(Original Post)

JONATHAN KAMINSKY, Associated Press THE ASSOCIATED PRESS STATEMENT OF NEWS VALUES AND PRINCIPLES

OLYMPIA, Wash. (AP) — Washington state's freshman House Democrats on Wednesday called for wide-ranging changes to the state's tax code, from creating a state capital gains tax to eliminating the out-of-state sales tax exemption.

A dozen lawmakers — one of the 13 freshmen was caught in traffic — said at a press conference that the measures are necessary to make the state's tax system more equitable and stable.

"Our fundamental problem in this state, in terms of revenue long-term, has to do with fairness, adequacy of resources and stability of the resources that we bring into this state," said Rep. Laurie Jinkins, D-Tacoma.

Washington is one of eight states that don't tax capital gains and the only one exempting out-of-state consumers from its sales tax.

Because the state relies heavily on the sales tax, Washington has the most regressive tax policy in the country, according to the left-leaning Institute on Taxation and Economic Policy.

While the richest percent of Washington state residents pay about 3 percent of their income on state and local taxes, the bottom fifth pay more than 17 percent of their income toward the same, according to a 2009 ITEP study.

Supporters of a capital gains tax say it would be more responsive to an uptick in the economy, noting that the stock market has outperformed the economy at large since the depth of the recession in 2009.

Opponents say capital gains are more volatile than other sources of tax revenue and so taxes generated from them are hard to forecast.

A bill championed by Jinkins to enact a 5 percent tax on capital gains on stocks and assets of over $10,000 per year per couple received a public hearing Wednesday in the House Ways and Means Committee. The measure includes exceptions for proceeds from selling a house or farmland, retirement savings and inherited wealth.

A measure to end the nonresident sales tax exemption was heard by the same committee last week.

That measure would bring in an estimated $26 million in additional annual tax revenue, which would be put toward paying for full-day kindergarten programs.

Both measures need two-thirds support in both the House and Senate, which means that majority Democrats would need Republican votes in support.

Republican House and Senate leaders expressed opposition to both measures Wednesday, saying they were out of step with the priorities of most Washingtonians.

"I don't think Washington state is ready" for a capital gains tax, said House Minority Leader Richard DeBolt, R-Chehalis. "That's up to the voters to decide."

Rep. Andy Billig, D-Spokane, said he would prefer to see the measures pass this session, but noted that Republicans last year opposed a Democratic proposal to eliminate tax breaks for big banks providing a home's first mortgage and have now come around to support it.

"If we have to work it over the interim and come back next year to see the results, then that's fine too," Billig said.

(Original Post)

By William T. Terrell

Published Wednesday, Feb. 29, 2012, at 5:25 p.m.
Updated Wednesday, Feb. 29, 2012, at 5:26 p.m.

It’s amazing that economist Arthur Laffer is having a great impact on attempts to alter Kansas individual income taxes, and that neither Gov. Sam Brownback nor Revenue Secretary Nick Jordan has arranged for a critical review of Laffer’s empirical work.

Laffer claims that the nine states with no individual income tax are outperforming nine so-called high-rate income-tax states.

His testimony in Oklahoma involved his paper “Eliminating the State Income Tax in Oklahoma: An Economic Assessment.” This manuscript was not presented to the Kansas Senate Committee on Assessment and Taxation. Rather, Laffer simply lifted one table from this manuscript and replaced the data line labeled “Oklahoma” with Kansas data.

Laffer’s presentations in both Oklahoma (November 2011) and Kansas (January 2012) recently have come under scrutiny by the nonprofit and nonpartisan Institute on Taxation and Economic Policy. There are two papers (www.itepnet.org/DebunkingLaffer/) that expose the misleading data in the Kansas table, make necessary corrections, and conclude that the reverse of Laffer’s assertion is true – that the nine high-tax-rate states identified by Laffer enjoyed greater economic growth per capita from 2001 through 2010 (Laffer uses this decade) than the nine states with no personal income tax.

Three data series show this conclusion: Per capita real (corrected for inflation) gross state product for the high-rate states increased by 10.1 percent and only 8.7 percent for the no-tax states; real median household income growth shows a decline (minus 0.7 percent) for the high-rate states and a steeper decrease (minus 3.5 percent) for the no-tax states (the Great Recession was still effective in 2010); average unemployment rates for both groups of states were the same – 5.7 percent.

My testimony to the same Senate committee last month was that during fiscal year 2007, six of the no-tax states had higher unemployment rates than Kansas. The same is true for December 2011.

The Laffer table errs by presenting a number of variables that are very closely related to population growth. This is true for his gross state product, nonfarm payroll employment growth, population growth, and net domestic in-migration measure. The states with faster population growth also experience more growth in the total number of jobs and in the total amount of output. Once one corrects for inflation and population growth and makes use of household income and unemployment rates, the Laffer claim is empty.

Laffer errs in selecting his nine high-tax-rate states by adding federal marginal income-tax rates to his estimates of state and local marginal rates. Such upward bias is never mentioned.

Population increase is not determined by income-tax provisions. From 2001 through 2010, 18 of the top-20 states for population growth were in the south or western part of the country. In fact, eight of the nine no-tax states are in these regions. These regions have higher population growth because they exhibit lower population density, more accessible suburbs, higher birthrates, higher Hispanic immigration and warmer weather.

My own investigation of total tax burdens by shares of diverse revenue sources confirms that the nine states with no-income tax lead the nation in imposing high revenue percentages from either property taxes, various sales taxes or both (Tax Foundation data). The ITEP study of total state tax burdens by income class shows that six of the nine no-tax states are among the 10 most regressive tax structures in the country.

Further examination suggests that all nine of the no-tax states enjoy revenues from sources not now available to Kansas. This is what enables them to abandon personal income taxes.

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By Ashley Portero

February 29, 2012 1:30 PM EST

General Electric Co. (NYSE: GE) again stands accused of employing tax-dodging techniques to avoid paying a fair rate of income tax.

In a dispute that crystallizes the politically charged debate over corporate taxes, GE is again the focus of criticism from Citizens for Tax Justice, which says only 2.3 percent of GE's pretax U.S. profits have gone to the federal government since 2002.

A new analysis issued this week by the nonprofit, liberal advocacy group says that based on GE's annual report for 2011 -- filed with the U.S. Securities and Exchange Commission last Friday -- the industrial conglomerate had an effective tax rate of only 11.3 percent. That undercuts company statements that its U.S. tax rate for last year was a considerably higher 25 percent. Whichever is accurate, the figure is far below the official U.S. corporate-tax rate of 35 percent.

The analysis, which compiled GE's profits and tax payments from 2002 to 2011, also concluded that the company has paid about $1.8 billion in federal income taxes on $81.2 billion worth of pretax U.S. profits since 2002, an annual average of 2.3 percent.

"I don't think most Americans would consider 11.3 percent, not to mention GE's long-term effective rate of 2.3 percent, to be 'normal,'" Bob McIntyre, director of Citizens for Tax Justice, said in a statement. "But for GE, taxes are something to be avoided rather than paid."

GE had negative federal income tax for three of the 10 years analyzed in the study. That the company reportedly didn't pay any federal income taxes between 2008 and 2010 was the subject of a wider investigation by Citizens for Tax Justice. According to a report by the group, along with the Institute on Taxation and Economic Policy, GE paid a federal income tax rate of negative 45 percent on more than $10 billion in U.S. profits during that period.

A data analysis by the Center for Responsive Politics found that GE spent more on lobbying -- almost $89 million -- that it did paying federal income taxes in those three years.

The Connecticut-based giant has adamantly insisted that it pays all it owes under the law. After a widely read New York Times article last year reported that GE had claimed a $3.2 billion tax benefit in 2010 while paying no taxes, the company issued a lengthy response, arguing that significant losses at GE Capital during the financial crisis, among other events, was responsible for a tax rate it acknowledged was "below historical levels."

Andrew Williams, a spokesman for GE, said in an e-mail that the company's 2011 tax rate in the United States was 25 percent, with a global rate of 29 percent.

Citizens for Tax Justice, he wrote, "is an interest group with a clear agenda and the reports they file are biased and inaccurate. The rate is below 35 percent because of lower tax rates on foreign earnings, and tax credits and deductions for investments that support U.S. economic growth and jobs."

However, Citizens for Tax Justice argues that GE's reported figures for 2011 don't reflect what the company actually paid. Rather, it may include deferred taxes that GE can continue to put off by using various tax loopholes. GE denies making use of loopholes or "innovative accounting".

Although the nation's current 35 percent corporate tax rate is among the highest in the world, it is widely accepted that many companies manage to pay far below that mark. Republicans and even some Democrats have called for a lower rate, an idea President Barack Obama advanced this month when he asked Congress to lower the top corporate rate to 28 percent.

Obama's administration plans to revamp the corporate code to establish a minimum tax on multinational corporations' foreign earnings and eliminating excessive tax breaks, among other changes.

While the proposal has bipartisan appeal, some critics argue that the current corporate tax rate is already low by historical standards. Earlier this week, Warren Buffett, the billionaire investor and chairman of Berkshire Hathaway Inc., told CNBC that the U.S. rate isn't "strangling American competitiveness" because so many corporations manage to pay far less than the official rate.

"It's a myth that American corporations are paying 35 percent or anything like it," Buffett said.

Berkshire Hathaway bought more than $3 billion of GE shares in 2008, throwing a lifeline to the company during the financial crisis. Last September, GE announced that it planned to buy back the shares for $3.3 billion plus accrued dividends.

(Original Post)

Angry Bear Blog | Feb. 29, 2012, 5:08 AM

by Linda Beale

The Supreme Court's corporate monsters--if money buys them "free speech" rights, can it help them avoid giving others human rights?

The Supreme Court decided in Citizens United that corporations could intevene to influence elections--giving money and aide to their selected candidates. This was an inordinate broadening of corporate "personhood", claimed to be necessary under the warped First Amendment precedents of the Supreme Court that count "money" as speech and thus consider that limitations on money spent to influence elections as a limitation on speech.

Yet most economists and tax professors argue against the corporate tax--which has been in place longer than the individual income tax--on the grounds that taxes distort and that the claimed "double taxation" of corporate income distorts the allocation of capital. See, e.g., Tax Foundation, 2004 paper on integrating corporate and personal income taxes; seminal 1985 integration piece from NBER. Much of the argument boils down to an a prior assumption that "only people can pay taxes."
(Of course, we used to think that only people could engage in campaign speech or bribe politicians for quid pro quo policies or otherwise influence the course of society. We were naive.)


As a result of this "received wisdom" about economics and corporate taxes--mostly based on the mathematically correct but practically challenged Chicago School approach to understanding economic systems (by assuming away most of the real world, including life, death, and everything in between)-- corporate lobbyists and their allies in Congress have been pushing for decades to eliminate corporate taxation through integration of the corporate and individual tax schemes or at a minimum to drastically reduce the liability of corporations for federal income taxes.
Every presidential candidate has one scheme or another to reduce corporate taxes, with even Obama falling prey to the continuing influence of the Wall Street facilitators like Timothy Geithner in the Treasury and Larry Summers. See Citizens for Tax Justice, President's Framework Fails to Raise Revenue (pointing out that there is no reason not to fix the loopholes in corporate tax to help address the deficit without having to lower corporate rates, and noting that although Obama at least called for making his rate reduction framework for so-called corporate tax reform revenue neutral, his plan fails to raise about a trillion dollars to make up for the corporate taxes that it gives up). As CTJ notes, many organizations have called for the opposite--to raise revenues from corporations that have been paying very little in taxes, especially since the 2003 Bush "reforms" that granted most of the items on corporations' wish list for tax cuts.
Last year, 250 organizations, including organizations from every state in the U.S., joined us in urging Congress to enact a corporate tax reform that raises revenue. These organizations believe that it’s outrageous that Congress is debating cuts in public services like Medicare and Medicaid to address an alleged budget crisis and yet no attempt will be made to raise more revenue from profitable corporations. Id. Nonetheless, most candidates call for making the corporate income tax territorial and thus making it even more lucrative for US multinationals to move more of their corporate businesses (and jobs) abroad. Most call for reducing the rates on corporations to a historically unprecedentedly low level--making it even more likely that the US trade deficit and corresponding budget deficit will continue to grow, even at a time when these self-nominated fiscal "conservatives" are claiming that the current deficit requires monumental sacrifices from ordinary people in the way of reduced medical care and old age security (the effort to cut back drastically on the benefits payable under Medicare and Social Security).

Most treat the owners of corporate equity as though they were some kind of revered engine of growth, when in fact they are usually merely rich people who are interested in reaping as high a profit as possible from sales of corporate shares but very little interested in entrepreneurship, and as likely to engage in quick trades (the profits of which go into their pockets and not into the working capital of the corproations) as to hold long-term based on analysis of corporate business fundamentals. Most don't accompany their form of integration with eliminating the category distinction between capital gains and ordinary income.

Most "corporate reform" plans call for continuing most of the absurd provisions that have larded the pockets of corporate management over the last few decades, such as

    accelerated depreciation and expensing (including all the depletion allowances for the heavily subsidized oil and gas extractive industry, even while it complains about the petty little incentives put in place in recent years for environmentally sound energy generation--accelerated expensing creates "phantom" deductions that reduce taxable income well below economic profits), and
    the "research & development" credit, which was first enacted as a stimulus that was to be in place for a very short period of time but has been extended in fits--even retroactively for several years--as corporations demand making every single "stimulus" tax break they get permanent.

(As readers of this blog know, I see little merit in the R&D credit. Corporations can already deduct way too much "phantom" expenses--excess interest expense that allows them to operate with too much leverage, facilitating equity firm buyouts by leveraging up the purchased entity to pay off the equity strippers. Further, as with so many of the GOP's favorite programs of tax subsidies for multinationals and the upper crust, it hasn't bothered to conduct studies to see if the R&D credit indeed results in more research done in this country. Clearly, a retroactively enacted credit does NOT incentivize research.

Probably the times it's been enacted without being retroactive haven't either--it takes extensive labs and equipment to do research, and such labs and equipment have to be purchased far ahead of when they pay off. Most of the R&D that the credit supports is likely to be of the "tweak-a-patent" variety that seeks merely to find a way to extend a monopoly profit from a particular profit--something the patent law should frown upon.)
So the drumbeat for lower corporate taxes--at a time when corporations are paying less as a proportion of GDP than they did in the time of our most sustained economic growth--continues unabated from the right joined by only slightly less enthousiastic accompaniment at the White House and think tanks like the Tax Policy Institute.

Meanwhile, the Supreme Court, having anointed corporations with a kind of personhood that lets them intervene in elections even though they have no vote, has taken for consideration a case that challenges the rights of individuals to hold corporations accountable as people are held accountable for human rights violations. The case is Kiobel v Royal Dutch Petroleum (2d Cir. 2010), in which Nigerian plaintiffs seek to hold Royal Dutch/Shell liable for violating the Alien Tort Statute (“ATS”), 28 U.S.C. § 1350, which upholds international norms of human rights.

The Second Circuit held that US courts cannot entertain such suits, holding that jurisdiction under the Alien Tort Statute against corporations requires an international norm approving sanctioning corporations for torts and that requires more than the mere fact that most countries treat corporations under their domestic law as capable of committing torts. The court in the Second Circuit opinion makes a point much like economists tend to make about taxes--essentially implying that "only people commit heinous acts".
From the beginning, however, the principle of individual liability for violations of international law has been limited to natural persons—not “juridical” persons such as corporations—because the moral responsibility for a crime so heinous and unbounded as to rise to the level of an “international crime” has rested solely with the individual men and women who have perpetrated it. Second Circuit in Riobel. While people are the "deciders" of corporate decisions, nonetheless the corporate form permits corporations to engage in conduct that individuals alone cannot engage in--from amassing huge resources to carrying out massive enterprises that pollute and steal human dignity. To ignore that reality of corporate wrongdoing, especially in an age that has anointed corporate personhood with rights that seem furthest from ones that corporate entities should be permitted to enjoy, would be folly.

For further discussion of the implications of the case, see Peter Weiss, Should corporations have more leeway to kill than people do?, New York Times (Feb. 24, 2012).
Suffice it to say that this case raises the specter of full-blown corporatism overtaking the entire U.S. economic and social system. If the Supreme Court accompanies its "personhood for free speech/election intervention rights" with "not people so can't be touched for human rights violations", there will be even fewer ways to hold multinationals accountable, and they will forge even stronger relationships with autocratic dictators who treat their citizens like slaves and their environments like garbage pits. Meanwhile corporations will continue to intervene in our elections at will (usually the will of their ultra-wealthy managerial class), using the extraordinary power of the resources at their command.

We will all be the worse for any decision that would allow multinationals to expand their quasi-sovereign rights without saddling them with a strong obligation to comply with international norms respecting human rights. Rights without obligations are invitations to corruption.

(Original Post)

Tuesday, February 28, 2012

f Illinois were to adopt the same graduated income tax rate structure as Iowa, Illinois would raise $6.3 billion more in revenue than it does from its current five percent flat rate, while 54 percent—over half—of all taxpayers would pay less in state income taxes...from The Case for Creating a Graduated Income Tax in Illinois

At 10 a.m. Tuesday, the Center for Tax and Budget Accountability think-tank will hold a news conference in Springfield to announce the release of the following report making the case for a  graduated income-tax rate structure in Illinois (highlights mine):

Introduction

Illinois historically has been one of the most unfair taxing states in the nation.

 Sure, in January, 2012, the Governor signed into law a bill designed to make the state’s tax system somewhat fairer, by increasing both the Illinois Earned Income Tax Credit and standard personal income tax exemption.

 Consider that the Great Recession officially ended over two years ago in June, 2009.  During the “recovery” that has followed, job growth in Illinois has been woefully inadequate.  So woeful in fact that, through March 31, 2011, total non-farm employment in the state was 304,400 jobs less than when the Great Recession started in December of 2007, and over 580,000 jobs less than at Illinois’ prior employment peak in November of 2000.

 While this represents a step in the right direction, it is not the type of structural reform needed to create true tax fairness.  And Illinois’ continuing failure to create tax fairness should concern everyone, because this failure has consequences beyond being poor tax policy.  Indeed, the data indicate that Illinois’ lack of tax fairness has both contributed materially to the state’s ongoing General Fund budget deficits and harmed Illinois’ private sector economy.

Given that reality, now is precisely the time that investments by state government in everything from infrastructure, to education, healthcare, and human services are most needed, both to maintain private sector spending  crucial to creating jobs  and to meet growing demand for public services.

 On the demand side, Illinois’ unfair tax policy constrains long-term economic growth in the state’s private sector by over taxing  our best consumers, low and middle income families.  Over taxing low and middle income families directly reduces consumer spending, because overtime their income in real, inflation adjusted terms has been flat or declining.

  But state government’s ability to make the investments needed to help create jobs and meet demand for services remains severely curtailed by ongoing, structural deficits that plague the Illinois General Fund.

These deficits are due in large part to the state’s unfair imposition of tax burden on Illinois families.

Since these families do not really have the ability to save, additional tax dollars they pay come directly out of what they otherwise would spend in their local economies.

This is a problem, because the biggest driver of the private sector economy is consumer spending, which accounts for over 66 percent of all economic activity.

State government’s task of promoting private sector growth while overcoming fiscal shortfalls is difficult, and ultimately will require implementing  a number of varying  initiatives.   No magic silver bullet  will  resolve  all the  fiscal and employment  challenges facing Illinois today.  That said, there is  one long-term, structural policy change that  would simultaneously stimulate job growth in the state, tax people more fairly  and  reduce Illinois’ General Fund deficits: creating a graduated rate structure for the Illinois individual income tax.

 Key Findings

• Current Illinois tax policy is neither fair to taxpayers nor designed to sustain funding current service levels into the future.

• One key reason Illinois tax policy fails both the fairness and sustainability tests is that overall the system fails to impose tax burden in a manner that corresponds to ability to pay.

• A tax system must be progressive to impose tax burden in a manner that corresponds to ability to pay.  A progressive tax system imposes a greater tax burden on affluent than on middle to low income earners, when tax burden is measured as a percentage of income. This is needed to track ability to pay, given the significant growth in income inequality over the last 30 years. Because it tracks ability to pay, progressive taxation has traditionally been the cornerstone of fair taxation under capitalist tax policy generally and in America specifically.  Far from being progressive, Illinois’ tax policy is regressive, assessing much higher overall tax burdens as a percentage of income on low and middle-income families than on affluent families.  Indeed, Illinois has the third highest tax burden on low income families in the nation.

• The state constitutional prohibition on implementing a graduated rate structure in the Illinois individual income tax is one of the primary reasons Illinois tax policy is regressive overall, and hence unfair. Not having a graduated rate structure for its individual income tax also makes Illinois a tax policy outlier.  Of the 41 states with an individual income tax, all but seven have graduated rate structures.

• Given the significant growth in income inequality over the last 30 years, Illinois’ failure to implement a graduated individual income tax rate structure has both harmed the state’s private sector job growth and contributed substantially to Illinois’ ongoing structural deficits in its General Fund.

• If Illinois amended its constitution to allow implementation of a  graduated rate structure for the individual income tax, that structure could be designed in a way that would:

(i) cut overall state income tax burden for 94 percent of all taxpayers—that means on average, taxpayers with under $150,000 in annual base income would receive a tax cut;
(ii) raise at least $2.4 billion annually in new revenue to help eliminate ongoing structural deficits in the General Fund;
(iii) despite shifting tax burden to affluent taxpayers, nonetheless keep the effective income tax rate for millionaires at just 4.3 percent; and
(iv) stimulate the growth of at least 36,000 jobs in the state’s private sector through enhanced public and consumer spending.

Illinois’ Lack of a Graduated Income Tax Rate Structure is Unfair to Taxpayers, Contrary to Sound Tax Policy and Makes Illinois a Tax Outlier.

