank Keith, an IRS spokesman, said in a telephone interview today.
The U.S. recorded a $248.2 billion budget deficit in 2006, according to the White House Office of Management and Budget. If the IRS had collected all of the taxes owed that year, the U.S. could have had a surplus of as much as $136.8 billion.
The estimate is a comprehensive measure of the taxes the U.S. is owed and includes income taxes, the estate tax, employment and excise taxes.
The IRS uses computer models to estimate the amount owed by individuals and businesses who don't pay their taxes or don't pay their full tax bill. The agency said it is getting better at estimating the tax gap in part because of better data on small corporations.
The biggest chunk of money that goes uncollected -- $235 billion -- comes from individuals, the IRS said. Of that, $122 billion is estimated to be taxes owed on business income that would be reported on an individual return.
The IRS estimated that $67 billion in corporate income tax wasn't collected in 2006. Most of that -- $48 billion -- was from large corporations with more than $10 million in assets, the agency said. Bloomberg
FACTS & FIGURES
More than 1,400 millionaires paid no U.S. income taxes in 2009, according to an August 2011 report from the Internal Revenue Service. Huffington Post
Twenty five percent of all American millionaires pay a smaller percentage of their income taxes than millions of middle class households. Huffington Post
The top 400 earners in the U.S. paid an average tax rate of only 18 percent. Bloomberg
Billionaires aren't the only ones that use loopholes to pay lower taxes. Thirty of America's most profitable corporations used rules like the "active financing exception" -- allowing corporations to sidestep paying taxes on overseas profits if they were derived by "actively financing" some activity or deal -- to pay less than zero in income taxes. Center for Tax Justice
280 most profitable U.S. corporations sheltered half their profits from taxes between 2008 and 2010. Citizens for Tax Justice
January 6, 2011
By Garry Duffy
Arizona's gasoline tax has stood at 18 cents per gallon for 21 years. Factor in an average rate of inflation of 2.67 percent over those years, and that 18 cents is now worth what a dime was in 1990. Or, looking at it another way, if the rate of inflation had been kept up, that 18 cents tax would be 31 cents today.
Either way, money from the Highway Users Revenue Fund (HURF) coming into seven jurisdictions in the Pima Association of Governments is buying less these days.
PAG, as it has done for the past several years, is proposing to raise the gas tax by 5 cents per gallon to 23 cents per gallon with an annual inflationary adjustment over the next five years. The request was included PAG's annual policy submittal to the state Legislature, which begins its 2012 session next week.
A new study released by the Institute on Taxation and Economic Policy, based in Washington, D.C., found that 36 states, including Arizona, have fixed tax rates that do not account for inflation and that the buying power of the gas tax in those states has fallen 27 percent since 2000.
"The ongoing decline of the gas tax is troubling in large part because of the tax's enormous importance to the efficient and safe operation of state transportation systems," according to the report. "Gas and diesel tax rates would have to rise over 6 cents per gallon, on average, to return them to the level of purchasing power they had the last time they were raised."
Adding to the declining buying power of the gasoline tax, lawmakers have taken HURF funds intended for counties, cities and towns and used the money to help balance the state's budget.
In a memo to supervisors, Pima County Administrator Chuck Huckelberry says more than $11.1 million of HURF money has "been diverted from Pima County to fund state agencies" over the past four years.
Pima County also gets hit because the state HURF distribution formula favors municipalities over unincorporated areas of counties. Cities and towns get 23 percent of HURF dollars with a 3 percent bump on that going to cities with populations over 300,000. Counties get 19 percent of the overall annual distribution to fund projects in unincorporated areas. The rest goes to the Arizona Department of Transportation.
Maricopa County, with a population of more than 3.8 million in the 2010 Census - 60 percent of the state's total poulation of 6.4 million - has 25 municipalities that take in all but 6 percent of the population. Pima County, with a population of 980,263 in the latest Census, has five municipalities with 36 percent of people living outside of any of them.
Besides the state gas tax, there is a federal tax of 18.4 cents per gallon. That figure hasn't changed since 1993. The federal dollars are distributed to state and local governments and generally can be employed in a wider use range than state or local funds.
Garry Duffy, a former reporter for the Tucson Citizen, is a consultant to the Pima Association of Government's Regional Transportation Authority.
by Conrad Defiebre
January 5, 2012
On July 1 this year, Minnesota's highway fuel tax will go up a half-penny to 28.5 cents a gallon, the last of seven phased increases that began in 2008. Absent legislative action, it won't go up again — ever. Before you raise a cheer, let's consider what that may mean for the safety, comfort, efficiency and even the cost of driving in the long run.
Unlike the major government levies on income, property and sales, excise taxes based on gallons of fuel do not automatically adjust for inflation. When prices of everything the gas tax buys — bridge and pavement materials, land for highway right-of-way, construction labor — go up, revenues for those goods stay put. Lately, fuel tax collections are actually in decline because of improved fuel economy and a long-term trend toward less driving.
This results in tax cuts on autopilot and increasing subsidies from general taxation, which is no way to finance a transportation system. Look no further to explain our deteriorating roads and official Minnesota projections of three times as much state highway pavement rated as poor in the coming years. Don't blame it on subsidies for transit, bicycling or anything else, either. Minnesota motor vehicle fuel and registration taxes are constitutionally dedicated solely to highway purposes.
Meanwhile, the coming tax hike at Minnesota pumps will be virtually invisible amid much larger fluctuations in gasoline market prices. For the average driver, the added monthly outlay will be 22 cents (Ouch!??). The entire four-year phase-in will bring the average extra hit to $3.67 a month, about the cost of single latte. And Minnesota fuel taxes will still be below the national and Midwest averages.
Now compare those extra highway user fees with the hidden costs of inadequate road capacity and maintenance: well over $1,000 a year in losses for the average driver because of wasted time and fuel in congestion plus added vehicle repairs.
Minnesota first enacted a motor fuel tax of 2 cents a gallon in 1925, about 10 percent of the pump price then. Over the next six decades, the levy was raised 10 times, usually without controversy. The state was building a web of roads and bridges that now stretches for more than 130,000 miles, a massive public works project that drew support from nearly every corner of the political spectrum.
Then things changed. Substantial completion of the Interstate highway system in the 1980s lent a sense of mission accomplished to the 20th century's historic expansion of motorways. Simultaneously, a near-religious devotion to no new taxes no matter what gripped the right wing. After reaching 20 cents a gallon in 1988, Minnesota's gasoline tax was stuck in neutral for the next 20 years, losing nearly half its buying power to inflation.
It took the deadly collapse of the Interstate Hwy. 35W bridge in August 2007 to move transportation funding to the top of the State Capitol agenda. In February 2008, the Legislature overrode Gov. Tim Pawlenty's veto of a bill that hiked the gas tax 8.5 cents a gallon over four years. Most notably, this paid for a nation-leading program to repair or replace scores of unsafe bridges across Minnesota.
But no good deed goes unpunished by some conservatives. They drove four of their own who voted to override the veto from office in the House and tried to oust two others, branding them "tax bandits." That sentiment, writ large across the country, has even President Obama swearing off an increase in federal fuel taxes, which haven't budged since 1993.
Inflation has shrunk the 18.4-cents-a-gallon federal gasoline tax by more than a third in real terms. With declining revenues at the pump, Washington has been deadlocked for two years over reauthorizing federal transportation programs. Rather than raise fuel-based user fees, Congress bailed out the Highway Trust Fund with more than $70 billion in general revenue transfers over 18 months from 2008 to 2010. By comparison, federal general fund subsidies for transit total just $2.4 billion a year.
As roads and bridges age, a renewed focus on user fees from motorists will be required to finance needed maintenance and rebuilding. There's no appetite for that evident now, even as highway user funding remains on a long national decline, pegged by Pew Subsidyscope at just 51 percent of all government spending on roads, streets and bridges.