A  graduated income tax rate structure helps create a progressive  and hence fair tax system by placing  a greater tax burden on affluent families than on low and middle income families, when tax burden is measured as a percentage of income.   True, the legislature and governor took some steps to make tax policy fairer in  January 2012 when they  modestly increased both the State’s Earned Income Tax Credit and standard exemption.

Figure 1: Illinois State & Local Taxes Paid as a Share of Family Income for Non-Elderly Taxpayers

Screen shot 2012-02-27 at 6.10.46 PM

Source: Institute on Taxation & Economic Policy, Who Pays? A Distributional Analysis of Tax Systems in All 50 States, p. 42, Third Edition,  November 2009. Note: This table shows 2007 data updated to reflect permanent changes in Illinois tax law enacted through January, 2012.

That said, overall the Illinois tax system remains very regressive, reserving the greatest tax burdens for low and middle income families.  Indeed, Illinois currently has the third highest tax burden for low income families of all the states.

 As Figure 1 shows, poor, low and middle income families in Illinois have state tax burdens that are more than double the tax burden of high income earners.

As it turns out, being regressive makes Illinois tax policy both unfair and unsound.  First, consider fairness. Who do you think said “The subjects of every state ought to contribute toward the support of government as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state?”  Why, that was Adam Smith, the father of capitalism, in his seminal work  The Wealth of Nations.

Smith specifically endorsed the proposition that tax policy should “remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.

Smith championed  graduated taxation because he believed the affluent would benefit disproportionately from economic growth under capitalism.

Figure 2, which shows how much income inequality grew in Illinois from 1979-2010, demonstrates that Smith’s conjecture was spot on.  In fact, the bottom 60 percent of income earners in Illinois actually took home less money on an inflation-adjusted basis in 2010 than they did in 1979.

 Figure 2: Change in Inflation Adjusted Real Wages in Illinois, 1979-2010

Screen shot 2012-02-27 at 6.20.52 PM

Source: Center for Tax and Budget Accountability analysis of Current Population Survey data, adjusted for inflation using the CPI-U data from the State of Working America, Economic Policy Institute, 2011.

National income trends are no better.  Data compiled by Professors Piketty and Saez show that from 1973-2008, 120.6 percent of all family income growth in the nation went to the wealthiest ten percent of families.  So, if over 100 percent of the income growth went to the top 10 percent, that means everyone else lost income.  Indeed, the real family income of the 90 percent of  Americans who constitute the  vast majority of the country was  lower in 2008 than in 1973.

For two key reasons, among the different methods of taxation (excise, income, sales, property, etc.) generally available to state and local governments, the income tax is the one used to create fairness.  First, the income tax is inherently the fairest tax because it is the only tax which increases or decreases automatically in accordance with a taxpayer's ability to pay.  If a taxpayer receives a raise, her income tax liability will increase.  If on the other hand she loses her job, her income tax liability will decrease.  No other tax automatically adjusts its burden in accordance with a taxpayer's ability to pay.

But that is not the only, nor even most important “fairness” role for the income tax to play in a state tax system.  Indeed, the income tax can be designed to offset the  inherent regressivity of all the other taxes (property, sales and excise) imposed by state and local governments.  That’s because, unique among the different taxes, an income tax can have a graduated rate structure?that is, impose higher marginal tax rates on individuals with higher incomes.  Implementing a thoughtful, graduated income tax can thereby make a state's overall tax burden fair?or at least fairer than it would be without a graduated income tax rate structure.

Using a graduated income tax rate structure to make tax policy fair has a venerable tradition in America that crosses ideological lines.  When the federal income tax was reestablished in 1913—during the era of the great robber barons—it only applied to the richest four percent in America.

 Republican Presidents Nixon and Reagan both advocated strongly for creating tax fairness through progressive taxation.  Most recently, Republican President George W. Bush specifically endorsed the concept of progressive taxation in his 2001 budget proposal to Congress, which emphasized that his tax proposal “gives the lowest income families the greatest percentage reduction.  Indeed, higher income individuals will pay a higher share of taxes after (the president’s) plan takes effect.”

In that same budget proposal, George W. Bush justified his  desire to make taxes  fairer by stressing it was “an unfortunate quirk of the present tax code that many low-income families are now facing higher marginal tax rates than wealthy individuals.”

Moving from the federal to the state level does not change the clear preference for creating tax fairness with graduated income tax rates.  In fact, the vast majority of states that have an individual income tax have a graduated rate structure.

Currently 41 states assess an individual income tax, and of the 41, 34 states or 83 percent of the total have a graduated rate structure.

 In Illinois, regressive taxation is no mere quirk, it instead constitutes a fundamental flaw that has created a tax system that is unfair to the vast majority of taxpayers and contributes significantly to the state’s ongoing General Fund deficits.

That leaves Illinois as a tax outlier, joining only six other states in having one flat income tax rate apply to all individuals, regardless of annual earnings. The bottom line is clear: Illinois’ current unfair tax system runs contrary  to longstanding federal and state tradition, and even runs afoul of textbook tax policy, which cautions that “progressive taxation reduces inequalities. Regressive taxation increases them.”

So why has Illinois tax policy remained contrary to the principles of fair taxation and the  long standing, historic and broad-based ideological support  for using graduated income tax rates?   The primary  reason is simple:  the Illinois Constitution prohibits lawmakers from setting marginal rates at different  amounts  for different  levels of  income, because it mandates a flat tax rate across all income brackets.

Hence, to  create a  graduated rate structure in its individual income tax, Illinois must amend its constitution.

Lack of a Graduated Income Tax Rate Structure Contributes to Ongoing Budget Deficits

From a fiscal standpoint, focusing tax burden on low- and middle-income families also makes no sense, because it fails to respond to how economic growth is actually distributed across different income brackets.  Review the  long-term growth in income inequality highlighted previously in Figure 2.

Simply put, focusing taxes on a demographic that loses income in inflation adjusted terms over time necessarily means revenue collection will not keep pace with the economy, because taxation is being focused where the economy is contracting not where it is expanding.

That is why the lack of fairness in the state’s income tax helps contribute to ongoing structural deficits in the Illinois General Fund, as depicted in Figure 3

 Figure 3: Illinois General Fund Structural Deficit

Screen shot 2012-02-27 at 6.27.45 PM

Source: CTBA Structural  Deficit Model is based on data from  the Commission on Government Forecasting and Analysis, Governor’s Office of Management and Budget and the Bureau of Labor Statistics. It assumes continuation of current law  and adjusts solely for inflation and population growth, and historic revenue and economic growth.

As Figure 3 shows, adjusting solely for inflation and population growth, and assuming historic revenue and economic growth rates, revenues under Illinois’ current, regressive tax system will not grow at rates sufficient to maintain current service levels  into the future.

 So, without adding or expanding even one public service, Illinois will nonetheless experience annual General Fund deficits because its tax system is not designed to work in a modern economy.

In simple terms, the structural deficit means the cost of providing public services in Illinois will grow with the economy and population over time, but state revenues will not.  One of the main reasons state revenue growth does not track population and economic growth is Illinois focuses its revenue collection on a diminishing portion of the economy—the incomes of low and middle income families,which are flat or declining in real terms over time. For state revenue to grow with the economy over time, tax policy has to respond to actual economic growth trends.  That means focusing taxes on the top ten percent of income earners, who have collectively received all real income growth in the nation since 1973, as shown in the study on income inequality by Piketty and Saez referenced in Section 3 above.

 Lack of a Graduated Rate Structure Hurts the Illinois Economy

Illinois’ regressive tax policy also hurts the state’s private sector economic growth in two key ways.  First, the structural deficit in large part created by regressive tax policy prevents the  state from making investments in infrastructure, transit, education and other priorities that are essential for Illinois to remain competitive in a global economy.

Second, regressive tax policy directly reduces consumer spending in Illinois.  That is a huge problem, since roughly two-thirds of  all economic activity  is consumer spending.

The best consumers are low and middle income families because—as clearly illustrated in Figure 2— they don’t earn enough to save.  In economic terms, this means they have a high “marginal propensity to consume”. That simply means they are much more likely to spend rather than save every additional dollar received.  Hence, as low and middle income families gain more income, they spend it, and in the local economy to boot.

That is why tax relief targeted to middle and low income families gets spent, which in turn creates jobs.

Modestly increasing taxes on affluent folks, on the other hand, does not materially reduce their spending, at least according to Nobel Prize  winning  economist Joseph Stiglitz.

 That’s because affluent families enjoy such a significant portion of all income growth that they have a very low marginal propensity to consume.  Yet, contrary to this basic principle, Illinois imposes a significant tax burden on low and middle income families, thereby hurting the economy by reducing the amount of money these families, our best consumers, actually have to spend.

Moreover, there is clear, data-based evidence which shows that imposing high marginal state income tax rates on the wealthy does not impede state economic growth over the long-term.  A recent study published by the Institute on Taxation and Economic Policy (ITEP), reviewed how the nine states with the highest marginal individual income tax rates compared to the nine states with no individual income tax in the following three, core economic indicators from 2001 through 2010: per capita real  gross  state  product growth; real  median income growth; and average annual unemployment rate.

The high individual income tax states  covered in the study are  California, Hawaii, Maine, Maryland, New Jersey, New York, Ohio, Oregon and Vermont.  The states without a broad-based individual income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.  Over the period studied, the high individual income tax states realized greater growth in real, per capita gross state product than their non-tax peers (10.1% to 8.7%), significantly lower loss in real median household income (a decline of -0.7% to -3.5%) and an identical average annual  unemployment rate of 5.7 percent).

At this juncture in time, Illinois’ refusal to change its unfair tax policy that both diminishes consumer spending and forces state budget cuts is particularly problematic.  As of August, 2011, Illinois still had not replaced the over 342,000 non-farm jobs it lost during the Great Recession. Truth be told, the state never recovered all the non-farm jobs it lost during the recession of 2001.

Cutting state General Fund spending on core services like education and caring for the developmentally disabled, for instance, can be expected to harm the private sector’s ability to replace those lost jobs.

Mark Zandi, the chief economist at Moody’s.com, explains why such public spending cuts will hurt private sector job growth.  He  developed a simple metric for determining how public expenditures create  a positive,  private economic multiplier that generates more than a dollar-for-dollar benefit. It works like this.  When state government  pays the salary of a social worker or  invests in a new road or in bridge construction, it initially stimulates the economy by expending revenue for work and economic activity that otherwise would not take place.  The individuals who receive this revenue from the state in the form of salary or other payments then spend some of the money they earn on other purchases in the economy, such as food, clothing or car repairs.  Hence, a portion of the initial state investment made on say, construction, becomes additional purchases in other sectors.  One person’s spending becomes another’s income, who in turn spends that income on other purchases in the local economy and so on.

Zandi found that historically, every dollar spent on core public services like education, healthcare, caring for individuals with mental health concerns or developmental disabilities or providing child care, generates a positive multiplier of 1.36.

That means for every dollar spent by the state, Illinois' private sector economy gets a benefit of $1.36.  Meanwhile tax relief targeted to low and middle income families should generate a multiplier of roughly 1.03.  Taken together, the additional consumer and state spending that would result from Illinois’ tax policy shifting to the graduated individual income tax rate structure outlined in Figure 7 below, should generate at least 36,000 private sector jobs.

The flip side of the positive multiplier  created by using a graduated individual income tax rate structure to maintain public spending on core services is the negative impact of cutting state spending.  In other words, if making $9 billion in expenditures on critical services can be expected to generate $12.24 billion of private sector economic activity ($9 billion multiplied by 1.36), then balancing the budget by cutting that amount of spending would hurt the economy by a similar multiple.   For more information on how this works, please see our “Moving Forward” report, available online at http://www.ctbaonline.org

Given the current economic context, now is precisely the right time to increase tax revenue with a graduated income tax focused primarily on the top ten percent of income earners, as opposed to reducing the state’s budget deficit through significant service cuts.   Simply put, while  maintaining public service expenditures by increasing annual revenues through a graduated income tax focused on top income earners can be expected to create private sector jobs, cutting state spending on core services can be expected to cause Illinois to lose tens of thousands of private sector jobs.

The January 2011 Tax Increase Did Not Create Fairness

In January 2011, Illinois increased its individual income tax rate from three percent to five percent.

 However, that tax increase  did not make the  state’s individual income tax any fairer.

But how could having one rate that applies to everyone contribute to regressivity? The answer is simple.  Most taxes imposed by state and local government, like sales, excise and property, are inherently regressive, that is, take a greater share of the earnings of low to moderate income families than of affluent families. Creating a graduated rate structure for the Illinois income tax is one of the few strategies available to counteract the natural regressivity of most taxes.

Illinois is denied this fundamental tax fairness tool by a state constitution that requires one flat income tax rate for all taxpayers.

The  key  reason for this, of course, is the constitutional mandate that Illinois be limited to one, flat income tax rate.

Moreover,  focusing on statutory marginal  income tax rates very much misses the point when it comes to assessing actual tax burden.  That’s because the best way to analyze the relative tax burdens imposed by an income tax is to focus on the “effective tax rate” paid—that is, the actual percentage of base income a taxpayer pays in state income taxes, after accounting for all applicable deductions, offsets, credits and exemptions.

Figure 4: Effective Tax Rates By Base Income Under Illinois’ Current 5% Flat Tax
Screen shot 2012-02-27 at 6.34.25 PM

Source: 2007 Illinois Department of Revenue detailed income tax data, calibrated through 2009 and adjusted for changes in Illinois tax law passed in 2011.

Figure 4 shows that under Illinois’ current system, some of the lowest effective income tax rates  are reserved for millionaires.

As Figure 4 illustrates, Illinois millionaires are subject to a very low effective state income tax rate of just 2.1 percent.

 Indeed, millionaires in Illinois pay an effective state income tax rate which is less than the effective income tax rate paid by individuals earning just  $9,000  - $11,000 annually, and about half the  effective  rate paid by the average Illinois taxpayer.

 This, despite the fact that real incomes are declining over time for the vast majority of low to middle income taxpayers, while growing substantially for millionaires.

Figure  5 shows the share of overall state revenue from the individual  income tax paid  by taxpayers in  each income bracket under the state’s current five percent flat tax.  As revealed in Figure 5, despite paying a very low effective state income tax rate  of 2.1 percent,  the 28,999 Illinois  millionaires  in 2007  (just  0.48 percent of all  Illinois  tax filers),nonetheless account for $2.8 billion or 18.44 percent of the state’s total $14.9 billion in individual income tax revenue.

The reason for this is not that their tax burden is high, far from it, but rather the significant growth in income inequality that has occurred over the last 30 odd years.

Figure 5: Share of Total Tax Revenue Paid by Base Income with 5 Percent Flat Tax
Screen shot 2012-02-27 at 6.36.53 PM


Source: 2007 Illinois Department of Revenue detailed income tax data, adjusted to account for the 2011 changes in Illinois tax law.

A Well Designed  Graduated Income Tax Rate  Structure  Could  Reduce Taxes for 94 Percent of Illinois Taxpayers and Raise at Least $2.4 Billion more in Revenue than the Current Five Percent Flat Tax

If Illinois passed a constitutional amendment permitting the creation of a graduated income tax rate it could structure those rates in a number of different ways.  For instance, if Illinois were to adopt the same graduated income tax rate structure as Iowa, Illinois would raise $6.3 billion more in revenue than it does from its current five percent flat rate, while 54 percent—over half—of all taxpayers would pay less in state income taxes.

 Figure 6 shows how Illinois would fare if it adopted the graduated individual income tax rate structures of some other states, as well as the graduated rate structure recommended in this study.  In this analysis CTBA uses the deductions, credits, etc., available under Illinois law, not the other states from which graduated income tax rate structures are taken, to create the most accurate picture of the impact of applying said various rate structures in Illinois.  In other words, all CTBA changed was the rate structure—to see what the rate structures of different states would generate in Illinois, given our state’s existing deductions,  credits, etc. Note that, in every case except the rate structure used by Oregon, Illinois would experience greater revenue generation while over half of the state’s families would receive tax relief.

Using Oregon’s marginal income tax rate structure would almost double total revenue in Illinois from the individual income tax, because Oregon escalates income tax rates rapidly and for many low and middle-income earners. But given Illinois’ current deductions, credits, etc., everyone in Illinois would pay more under that rate structure. It should be noted that Oregon may have other means legislated that target tax relief directly to low and middle-income families that would offset its imposition of high income tax rates at relatively low levels of income.

Figure 6: Approximate Impact of Applying Other State Graduated Individual Income Tax Rates to Illinois

(Figure 6 to come)

Source: CTBA approximate modeling of the impact of other state marginal individual income tax rates for a couple, when applied to detailed Illinois Department of Revenue 2007 Illinois individual income tax return data.

However, rather than just copy a rate structure used by another state that in all likelihood has very different deductions, credits, etc. from Illinois, decision makers could design a rate structure to work in conjunction with Illinois’ current law covering such items.  Figure 7 shows how such an approach could work.  Given an appropriately designed graduated rate structure, Illinois could cut the overall state income tax burden for 94 percent of all taxpayers—on average providing a tax cut to every taxpayer with less than $150,000 in base income annually, raise at least $2.4 billion more in revenue,and keep the effective individual income tax rate for millionaires well below five percent.

Figure 7: How a Graduated Individual Income Tax Rate Could be Structured in Illinois to Cut Taxes for 94% of Filers

 
Screen shot 2012-02-28 at 4.50.16 PM




 Note, the actual revenue raised will be approximately $1 billion less due after adjusting for non-residents, potential tax avoidance and other factors, as discussed below in this Section.

The results shown in Figure 7 are based on Illinois implementing a graduated income tax that does not tax incomes of $5,000 or less, keeps the tax rate at the current five percent level for taxpayers with base incomes of $100,000 annually or less, and increases the marginal tax rate on base incomes of: (i) $100,000 to $150,000 to 7.5 percent; (ii) $150,000 to $200,000 to 8.5 percent; (iii) $200,000 to $300,000 to 9.5 percent; (iv) 300,000 to 500,000 to 10.0 percent; (v) $500,000 to $1,000,000 to 10.5 percent; and (vi) $1,000,000 and above to 11.0 percent.  As Figure 7 details:

• Actual income taxes paid would be reduced to zero or below for the 22 percent of lowest-income filers (with $9,000 or less Illinois  “Base Income”

• Effective  tax  rates would be  reduced  on a graduated basis  (the lowest income filers get the highest percentage reductions) for the next 72 percent of filers (with $9,000 to $150,000 in base income annually);and before credits and deductions), many of whom would receive an “Earned Income Tax Credit” (EITC) or property tax credit;

• Only the top 6 percent of filers (with  base  incomes above $150,000) would receive an effective tax rate increase.

In fact, the effective tax rate would increase fairly modestly for those who would pay more under this proposal, going from:

• 4.1 percent to 4.7 percent for filers with $150,000 to $200,000 base incomes;

• 4.1 percent to 5.3 percentfor filers with $200,000 to $300,000 base incomes;

• 3.9 percent to 6.0 percent for filers with $300,000 to $500,000 incomes;

• 3.7 percent to 6.3 percent for filers with $500,000 to $1,000,000 incomes; and

• 2.1 percent to 4.3 percent for millionaire filers.

 The real impact on taxpayers of the proposal outlined in this paper is shown clearly in Figure 8.  Note how the vast majority of taxpayers—94%— realize a reduction in income tax liability as a percentage of base income. On average, taxpayers in Illinois with less than $150,000 in base income annually get an income tax cut. The effective tax rates go down for these households even though their marginal tax rate set by statute either remains the same (5%) as it is under current law, or increases to 7.5% for income over $100,000, because under the graduated rate structure suggested in this study the first $5,000 dollars of income is exempt from the income tax, which is not the case under current law. This works like an increased tax deduction of $5,000 that can be taken by each filer (regardless of dependents and family size).  And the tax relief delivered to low and middle income families would be significant.  Indeed, under the proposal modeled in this study, Illinois taxpayers with the bottom 94 percent of base income collectively would receive an annual tax cut of $1.06 billion.

As explained previously, the combined effect of this policy would be a stimulus to the economy from tax cuts and additional state spending (assuming that the additional revenue is used to fund current public services that would otherwise not be funded) that would create at least 36,000 private sector jobs in communities across Illinois.

Figure 8: Potential Effective Tax Rate Changes in Illinois with Graduated Individual Income Tax Structure Recommended in this Study

Screen shot 2012-02-27 at 6.43.51 PM


Figure 9: Net New Revenue for the General Fund Generated by the Rate

Screen shot 2012-02-28 at 4.51.25 PM


 But even though more than nine out of every 10 taxpayers would realize  a tax cut, the state would nonetheless raise at least $2.4  billion or  15.8  percent more in individual income tax revenue annually than under the current five percent flat rate, as shown in Figure 9.

Note that, the potential revenue increase from the graduated rate structure outlined in this study tops out at $3.363 billion annually.  However, that top amount does not take into account either the potential increase in tax avoidance strategies frequently utilized by more affluent taxpayers in response to increases in income tax rates, nor the number of non-residents filing Illinois income tax returns.  A 30% reduction in potential revenue generated due to increased tax avoidance, non-residency of filers and other factors would result in the net additional annual revenue raised declining from $3.363 billion to $2.354 billion.

Figure 10: Effective Tax Rates by Base Income with Graduated Income Tax
Screen shot 2012-02-27 at 6.48.27 PM

Note, the negative effective tax rate for low-income filers  results from a combination of factors, including the refundability of the Illinois EITC, other deductions/credits, and not taxing any income below $5,000.

And while Illinois would be targeting millionaires for an effective tax rate increase from 2.1 percent of income under current law to 4.3 percent  under the graduated rate structure proposed in this study, there is no reasonable cause for concern that affluent families will pull up stakes and move out.  In fact, according to a meta-analysis of research on this very concern published on August 4, 2011, by the Center on Budget and Policy Priorities, “compelling evidence” shows that “effects of tax increases on migration are at most, small—so small that states that raise income taxes on the most affluent households can be assured of a substantial net gain in revenue.”