In fact, the United States is the only one among the world's top 34 industrial nations that doesn't fully fund roads with fees on driving. And a new report from the Institute on Taxation and Economic Policy (ITEP) says state and federal fuel taxes now produce $33 billion a year less than their original revenues when adjusted for inflation.
Unfortunately, it's an iron law of economics that you get what you pay for. Come July 1, the incredible shrinking gas tax will begin its disappearing act again in Minnesota. Sometime in the next 20 years our policymakers should fix this recurring problem for good.
Despite the buzz you may have heard, mileage fees probably won't be the solution anytime soon. A Minnesota state task force that recently endorsed the concept also urged no "full-scale implementation ... until concerns are satisfactorily met," including thorny technological, operational and enforcement issues as well as privacy worries. In addition, members of the task force from the Minnesota Chamber of Commerce and the Minnesota Trucking Association offered a written dissent, saying mileage fees shouldn't even be considered.
Their views as transportation stakeholders will be highly influential. Both groups' national organizations have long urged raising fuel taxes instead. So have automakers and even the petroleum lobby.
The ITEP report, "Building a Better Gas Tax: How to Fix One of State Government's Least Sustainable Revenue Sources," concurs. It recommends raising fuel taxes to restore adequate buying power, perhaps triggered when gas prices fall. It also calls for future automatic hikes linked to pump prices, the Consumer Price Index or road construction and maintenance costs, any of which would shield highway revenues from inflation like most other taxes. Finally, it urges reducing gas tax regressivity with refundable tax credits for low-income motorists. A similar measure was in Minnesota's 2008 enactment, since repealed to help balance the budget.
These are excellent ideas for Minnesota to consider. With any luck, the debate will begin in earnest before another 20 years go by.
January 5, 2012
by Brian Beutler
Mitt Romney still says he’s unlikely to publicly release his tax information, even if he clinches the Republican presidential nomination, and Democrats have a pretty good idea why.
Romney is a privileged poster child for the “Buffett Rule” — President Obama’s principle that the tax code should make it impossible for a person of great wealth to pay a lower share of their income in taxes than ordinary people. The DNC knows it, policy wonks know it, Romney certainly knows it. But the reasons why are technical and illustrate just how different Romney is from the vast majority of Americans who will cast votes for him — in either the GOP primary or the general election.
One tax expert told TPM of “fairly sophisticated tax strategies” that would be “not available to ordinary tax payers.” A technique that puts you in a position that’s “like having an unlimited 401k account” sounds very attractive. But maybe not if you’re running for office, for Pete’s sake.
When Romney jokes that he’s been unemployed for years, he’s obscuring the fact that he’s still collecting millions of dollars of investment income, which is taxed at a much lower rate than it would be if he, like most taxpayers, took home a regular paycheck. He’s also obscuring the fact a great deal of that same income is only vaguely connected to his own underlying investments, and yet benefits from a key loophole in the tax code that allows him and other wealthy finance veterans to more than halve their effective tax rate.
In private equity, fund managers are typically compensated with both a fee (two percent of assets) and substantial share (20 percent) of the fund’s profits. Those profits are called “carried interest” and they’re classified as long-term capital gains, which are taxed at 15 percent — much lower than wage income, on which the top marginal rate is 35 percent. But unlike the fund’s main investors, the manager typically doesn’t put up more than a nominal share of the fund’s actual capital. In other words, this so-called “carried interest loophole” allows private equity fund managers to treat the money they make in exchange for their labor as if it was a return on an investment — even though they haven’t made such an investment at all.
“They’re performing services to these funds, they’re not putting in their own money except to a nominal extent,” says Vic Fleishcer, a tax law professor at the University of Colorado. “When Mitt Romney was working at Bain he received a share of the profits from the Bain funds and continues to do so today and that’s all being taxed at the long-term capital gains rate.”
Among fund managers, “the capital interest is typically very small compared to their stake in the profit,” says one tax expert in Washington who represents private-equity clients. In other words, a fund manager might have a tiny stake in the investment he’s managing, but nonetheless recoup a great deal of its profit, and then pay very little in taxes on that profit. This loophole puts huge downward pressure on the the effective tax rate people like Romney pay.