That study demonstrated that the key factors in population migration include items such as housing costs, family  considerations,  weather,  employment opportunities and age, not tax increases.

If the goal is to raise adequate and sustainable revenue for funding public services while maintaining low overall effective tax rates, then tax burden should be assessed primarily where income levels are high and expanding most generously over time. Since 1979, the bottom 60 percent of Illinois tax filers have seen their overall incomes decline, with the vast majority of income gains going to the top 10 percent of Illinois tax filers. A graduated individual income tax rate structure would shift tax burden from families struggling to get by to those who are gaining significant growth in real income over time, generate revenue needed to help reduce the structural deficit, and stimulate job growth in the private sector from both the enhanced consumer spending that would result from the tax relief given to low and middle income families and direct expenditures by the state on core public services and infrastructure.  

 For footnotes, endnotes and the appendix, see the .pdf of this report at http://www.ctbaonline.org -- click here (.pdf)

(Original Post)

Richard (RJ) Eskow

Posted: 02/28/2012 12:35 am

GE paid an effective tax rate of 2.3 percent or less over the past ten years. What did the government do for GE while it was paying little -- and often no -- taxes? Let's see:

The government let it off with just a slap on the wrist -- more than once -- after it repeatedly broke the law.

The government bent the rules so that it could receive bank bailout money, although it wasn't a bank, saving it from destruction and giving it billions in profits.

The government rescued it even though it had already blown a reported half-billion dollars on a shady mortgage firm that hired strippers and at least one ex-porn actress to sell its loans, shafting thousands of homeowners and leading many of them into foreclosure.

The government gave it favorable tax treatment for moving thousands of jobs offshore.

And to top it all off, President Obama honored it (and undoubtedly helped its sales) by naming its CEO to be his "Jobs Czar."

You'd think GE would be more than 2.3 percent grateful for all these favors. But apparently our tax code reads "To whom much is given, very little will be required."

To be sure, GE has probably avoided paying its fair share of taxes in a "legal" way -- if the word "legal" can be used to describe a system where corporations pay for the privilege of influencing politicians to bend the law in their favor.

Free Ride

As the Citizens for Tax Justice (CTJ) press release explains, the corporation paid 2.3 percent at most -- and perhaps much less -- over a ten-year period. It's possible that GE paid no taxes at all. GE is one of this country's many poster children for the unpleasant truth: Despite conservative yowling that the corporate tax rate is too high in this country, most of our biggest corporations use their lobbyists and tax lawyers to avoid paying their fair share.

That's especially unjust when the country's struggling through hard times and corporations aren't. But it's never more unjust than when the tax evader is a company like GE, which owes its government so much -- for the juicy government contracts, for the slaps on the wrist (and no prosecutions) for repeated criminal fraud, and for bending the rules so that it could reap billions in giveaways from the same government it so gladly stiffs at tax time.

In fact, GE paid no taxes at all in 2010. Think about it: CEO Jeffrey Immelt and his senior executives mismanaged their company so badly that it would have crashed and burned without the estimated $85 billion in loans it received from the US government. Those loans reaped billions for GE -- and cost the rest of us just as much -- because they were issued at no-interest or low-interest rates.

And how much did they pay for being rescued?

Crime Pays

That's right. Immelt and his team trashed their own corporation. In a genuinely free market they would have been jobless by 2009. Instead, thanks to the government -- you and me -- GE made more than $4.7 billion in 2010 and paid nothing in income tax. In fact, it got tax credits of more than $3 billion, giving it an effective tax rate that year of -64 percent.

Let's have a show of hands: How many readers had a tax rate of minus 64 percent last year?

I thought so. But then, how many readers committed serial fraud, got away with a slap on the wrist and no jail time each time, and were then named to a prestigious White House position?

That's the GE story. As we explained a year ago, Federal investigators had concrete evidence that senior members of GE's accounting division committed stock fraud. They misled investors by booking sales that hadn't yet occurred, and by overstating the company's 2002 revenues by more than half a billion dollars. As the SEC report noted:

    "GE, acting primarily through senior corporate accountants, engaged in knowing or reckless fraudulent activities resulting in numerous materially false and misleading statements or omissions ... The conduct of GE involved fraud, deceit, or deliberate or reckless disregard of regulatory requirements, and resulted in substantial loss, or significant risk of substantial loss, to other persons, within the meaning of Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)]. "

The government knew that stock fraud had been committed. And as the report's phrasing makes clear, they knew which individuals within GE had committed the fraudulent acts. Yet no criminal indictments were handed down. Instead the SEC concluded one of its notorious settlements with GE instead. In this case, it took $50 million to close the case.

As is usually the case with these settlements, GE was allowed to "neither admit nor deny wrongdoing." Robert Khuzami, the official who has overseen so many of these egregious deals, said at the time that "GE bent the accounting rules beyond the breaking point." Let's parse that sentence: When something is "bent ... beyond the breaking point," it breaks. And if GE broke "the accounting rules," then it broke the law.

Khuzami is one of the co-chairs of the mortgage fraud task force, sharing that responsibility with recently-appointed New York State Attorney General Eric Schneiderman.

2010 was also the year that GE paid $23.5 billion to settle bribery charges involving its kickbacks to Iraqi officials in the "oil for food" scandal. Once again its executives were allowed to walk away without prosecutions while shareholders picked up the tab for their deeds.

And for all of these gifts from the government -- for being rescued and walking away with a slap on the wrist -- GE paid no taxes at all in 2010. Zero. Zip. Nada. Bupkis.

Guilty Party Favors

Who is responsible when a corporation commits this kind of fraud? Accountants are both legally and professionally responsible for issuing accurate financial statements. A corporation's CEO and CFO are required by law to sign a statement each year affirming that they've reviewed the company's internal financial controls and put safeguards in place to prevent fraud and error. Any investigation would have to include a close look at the people who fill both those functions.

So who paid the $50 million for stock fraud? Was it the senior accountants who deceived investors? The executives who through negligence or criminality allowed the fraud to take place? Neither: It was paid by the same shareholders who were defrauded in the first place. Those stockholders didn't bribe any Iraqi officials, either, but they paid the $23.5 billion settlement just the same.

But then, criminal indictments could have proven embarrassing all around, especially since GE Chief Executive Officer Jeffrey Immelt was named head of the President's Economic Advisory Council, which was renamed the "Jobs Council." That was ironic, given the tens of thousands of jobs GE has shipped overseas. The irony was compounded by the fact that Immelt replaced Paul Volcker, the highly respected economist whose recommendations for preventing additional bank catastrophes have been diluted and blocked by Immelt and his political allies.

Repeat Offender

GE isn't just a corporate criminal. It's a serial corporate criminal. In 2010 it settled thosr Iraqi bribery charges. In 2004 it settled with the SEC after misleading investors about the size and nature of ex-CEO Jack Welch's retirement package.

Media watchdog FAIR compiled a list of GE's pre-2000 criminal offenses, and it's impressive: a $30 million fine after overcharging the Army for battlefield systems in 1990, a guilty plea on charges of fraud, money laundering and corrupt business practices while selling jet engines to Israel, and a 1994 report from the Project on Government Oversight which "found that GE had 16 instances of fraudulent activity against the government since 1990 --the most of any company listed." (emphasis ours)

Who says crime doesn't pay? After its criminal behavior in the nineties, GE won more lucrative Defense Department contracts and was given the government nod to become a dominant player in the media landscape. We all believe in rehabilitating the serial criminal, but that may have taken the idea a little too far.

Strippers and Porn stars

Immelt didn't become more cost-conscious after the Welch incident. As we found out when interviewing journalist Michael Hudson for The Breakdown "Conversations" series, Immelt enthusiastically purchased a mortgage firm with a checkered record for fraudulent behavior, promoted its thirty-year-old leader, and then presided over the company as that firm promptly crashed and burned -- taking billions of dollars and thousands of families' futures.

Immelt paid a reported half-billion dollars of his shareholders' money for this disaster-in-waiting. How classy was the operation that had him waxing enthusiastic at a national corporate meeting? In the words of journalist Hudson:

"What GE got in the bargain, former WMC employees say, was a place where erstwhile shoe salesmen, ex-strippers and even a former porn actress could sign on as sales reps and make big money pushing home loans."

This is the CEO that President Obama appointed to head his "Jobs Council."

Job (Killing) Czar

That's not just a prestigious, high-visibility nod to Jeffrey Immelt. It's also great for GE's business. It tells all of GE's potential business partners -- here at home and, far more importantly, overseas -- that the company's wired at the highest levels. It also tells them that GE executives are even more untouchable than other Wall Street types.

That kind of protection can be seen as quite valuable in some circles.

Unsurprisingly, one of that Council's few concrete "recommendations" has been to create more corporate tax breaks. But the best way that Jeffrey Immelt's GE could create US jobs is by paying its taxes. If it had paid its taxes at a modest 29 percent rate, that would have raised an additional $21.7 billion in tax revenues.

At an average cost of $50,000 per employee for salary and benefits, the $21.7 billion in taxes that GE didn't pay could have employed more than four hundred thousand people for a year to rebuild our bridges, roads, and schools. That would have stimulated growth and helped the economy get moving again.

How do you "cut" these corporate taxes? Just give them all our money?

If the President seemed dangerously out of touch or misguided in appointed Immelt to head his Jobs Council, the "corporate tax reform" plan he released last week only compounded that impression. It's a vague proposal that only reinforces the absurd notion that US corporations are overtaxed. (If that were the case they wouldn't be hoarding cash that amounts to somewhere between half a trillion and three trillion dollars, depending on whose estimate is used.)

As the CTJ noted, this "proposal" would not raise revenues. And as Robert Borosage noted, once the lobbyists and lawyers get through with it the proposal would no doubt lower these taxes even further.

Pay Now or Pay Later

To make matters worse, the President announced his corporate tax plan at Boeing -- a corporation that has paid no taxes over the last ten years despite reaping $32 billions in profits -- much of which was earned from government contracts. At a 29 percent corporate tax rate, that's $9.2 billion in lost revenue which could have created 185,000 of those jobs rebuilding our schools, bridges, and highways.

When it comes to the quality of his potential opponents, the President has been blessed with good fortune. But all it takes to change that is one of many potential economic calamities waiting to happen this year. And even without a disaster, he'll need to motivate his base and win swing voters. He'll have to take more concrete action against corporate greed to convince the electorate he's ready to take on the big corporations.

I mean seriously: 2.3 percent? Most of us call that a steal -- most of us, that is, except Mitt Romney. He thinks of it as "a rough year." But that needs to change too.

(Original Post)

By Patrick Temple-West and Scott Malone

WASHINGTON | Mon Feb 27, 2012 7:01pm EST

Feb 27 (Reuters) - General Electric Co's effective tax rate for 2011 was about 11 percent, well below the top 35 percent U.S. corporate tax rate, according to a report released on Monday by a tax group.

GE, the largest U.S. conglomerate, reported about $1.03 billion in taxes on $9.16 billion in pretax profits last year, according to the Citizens for Tax Justice report.

"That's their current tax declared to shareholders. And their actual payments to the IRS were almost certainly less," said Bob McIntyre, president of the tax advocacy group.

GE called the report "biased and inaccurate."

"GE's 2011 tax rate in the U.S. was 25 percent. GE's global rate was 29 percent in 2011, up from 7 percent in 2010," said GE spokeswoman Deirdre Latour, in an e-mail responding to the report. She said GE's higher 2011 rate reflected increased GE Capital earnings and taxes on a deal involving NBC-Universal.

Company tax returns are private, so it is unknown exactly how much money GE paid the government in taxes.

The discrepancy between the company's and the think tank's figures could stem, in part, from differing ways to estimate effective tax rates.

The center said GE likely cuts its tax rate by using a legal deduction letting companies defer taxes on foreign profits.

Last year, GE came under fire for its low 2010 tax rate, which it said resulted from the recession's heavy toll on GE Capital. GE Chief Executive Jeff Immelt - a top adviser to President Barack Obama on jobs and the economy - has repeatedly said the nation needs to reform its corporate tax code.

Citizens for Tax Justice produced a report in the 1980s that helped lead to Republican President Ronald Reagan's landmark 1986 tax reforms. Since then, the tax code has become riddled with exemptions, deferral and other special breaks.

(Original Post)

February 27, 2012, 7:09 PM

By John D. McKinnon

In a dispute that underscores the difficulty of overhauling corporate taxes, Citizens for Tax Justice said General Electric Co., which has been criticized for paying little or no federal income tax in 2010, paid a 11.3% effective tax rate last year while the company said its U.S. tax rate was a far higher 25%.

GE became the top example for critics of the U.S. corporate tax system who argue that various deductions and offshore maneuvers allow American multinational firms to avoid their fair share of taxes. In response, big-business groups said the level of legal tax avoidance is often exaggerated, and in any case only partly offsets the advantage that foreign-owned firms enjoy, thanks to more lenient tax rules in other countries. Most countries – unlike the U.S. – allow their domestic-based multinational firms to escape tax altogether on their overseas earnings.

Any overhaul of corporate taxes is likely to include easing U.S. rules on foreign income and lowering the U.S. corporate tax rate, even as some deductions and other breaks are narrowed.

In a release on Monday after GE released its annual report, Citizens for Tax Justice said it calculated that GE’s effective federal income was 11.3% in 2011, undermining the company’s claim that its tax payments would return to normal after the recovery of its GE Capital unit, which suffered big losses during and after the downturn. “I don’t think most Americans would consider 11.3%…to be `normal,’” said Bob McIntyre, director of the liberal tax advocacy group.  The top U.S. corporate tax rate is 35%, among the world’s highest.

GE said its 2011 tax rate in the U.S. was 25% and its global rate was 29%, up from 7% the year before.

(Original Post)

Posted by AccountingWEB in Tax, Income Tax on 02/27/2012 - 16:46

By Ken Berry
 
The battle lines are being drawn. Last week, President Obama unveiled the framework for an extensive corporate tax package. It didn't take long for his rivals to poke holes in the plan. In fact, the Republican front-runner for the presidency, Mitt Romney, chose the very same day on the campaign trail to present his own economic program.
 
At the core, the Obama reforms emphasize the need to simplify the tax code, while eliminating the preponderance of loopholes, special deductions, subsidies, allowances, and exceptions.
 
"Our current corporate tax system is outdated, unfair, and inefficient. It provides tax breaks for moving jobs and profits overseas and hits companies that choose to stay in America with one of the highest tax rates in the world. It is unnecessarily complicated and forces America's small businesses to spend countless hours and dollars filing their taxes. It's not right, and it needs to change," said the president in a written statement.
 
The centerpiece of the Obama plan is a deep cut in the top tax rate for corporations, from 35 percent to 28 percent. This proposal addresses a long-standing complaint that the tax rate is too high for U.S. companies to fairly compete in the international marketplace. Among other developed countries, only Japan has a higher corporate tax rate.
 
But it's questionable if large U.S. companies are actually paying their fair share slice of the income tax pie. According to two nonprofit groups, the Citizens for Tax Justice and the Institute on Taxation and Economic Policy, a quarter of the 280 biggest and most profitable U.S. companies paid less than 10 percent in taxes over the three years spanning 2008 through 2010.
 
In addition to the corporate tax cut, the president outlined in broad terms other proposed changes, including the creation of a new minimum tax on earnings abroad to encourage business investment at home, the end of certain tax preferences and other loopholes for the oil and gas industries and multinational corporations, and the imposition of a 25 percent effective cap on the tax rate for domestic manufacturers. He wants to stack up the "winners" against "losers" in the corporate tax package so the outcome is revenue-neutral.
 
Although specific details aren't available yet, it's been estimated by the Obama administration that the tax benefits for businesses would add approximately $250 billion to the federal budget over the next decade, but they would be offset by $250 billion in new revenue. By implementing this plan, argues the Obama camp, corporations will be able to rely on tax provisions remaining in place, allowing them to do long-range planning.
 
The president didn't offer any more insights into a potential extension of Bush-era tax cuts for individual taxpayers. Currently, those tax breaks, which include a maximum 15 percent tax rate for long-term capital gains and qualified dividends, are set to expire after 2012.
 
In recent speeches, candidate Romney has proposed an across-the-board reduction of 20 percent in the marginal tax rates for individuals, the elimination of taxes on capital gains and dividends for families making less than $200,000, an even steeper reduction in the corporate tax rate from 35 percent to 25 percent, and a gradual increase in eligibility requirements for Medicare and Social Security for wealthy Americans.
 
The political climate being what it is right now, it's extremely doubtful that any significant tax reform will be enacted before November. After the election results are in, you can expect the candidate-elect's tax proposals to be put back on the table.

(Original Post)

Alexander Eichler

Posted: 02/27/12 07:26 PM ET  |  Updated: 02/27/12 11:44 PM ET

General Electric again finds itself the focus of a politically-charged battle over corporate taxes.

A new analysis of the mega-corporation's tax filings shows that 2.3 percent of GE's pre-tax profits have gone to the federal government since 2002. That bears repeating: GE has paid an average tax rate of just 2.3 percent over the past decade, according to an analysis by the non-profit advocacy group Center for Tax Justice.

If you'll think back to your high school math classes, you'll recall that 2.3 percent is less than 35 percent. That means GE is paying well below the top marginal corporate tax rate of 35 percent -- the same tax rate that business leaders, politicians and conservative commentators have repeatedly deplored as high enough to impede economic growth.

The analysis adds ups GE's profit in the years since 2002, which come to more than $81 billion, and sets it against the company's tax history over the same period.

In some years, GE paid taxes. In other years, not so much. For 2002, 2008, 2009 and 2010, according to the report, GE didn't pay a cent in federal income taxes, and indeed got substantial tax refunds back from the government. GE paid taxes at a rate of 11.3 percent in 2011. Never since 2002 did GE pay taxes at the official 35 percent rate.

GE strongly disputed the study's findings. In an email to The Huffington Post, Andrew Williams, a company spokesman, said Citizens for Tax Justice is "an interest group with a clear agenda and the reports they file are biased and inaccurate." GE actually paid a 25 percent tax rate in 2011 in the U.S. and a "global rate" of 29 percent -- up from 7 percent in 2010, according to Williams.

"The rate is below 35 percent because of lower tax rates on foreign earnings, and tax credits and deductions for investments that support U.S. economic growth and jobs," Williams said.

Robert McIntyre, director of Citizens for Tax Justice, told HuffPost that GE's figures for 2011 -- the 25 percent U.S. tax rate and 29 percent global rate -- don't reflect what the company actually paid that year. Rather, McIntyre said those figures include deferred taxes that GE can continue to kick down the road indefinitely.

"They want to count taxes that they didn't pay," said McIntyre. "I don't blame them."

McIntyre said that "everything we have in the report comes from General Electric's annual reports," which he said were "filed with the SEC every year under oath."

This isn't the first time General Electric has faced public scrutiny for its tax practices -- and it's not the first time GE has pushed back. A widely-read New York Times story last year, which asserted that GE paid no taxes in 2010, provoked a lengthy response from the company.

General Electric is not the only firm reaping enormous profits while paying far less than 35 percent to the government. Twenty-nine other major corporations joined GE in paying no taxes between 2008 and 2010, among them Wells Fargo, Verizon, Boeing and DuPont, according to a separate Citizens for Tax Justice report. They were part of a larger group of 280 corporations that, due to a variety of legal loopholes, reportedly paid an average tax rate of just 18.5 percent during that time, the report said.

There are any number of accounting tricks available to a company looking to minimize its tax burden.

A company can take advantage of government subsidies. It can claim deductions on the stock option packages it gives to employees. And it can employ a tax exemption that puts income from its overseas lending activities beyond the reach of the U.S. government -- a trick that GE uses, and has, in the past, deployed lobbyists to defend.

Even though paying taxes at a rate of 35 percent is now more of an exception than rule, some politicians on both sides of the aisle continue to call a reduction. Last week, in the face of mounting pressure to cut federal spending, President Barack Obama proposed cutting the corporate tax rate to 28 percent, in exchange for eliminating a number of major tax breaks.

(Original Post)

By Travis Waldron on Feb 27, 2012 at 4:20 pm

The Obama administration unveiled its corporate tax reform plan last week, which would lower the top rate from 35 percent to 28 percent, billing it as an effort to help make the American corporate tax code more competitive. Republicans have long crowed for corporate tax reform, saying America’s high marginal rate stifles competition, but they have blocked efforts (including Obama’s) to close many of the loopholes and schemes corporations use to avoid paying taxes.

General Electric, one of the nation’s largest corporations, found itself at the center of the corporate tax debate last year when the New York Times discovered that it paid nothing in taxes, despite billions of dollars in profits. GE responded to the outcry by promising that its 2011 rate was “slated to return to more normal levels” because of the recovery of GE Capital, its financial arm. But according to an analysis from Citizens for Tax Justice, the company’s 2011 effective tax rate was just 11.3 percent. Even worse, over a 10-year period from 2002-2011, the company paid $1.9 billion in taxes on $81.2 billion in profits, giving it an effective tax rate of just 2.3 percent for the decade:

    – From 2006 to 2011, GE’s net federal income taxes have been negative $2.7 billion, despite $39.2 billion in pretax U.S. profits over the six years.

    – Over the past decade, GE’s effective federal income tax rate on its $81.2 billion in pretax U.S. profits has been at most 2.3 percent.

In the 10-year period CTJ examined, GE’s highest tax rate came in 2005, when it paid 27.5 percent, below the top tax rate in Obama’s reform plan. Four times in that stretch, its tax rates was negative, most notably in 2010, when the company received more than $3 billion in tax refunds, giving it an effective rate of negative 64.2 percent (click the image to make it larger):

While GE is one of the worst offenders, it isn’t alone. The U.S. does indeed have one of the world’s highest marginal corporate tax rates, but the effective rate that corporations actually pay is much lower. In 2009, in fact, only Iceland had a lower effective rate, and only two countries collected less in revenue as a percent of GDP. As investor Warren Buffett noted on CNBC this morning, “It is a myth that American corporations are paying 35 percent or anything like it…Corporate taxes are not strangling American competitiveness.”

(Original Post)

By Phil Mattera, Dirt Diggers Digest

A few decades ago, U.S. factory jobs began moving offshore to countries that lured corporations with the prospect of weak or non-existent unions, minimal regulation, lavish tax breaks and other profit-fattening benefits. Workers in those runaway shops enjoyed little in the way of a social safety net, thus making them all the more dependent on whatever dismal employment opportunities foreign firms had to offer. Much of the U.S. manufacturing sector was left for dead.

Now, we are told, U.S. manufacturing is undergoing a resurrection. "Manufacturing is coming back," President Obama told a group of blue-collar workers at a recent public event. "Companies are bringing jobs back." Obama earlier used the State of the Union address to tout the recovery of the U.S. auto industry in the wake of the bailout he championed. One of the bailed-out firms, Chrysler, aired a Super Bowl commercial called "It's Halftime in America" in which Clint Eastwood hailed the country's industrial recovery.

It's true that manufacturing employment has been on the rise after many years on the decline. But is this something calling for unqualified celebration?

Boosters of the industrial resurgence would have us believe it is a reflection of improved U.S. productivity, entrepreneurial zeal or, as Obama put it in the State of the Union, "American ingenuity." In the case of Chrysler, that should be Italian ingenuity, given that the bailout put the company under the control of Fiat.

But it can just as easily be argued that domestic manufacturing is advancing because the United States has taken on more of the characteristics of the countries that hosted those runaway shops. Deunionization, deregulation, corporate tax preferences, excessive business subsidies and a shriveled safety net are more pronounced than ever before in the U.S. economy. If any of the Republican Presidential candidates get in office, those trends will only accelerate.

Even the Obama Administration is on the bandwagon to a certain extent. Its Office of Information and Regulatory Affairs has obstructed a slew of new environmental and workplace safety regulations. Now the President has legitimized years of conservative rhetoric claiming that companies are overtaxed by introducing a corporate tax reform plan that would reduce statutory rates in general and create an even lower rate for manufacturers. The plan has some good intentions -- such as ending special giveaways to Big Oil and other loopholes while encouraging corporations to bring jobs back home -- but it ignores years of evidence from groups such as Citizens for Tax Justice showing that big business will exploit any softening of the tax code to bring its actual payments down to the absolute lowest levels.

The perils of joining the manufacturing revival chorus can be seen by looking at heavy equipment producer Caterpillar. The company has been getting a lot of attention lately for expanding its domestic employment through moves such as the planned construction of a $200 million plant in Athens, Georgia that is projected to employ about 1,400.

This needs to be put in some context. According to data in Cat's 10-K filings, the company's workforce outside the United States soared from around 13,000 in the early 1990s to more than 71,000 last year, growing to some 57 percent of the firm’s total employment. The number of foreign workers in 2011 was greater than the company's total head count in 2003.

Cat's love affair with places such as China blossomed as the company was trying to escape its U.S. unions, which it had unsuccessfully tried to destroy. Cat's hard-line approach to collective bargaining soured relations with its workers, resulting in a series of strikes and other confrontations, including a dispute in the 1990s that lasted for more than six years.

It appears that unions have no role in Cat's limited back-to-the-USA plan. The company's new domestic facilities tend to be located in "right to work" states. After recently trying to impose huge pay cuts at a factory in Ontario (photo), Cat first locked out the workers, then shut down the plant and is now reported to be shifting the work to a facility in Muncie, Indiana, the latest state to adopt a "right-to-work" law to hamstring unions.

By locating the Athens plant in a labor-unfriendly state such as Georgia, Cat is expected to be able to pay wages far below those in its unionized plants. It is also worth noting that Cat agreed to build the plant in Georgia only after it received $75 million in tax breaks and other financial assistance, one of the largest subsidy packages the state has ever offered.

The message of all this seems to be that the U.S. can enjoy a renewal of manufacturing if we are only willing to put up with a few minor inconveniences such as union-busting and big tax giveaways to corporations. That's apparently what is really meant by American ingenuity.

(Original Post)

The president proposes to reduce corporate taxes to 28 percent from 35 percent. Will it work?
February 26, 2012|By Kristin Samuelson, Chicago Tribune reporter

President Barack Obama's focus on tax reform took a turn for the corporate last week.

He announced a proposal to lower the U.S. corporate tax rate to 28 percent from 35 percent, eliminate loopholes such as deductions on interest on corporate debt and encourage companies to create more jobs at home than overseas. Tax breaks for corporate research, manufacturing and renewable energy would remain. And a minimal tax on foreign earnings would not extend to companies that operate globally out of necessity, such as hotels.

"The current tax code was written for a different economy in a different era," Treasury Secretary Timothy Geithner said of the proposal.

Geithner has been working on corporate tax reform for more than a year and a half, saying the U.S.' tax rate is "now on pace to become the highest among all developed economies." During the next 10 years, the proposal would raise $250 billion more than the nation's current tax system does, Geithner said.

But some critics say it isn't bold or detailed enough, that it hampers global competition and that it favors certain industries.

Robert Genetski, Saugatuck, Mich.-based president of economics website Classicalprinciples.com and former chief economist for the then Harris Trust & Savings Bank, and Bob McIntyre, director of Washington, D.C.-based Citizens for Tax Justice, weigh in.

Q: What is your initial reaction to Obama's proposal?

Genetski: Any time we lower taxes and reduce tax burdens, it's going to be positive for the economy. And while this is still a positive move to lower it, Obama talked about closing a number of loopholes for oil and gas. While all that sounds good — ideally you want to close every loophole — the problem is the more you tax those companies, the less oil and gas you're going to get. You don't want to do something that's going to discourage production.

McIntyre: It doesn't raise any money, which is kind of the reason we want to do this. America's biggest profitable companies are paying nothing in taxes. It's one of the reasons the government is short of money and running big deficits. We're eventually going to have to deal with deficit problems and look somewhere else: Medicare, Social Security, a long list of things that would be nice to do.

Say you just did what (President Ronald) Reagan did in 1986, raising corporate taxes by more than a third. That's not gigantic, but it's a lot of money. You could save a lot of programs that businesses and Americans depend on, such as improving the roads and educating our kids. It seems like if you care about the economy, you care about the programs people depend upon. This proposal doesn't get you there.

Q: What does it mean for corporations?

Genetski: It will help some and hurt others. The more you start to play with the tax code, that's going to invite the businesses that would be harmed to send their lobbyists to try to persuade the lawmakers they shouldn't be doing this. I don't blame the companies, if the bill can send them out of business.

McIntyre: If something like this were enacted, you'd have a lot of winners and losers. You'd have to because it has to break even. Companies that are paying around 35 percent and don't have loopholes, their taxes would go down. The ones that have a lot of loopholes will see theirs go up.

Q: What about its proposed "revenue neutrality"?

Genetski: It's playing games with the tax code, lowering to look like you're doing something positive, but then more than offsetting it by raising the tax peg in other areas. I do not see any positive impact on the economy by raising some and lowering others.

McIntyre: It's very easy to see that it will add up to be revenue neutral, but revenue neutral stinks. This is one of the rare cases where the public is happy to see revenue go up. Most of them aren't shareholders, and most of them don't think (big corporations are) paying their fair share.

Q: Will this help reduce the budget deficit?

Genetski: Not the proposal. It's basically a tax increase. I don't just look at the rates, but the overall impact. Has the government taken more taxes away from people and companies than what they've given them in terms of relief? In this case, $250 billion over 10 years, I would say the reduction in the tax rate from 35 to 28 percent there is irrelevant. In terms of the magnitude, $25 billion per year is really not significant.

Q: Will this hurt U.S. global competitiveness?

Genetski: It depends. The president has talked about trying to give companies incentives to hire people here and not outsource activities to other countries. I would think his tax bill includes those.

The government is going to design a tax code that makes it more attractive for people to shift more money one way than the other. I don't believe the bureaucrats are very good at doing that. The more we move away from free markets, the more difficult it is for the economy to perform well.

McIntyre: That's a really funny argument. An American company doing business in China doesn't pay any taxes on its U.S. profits, but some day, some way, they might have to. That leaves them at a disadvantage against, say, the French, who don't have to pay those taxes on their profits. That leaves Americans at a slight disadvantage.

In the U.S., we have a very low corporate tax rate, effectively. Many foreign companies move their business and even their headquarters here because it's a lot easier than shipping (products) across the ocean.

Q: Is this proposal too vague?

McIntyre: Ignoring the rate cut, they've got a lot of good ideas in (the proposal). They want to do something about taxing multinational corporations, such as the tech and drug guys that find it so easy to move their profits to the Cayman Islands. That's a good thing, but it's so unspecific, we don't know if it's teeny or more substantial.

The last corporate tax reform was in 1986, and Reagan's proposals were extremely detailed. It's an interesting situation because Reagan's reform bill was supposed to break even, but it increased corporate taxes 34 percent, and the U.S. used that to help individuals. That's Reagan, not known as "a fire-breathing Socialist."

Q: Do you like other politicians' proposals better?

Genetski: The best is Newt Gingrich's. He's saying lower it to 15 percent, no exemptions, no deductions, just lower the rate. That gives companies the incentive to do whatever they can to maximize the profits. They don't have to spend the time to send their lobbyists to Washington. Even more important would be lowering the burden on all companies.

(Original Post)

Josh Dzieza
Feb 25, 2012 4:45 AM EST

From an overseas haven to a TARP gift to Nascar, companies are skirting the IRS. Here’s the most egregious ways corporations have worked the system to shortchange Uncle Sam.

On paper, the U.S. has one of the highest corporate tax rates in the world. But in practice, corporations pay far less. The Government Accountability Office (PDF) estimated the average tax burden at 25.2 percent, and some of the largest corporations, such as General Electric and Wells Fargo, pay no taxes at all. This is possible because the tax code is riddled with exceptions and loopholes, created at the behest of lobbyists and exploited by teams of tax experts, many of whom used to work for the IRS and the Treasury. With the help of Citizens for Tax Justice, The Daily Beast rounded up some of the most egregious corporate tax loopholes.

Deferral of Overseas Income

Multinational companies don’t have to pay U.S. income taxes on overseas profits until they transfer them back home. But in reality, companies just leave their profits in overseas tax havens, deferring taxes indefinitely. Not only that, an accounting scheme known as “transfer pricing” allows companies to move profits from the U.S. to offshore havens so they’re counted as overseas earnings. For example a pharmaceutical company could sell a drug patent to a subsidiary in the Cayman Islands for a nominal fee, then have the subsidiary charge the parent company huge licensing fees. The company can then deduct the licensing fees from its taxable income in the U.S. and send the profits to its foreign subsidiary, where taxes can be indefinitely deferred. Some 83 percent of top 100 publicly traded companies had tax-haven units in 2009, according to the GAO. General Electric, Google, Pfizer, and many other companies use this technique. The federal government loses an estimated (PDF) $100 billion a year through offshore tax abuses.

Deductions for Shipping Jobs Overseas

At first glance it doesn’t seem particularly egregious that corporations can deduct moving expenses, but that changes when the break is applied to companies moving operations overseas. President Obama proposed ending this exemption for companies moving overseas while giving a credit to companies moving back to the U.S.

The Domestic Production Deduction

This deduction was meant to encourage companies to keep manufacturing operations in the U.S. by allowing them to deduct profits from “qualified production activities.” But by the time the law was enacted, those activities had expanded to include not just manufacturing but everything from oil drilling to filmmaking to real estate. (Obama proposed barring oil and gas companies from using the deduction.) The Center on Budget and Policy Priorities estimated that the deduction cost states $500 million in 2011, and the Congressional Budget Office (PDF) estimates it will cost the federal government $163 billion over the next decade.

Last-In, First-Out Accounting

Normally when you buy something for $30 and sell it for $50, you have to pay taxes on a $20 profit. But corporations—especially oil companies—manage their accounts differently. They might buy oil for $30 a barrel, and then buy some more for $45 a barrel later in the year. Then when they sell a barrel of oil for $50, they get to assume that they sold the last barrel they bought, the one that cost $45, allowing them to report a profit of $5 instead of $20. Citizens for Tax Justice estimates that the loophole is worth $97 billion over the next 10 years.

Punitive Damages Deduction

When corporations are hit with punitive damages, they’re able to write them off as an “ordinary and necessary” business expense (PDF). Consequently, Exxon’s $1.1 billion Alaska oil spill settlement actually cost the company $524 million after taxes. Obama’s budget proposes to eliminate the deductibility.

Accelerated Depreciation Deduction

This allows companies to deduct for the depreciation of a piece of equipment at a faster rate than it actually takes the equipment to depreciate. Because interest expenses are also deductible, a company can borrow money to buy equipment, deduct both the interest on the debt and the “accelerated” depreciation of the equipment, and claim deductions greater than the profits generated by the investment. It’s one of the loopholes that allow corporations to pay no taxes during profitable years.

Corporate Jet Deduction

The corporate jet deduction became a hot-button issue during the debt-ceiling debate when President Obama used it as leverage against the Republicans. Under the current law, corporations can claim deductions for the depreciation of their jets at a faster rate than commercial airlines can. Closing the loophole wouldn’t save much money—about $4 billion over 10 years—but as a political symbol, it’s invaluable. (For what it’s worth, yacht owners get an accelerated depreciation deduction plus a few more.)

NASCAR

The 71,000-page tax code is full of accelerated-depreciation loopholes for various industries. Along with corporate jets, NASCAR racetrack owners get a special exemption. They can deduct for the depreciation of their tracks over a seven-year period instead of the 39 years the government estimates (PDF) it actually takes them to depreciate. The break was put in place in 2004 but was renewed in the 2008 financial-system bailout known as TARP. It costs the government $40 million a year.

(Original Post)

By Steve Wamhoff, Legislative Director of Citizens for Tax Justice

February 24, 2012

Unfortunately, the corporate tax reform "framework" released by the Obama administration does not include what should be the main goal of reform—raising revenue to fund public investments and address the budget deficit.

The president's framework calls on Congress to close over a trillion dollars worth of tax loopholes and use the savings to pay for more corporate tax breaks—including a reduction in the statutory corporate tax rate from 35 to 28 percent.

[Read the U.S. News debate: Should Mitt Romney Pay More in Taxes?]

U.S. corporations are not overtaxed. My organization studied most of the Fortune 500 companies that have been profitable in each of the last three years and found that their average effective tax rate during that period was just 18.5 percent.

This means big corporations' effective tax rates (the percentage of profits they actually pay in taxes) are only about half the statutory tax rate of 35 percent that corporations complain about. Thirty corporations had net negative taxes (meaning they received money back from the Treasury) over the three-year period.

One such corporation is Boeing. Last week President Obama told a crowd at a Boeing plant that revenue saved from closing tax loopholes "should go towards lowering taxes for companies like Boeing that choose to stay and hire here in the United States of America." But Boeing paid federal income taxes in only two of the past 10 years. Its total taxes over that period were less than zero—despite its $32 billion in U.S. profits!

[GOP Candidates Could All Add to Federal Debt.]

One cause of corporate tax avoidance is the rule allowing U.S. corporations to indefinitely "defer" U.S. taxes on their offshore profits. This loophole encourages companies to shift jobs offshore and to use accounting gimmicks that shift their U.S. profits, on paper, to tax-free offshore tax havens.

The "minimum tax" on offshore profits proposed in the president's framework may combat these abuses, depending on its rate, which the framework leaves unspecified.

The goal of such a reform is not to tax profits that are really earned abroad. The U.S. corporate tax allows companies a credit for any corporate taxes they pay in other countries, which avoids double taxation. This would not change.

[Five Ways to Spin Obama's Tax Plan.]

The real goal is to prevent U.S. corporations from shifting profits to tax haven countries where they are not taxed. Congress should end "deferral" or enact a minimum tax strong enough to address this problem.

(Original Post)

By Travis Waldron on Feb 24, 2012 at 11:55 am

House Ways and Means Committee Chairman Dave Camp (R-MI)
The broad corporate tax reform plan released by the Obama administration this week included a provision for a minimum tax on corporate profits earned overseas, a rule aimed at preventing corporations from taking advantage of offshore tax havens like Bermuda and the Cayman Islands. The U.S. loses billions of dollars a year in tax revenue because of corporations parking money in low- or no-tax countries.

Closing a loophole that could cost the U.S. $90 billion this year, however, isn’t popular among Republicans like Rep. Dave Camp (R-MI), the chairman of the House Ways and Means Committee. While Obama’s plan represents “a step forward,” it still double-taxes corporations who have to pay taxes both in the U.S. and in the country where foreign profits were earned, Camp claimed. Camp instead wants the U.S. to switch to a “territorial” tax system, in which companies wouldn’t pay any taxes on profits earned overseas, as he told NPR this morning:

    CAMP: They don’t really address the territorial reforms that I think are so essential to make our companies competitive. [...] We tax them here and we tax them there. … This double taxation traps money overseas, and we think there’s about a trillion dollars that could be brought back to the U.S. and invested here — private money — that would really help get our economy going again. That’s a piece they didn’t include. … I hope we can develop into something that will do a better job making sure American companies that make profits overseas can bring those back and invest them in jobs for Americans.

Under current law, companies can defer taxation on profits earned overseas until they return the money to the U.S. Under the territorial system Camp wants, however, companies would never pay U.S. taxes on overseas profits. As Citizens for Tax Justice explained, this would obviously increase the incentive to shift profits overseas and to hide money in tax havens. “We should be able to agree that our tax system should not favor investment and job creation offshore over investment and job creation in the U.S,” CTJ noted. “Our current system does exactly that, and a territorial system could actually increase this bias in the tax code.”

The minimum tax on overseas profits, in contrast, would help shut down the tax havens that shield companies from American taxes and end one of the nation’s biggest tax expenditures. As the Center for American Progress’ Seth Hanlon has noted, corporate tax dodging through tax havens increases the tax burden on individuals and domestic businesses, worsens the country’s fiscal situation, and actually spurs overseas job creation. A minimum tax, in contrast, would combat this abuse without harming American economic competitiveness.

(Original Post)

Published: Friday, Feb. 24, 2012 - 12:00 am | Page 12A

With loopholes as big as locomotives in the federal tax code, many of America's most profitable corporations pay little or nothing in corporate taxes. When companies don't pay their fair share, that means the rest of us have to pay more in taxes or get less in public services – or we increase the national debt.

So President Barack Obama's framework for business tax reform, announced Wednesday, is welcome and long overdue. It should generate discussion in this election year, with Republican presidential candidates offering their own plans. Mitt Romney has offered a general idea, but needs to offer more detail in coming days. Certainly, this country is ripe for a corporate tax overhaul.

The official corporate tax rate in the United States is 35 percent. But the average rate actually paid by U.S. corporations in 2011 was 26 percent. Many companies paid far less. Some paid nothing at all.

The Institute on Taxation and Economic Policy and Citizens for Tax Justice looked at 280 of the most profitable corporations in Fortune's list of America's 500 largest corporations for 2008, 2009 and 2010, and found that companies on average paid only about half of the 35 percent corporate tax rate.

Thirty of the 280 companies actually paid less than nothing over the three-year period – including General Electric, PG&E, DuPont, Verizon Communications, Boeing, Wells Fargo, Mattel, Honeywell International, Corning and more. Some got checks from the U.S. Treasury.

Because of loopholes, companies doing similar activities can pay taxes at dramatically different rates. For example, FedEx paid a three-year rate of 0.9 percent while United Parcel Service paid 24.1 percent.

This takes place in a global environment where corporate tax rates have been declining for more than 25 years, a competitive race to the bottom started by the United States, Ireland and Great Britain in the mid-1980s. Corporate tax rates that averaged close to 50 percent in the developed world in the early 1980s dropped into the 30 percent to 40 percent range by the 1990s.

In the United States, corporate tax rates have flattened at 35 percent, while they have continued to drop in other developed countries.

But there's a giant difference. These other countries have broadened their corporate tax base by ending special provisions – loopholes, shelters, tax preferences, tax expenditures, incentives or tax benefits – to prevent their tax base from being eroded.

We should do the same. That is what Obama is proposing – broadening the base while lowering the rate.

That should stanch the hemorrhaging of corporate tax revenue as a share of our economy. In 2011, U.S. corporate taxes were just 1.2 percent of gross domestic product (GDP), at historic lows since World War II – compared to 4.8 percent of GDP in the 1950s. We're at the bottom of the developed world on this, where the average is 3.5 percent of GDP. We can do better.

Obama has proposed eliminating dozens of tax subsidies and loopholes so that we can lower the 35 percent corporate tax rate in line with our competitors, while improving corporate taxes as a share of our economy – to about 2.5 percent of GDP. That's still below the average of other developed countries, but an improvement.

He would accomplish this by dropping the corporate tax rate to 28 percent, while removing disparities between different types of companies (such as unincorporated pass-through firms that avoid corporate taxes) and different types of industries (such as preferences for oil and gas production). He would require companies that shift profits earned in the United States to overseas tax havens like Bermuda and the Cayman Islands to pay a minimum tax on foreign earnings – no longer rewarding companies that move their profits offshore.

A simpler, fairer corporate tax system that actually collects revenue is better for the economy and for the nation's finances. Obama is on the right track on this.

(Original Post)

By Pat Garofalo on Feb 24, 2012 at 3:35 pm

In what one state Democrat has called “Robin Hood in reverse,” Kansas’ tax committee this week approved a bill that would cut taxes on the wealthiest Kansans to the tune of $1,500, while raising taxes on those residents making less that $25,000 per year. About half a million of the state’s poorest residents will see their taxes hiked under the plan:

    A Kansas House tax committee passed a bill in which anyone making less than $25,000 a year — roughly half a million of the state’s 2.9 million residents — will pay an average of $72 more in taxes, while those making more than $250,000 — about 21,000 people — will see a $1,500 cut, according to Kansas Department of Revenue estimates cited by the Kansas City Star.