Until recently, too, they were allowed to set up offshore corporations in places like the Cayman Islands, which allowed them to avoid paying U.S. taxes until they return the profits home.
“That allowed Romney to defer his income taxes until he repatriated his income to the U.S.,” Fleischer said. “It [was] like having an unlimited 401k account…. These kinds of techniques are not available to ordinary tax payers. Because of the nature of his work he’s able to take advantage of some fairly sophisticated tax strategies and that highlights how different he is from your normal tax payer.”
There’s nothing illegal here — it’s all on the level, and the tax code doesn’t technically reserve these benefits for rich people alone. But in practice, high net-worth tax payers are the only ones who can really avail themselves of them.
“Very high income people have lots of investible income and we have a tax system that is preferential to investment income,” says Clint Stretch, a top tax lawyer at Deloitte. “If you have capital gains or dividends, under current law they have a 15 percent rate, it’s going to be very hard to get your effective tax rate up as high as a comparably wealthy wage earner…. If you layer on a group of high-income people who have tax exempt income — municipal bonds and so forth — it gets harder.”
In practice this means wealthy Americans can reduce their tax liabilities, and a lucky few in the investor class can really limit theirs.
“I looked at tax return data from 2008 and for taxpayers that earned more than half a million dollars — that’s six-tenths of one percent of all taxpayers — they had 72 percent of long-term capital gains,” Stretch said. “Taxpayers over $5 million had over 43 percent of capital gains…. That’s the magic of high income — and anybody with investments can do it, high income doctors and lawyers and accountants and celebrities and athletes can do it.” As Stretch notes, though, you can’t do it if you don’t have enough disposable income to make long-term investments.
Because the tax code is complex, and rife with benefits and deductions, it’s impossible to use Romney’s publicly available income figures to reverse engineer his particular tax burden exactly. But you can ballpark it pretty easily, as Michael Scherer at Time Magazine did way back in October.
In 2010 he and his wife made between $1.1 million and $2.8 million in royalties, salary, speaking fees and interest, most of which was likely taxed at a marginal rate of 35%, after accounting for deductions. The Romneys made an additional $5.5 million to $37.3 million from dividends and capital gains, which is generally taxed at a much lower rate of 15%….
Assuming that Romney declared roughly the same number of deductions as others in his income level and that his dividend and capital gains income qualified for the 15% bracket, Romney would have paid roughly 14% of his gross income in taxes to the federal government in 2010 according to Bob McIntyre, who crafts tax policy at the left-leaning Citizens for Tax Justice.
People who earn as much money as Romney typically make most of it in capital gains and often deduct more than they earn in royalties, salary and interest. In other words, they never pay the 35% rate that their income would be subject to if they just got a paycheck like most Americans.
That’s roughly the same as the effective tax rate for a married couple making $60,000 jointly.
On Romney, a Washington tax expert took a stab at it, “If I had to guess, you would find a very large charitable contribution deduction [based on Romney’s affiliation with the Mormon church] and then I’d think you’d see a lot of capital gains…. It’s likely to show a pretty low effective rate — but the same thing would happen if you saw Warren Buffett’s tax return.”
By LEN LAZARICK
January 4, 2012
A new study found that at least 68 profitable corporations paid no state income taxes anywhere in the country in one of the last three years, according to their annual reports and official government filings.
Among the major companies on the list that do significant business in Maryland are Comcast, Wells Fargo, Southwest Airlines, Verizon, General Electric and Pepco Holdings, the utility company, which paid no state taxes in 2008, 2009 and 2010.
"Individual taxpayers and small businesses in Maryland end up having to pick up the tab when these corporations avoid paying their taxes," said Jenny Levin at Maryland PIRG, the public interest lobbying group that released the study. The report, "Corporate Tax Dodging in the Fifty States," was done jointly by the Institute on Taxation and Economic Policy and the Center for Tax Justice, which generally support more progressive tax policy.