    The hike would come from the elimination of tax credits typically benefitting the poor.

This plan was actually amended from an earlier one proposed by Gov. Sam Brownback (R-KS) that would have been even worse for low-income Kansans, raising their taxes by hundreds of dollars while cutting them by more than $16,000 for a millionaire. According to the Institute on Taxation and Economic Policy, Kansas’ tax system is already regressive, with the poorest 20 percent of Kansans paying more than 9 percent of their income in taxes, while the richest 1 percent pay less than 6 percent of their income.

Former Reagan economic adviser and supply-side guru Art Laffer has been consulting with Kansas lawmakers about the state’s tax overhaul. In fact, Laffer has been peddling bogus research in several states in an attempt to get them to make regressive tax cuts. And considering that Laffer openly brags about Reagan raising taxes on low-income Americans, perhaps its not surprising that Kansas’ plan does what it does.

(Original Post)

By Pat Garofalo on Feb 23, 2012 at 6:20 pm

ThinkProgress noted last year that multi-millionaire movie star Tom Cruise manipulated a tax break meant to help struggling farmers in order to pay just $400 of property taxes on his $18 million Colorado estate. Cruise was able to pay so little because he allowed some sheep to graze on the estate, thus qualifying the land as agricultural and making it eligible for a big tax break.

According to the Miami Herald, Sen. Bill Nelson (D-FL) has done much the same thing, letting cows graze on a plot of land that he owns, which dramatically lowered his tax bill:

    Thanks to a half-dozen cows that graze Nelson’s 55 acres on the Indian River, he saved $43,000 in property taxes last year…The land has a full market value of $2.7 million, but the county tax collector uses the agricultural value of $210,000. That reduced Nelson’s tax bill in 2011 to $3,696. [...]

    Nelson’s property may never have draw attention but over the years he has put some of it up for sale, netting at least $1.4 million. Three of the five lots were not classified as agriculture, according to records he provided to the Times. Two others were agriculture, as is a sixth lot he currently has for sale at about $540,000. On those, he has gotten the benefit of low taxes before selling at market value.

“I pay all the taxes owed on the pasture land,” Nelson said, defending the tax break. “This pasture has been in my family since 1924 and it’s been a cow pasture since 1950.” But this doesn’t change the fact that the state lost much needed revenue on tax breaks that were meant to aid family farmers, but instead went to land that is decidedly not a farm.

As Citizens for Tax Justice pointed out, there’s an easy fix for this problem, as states could just “replace current agricultural land valuation systems with an agricultural circuit breaker that makes property tax relief available only to real family farms.” “This would not only ensure that Senators and movie stars do not abuse the system, it would also better target those farmers most in need of property tax relief — the farmers for whom the tax loopholes were presumably written in the first place,” CTJ noted.

(Original Post)

Dan Froomkin

Senior Washington Correspondent, Huffington Post

Posted: 02/23/12 03:18 PM ET  |  Updated: 02/23/12 03:30 PM ET

WASHINGTON -- Every one of the dozens of corporate tax loopholes and subsidies that President Barack Obama announced this week he'd like to expunge has something in common: Somebody fought really hard to get it passed into law.

So which industries have done the best job of fighting for loopholes? And which, therefore, would have the most to lose if the slate were wiped clean?

In return for nixing all those loopholes, Obama's plan -- which, it should be noted, was a political statement rather than a viable legislative proposal -- would lower the top corporate tax rate from 35 to 28 percent.

That would translate into a big tax cut for those corporations currently paying an effective rate of more than 28 percent, after all those deductions and credits are factored in. But it would be a big increase for those paying closer to zero -- or less.

According to a recent report from Citizens for Tax Justice and the Institute on Taxation and Economic Policy, effective tax rates vary widely within industry as well as by industry.

But after examining 280 major corporations, the report's authors found that industrial machinery companies (led by notorious tax avoider General Electric) enjoyed the lowest effective tax rate between 2008 and 2010, actually paying a negative rate of minus 13.5 percent of their profits in federal income taxes.

Other industries paying considerably less than half the statutory 35 percent over that period included information technology services (2.5 percent), utilities (3.7 percent), telecommunications (8.2 percent), chemicals (15.2 percent), financial (15.5 percent), and oil, gas and pipelines (15.7 percent).

Only three industries -- electronics and electronic equipment, retail and wholesale trade, and health care -- paid an effective tax rate equal or greater to Obama's proposed statutory level of 28 percent over that full three-year period.

See the following chart:

Source: Citizens for Tax Justice and the Institute on Taxation and Economic Policy report. For the effective tax rates on individual corporations, see the charts starting on page 25.

And while there's not a direct correlation between lobbying expenditures and tax avoidance during that period -- some industries, after all, had even more important things for which to lobby than tax breaks -- there is an undeniable relationship:

(Original Post)

February 23, 2012, 2:05 pm

By DAVID FIRESTONE

Considering how disappointing Mitt Romney’s latest tax plan is, it’s worth noting that parts of it, though vague and mushy, seem better than anything proposed by the other Republican candidates.

He said, for example, that the rich would continue to pay the same share of taxes they do now. Compared to Newt Gingrich and Rick Santorum, who would largely flatten the tax code and give the top 1 percent a huge tax cut, that’s downright progressive.

Of course, thanks to the Bush-era tax cuts, keeping the top bracket at their current share is far too low for either fairness or for tackling the deficit.  And Mr. Romney would keep those tax cuts. He proposes slashing the top rate from 35 percent to 28 percent and said he would make up the lost revenue by limiting deductions – possibly including mortgage interest and charitable donations – for the highest earners. But the Romney plan provides no detail on just how much those deductions would be limited. His advisers could easily have come up with the specifics. That they didn’t raises questions about their commitment to keeping the deductions.

Secondly, Mr. Romney would keep the capital gains tax at 15 percent for those who make $200,000 and above, while Rick Santorum would lower it to 12 percent and Newt Gingrich would eliminate it. But this tax is already far too low, and is the principal reason why Mr. Romney, Warren Buffett and so many others in the top 1 percent pay a lower tax rate than many middle-income Americans.

Surprisingly, considering his background in private equity, he said he would consider taxing at least some “carried interest” at regular income tax rates. Executives at hedge funds and private equity firms collect much of their wealth as carried interest, and have fought passionately against Mr. Obama’s plan to tax it as regular income instead of the low capital gains rate. But again, no details, and no promises.

Mr. Romney claimed the overall tax plan would be revenue-neutral, and would not add to the deficit. That’s pretty much impossible, given that he also plans to eliminate the alternative minimum tax, which brings in about $70 billion a year, along with the estate tax, and lower everyone’s rate by 20 percent. Bob McIntyre of Citizens for Tax Justice estimated to the Washington Post that the plan would raise the deficit by $10 trillion.

The reason Mr. Romney can claim it would be neutral is evident in the final section of his plan, which would demand spending cuts of $500 billion and significant reductions to Social Security and Medicare.

There may be a finer gloss on the Romney tax plan, and a bit more of a feint toward progressivity than the others have put in. But in the end, it’s still a plan that cuts spending on vital government programs because it refuses to raise taxes on the rich.

(Original Post)

As President Obama and GOP contender Mitt Romney offer up different plans to lower corporate taxes, we look at who benefits from the current system. Bob McIntyre, director of Citizens for Tax Justice in Washington, DC, tells Reuters TV how major companies take advantage of tax preferences and loopholes to get their tax bills down to single digits or even zero.

(Original Post)

 

by Jim Zarroli

February 23, 2012

The Obama administration is proposing a cut in the corporate tax rate to 28 percent. It hopes to increase overall revenues by eliminating a long list of popular deductions. Meanwhile, Republicans in Congress have their own ideas about changing the tax code.

(Original Post)


8:30-9:15 REBECCA WILKINS

Citizens for Tax Justice

Federal Tax Policy Senior Counsel

Topic: President Obama's announcement yesterday that he is proposing a cut in the corporate tax rate from the current 35% to 28%, and ending dozens of loopholes and subsidies he said lead companies to move jobs and profits overseas. Manufacturers would receive incentives so that their effective tax rate could be even lower. Many leading congressional Republicans have proposed a 25% corporate tax rate.

C-SPAN Radio's Nancy Calo read news headlines at the end of the program.

(Original Post)

by Nomi Prins Feb 22, 2012 8:00 PM EST

The president’s plan to cut the corporate tax rate sounds good for businesses and plays well on the campaign trail—but it won’t help our economy or create new revenue. Nomi Prins explains why. Plus, check out the corporations that pay the lowest taxes.

The Obama administration's announcement of a generous cut to the corporate statutory tax rate from 35 percent to 28 percent (for manufacturing companies, to 25 percent) is an excellent political ploy. President Obama deftly wrapped a business-friendly tax cut in job-creation lingo, a slick maneuver sure to take some wind out of the GOP candidates’ sails. Which Republican is going to vote against a 20 percent corporate-tax-rate deduction?

Before examining why this doesn’t help our economy or boost its revenues, consider the distinction between two important tax definitions that didn’t make the political fanfare. The statutory corporate tax rate, currently 35 percent, is the one companies are supposed to pay on their profits. The effective tax rate is the one they pay after deductions, offshore maneuvers, and accounting tricks. According to a recent Citizens for Tax Justice report that examined SEC annual reports, the top 280 U.S. companies, on average, paid half of the 35 percent statutory tax rate between 2008 and 2010. A quarter of those firms paid less than 10 percent taxes on their profits.

The statutory rate that U.S. corporations pay may be high compared with international standards, but the effective tax rate they pay is the second lowest among OECD countries. In 2009, the total U.S. corporate taxes collected stood at 1.3 percent of GDP, little more than half the average rate of the other OECD countries’ level of 2.4 percent of GDP. As a share of tax receipts, U.S. corporate taxes ranked 17th among 25 OECD countries, contributing 6.1 percent of revenues, against an average of 8 percent. That contribution was one of the lowest in U.S. history. Cutting the rate, even combined with closing various tax loopholes, will only reduce further what little corporations contribute as a portion of federal revenue.

The blueprint for reducing the statutory corporate tax rate was penned in a tax-reform report released by Obama’s Economic Recovery Advisory Team in August 2010. The president has strategically avoided discussing cuts to the statutory corporate tax rate, which would have annoyed his already disillusioned base. Instead, he has assiduously focused his oratorical talents on the aspects of the plan that close loopholes, provide incentives for clean energy, and bring jobs to America. Until now.

That report, the Republican Party, and current administration rhetoric stress that the high comparative statutory tax rate of the U.S. relative to other countries is anticompetitive—and job-restraining. That logic avoids mention of the effective rate, except to merge the two tax definitions and claim that the “high effective corporate tax rate in the U.S. discourages MNCs [multinational companies] from choosing it as a site for the production of goods and services.”

Obama claims this tax plan will raise $250 billion in 10 years, or $25 billion a year, from loophole closures. While eliminating unfair loopholes is a great bottom-line contributing idea, that figure is optimistic and rather arbitrary. The elements of these loopholes will be dissected and debated in Congress for months, if not years. Plus, it’s impossible to forecast how companies will restructure their books to take advantage of remaining loopholes, for even one year, let alone 10.

    If the goal were bringing revenue to the government, whose debt level is now higher than the GDP, this plan would fail. But that’s not even its intent.

If the goal were bringing revenue to the government, whose debt level is now higher than the GDP, this plan would fail. But that’s not even its intent. The idea is to be “revenue-neutral.” After lobbyists and lawyers are done, this will translate to “revenue-negative.”

The math is already revenue-negative. In 2010, the amount of corporate taxes collected was 8.9 percent of federal revenues, or $187 billion. (The last time corporations paid on par with citizens was in 1943.) All things equal, reducing the statutory tax rate by 20 percent would cost $37 billion per year, or $370 billion over 10 years, 50 percent more than the $250 billion extra loophole revenues that the administration is promising.

But let’s consider the plan to reduce offshore tax dodging for a moment anyway. Of course, eliminating loopholes and fully repatriating the related profits would be a positive step toward increasing U.S. tax revenues. Obama mentioned this in all of his State of the Union addresses and major campaign speeches. So did John McCain in 2008.

But Obama’s strategy to recoup profits back to the U.S. for taxation purposes falls short of its lofty goal. The current offshore tax setup means companies that make money offshore don’t have to pay U.S. taxes on it, until they bring it onshore—which legally could be never. Hence, many U.S. companies set up offshore actual or on-paper entities to take advantage of making, or simply booking, profits there.

The plan would have companies that create “intangible” assets offshore be unable to keep related “excess profits” offshore or in “low tax countries.” But this opens tax plays up to vast interpretation (“What is excess?”), rendering the idea fairly impotent for revenue collection. Additionally, the proposed notion of levying a minimum tax on all profits is not the same as requiring all U.S. companies to repatriate all foreign profits back to the U.S. A bit of accounting magic, and companies can get around a minimum tax easily—because to a big multinational company, not paying any taxes is far preferable to paying just a little. The only way to get offshore money back is to eliminate the profit-deferral option completely. That’s not on the table.

Obama also would provide plant and equipment investment deductions, as well as tax incentives for building and hiring in communities that need jobs most, and for clean-energy projects. Yet a company isn’t going to relocate unless the cost of doing so makes sense, rebate or not, so the incentive idea, though job-friendly on the surface, in practice is like saying banks will spontaneously decide to refinance underwater mortgages.

And what of the 25 percent statutory tax rate bone thrown to manufacturing companies? It would only make a difference if they were already paying more than a 25 percent tax rate. Many aren’t.

Last week, Obama visited a Boeing plant to hype the lower tax-rate idea and applaud its job-creation acumen. Last year, Boeing was awarded a $35 billion government contract. (If anything, this shows that federal funds finance job creation.) Yet Boeing has paid zero federal income taxes in the past decade, despite bringing in $32 billion of pretax profits. Boeing even received a $2 billion tax rebate during those years. Then there’s GE, which bagged a $4.7 billion tax rebate between 2008 and 2010 on $10.5 billion of pretax profits. GE paid no federal taxes during the past three years. The list goes on.

According to a public campaign report, 30 of the top U.S. companies paid more in lobbying money (a positive number) than in taxes (a negative number, which means they got a rebate). The list included GE, PG&E, Verizon, Wells Fargo, American Electric Power, Center Point Energy, Duke Energy, Boeing, and Consolidated Edison. Some of these are the same energy companies Obama wants to offer clean-energy incentives. Sure, they’ll take them; sure, clean energy is a good idea. But they’ll also keep their negative effective tax rate—meaning negative revenue.

The bottom line is that we don’t need a revenue-neutral corporate tax plan; citizens are bearing the brunt of our tax receipts as it is. We need one that’s “revenue-positive.” Such a plan would entail both closing loopholes and keeping the statutory tax rate where it is—but that’s not the kind of policy that brings in the big campaign bucks.

(Original Post)

By PAUL THARP

Last Updated: 9:36 AM, February 23, 2012

Posted: 11:59 PM, February 22, 2012

President Obama yesterday unveiled a corporate tax overhaul that promises to cut the top tax bracket from 35 percent to 28 percent — but which will saddle companies with an added $250 billion in tax levies over the next 10 years by closing loopholes.

The plan, which is viewed as an election-year gambit and is expected to die a quick death on Capitol Hill, is seen by critics as just another effort by Washington to choose business-world favorites.

“Government shouldn’t use the tax code to pick winners and losers,” said Katherine Lugar, vice president of the Retail Industry Leaders Association.

“Unfortunately, the president’s proposal preserves special preferences that give some industries advantages at the expense of others,” Lugar said.

Obama would eliminate loopholes such as: oil and gas subsidies; tax breaks for corporate aircraft; and so-called “carried interest,” which allows private-equity firms to pay a much lower tax rate of 15 percent compared to 35 percent for companies.

Oil and gas companies are among the sectors that stand to lose the most as tax perks associated with exploration and leases, which amount to hundreds of millions annually, are tossed aside.

“It’s politically correct now to beat up oil and gas companies and take away their incentives and tax benefits, but who’s going to pay for [exploration]?” said Dr. Nathan Oestreich, an accounting professor at San Diego State University. “The price at the gas pumps will go up if we take away the tax benefit from the oil companies.”

Among other sectors seen as losers in the overhaul:

* Companies that operate internationally, like Boeing, which currently pay no taxes on overseas profits but would pay an unspecified minimum tax under the Obama plan. This can put companies like Boeing at a disadvantage when competing against overseas rivals.

* Firms like Wells Fargo and GE, which Citizens for Tax Justice found paid a low rate or no tax over several years, would lose their loopholes.

Winners under the overhaul could include:

* Retailers like Walmart, with little access to loopholes or storing foreign profits overseas, now pay close to the top 35 percent rate and will see their tax bill fall.

* Manufacturers from General Motors to Harley-Davidson would get new rules to capture added incentive for factories, essentially giving them an even lower tax rate of 25 percent.

Analysts said the proposal has few clearly defined numbers at this early stage and is unlikely to be enacted as written.

It also fails to provide much streamlining to help untangle tax codes. Indeed, the proposal would add more red tape for many businesses.

Small businesses, such as a restaurant or real-estate partnership, would also face more tax paperwork, since the overhaul strips out rules that permit them to pass taxes through a venture directly to individual owners. The overhaul would tax the small outfits directly.

“We can’t support corporate tax reform on the backs of the small businesses that represent the majority of job creators in this country,” said Steve Caldeira, head of the 850,000-member International Franchise Association.

(Original Post)

By JIM KUHNHENN, Associated Press – 4 minutes ago

WASHINGTON (AP) — President Barack Obama rolled out a corporate tax overhaul plan Wednesday that lowers rates but also eliminates loopholes and subsidies cherished by the business world. A long-shot for action in an election year, the plan nevertheless stamps Obama's imprint on one of the most high-profile issues of the presidential campaign.

The president's plan to lower the corporate tax rate to 28 percent came on the same day Republican presidential contender Mitt Romney called for a 20 percent across-the-board cut in personal income tax rates, underscoring the potency of taxes as a political issue, especially during a modest economic recovery.

Obama has not laid out a plan for overhauling personal income taxes. But he has called for Bush era tax cuts to end on individuals making more than $200,000, thus increasing their taxes, and for a 30 percent minimum tax on taxpayers who make $1 million or more.

Obama decried the current corporate tax system as outdated, unfair and inefficient. "It's not right and it needs to change," he said in a statement.

The president would reduce the current 35 percent corporate tax, which is the highest in the world after Japan but which many corporations avoid by taking advantage of deductions, credits and exemptions. Under his plan, manufacturers would receive incentives so that they would pay an even lower effective tax rate of 25 percent.

His plan would eliminate corporate tax benefits like oil and gas industry subsidies and special breaks for the purchase of private jets — two provisions that Obama has long targeted — and do away with certain corporate tax shelters.

In addition, Obama also would impose a minimum tax on foreign earnings, a move opposed by multinational corporations and perhaps the most contentious provision in the president's plan.

"It's a framework that lowers the corporate tax rate and broadens the tax base in order to increase competitiveness for companies across the nation," Obama said.

Romney has also called for a 25 percent corporate tax rate, in line with what some congressional Republicans want. Campaigning in Arizona, the former Massachusetts governor said that if elected president he would propose lowering the top personal income tax rate to 28 percent from the current 35.

In Congress, Republican reaction was mixed. House Ways and Means Committee Chairman Dave Camp, R-Mich., said he appreciated the administration's plan, though it set a corporate tax rate that is higher than the 25 percent he has proposed. He faulted Obama, however, for not offering a wholesale overhaul of the tax system for businesses and individuals.

"While this is a good step by the administration, I will borrow from the president's own words to Congress from just yesterday: 'Don't stop here. Keep going,'" Camp said in a statement. But Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, dismissed the president's plan as a "set of bullet points designed more for the campaign trail than an actual blueprint for fixing our tax code."

The issue of taxation has been a recurrent theme throughout Obama's presidency. He has reduced some taxes for small businesses and has pressed Congress to temporarily cut payroll taxes on American workers to help prime the weak economy.

But he has also called for reducing the nation's long-term deficits with a mix of tax increases and spending cuts. Republicans have flatly rejected tax increases. And Romney on Wednesday criticized Obama's proposal for corporations, saying they would result in higher taxes.

Under the framework proposed by the administration, the rate cuts, closed loopholes and the minimum tax on overseas earning would result in no increase to the deficit.

That means that many businesses that slip through loopholes or enjoy subsidies and pay an effective tax rate that is substantially less than the 35 percent corporate tax could end up paying more under Obama's plan. Others, however, would pay less while some would simply benefit from a more simplified system.

Obama's plan would result in about $250 billion in additional revenue over the next 10 years. But that money would be used to pay business tax credits that are currently temporary and that Obama would make permanent, administration officials said.

Corporate income taxes have been shrinking as a share of overall federal taxes for decades. In 2010, corporate income taxes made up just 12 percent of all federal tax receipts, down from 24 percent in 1960, according to the IRS.

Reducing the corporate tax rate to 28 percent would reduce tax revenues by about $700 billion over the next decade, according to an estimate prepared in October by the Joint Committee on Taxation, the official scorekeeper for Congress.

That means lawmakers would have to find about $70 billion a year in tax increases to keep the package from adding to the budget deficit, hardly an easy task.

Treasury Secretary Timothy Geithner, who presented Obama's plan, acknowledged that the debate "will be politically contentious."

"Some will say these proposals are too tough on business, and others will say that they're not tough enough," he said.

Indeed, several liberal-leaning groups criticized Obama's plan for being "revenue neutral" and not generating more tax money to pay for government programs. "We can and should collect more tax revenue from corporations," said Bob McIntyre, the director of Citizens for Tax Justice.

But the business groups objected to Obama's plan to impose a minimum tax on foreign earnings, insisting instead that the administration embrace a "territorial" system of taxation.

The United States taxes U.S.-based multinational corporations on foreign profits, once that money is returned to the United States. In a territorial system, the U.S. would only tax profits made in the U.S. By taxing the foreign profits of U.S.-based multinationals, the U.S. has a worldwide system of taxation.

Those foreign profits are not taxed unless they are brought to the United States. And, in many cases, they are simply reinvested overseas, so they are never subjected to U.S. taxes. Administration officials said that under Obama's plan, multinational corporations would continue to receive a tax credit for any taxes they pay overseas.

"America is the only major country that disadvantages its own firms competing globally," U.S. Chamber of Commerce President and CEO Thomas Donohue said.

Associated Press writers Martin Crutsinger and Stephen Ohlemacher contributed to this report.

(Original Post)

No surprise here. Silicon Valley is panning President Obama’s plan to change the corporate tax code. Tech companies loathe Obama’s proposal to tax multinational corporations some undisclosed amount on their overseas earnings. Multinationals are currently not taxed on such earnings unless they “repatriate” the money to the United States, at which point they pay the 35 percent corporate income tax.

Tax reform is very much on Washington’s agenda for next year. There is a wide bipartisan agreement that the whole code, personal income and corporate, needs a real overhaul that gets rid of tax breaks (tax expenditures, which are the equivalent of spending programs targeted at specific groups) and lowers rates. This along with long-term spending cuts mainly in entitlement programs is broadly considered the best prescription for economic growth, ala Simpson/Bowles. Or, surprisingly, Italy.

Tech companies are plumping instead for a tax holiday on repatriated earnings, supported by Sen. Barbara Boxer, D-Calif.

The Obama plan nixes some tax expenditures on fossil fuels, but adds others for manufacturers and clean energy companies, and makes permanent the popular “temporary” tax break on R&D. Obama’s a huge fan of tax expenditures, as are both parties. Citizens for Tax Justice noticed that on Feb. 17, Obama visited Boeing’s factory in Washington state “to tout his proposed new tax breaks for American manufacturers. This is an odd setting to discuss new tax cuts, because over the past 10 years (2002-11), Boeing has paid nothing in net federal income taxes, despite $32 billion in pretax U.S. profits. Citizens for Tax Justice also notes that Obama wants to make permanent 78 percent of the Bush tax cuts.

While Obama would tax overseas earnings, Republicans and multinationals want a so-called “territorial” tax system that does not impose any U.S. tax on overseas profits. They contend this would make U.S. companies more competitive by bringing the U.S. code in line with Europe’s.

TechAmerica’s statement gives the gist of the tech sector’s gripe with Obama’s plan: “By its nature, the tech sector is global and this framework would penalize U.S. companies that also operate overseas. We are the only G-8 country to use a global tax system, which puts our companies at a disadvantage as everyone else moves towards a ‘territorial’ system. We strongly discourage any proposals that would raise taxes on U.S.-based firms that are globally competitive.” The Information Technology and Innovation Foundation blasts Obama’s plan here.

GOP hopeful Mitt Romney today rolled out his own tax reform, promising to slash income tax rates 20 percent, in part by scaling back such popular tax expenditures as the mortgage interest deduction, at least for high-income groups.

Posted By: Carolyn Lochhead Feb 22 at 1:17 pm

(Original Post)

POSTED: February 22, 1:15 PM ET | By Tim Dickinson

The Treasury Department unveiled today President Obama's plan to reduce the corporate tax rate.

In its broadest strokes, the plan would shave seven points off the nominal rate businesses pay, lowering the tax from 35 percent to 28 percent – adding kickers that reduce the rate further for domestic manufacturers to 25 percent.

There is some logic for corporate tax "reform." Nominally, the U.S. has one of the highest corporate tax rates in the developed world. The trouble is that only a very few companies pay anything near the 35 percent rate. The current system effectively punishes, with a very high tax rate, companies whose brick-and-mortar operations can't be offshored, while providing powerful incentives to other businesses to use complicated tax transfers and phony island headquarters to reduce and eliminate their U.S. tax burden (some profitable companies – GE is one – even receive rebates), and book profits offshore, shielded from the IRS until such time as corporations decide to bring them home. (And even that's in doubt: Corporate America now has well over $1 trillion in untaxed profits stashed abroad, and companies from Apple to Pfizer to Exxon have been lobbying hard for a tax holiday that would allow them ship the cash back to the states while paying something laughable like 5 percent in taxes. A discount of 30 points.)

The Obama tax overhaul is intended to be "revenue neutral," meaning the new system will take in as much as the one it's replacing, but no more. This is a timid choice, to put it kindly, given that corporate profits are soaring, the federal government faces staggering deficits, and rampant corporate tax evasion has reduced the effective rate corporations pay on their profits to something less than Mitt Romney's rate of 13 percent.

"The corporate tax reform ‘framework’ released by the Obama administration today fails to raise revenue that could be used to make public investments in America’s economy and America’s future," said Bob McIntyre, who heads Citizens for Tax Justice. "We can and should collect more tax revenue from corporations."

The price tag of reducing the nominal corporate rate is $1.2 trillion over 10 years. Obama plans to pay for package in two ways:

1) By eliminating wasteful subsidies for oil and gas companies among others.

2) By implementing a new minimum tax on the "foreign" earnings of U.S. companies (Again, many of these billions are domestic profits that get offshored through abusive accounting practices.)

In theory, this second step might represent a bold proposal.

Creating a minimum tax on foreign profits would limit the incentives for offshoring both jobs and corporate earnings. But how much is that minimum tax? Here's the very strange part: The administration refuses to say.

In a conference call this morning, Treasury secretary Tim Geithner inartfully dodged the question when asked directly. Rolling Stone, not finding any mention of a specific minimum rate in the president's plan, called Treasury for guidance.

Short answer: Silence. Treasury will provide no information on the proposed minimum tax other than that one has been proposed.

Not a rate. Not a range. Not a targeted revenue figure. Nada.

The devil is in the details, my friends. And right now, Satan's having a field day.

(Original Post)

Zach Carter
Posted: 02/22/12 03:23 PM ET  |  Updated: 02/22/12 03:27 PM ET

WASHINGTON -- President Barack Obama and Mitt Romney have begun a new form of competition: proposing corporate tax cut plans that they claim, wrongly, won't cost the Treasury a dime. Almost immediately after Obama unveiled his plan on Wednesday, one of the nation's leading tax policy experts threw cold water on the administration's claim that its tax overhaul could be implemented "without adding a dime to the deficit." A separate plan released Wednesday by Republican presidential contender Romney, the expert said, would almost certainly expand the deficit.

The Treasury Department on Wednesday laid out a set of principles for rewriting the corporate tax code. The plan would increase the amount of money the government collects from companies by closing loopholes, but would lower the basic corporate tax rate from 35 to 28 percent. It would also require companies that stash money in offshore tax havens to pay a minimum amount in tax every year and provide a special tax break for manufacturing businesses.

While the plan's basic outlines have been advocated by both liberal and conservative tax experts for decades, the prospect of accomplishing those goals without adding to the deficit is far-fetched, said Rebecca Wilkins, senior counsel for federal tax policy at the nonpartisan nonprofit Citizens for Tax Justice.

"We think at best it's revenue-neutral, and that is very disappointing," Wilkins told HuffPost. "Corporations are already paying a really low rate, and lots of corporations aren't paying any taxes at all. There's really an opportunity to broaden the base and raise revenue, and you hate to see them leaving that on the table."

In the past three years, 30 of the nation's largest corporations have paid zero federal income tax. Less than 10 percent of total U.S. tax revenue currently comes from businesses. For much of the 20th century, that number was closer to 30 percent. As a percentage of total American economic output, corporate tax collections are at historical lows.

Overall, the tax cuts proposed by the Treasury Department would cost about $1.2 trillion during the next decade. The Obama administration outlined plans to narrow that deficit by $300 billion by closing certain business tax loopholes, but roughly $900 billion in other offsets was left unspecified.

In early 2011, Obama first proposed a "revenue-neutral" corporate tax overhaul -- meaning the plan would have had no overall effect on the federal budget deficit. But the 2011 plan did not go into the same level of detail that Wednesday's announcement provided. While the latest announcement does not rule out the possibility that the plan would increase total tax revenues from companies, the administration refused to explicitly discuss such an outcome.

"The President is committed to corporate tax reform that does not add a dime to the deficit," the plan states.

Last year when the administration suggested revenue-neutral corporate tax reform, Chuck Marr said, "At a time when cuts to access to college, cuts to scientific research are on the table, it makes no sense to take corporate taxes off the table." Marr is director of federal tax policy at the Center on Budget and Policy Priorities, a liberal-leaning think tank focused on economic issues.

Romney adviser and economist Glenn Hubbard told reporters on a Wednesday conference call that Romney's latest tax proposal is a "revenue-neutral plan on the corporate side," inadvertently emphasizing the degree to which the Obama overhaul conforms to generally conservative tax principles. But like the Obama administration, Romney's team declined to specify exactly which corporate loopholes would be eliminated in order to pay for the proposed corporate cuts.

The Romney tax plan announced Wednesday was broadly identical to a proposal released several months ago, aside from a new 20 percent across-the-board cut in individual tax rates. The Romney campaign insisted that this proposal would maintain the "progressivity" of the existing tax code, meaning that the total share of taxes paid by the wealthy would remain constant or increase relative to the share paid by the poor, even though all groups would receive tax cuts.

"The across-the-board rate cut ... that's significant," said Roberton Williams, senior fellow at the nonpartisan Tax Policy Center. "That's going to cost a lot of money, and just waving the hand about how to pay for it really makes it hard to know what the effects will be."

While Hubbard insisted that the individual tax plan was also "revenue-neutral," the press release announcing the plan suggests that it would need help from spending cuts and overall economic growth to avoid increasing the deficit. "Stronger economic growth and reductions in spending will help to ensure that these tax cuts do not expand deficits," the release reads.

Moreover, the Romney plan's shift to a so-called territorial international corporate tax system would in fact create an incentive for U.S. corporations to funnel money through offshore accounts to avoid paying taxes. Under the existing U.S. system, companies that stash money in the Cayman Islands do not pay taxes on it until it is brought back to the United States. Under a territorial system, companies never have to pay taxes on those profits, whether they bring them back to the U.S. or not.

"It's just a permanent exemption from tax," said Wilkins.

The Obama administration suggested its proposed global minimum corporate tax rate could prevent companies from skirting their tax bills by pushing money into offshore tax havens. But some small-business advocates are concerned that an excessively low global minimum would have the opposite effect.

"President Obama's outline draws attention to some very important themes, including closing corporate tax loopholes and curtailing the abuse of offshore tax havens, but the devil is in the details," said Scott Klinger, tax policy director of Business for Shared Prosperity, a nonpartisan small-business advocacy group. "Until the president proposes a rate for his global minimum tax, we remain concerned that this positive idea could be turned into a permanent repatriation tax holiday for tax-avoiding corporations."

(Original Post)

February 22, 2012

By Kerri Shannon, Associate Editor, Money Morning
The Treasury Department today unveiled U.S. President Barack Obama's corporate tax rate plan, in an effort to get ahead of Republican candidates who will be promoting their plans this week.

President Obama wants to lower the corporate tax rate from 35% to 28%. He wants an even lower rate for U.S. manufacturers to encourage corporations to produce at home.

Although the move could benefit U.S. corporations down the road, right now it's much more a political tactic than a realistic policy change.

"This is a very cynical move," Greg Valliere, chief political strategist at the Potomac Research Group, told Bloomberg Television. "It comes one day before a Mitt Romney speech in Detroit in which Romney will outline his tax proposal. So in effect the White House is saying, "Hey, we're in favor of tax reform,' even though they know there's virtually no chance of getting anything done this year."

This year will likely mark the start of serious corporate tax rate discussions, but with an election in the fall and bipartisanship in Washington, don't expect a tax rate change in 2012.

"This is such a bitterly gridlocked and divided Congress that something this enormous I think has no chance of making it before 2013," said Valliere.

President Obama's Corporate Tax Rate Plan Ends Perks
Even though the U.S. corporate tax rate is the highest in the world after Japan's, through strategies like exemptions and deductions some corporations pay much less - and President Obama's plan aims to end those perks.

For example, a study by nonpartisan tax analysts found that 115 of the U.S. corporations in the Standard and Poor's 500 Index paid a total corporate tax rate of less than 20% over a five-year period, according to The New York Times. Another study by the Government Accountability Office in 2008 found 55% of U.S. companies paid no federal income taxes in at least one year of the seven-year period studied.

Some U.S. corporations also have been benefiting from moving production and profit overseas. President Obama wants to encourage U.S. manufacturing as well as be able to collect more money from richer corporations that are hiding profits overseas.

In addition to the lowered corporate tax rate, President Obama's proposal imposes a tax on corporations' foreign earnings and eliminates current loopholes and subsidies many businesses enjoy. Corporations supporting clean energy would get an additional tax rate benefit.

"The current tax code was written for a different economy, a different era," said U.S. Treasury Secretary Timothy Geithner, who plans to meet next week with members of Congress to try to win support for the plan. "This process will take some time. It will be politically contentious, some will say these proposals are too tough on business, others will say they are not tough enough."

The plan will help U.S. businesses that can't benefit from the loopholes and pay close to the 35% rate, like Harley-Davidson Inc. (NYSE: HOG) and UnitedHealth Group Inc. (NYSE: UNH), according to Citizens for Tax Justice.

Companies that will likely pay more include large multinationals like General Electric Co. (NYSE: GE) and The Boeing Co. (NYSE: BA).

Republicans' Corporate Tax Rate Plans
Republicans in Congress have been pushing for an even lower rate of 25% across the board, with many tax breaks kept in place.

Romney supports a 25% tax rate; former House Speaker Newt Gingrich, R-GA, wants to drop the rate to 12.5%; and former Sen. Rick Santorum, R-PA, supports a rate exemption for domestic manufacturers and halving the top rate for others.

President Obama's plan, unlike the Republicans', would cause no deficit increase because it eliminates the rate-cutting loopholes.

"A big concept here, a big difference between the White House and the Republicans is that the Obama plan would raise revenues," said Valliere. "I think the Republican plans, which would lower the tax even more, would either be revenue neutral, or in all likelihood would lose money."

(Original Post)

Posted by Suzy Khimm, Ezra Klein and Brad Plumer at 03:04 PM ET, 02/22/2012

Earlier Wednesday, the White House released its proposed principles for overhauling the corporate tax code — bringing the rate down to 28 percent, establishing a minimum tax, and expanding credits for R&D and manufacturing. It’s not a plan so much as a framework. But we asked a variety of experts what they think of the idea. Here are their e-mailed responses:

Len Burman, Tax Policy Center:

    I applaud the Administration for taking a first crack at corporate tax reform. It is urgently needed. Our current tax system is a mess. We have the highest rates in the world and raise relatively little revenue. Some industries pay little or no tax while some are taxed quite heavily. The tax distorts the way companies do business and where they choose to do it. The Administration’s proposed “framework” would broaden the corporate tax base and lower the rate, which will reduce the economic costs of the tax. Taxing different kinds of businesses under similar rules will also reduce economic distortions.

    However, I do have some concerns. You’d be hard-pressed to find any economists who are not industry lobbyists who think that the manufacturers’ deduction is a good idea. It should be abolished, not reformed. If there are flaws in the rules governing multinationals, fix them. We don’t need another minimum tax for multinationals. And instead of presenting a “framework,” present a proposal. The Administration should have a fully articulated plan that shows how the pieces fit together and the numbers add up. Clearly something like that exists behind the doors of Treasury. Let’s see it.

Doug Holtz-Eakin, former CBO director and chief economic adviser to John McCain in 2008:

    The “President’s Framework for Business Tax Reform” is not tax reform. First, despite the ballyhoo, it is thin on details and largely restates proposals from his Budget. Second, the endpoint is not tax reform; it’s just another bad tax code.

    Why? Start with the top line: a reduction in the tax rate to 28 percent, well above the 25 percent needed to get the U.S. in the international competitive game. And — here’s a real mystery — the Administration passed up the chance to reduce it further by insisting on raising tax revenues. And an important detail omitted is how to reconcile the corporation reform with the President’s desire to raise taxes on pass-thru entities and small businesses. One cannot do corporation reform in isolation and the President has no individual reform.

    The other glaring misstep is the new minimum tax on foreign earnings of global companies. Is this really new? No. We currently tax the worldwide earnings of global companies (albeit with deferral of some tax until the money is brought back to the U.S.). This has put the U.S. out of step with every major economic competitor. (For a full discussion, see here.) The President’s own fiscal reform commission recommended moving away from this archaic approach. Consistent with his track record of ignoring all things Bowles-Simpson, the President is moving in the wrong direction.

    Finally, the other attention-getter is trading an existing tax break for manufacturing for another tax break for manufacturing (plus a double-bonus inefficiency for high tech manufacturing). I guarantee the reintroduction of the McRib would qualify McDonald’s for a tax break. This is just pandering and bad tax policy. Not reform.

    I was hopeful that the White House had gotten the message that leadership was needed to achieve much-needed reform. This is such a modest proposal that it does not rise to meet the challenge. Of course, the year has just begun and the opportunity for improvement remains.

Brad Badertscher, CFA and assistant professor of accountancy in the University of Notre Dame’s Mendoza College of Business:

    The Obama administration proposed lowering the top income-tax rate for corporations to 28% from 35%, which despite the decrease would actually raise overall tax revenue by eliminating dozens of deductions in an effort to restructure the corporate tax code. The new proposal would offer new tax benefits for U.S. manufacturers while raising taxes on U.S. companies with large operations in other countries. Despite the proposed decrease to 28%, the U.S. would still be above the average world corporate tax rate which is closer to 25%. Therefore it is unclear how this new proposal would allow U.S firms to be more competitive in the world if on average the amount of taxes paid by U.S firms is actually going to increase and the tax rate is still higher than most other countries. Overall, lowering the tax rate for U.S. corporations seems like step in the right direction but with the elimination of popular deductions the proposal actually increases the average amount of taxes paid by corporations.

Robert McIntyre, Citizens for Tax Justice:

    The corporate tax reform “framework” released by the Obama administration today fails to raise revenue that could be used to make public investments in America’s economy and America’s future. We can and should collect more tax revenue from corporations. Right now, America’s biggest and most profitable corporations are paying, on average, a ridiculously low amount in federal income taxes, and many of them are paying nothing at all. ...

    It’s very disappointing that the President has proposed what is at best “revenue-neutral” corporate tax reform. In 1986, President Reagan and Congress passed a tax reform act that increased corporate tax payments by more than a third. In today’s terms, that would be a corporate tax increase of more than a trillion dollars over the next 10 years. The corporate tax reform that we need today should do no less.

Clint Stretch, Managing Principal, Tax Policy Group, Deloitte Tax LLP:

    The President’s corporate tax reform plan raises all the major issues: rates, international tax, debt financing, depreciation, and R&D; but does so with the same lack of detail that has characterized other reform discussions to date. For example, the taxation of multinational businesses — one of the most important issues in any reform — is handled in a mere 1,200 words. In addition, the whitepaper pulls its punches with statements about what “should be considered” rather than what should be done. There is no way to really evaluate the whitepaper as a “plan.”

Mark W. Everson, alliantgroup Vice Chairman and former Commissioner of the IRS (2003-2007):

    In laying down its marker for business tax reform, the Administration has recognized the need for presidential leadership. While pushing for simplification, rate reduction, and greater permanency in the tax code, the Administration wisely advocates that certain incentives be continued or even strengthened — notably for manufacturing and the promotion of innovation. The Administration wants to increase the competitiveness of American businesses “large and small.” Establishing a balanced approach won’t be easy given the political fire power of large multinational corporations. Moreover, meaningful business tax reform will likely only be achieved as part of a broader effort also addressing individual tax reform. Congress should take into account all the moving parts, not just some of them.”

Donald Marron, Director of the Urban-Brookings Tax Policy Center:

    In its new report, the Administration does an excellent job documenting the failings of America’s corporate tax system. That system pairs the world’s second-highest statutory tax rate with excessively generous tax breaks. Taxes thus have disproportionate influence on corporate decisions, yet generate relatively little revenue. The system discriminates among industries, favoring some with low tax rates (e.g., mining), while hitting others much harder (e.g., retail). And it favors debt financing, rather than equity, more than any other developed nation. The solution to all those problems is to eliminate many needless tax breaks, and use the resulting revenue to lower the corporate tax rate. In broad strokes, that’s what the Administration proposes, dropping the corporate rate from 35 percent to 28 percent while paring back on many tax subsidies. The proposal isn’t pure by any means — for example, it recommends even larger tax breaks for manufacturing. And it provides little detail about exactly how it would raise revenue by reducing tax breaks. But it’s still an excellent contribution to the policy discussion.

Todd McCracken, president of National Small Business Association :

    The corporate tax reform proposal, while it does include some positive language for small-business, doesn’t go far enough in ensuring fairness, transparency and eased complexity of the U.S. tax code. Few disagree that a simplified tax system will lead to significantly greater economic growth, but unfortunately the proposal misses the mark on that goal by failing to embrace broad tax reform such as the Fair Tax. It does, however make some very positive proposals for small business, including an expansion and permanency of the R&E tax credit; increased Section 179 expensing to $1 million; a doubling of the deduction for start-up costs from $5,000 to $10,000; and allowing cash accounting on businesses with up to $10 million in gross receipts.

    Unfortunately, small businesses soon could be facing tax rates of up to 40 percent or more — there are a great many more details needed in this proposal to determine just how much it will help or harm small business.

Rob Atkinson, president of the Information Technology and Innovation Foundation:

    “Not adding a dime to the deficit” might win votes but it won’t fix a fundamentally uncompetitive U.S. corporate tax code. In fact, we need to add more than a dime to the deficit if we truly want to lower the tax burden on the companies, especially those creating the products and jobs of the future and competing in international markets.