The study found that 265 corporations it reviewed paid only about 3 percent tax on their corporate profits, while the average corporate state income tax rate was 6.2 percent. In Maryland, the rate is 8.25 percent.
The study recommends wide-ranging changes in how states tax corporations. This includes adoption of combined reporting, and choosing not to conform to federal tax law changes (known as "decoupling") that have lowered federal taxes on corporations.
The report did not disclose what corporations pay to individual states since the companies don't have to - and those individual payments are not disclosed by state governments, either.
Karen Syrylo, the tax consultant with the Maryland Chamber of Commerce, said the report disregards the other taxes that corporations pay in Maryland, which raise far more money than the corporate income tax and must be paid even when a company is having an unprofitable year.
According to an Ernst & Young study released in July, Maryland businesses paid about $8.8 billion in taxes, but only 10 percent of that was from the corporate income tax. The largest taxes on Maryland businesses were property taxes ($2.3 billion), sales taxes on items for business use ($1.5 billion), excise and gross receipts taxes ($1.7 billion), licenses and other fees ($1.1 billion), and individual income tax on business income ($800 million).
Kim Burns of Maryland Business for Responsive Government pointed to similar figures and called the study on tax dodging "arrogant and misleading."
"It vilifies corporations that pay taxes and create jobs everywhere in the country," Burns said.
Syrylo pointed out that there are a variety of reasons a corporation might pay no state income taxes. One reason in particular, depreciation on equipment, would heavily affect a utility such as Pepco and other companies with major equipment purchases. She also said that companies are allowed to carry forward losses from prior years.
The report on low corporate tax rates comes at a time when a number of Maryland labor, education and nonprofit organizations are organizing an effort to persuade the governor and legislature to take a "balanced approach" to state budget issues. This means not just relying on cuts to services and personnel to balance the next year's budget, but also increasing tax revenues.
January 3, 2012
by George Zornick
Iowa may be much more socially conservative than most states—behold the recent rise of Rick Santorum—but on economic measures, Iowa more closely resembles the rest of the country. The median income in 2010 was $48,031, just off the national average of $50,046. Increased demand for agricultural products has kept the unemployment relatively low, at 5.7 percent, but over 400,000 Iowans still live below the poverty line—that’s 13 percent of the state.
So how do the Republican candidates traversing the state today and asking for support plan to address income inequality, if it all? The answer—brace yourself—is to shift even more income to the top one percent.
Citizens for Tax Justice performed an analysis of three candidates’ plans: Mitt Romney, Rick Perry and Newt Gingrich. The others didn’t provide enough detail for analysis, but the numbers we do have suggest that no matter which candidate delivers a victory speech this evening, the interests of the state’s wealthiest members will surely triumph.
The worst among the plans examined belongs to Newt Gingrich—if enacted, his proposed tax structure would award the wealthiest one percent of Iowans a $228,050 tax cut in 2014. Comparatively, the middle fifth of Iowans in the income scale would get a cut of only $2,140. (Yes, that’s 100 times less). Rick Perry would hand $164,560 to the richest Iowans, while cutting taxes for the middle fifth by only $1,190—130 times less than top one percent would receive. And Mitt Romney would award $75,650 in tax cuts to each member of Iowa’s top one percent, and $1,320 to the middle fifth.
CTJ may not have had enough data to perform similar analyses for the rest of the candidates, but we can still safely assume the top one percent would come out fine under their plans. Ron Paul, for example, supports repealing the Sixteenth Amendment, which allows Congress to enact income taxes. He favors a national flat tax in its place, which is of course deeply regressive. Santorum’s plan isn’t detailed enough to analyze, but he said recently that “I’m for income inequality”—so you can draw your own conclusions about whom his tax policy might help.
Jan 1, 2012
I recently stumbled upon an interesting statistic regarding the amount of federal taxes paid each year by corporations and individuals.
Actually, my jaw dropped when I read the report on this topic published by the Leuthold Group, a Minneapolis research and investment firm. But before I share the data with...
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