    For example, while expanding and making permanent the R&D tax credit is critical for innovation-based competitiveness, the Administration needs go further and propose raising the credit the credit to 20 percent, not 17 percent.The Administration would do well to also follow the lead of many of our competitors and introduce a “patent box” that taxes income from innovation at a lower rate.

    The administration touts the benefits of simplicity and a tax code that does not “distort” investment decisions. But not all distortions are anti-growth, many, such as the R&D credit and accelerated depreciation are growth enhancing.

Transcript for February 22, 2012

CNN NEWSROOM with Brooke Baldwin, Wolf Blitzer Thelma Gutierrez

BROOKE BALDWIN, CNN: And when we come back, we know American companies, they're taxed at one of the highest rates in the world, but not all of them are paying that much. In fact, some companies are making money because of the tax code.

We're going to tell you what industry is making the most and what the president is proposing to do about that, next....

BALDWIN: Let's talk about corporate taxes. No, no, don't run away because we're talking about big money here. Big corporations have been complaining for years about paying the highest taxes on the planet. That number, 35, 35 percent.

That is a lot. But, of course, hardly anyone actually pays the 35 percent because big corporations shovel money at Congress and Congress gives them huge tax breaks, right?

I want you to take a look at this, if you would. This is from 2008 to 2010. This is according to a comprehensive study. The machinery industry here had an effective tax rate of negative. See the negative, negative 13.5 percent.

The government wrote them a check. I.T., information technology, effective tax rate of just 2.5 percent, utilities, 3.7 percent, telecom, 8.2 percent, the list goes on and on.

So the White House throwing up this plan that is designed to both answer its corporate critics and maybe smack them alive. The president's new proposal would drop the rate of corporate taxation from the current 35 percent down a couple notches to 28 percent, but here are the two key words here, eliminate subsidies. Not all, but some.

Joining me from New York, my buddy at "Forbes," Bob Lenzner, columnist for "Forbes" magazine. So Bob --

ROBERT LENZNER, COLUMNIST, "FORBES" MAGAZINE: You just broke the story, Brooke.

BALDWIN: We broke the story?

LENZNER: Yes.

BALDWIN: Because why?

LENZNER: About these actual -- well, because if he's trying to lower the tax rate to 28 percent from 35, and all these other industries are paying nothing, in effect, he's not really offering all that much.

I mean, basically, what I think he's trying to do here is get out in front and try to show that he wants to do something for the big corporations, that he's not anti-business. So on the one hand he wants to lower their rate to 28 percent from 35 percent, which is -- would be a reduction of 20 percent --

BALDWIN: But then also take away the loopholes.

LENZNER: Take away the loopholes, which are mainly for the oil industry about which there's going to be a big fight, but also make them pay a small tax on these tens or hundreds of billions that are being held offshore --

BALDWIN: So why do this, Bob Lenzner? What's the goal?

LENZNER: Why do that? Because he's trying to say, I'm going to give you something, and in return you have to give me back something that won't be as much as I'm giving you, but we have to make a trade-off here. You know, they've always been trying to work out some plan to make these companies bring the money back, but with the proviso that the money would be used to create jobs. So you've got this tremendous amount of cash that's all over the world -- this will be a hard thing to do.

What he's done here, basically, is, while the Republicans are arguing about abortion and same-sex marriage, he's saying he is drawing the attention of the country that the issue is economics.

BALDWIN: He's trying to bring it back to the economy.

LENZNER: Yes, right.

BALDWIN: We just ran through a couple different industries. I want to run through a couple more here. First you have --

LENZNER: You scooped me. I'm about to steal this from you.

BALDWIN: Well, I like that. Thank you very much. The chemical industry, effective tax rate, 15 percent. Remember, the rate is written as 35. Financial services industry, 15.5, oil and gas pipelines, 15.7, transportation, 16.4.

Straight up, Bob, do these loopholes spring from lobbying, all the lobbying efforts in Washington and the campaign contributions?

LENZNER: Well, I don't know whether, in all these cases -- can you state what study this is that you've got your hands on there because I'd like to have a look at it? Because you have to see whether it's loopholes that are giving --

BALDWIN: Citizens for Tax Justice.

LENZNER: Was it Citizens for Tax Justice.

BALDWIN: Yes.

LENZNER: All right, so we have to take a look at that and see how much of those low rates are the result of loopholes and how much of it is something else like accelerated depreciation and stuff like that.

But having said that, if what you're saying is true, I'm not sure it's going to make much sense to try to lower the rates from 35 to 28 because they're only paying 15 percent now, the way they've got it.

So it's going to be a hellish fight over this, and it's probably going to go nowhere, certainly, before Election Day.

BALDWIN: So you don't think, basically, based on what we just said, if we're talking mom and pops all the way to, you know, your General Motors that these companies will save much.

LENZNER: I think I don't know. I think it's a step in the right direction. I think that he's trying to show that these pro-business, that he wants to be pro-business. This is very important.

They've sent a signal -- there was a story a couple days ago that he's not going to say any horrible things about Wall Street for the next 10 months and all of that So he's trying to move and change the image of him in order to get re-elected.

BALDWIN: Change the conversation to economy instead of all these different social issues?

LENZNER: The economy is really important.

BALDWIN: I know, you can talk to any American and they'll agree with you. That's what they want to hear about.

LENZNER: Well, if they could reduce their taxes so they have more income to report, then they might, with lower taxes, decide to invest in the United States, which would create more jobs in the United States.

I imagine that's the rationale behind all this. Create more jobs. Because the decision, I think he's going to be re-elected myself, but the main issue is going to be, what's the unemployment rate going to be on October 1st, 2012?

BALDWIN: Bob Lenzner, whatever, however you feel about whichever candidate or the president, I think we all agree that we need more jobs in this country. We need the dial on the unemployment rate to change. Bob, thank you so much.

LENZNER: Not at all.

BALDWIN: Thank you. Bob Lenzner, "Forbes."

(Original Post)

WASHINGTON | Wed Feb 22, 2012 1:46pm EST

(Reuters) - The Obama administration on Wednesday proposed a plan to revamp the corporate tax system, slashing the top tax rate to 28 percent, while eliminating many tax loopholes that companies rely on to cut their taxes.

Although the statutory top corporate tax rate is 35 percent, many companies pay nowhere near that much, with effective tax rates varying wildly because of the use of loopholes.

The administration's plan has little chance of becoming law with elections approaching in November and Congress deeply divided over fiscal issues. Still, the plan opens debate on overhauling the tax code, perhaps in 2013 and beyond.

Below are potential winners and losers under Obama's plan:

LIKELY WINNERS

Likely "winners" under the Obama plan would be retailers such as Wal-Mart Stores Inc and healthcare service groups like Aetna Inc which now pay close to the top 35 percent rate.

Electronics and electrical equipment companies also pay high effective tax rates, according to Citizens for Tax Justice, a left-leaning tax think tank and activist group.

Other companies already paying close to the 35 percent statutory tax rate, include health insurer UnitedHealth Group, motorcycle giant Harley-Davidson and Emerson Electric Co, according to Citizens for Tax Justice.

LIKELY LOSERS

"Losers" might be big multinational companies such as General Electric Co and Boeing Co, which can now pare their effective tax rates using tax breaks that let them shift intellectual property and other valuable assets offshore.

Other major companies paying a low effective or even negative rate, according to analysis by the group, include Baxter International Inc, Wells Fargo & Co and Honeywell International Inc.

According to CTJ, information technology, oil and gas, and utilities are among those paying far below the 35 percent rate.

Oil and gas companies in particular are likely to be losers, since the Obama administration wants to cut a major tax deduction now used by the industry.

MANUFACTURING WILDCARD

The administration plan seeks a special 25 percent rate for manufacturing. Details on this are still murky, though an administration official said the new rate seeks to spur research and development and production of clean energy.

(Original Post)

Posted at 01:45 PM ET, 02/22/2012

By Greg Sargent

When Mitt Romney unveiled his new tax plan cutting taxes across the board by 20 percent in Arizona today, he pledged that he would “make sure the top one percent keeps paying the current share they’re paying or more.”

This illustrates how much the landscape has shifted in the wake of Occupy Wall Street and the broader public’s rising preoccupation with inquality. After all, only last month, Romney attacked Obama as divisive for using the 99-versus-one-percent language, which he termed as “entirely inconsistent with the concept of one nation under God."

That aside, his rhetoric raises a question: What does his new plan actually mean for the wealthy?

I just got off the phone with Bob McIntyre, the president of the liberal-leaning-but-nonpartisan Citizens for Tax Justice. He says the upshot for the rich is a huge tax cut that’s paid for by cuts to Social Security, Medicare and Medicaid. Total taxes cut in the plan: $10 trillion over 10 years, by his calculation.

The central feature of Romney’s new plan is an across-the-board 20 percent tax cut — on top of continuing the Bush tax cuts, by McIntyre’s reading. For the top earners, that means the tax rate drops to 28 percent. The plan also cuts the corporate tax rate from 35 percent to 25 percent, repeals the estate tax, and maintains the current tax rate of 15 percent on income from capital gains.

Bottom line?

“The wealthy will pay far less in taxes than they do now, including a wealthy person named Mitt Romney,” McIntyre says.

McIntyre notes that the plan does allow for the closing of some loopholes enjoyed by the wealthy, but said we need more detail to see whether they will constitute anything meaningful.

The plan appears to be paid for by unspecified cuts to Social Security and Medicare. On the latter program, Romney’s plan envisions a “a premium support system that gives each senior the freedom to choose among competing private plans and traditional fee-for-service Medicare.” That appears to be a reference to the Ryan-Wyden Medicare plan.

So how does this all square with Romney’s claim above about the one percent? McIntyre says the key is that Romney said the one percent’s “share” would not drop. He didn’t say the amount the one percent pays wouldn’t drop.

“If you reduce the whole thing by 20 percent then they can go down by 20 percent and still pay the same share,” McIntyre explains.

So there you have it.

Make Permanent, Across-The-Board 20 Percent Cut In Marginal Rates. This bold stroke reduces the tax on the next dollar of income earned for all taxpayers. The new top rate of 28 percent returns to the top rate signed by President Reagan in 1986.

(Original Post)

By Alexander Eichler

Posted: 02/22/12 11:25 AM ET  |  Updated: 02/22/12 12:38 PM ET

President Obama hopes to bring change to a loophole-ridden corporate tax code that allows potential tax dollars to slip through the cracks. In exchange, he's willing to lower the top rate to a level still above what many corporations effectively pay today.

Obama announced a proposal Wednesday to overhaul the country's corporate tax structure. Under the terms of the new plan, the president will seek to eliminate many of the corporate tax breaks that American companies enjoy. Obama proposes lowering the top marginal corporate tax rate to 28 percent from the current 35 percent.

Members of the business community, for their part, have long maintained that America's corporate rate, nominally the highest in the world, should be lowered. But that 35 percent rate is more theory than practice. Studies indicate that after tax breaks, the effective corporate tax rate is in fact closer to 25 percent, and one analysis found that nearly 300 major companies paid an average rate of just 18.5 percent between 2008 and 2010.

The Obama administration hopes closing the loopholes will offset revenue lost from lowering the tax rate.

The question of how much companies should be expected to pay in taxes has taken on new urgency in the wake of last summer's debt ceiling crisis, which refocused attention on the federal budget deficit and moved lawmakers to begin looking for new ways to cut the government's costs or, in this case, reconfigure revenue streams.

Corporations employ a slew of strategies to minimize the amount they pay in taxes. Some companies park assets overseas where they can't be taxed, while others claim sizable deductions based on the stock option packages offered to their employees. Almost 70 percent of companies are structured in such a way that they don't pay any federal corporate income tax at all, instead passing along the burden to investors.

Thanks to these and other techniques, many companies clock in at a level far below the official 35 percent tax rate. In a three-year span from 2008 to 2010, the nonprofit group Citizens for Tax Justice found that there were 30 companies among the Fortune 500 -- including Verizon, General Electric, Wells Fargo and Boeing -- that paid nothing in federal income tax the entire time. More recently, analysts pointed out that Facebook's upcoming initial public offering is designed in such a way as to allow the company to sidestep taxes for 2011 and get half a billion dollars' worth of refunds for previous years.

In taking aim at corporate tax breaks, Obama could risk the displeasure of many large and politically influential companies. The firms that received the biggest tax breaks in 2009 -- among them ExxonMobil, Bank of America and General Electric -- were also among the biggest campaign contributors in the 2010 midterm elections.

(Original Post)

February 22, 2012

By ANTHONY HALL

The U.S. corporate tax code just became the biggest sidebar under jobs for the national election campaign.

It should be clear to one and all that large corporations have not begun to participate in hiring to any significant degree and are, in fact, far short of getting back to pre-recession levels.

Small businesses, in a recent month, added 167,000 jobs to the economy, while those with more than 500 workers added a mere 3,000 jobs — despite their jingoistic, “we’re on board with the recovery” Super Bowl advertising.

In the background, President Obama has pledged significant export growth, a promise that seems to be going the other way with the trade deficit expanding to $558 billion in 2011, up $58 billion from 2010, the U.S. Census Bureau reported in February.

It’s true, exports grew, but what’s the point if imports outpace export expansion?

Meanwhile, it is also common knowledge that it would take Alexander the Great to cut through the tangled U.S. tax code that has dozens of profitable companies paying no federal taxes.

In a recent report, Citizens for Tax Justice and the Institute on Taxation and Economic Policy said of 280 U.S. companies studied, 78 paid no federal tax in at least one of the past three years.

In very basic math, that would mean 29 out of 280 or 10 percent of U.S. corporations — given the study found a representational group — do not pay taxes in any given year.

That said, there are 3,146 companies listed on the New York Stock Exchange and an additional 2,665 listed on the Nasdaq index. Some 484 others are listed on the Amex index. And, of course, privately held firms, and there are many, are not listed at all.

Generalizing for a moment, out of 6,295 firms, 10 percent or 629 do not pay taxes each year.

In the report, 30 of the companies that posted profits of $160 billion during the three-year study period had negative tax bills. Those guys got rebates.

In the study, the corporate tax rate, which the president will propose should be 28 percent with fewer loopholes — rather than a 35 percent mess — had an effective tax rate of 18.5 percent.

“These 280 corporations received a total of nearly $223 billion in tax subsidies,” said the report’s lead author, Robert McIntyre, director at Citizens for Tax Justice.

The Raw Story reported Wells Fargo & Co. was No. 1 on the list of tax dodgers, getting about $18 billion in tax breaks in the three-year study period.

Put in perspective, in a three-year stretch one U.S. company received tax breaks that came to 43 percent of the budget gaps of every state budget in the union.

In international markets Wednesday, the Nikkei 225 index in Japan rose 0.96 percent while the Shanghai composite index in China rose 0.93 percent. The Hang Seng index in Hong Kong gained 0.33 percent while the Sensex in India dropped 1.54 percent.

The S&P/ASX 200 in Australia was flat, up 0.04 percent.

In midday trading in Europe, the FTSE 100 index in Britain lost 0.32 percent while the DAX 30 in Germany slid 0.6 percent. The CAC 40 in France gave up 0.38 percent while the Stoxx Europe 600 lost 0.75 percent.

(Original Post)

By Pat Garofalo on Feb 22, 2012 at 6:15 pm

2012 GOP presidential hopeful Mitt Romney has already run into some trouble on the topic of tax havens. The company that he ran — Bain Capital — not only abused tax havens while he was at the helm, but Romney also saw his lucrative Bain retirement package boosted by the company’s use of offshore tax sheltering. Romney also had a Swiss bank account until 2010, which his money manager only closed because such an account would look bad politically.

Adding another twist to the tale today, Bloomberg News reported that, while Romney was the head of its audit committee in the 90s, the hotel chain Marriott abused tax shelters, prompting multiple run-ins with the IRS:

    During Romney’s tenure as a Marriott director, the company repeatedly utilized complex tax-avoidance maneuvers, prompting at least two tangles with the Internal Revenue Service, records show. In 1994, while he headed the audit committee, Marriott used a tax shelter known to attorneys by its nickname: “Son of BOSS.”

    A federal appeals court invalidated the maneuver in a 2009 ruling, siding with the U.S. Department of Justice, which called Marriott’s transaction and attempted tax benefits “fictitious,” “artificial,” “spectral,” an “illusion” and a “scheme.”

Bloomberg noted that “during Romney’s years on the board, Marriott’s effective tax rate dipped as low as 6.8 percent, compared with the federal corporate statutory rate of 35 percent.” Marriott’s tax dodging even drew the ire of Congress, with Sen. John McCain (R-AZ), a Romney endorser, calling the company’s use of one tax shelter an “expensive hoax” and a “scam.”

Today, Romney released an updated version of his tax plan, which, in addition to including $10.7 trillion in personal income tax cuts, would also implement a “territorial” system for corporate taxation. Citizens for Tax Justice has noted that such a system would allow companies to permanently avoid paying taxes on their offshore funds, increasing the incentive to move funds to other nations.

(Original Post)

Feb 22, 2012 7:05 PM EST
Thirty top U.S.-based multinationals dodged $67.9 billion in taxes over three years. With talk of tax reform in the air, The Daily Beast runs down 10 top offenders.

Josh Dzieza

Gary Rivlin

“Corporations are people, my friend,” Mitt Romney famously said last summer while speaking at the Iowa State Fair.

If only corporations paid taxes on their profits, as people must.

Even Romney, with his offshore accounts in the Cayman Islands, paid nearly $3 million in taxes on the $21.7 million he made in 2010.

In contrast, there are those U.S.-based multinationals that Citizens for Tax Justice dubbed the “Dirty 30”: behemoths that collectively earned tens of billions in profits between 2008 and 2010 but paid no taxes during that three-year period. These companies “so deftly exploited carve outs and loopholes in the tax code that all but one of them enjoyed a negative tax rate”—that is, they received money back from the U.S. Treasury.

Expect to hear plenty more about the messy corporate tax code over the coming months. President Obama declared it "outdated, unfair, and inefficient,” and proposed reducing it to 28 percent while cleaning out—or making permanent—some of the loopholes and exceptions it’s accumulated over the years. GOP presidential hopefuls want the rate lowered further and more of the exemptions made permanent.

The Dirty 30 have spent millions to get the tax code the way it is, and will likely spend millions more to keep it that way. In the three years studied by Citizens for Tax Justice, the 30 spent nearly half a billion dollars on lobbying Congress.

They’ve certainly profited from the friendly tax code. Together the 30, which include Wells Fargo, Mattel, Verizon, GE, and other well-known corporate brands, collected $10.6 billion in tax rebates during the three years Citizens for Tax Justice studied. Many of the companies on the list claim tax rebates while avoiding taxes altogether by parking profits in overseas shelters.

In total, the top 30 companies dodged $67.9 billion in taxes over three years, costs that are passed on to American taxpayers and small businesses that lack the teams of tax analysts necessary to exploit loopholes in the code. “Spread out over every individual tax filer in America, the taxes avoided by the Dirty Thirty break down to an average of $481 per taxpayer over the three years,” according to Citizens for Tax Justice.

(Original Post)

By the Editors Feb 22, 2012 7:30 PM ET

President Barack Obama’s corporate- tax framework, unveiled Wednesday, recognizes that the U.S. tax code desperately needs a spring cleaning. There are too many loopholes, deductions, subsidies, allowances and special rules.

The 35 percent statutory rate is also too high, especially because most companies have figured out how not to pay it, and most countries have dropped their rates below the U.S.’s.

We agree it’s time to lower the marginal rate, conceivably to 25 percent -- lower than Obama’s proposed 28 percent -- which is about where it stood after the last tax reform 25 years ago. Obama’s proposal goes a long way toward streamlining the code and broadening the base of tax-paying corporations, but it contains some obvious flaws and comes up short in a few areas. Luckily, there’s time to fix it.

It was 1986 when the U.S. tax system got a thorough going- over in President Ronald Reagan’s second term. In the quarter century since, Congress has been unable to resist adding new breaks and loopholes, and then having to raise rates to prevent a hemorrhaging of revenue. As a share of gross domestic product, corporate taxes now make up a mere 1.16 percent, versus more than 4 percent in 1960, according to a study released in November by Citizens for Tax Justice, a small, left-wing think tank.

Reagan created a commission in 1984 to examine the tax code after Citizens for Tax Justice noted then that many large companies were paying little or no taxes. Reagan wanted to get the subject off the table until after that year’s elections, but two years later, tax reform ended up passing.
Same Dynamic

The same dynamic may be happening again. It’s a presidential election year, and Obama’s framework is meant to get the subject off the table until after November. Citizens for Tax Justice has even come out with another report concluding that corporations again are avoiding paying taxes.

The nonprofit group, along with the Institute on Taxation and Economic Policy, looked at 280 of the biggest and most profitable U.S. companies. A quarter of them paid less than 10 percent in taxes over the three years 2008 to 2010. Thirty companies, including such familiar names as Boeing Co., Verizon Communications Inc. and Wells Fargo & Co., paid little or no taxes in at least one of the three years.

Only about a quarter of the companies studied paid close to the official 35 percent rate. The average annual tax rate for all 280 was 18.5 percent over the three years, barely half the official rate, yet they reported almost $1.4 trillion in pretax profits. (The U.S. Treasury estimates the effective U.S. marginal tax rate at 29.2 percent for all corporations.)

To address this, Obama’s blueprint, while light on details, includes several approaches we endorse. It would discourage outsourcing by imposing a minimum tax on overseas profits (sadly, without saying what the minimum would be) and eliminating breaks for moving operations abroad. The current system, in which companies can defer income taxes on foreign profits until they are repatriated, unfairly rewards companies for leaving the U.S. and robs it of revenue.

The president’s plan would also eliminate many unwarranted preferences, such as oil and gas subsidies, breaks for corporate aircraft and accounting gimmicks that allow companies to artificially lower reported earnings. Most important, it does not increase the bloated federal budget deficit.

In many ways, though, the plan is too timid and internally contradictory. It suggests, but doesn’t outright endorse, reducing the deductibility of interest on corporate debt. It’s a smart idea and, as we have said, removes some of the incentive to borrow rather than raise equity capital, and would bring in much-needed tax revenue.
‘Brutal’ Arithmetic

Administration officials said the 28 percent rate was based on “brutal” arithmetic that lowered corporate levies without worsening the deficit. The math is complicated, but boils down to this: The plan would save $250 billion over the next decade by wiping out an abundance of loopholes and special-interest breaks, and would apply those savings to new breaks for manufacturers, research and experimentation, and clean energy. So-called advanced manufacturing, whatever that is, would get even richer tax breaks.

It’s unrealistic, we know, to expect a pure tax code in which every company pays the same rate. For example, one widely used tax break, the depreciation allowance, may need to be kept, even though it’s confusing and often abused. Companies must have a way to deal with the fact that equipment and buildings wear out and need to be replaced. And some tax breaks, such as those for clean energy and research, are largely justifiable because they benefit the entire country and are vital to the future economy.

Still, the goal should be to do away with as many preferences as possible. The Obama framework does this with one hand, and then undoes it with the other.

The Obama plan also increases the potential for tax code gamesmanship. It says, for example, that the minimum tax on overseas profits shouldn’t penalize businesses engaging in “activities which, by necessity, must occur in a foreign country.” Administration officials have in mind exemptions for things like building and operating hotels abroad, but we spy a loophole that could undermine the provision’s intent.

When all is said and done, some corporations may get a better deal and some may get a worse deal. Making corporate taxes fairer and simpler won’t be easy when reform produces as many losers as winners. But with both parties claiming tax reform as a goal, there’s no excuse not to begin an earnest discussion now.

(Original Post)

By: David Dayen Wednesday February 22, 2012 1:37 pm     

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So Mitt Romney released his new tax cut plan in advance of tonight’s Republican debate. As expected, it makes severe cuts to overall tax rates, particularly for those in the top bracket.

    Mitt Romney released a new tax plan Wednesday that calls for a 20 percent across-the-board cut to individual tax rates.

    Romney would also reduce the corporate tax rate (to 25%) and put an end to the capital gains tax for most taxpayers.

    Romney’s proposal would reduce the top 35 percent tax rate to 28 percent, while the bottom 10 percent rate would be reduced to 8 percent.

    He calls for a 20 percent across-the-board cut in income taxes; an end to the capital gains tax for families making under $200,000; and a major cut to corporate tax rates. It would also create a “territorial” system that would allow corporations to not pay U.S. taxes on any profits made overseas.

Just for fun, there’s also the “premium support” plan for Medicare, with all seniors getting vouchers for health insurance rather than a guaranteed plan (thanks, Ron Wyden!), and an increase in the retirement age.

Romney claimed that the “1%” (he actually used that phrase) would continue to pay as much as they do now, by limiting deductions. But a 20% cut in their tax rate doesn’t seem like it could be made up. And that’s what the Obama campaign led with, claiming that the plan would increase the deficit by $2 trillion over ten years.

In that respect, the Romney plan bears at least some resemblance to… Obama’s corporate tax cut plan, according to Zach Carter:

    President Barack Obama and Mitt Romney have begun a new form of competition: proposing corporate tax cut plans that they claim, wrongly, won’t cost the Treasury a dime. Almost immediately after Obama unveiled his plan on Wednesday, one of the nation’s leading tax policy experts threw cold water on the administration’s claim that its tax overhaul could be implemented “without adding a dime to the deficit.” A separate plan released Wednesday by Republican presidential contender Romney, the expert said, would almost certainly expand the deficit.

    While the plan’s basic outlines have been advocated by both liberal and conservative tax experts for decades, the prospect of accomplishing those goals without adding to the deficit is far-fetched, said Rebecca Wilkins, senior counsel for federal tax policy at the nonpartisan nonprofit Citizens for Tax Justice.

    “We think at best it’s revenue-neutral, and that is very disappointing,” Wilkins told HuffPost. “Corporations are already paying a really low rate, and lots of corporations aren’t paying any taxes at all. There’s really an opportunity to broaden the base and raise revenue, and you hate to see them leaving that on the table.” [...]

    Overall, the tax cuts proposed by the Treasury Department would cost about $1.2 trillion during the next decade. The Obama administration outlined plans to narrow that deficit by $300 billion by closing certain business tax loopholes, but roughly $900 billion in other offsets was left unspecified.

So we have a where’s-the-beef tax plan from Romney, or a where’s-the-beef corporate tax plan from Obama. And these plans are practically the work of Noam Chomsky compared to the other Republican Presidential candidates, who would either eliminate large parts of the tax code or completely flatten them.

Enjoy your campaign.

(Original Post)

Robert Lenzner

2/22/2012 @ 5:16PM

Hosannas to Brooke Baldwin, CNN anchor from 2-4 pm every day. She was armed with the Citizens for Tax Justice report which showed that many US corporations pay 1 % to 15%  federal taxes anyway– or far, far less than President Obama’s attempt to look pro- big business by  setting 28%– rather than 35% as the maximum tax corporations must pay.

In other words, why should the White House’s tax reform plan gain any real credence or footing in the corporate community? Answer; it’s not bloody likely.

Boeing, the aircraft builder, has paid federal income taxes in only 2 years of the past ten years. Another 29 companies like GE paid less than nothing in taxes over the past 3 years according to Citizens for Tax Justice recent report. That target 35% is more a dreadful target to be avoided at all cost. So, 28% is not such a  blessed  offering to corporate America.

Here’s why; CTJ has discovered that after all sorts of deductions for issuing stock options or parking assets in tax-free  domiciles around theglobe, “nearly 300 major companies paid an average rate of just 18.5% between 2008 and 2010? Some 78 companies had at least one year of the period, 2008-10, when they paid no federal income tax at all. Rather, they made $160 billion in profits  and received tax rebate checks worth $21.8 billion. Negative tax rates sure do pay off.

Not only that- but Verizon, Wells Fargo and many others paid nothing– and even were able to get refunds for previous years.

So,  I am plainly worried how Obama will convince the corporate world to pay a higher rate as a quid pro quo for giving up many loophole deductions. Especially as companies like ExxonMobil, Bank of America, General Electric, Goldman Sachs and a host of others have squads of lobbyists and, accountants and  the ability to make substantial campaign contributions to block today’s proposal from ever becoming law.

CTJ found that 280 major corporations paid only half the 35% statutory rate. So, if they’re paying 18% now– why would they ever want to back a bill that might have them paying 25-28%. Unless they can keep the gimmicks that are helping them  pay only half the new maximum rate– which would be 12.5% to 14%.

So, let’s not get our hopes up that Obama’s willingness to lower the maximum corporate rate from 35% to 28% is anything but a balloon that will be floating out to sea any days now. Regards to Brooke Baldwin of CNN for being TV’s newest, sharpest investigative anchor person.

(Original Post)

Researchers examine corporations’ savings

By Jim Bach

Tuesday, February 21, 2012

U.S. non-financial corporations are currently sitting on more than half a trillion dollars in savings — money that could be reinvested into the U.S. economy to spur growth and create jobs, according to a study released from this university.

The university's Inforum research center — which conducts studies on business, economics and policy analysis — released its findings from a month-long study last week, which concludes that if U.S. corporations dipped into their savings, they could invest more than $508 billion into factories, facilities, computers and other capital investments to jumpstart a slowly growing, post-recession economy. The research found that the country could add 2.4 million jobs by 2014 and decrease unemployment numbers by 1.5 percent if the billions of dollars are reinvested.

As the country grapples with slow economic growth and mounting concerns over the European debt crisis affecting world economic markets, Jeffrey Werling, the executive director of Inforum, said companies have been reluctant to invest in the economy and instead have held onto savings.

"People in the last couple years have talked about corporate money sitting on the sidelines," said Werling. "Firms were worried about having enough money on hand to pay their bills."

To encourage these corporations to reinvest in the U.S. economy, the study also proposes giving tax amnesty to corporations that bring profits from foreign bank accounts back into domestic "infrastructure banks" — a process known as repatriation.

The study says these banks would then fund public projects to help boost national growth, specifically with public infrastructure projects.

The idea, however, is similar to others considered before, and it is still met with skepticism.

In 2005, the United States implemented a tax holiday for corporations to bring their offshore profits back into the country, on the condition they used that money to create jobs.

However, Steve Wamhoff, legislative director for Citizens for Tax Justice, a non-profit tax research organization, said companies instead used the money to pay shareholders, which did not spur job growth as expected.

"It's a terrible idea; it's not good for the economy and it's terrible for the U.S. budget," he said. "It sort of provides the biggest rewards to those corporations that abuse the system."

Wamhoff added the study indicates companies already have enough money on-hand to invest in infrastructure banks and other job creating engines, and they would not need a tax holiday to bring profits back to U.S. shores.

"In the report they just admitted corporations have all that money in the U.S.," he said, "so why do we have to have this tax break for them to bring their foreign profits to the United States?"

However, according to Kenneth Kies of the Federal Policy Group, a tax consulting firm located in Washington, a tax holiday on repatriated profits could bring hundreds of billions of dollars back into the U.S. economy — regardless of whether it's spent on shareholders.

"About $700 billion would come back to the U.S. in a relatively short timeframe," he said. "The potential benefits to the economy are very real ... I'd be perfectly happy if $700 billion came here to shareholders."

Despite the debate surrounding the research, Werling said the study's findings come at a significant time when the U.S. unemployment rate sits at 8.3 percent. By tapping into these reserves, that number could be reduced.

"Not surprisingly, aggregate demand in the U.S. economy is not as high as it could be and a lot of people are out of work," Werling said. "Hopefully, we'll see [these reserves] being unleashed in the next year."

bach@umdbk.com

(Original Post)

For corporations, paying for policy is still the best investment around.

by Doug Pibel
posted Feb 20, 2012

1. More than ever, people pay more in taxes than corporations do.

Corporate taxes as a
percentage of federal revenue:

JTF: Corporate Tax Percentages

Monopoly Circle
2. But we tax corporate
income at 35%,
the highest in the world, right?
Not really.


280 “Fortune 400” companies showed profits every year from 2008 to 2010. Of those:

About one-quarter paid more than 30%

About one-quarter paid less than 10%
    
Individual income and payroll taxes as a percentage of federal revenue:

JTF: Individual Tax Percentages

Average tax rate?

18.5%

(That’s what a human being pays on $60,000 in taxable income.)

 
Monopoly Circle
3. And some of the wealthiest corporations pay no taxes at all.
They even get money back.

29

corporations from 2008 to 2010 paid

Zero

in taxes and received refunds totaling

 
$10.6 billion


General Electric was the champion. It made a $10.5 billion profit. At the statutory 35% rate, it would have paid about $3.7 billion in taxes. Instead, it got refunds of $4.7 billion. That’s a total tax subsidy of $8.4 billion dollars.

Also paying no taxes , 2008-2010
Verizon Logo

Verizon made $32.8 billion in profit and got
$951 million in  refunds.

    Wells Fargo made $49.4   billion and got
$68 million in refunds.
    


Boeing made $9.7 billion and got
$177.6 million in refunds.

Monopoly Circle
4. Lobbying. The best investment around.


10,000%
For its tax subsidy of $8.4 billion, General Electric spent $84.4 million on lobbying: a 100-to-1 return on investment.

22,000%In 2004, Congress was considering a one-time-only “repatriation holiday” law. 93 companies spent a total of $282.7 million lobbying for the bill, which allowed corporations to bring billions of dollars home from overseas accounts, but to pay income tax on only 15 percent of the money.

The law passed, and the corporations that lobbied saved $88.6 billion. That’s a  220-to-1 return on investment.

Sources:

"Corporate Taxpayers & Corporate Tax Dodgers, 2008-2010," Citizens for Tax Justice, November 2011

"Representation Without Taxation," U.S. PIRG and Citizens for Tax Justice, 2012

 "An Empirical Analysis Under the American Jobs Creation Act," Raquel Alexander, Susan Scholz, Stephen Mazza, April 2009

(Original Post)

Monday Feb 20, 2012 3:01 pm

By Roger Bybee

Election excitement today could lead to workers' anger tomorrow

MILWAUKEE—President Obama's appearance last Wednesday at the Master Lock plant here—during which he repeatedly highlighted the company's decision to bring back about 100 jobs from Mexico and China and called for the restoration of America's manufacturing sector—uncorked a lot of hope among local workers.

A crowd of about 1,000 Master Lock workers (the plant employs 412 members of UAW Local 469) and guests roared in approval as the president described the fundamental changes needed in the American economy. He thundered:

    Milwaukee, we are not going back to an economy that's weakened by outsourcing and bad debt and phony financial profits. We need an economy that is built to last, that is built on American manufacturing, and American know-how, and American-made energy, and skills for American workers, and the renewal of American values of hard work and fair play and shared responsibility.

But if Obama does win a second term, it will be fascinating to see how working-class Americans respond when the president's soaring rhetoric, which is rekindling dreams of a manufacturing renaissance, collide with the cold reality of Obama's timid progam.

Obama concisely offered a powerful critique of corporate greed and domination of the economy by an overgrown financial sector, while promising a renewal of American manufacturing hit by a loss of 5.5 million jobs since 2000. The message resonated intensely with the audience, which has seen Milwaukee rapidly wither from an affluent industrial center into the fourth poorest city in the nation as it lost 80 percent of its manufacturing jobs during the last 35 years.

Yet even as industrial cities and factory towns declined as much of America's productive base went abroad, leading Democratic policymakers (see here and here) have callously dismissed the importance of American manufacturing. These Democrats-—far removed from the consequences of "free trade"—have even added legitimacy to corporations' exploitation of undemocratic conditions by supporting more NAFTA-style free-trade agreements.

While Obama himself has recently pushed three new toxic trade agreements through Congress, his main message has focused on the central need for rebuilding the U.S. manufacturing base. By stressing the restoration of 100 jobs to Milwaukee's desolate inner city, Obama has underscored the importance of manufacturing to America.

The president has channeled into the deep hunger for the day when "America made things," when Milwaukee's skilled workforce labored in "the machine tool capital of the world," and years of job security could not be erased by a few computer keystrokes in New York or Houston that closed a Milwaukee plant and shifted jobs to Mexico or China.

Implicitly in Milwaukee and more directly in speeches elsewhere, Obama has revived hope that America's enormous inequalities can be overcome with the strengthening of the manufacturing base. On Wednesday, President Obama pointed to 23 consecutive months of economic growth, with a heavy emphasis on the first growth in manufacturing employment since 1990. The auto industry alone added 160,000 jobs since the bailouts of GM and Chrysler in 2009.

"It's hard to get a well-paying job in Milwaukee these days," sighed William Schnach, 58, who a UAW Local 469 member at Master Lock for the past 14 years. "Master Lock is one of last places that is hiring. Briggs and Stratton, Allen-Bradley [now Rockwell], Allis-Chalmers, AO Smith, the jobs are all gone. But Master Lock, you work leaner and smarter, and that's why they're still here."

Master Lock has fostered a more productive workforce by paying the tuition of workers who attend local technical colleges to pick up additional skills and knowledge, Schnach said.

For Dean Paulson, 36, his roughly five years at Master Lock have been "a great opportunity." He sees the return of the 100 jobs from Mexico and China as "a positive thing." However, he added, "I wish more companies would do that. The biggest thing for helping the unemployed would be bringing the jobs back. If they don't bring the jobs back, it will be harder and harder for people coming out of school to find decent jobs."

Despite the celebration of Master Lock, other corporations continue to off-shore jobs (three Wisconsin firms have recently announced major job shifts to Mexico) and average Milwaukee earnings have plummeted 21.9 percent since 1999. Master Lock is an oasis amid a barren urban landscape pockmarked by abandoned factories, boarded-up storefronts, cracked pavements and weed-grown lots.

For Milwaukeeans, the inner-city represents a "man-made disaster" of squalor and despair created by government policy and corporate flight to low-wage nations, as UAW International Representative John Drew said at the Master Lock event Wednesday. The plant's zipcode is plagued by 60 percent joblessness, an infant-mortality rate rivaling   that of Third World nations, and an appallingly-high incarceration rate.

Given this context, Obama appears to have severely overstated the significance of the Master Lock example. As the New York Times' David Firestone pointed out,

    It’s great that the lock factory is now running at full capacity with a workforce of 412, but Mr. Obama omitted a key fact: 15 years ago the Milwaukee factory employed 1,154 workers.

Against these daunting problems, President Obama's chief weapon seems to be the use of tax breaks to punish off-shoring firms and reward in-sourcing corporations. But this seems a very hollow threat (and weak incentive) given that two-thirds of U.S. corporations pay no corporate income taxes at all.

Thus, it was astonishing to hear President Obama repeat a bogus Republican talking point  by asserting that "companies that are doing the right thing and choosing to stay here, they get hit with one of the highest tax rates in the world. That doesn’t make sense."

The reality is vastly different, and the president ought to know better. Corporate tax rates for U.S. firms are actually among the lowest among the 30 advanced nations belonging to the Organization of Economic Cooperation and Development, reported Citizens for Tax Justice:

    According to a 2007 study by the Bush Treasury Department, between 2000-2005 U.S. corporations paid only 13.4% of their profits in corporate income taxes, well below the Organization of Economic Cooperation and Development (OECD) average of 16.1%.

While this suggests that Obama's central strategy for encouraging the creation of U.S. jobs is fatally flawed, the president is still doing good by raising the need for a strong manufacturing base to central importance, and the hopes of working-class people for secure jobs.

If Obama wins a second term, he may realize he has unleashed popular expectations that will present implacable demands. Perhaps then he won't devote so much of his attention to the needs and interests of Wall Street.

(Original Post)

Published: Saturday, February 18, 2012

By ALAN DICARA

“Some people see things as they are and ask ‘Why?’ I see things as they can be and ask, ‘Why not?’” So said Bobby Kennedy once.

So why NOT Ralph Nader for president? We shoulda voted him in the first time. After four years of Obama and eight years of Bush, our only conclusion should be we told each other so. So let’s finally vote in Ralph Nader.

I mean, Ralph’s been observing these clowns inside our Capitol’s Beltway for over 40 years now and if anyone really knows what they’ve been up to, it’s Ralph: stealing the people’s money for their own gain to pay off corporate sponsors; doing insider trading deals; creating at least two separate tiers of taxation: one for the richest Americans at half of what the rest of us pay—and the latter, at 30 percent for the 99 percent of us who are not in on this Congressional “game” where more than 70 percent of the U.S. Senate are millionaires right along with the richest Americans they protect.

And there would be no gridlock with President Nader. Imagine someone trying to hold up the people’s agenda in Congress with Ralph Nader as president. Why he’d be better than Mark Twain at ridiculing them in their own districts—getting their constituents to demand ACTION on behalf of the American people ... instead of some sorry excuses about why they can’t go to work for us again.

Our country was started on “No taxation without representation,” folks—yet we continue to accept higher tax rates and are not getting the representation we pay our members of Congress and president for.

And Mr. Nader can count, unlike Congress and the last several presidents. Take health care. No really. Take American health care and ask what Ralph asks: Why aren’t we consumers getting more for our premium dollars?

As Ralph says: “[Look at] the millions of individual bills that makeup the $2.7 trillion of annual health care costs [that] opens a window on the massive waste, redundancy, profiteering, fraud and sometimes criminal overbilling.”

He further observes: “Americans continue to spend more on health care than patients anywhere else. In 2009, we spent $7,960 per person, twice as much as France, which is known for providing very good health services. And for all that spending, we get very mixed results—some superb, some average, some inferior—compared with other advanced nations.”

Mr. Nader was also right about better regulation of banks before they almost went belly up and went crying to Uncle Sam’s taxpayers for another bailout.

And Mr. Nader knows how to save money. He’s even helped write a book on frugality. Come to think of it, he’s written quite a few good books—most trying to help the rest of us rescue and revive our democracy. Which means he’s literate—he can read and write, unlike so many in Congress who only know how to entertain themselves with their own useless “spin” on some problem they cannot and will not solve.

And he’s been right about how to build safer cars and trucks. Despite having to prod, cajole and beg Congress and various presidents and GM, Ford, Chrysler, and other car companies to do something right and install seat belts. I mean, what sane car driver or passenger fails to wear a seat belt?

Read Ralph Nader’s own words about getting our nation going again and realize why we should finally vote Mr. Nader into the Oval Office this year:

“Both Republicans and Democrats say they want to reduce the deficit. But they are avoiding ... 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 taxes on the rich that George W. Bush cut 10 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 35 percent. More than a few pay less than 5 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 McDonald’s) 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 other 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.”

Ralph Nader can count. Ralph Nader is honest. He knows the issues and why Congress has become corrupt. He won’t take any bribes and he will tell us the truths we all need to know. And he knows how to put pressure on a Congress that no longer knows or cares how to lead nor how to behave to best protect the interests of the people. Scare the pants off the D.C. bureaucrats; tell them you’ll be voting for Mr. Nader this year no matter what their high-priced, sorry ads try to convince you of.

America needs someone who is brave, smart, not on the take and sincere about making our democracy work for all Americans, not just the rich, not just incumbent politicians, not just people who wish to continue to waste the trillions in tax dollars we send to D.C. each year as they continue exporting our jobs and industries to offshore locales, destroying what little is left of our communities and our family and personal security.

Don’t make me say I told you so again. This year, vote Ralph Nader for President.

(Original Post)

By Bernie Becker - 02/17/12 05:30 PM ET

A liberal group is bashing Boeing’s tax record, on the same day President Obama visited one of the aerospace giant’s plant.

Citizens for Tax Justice, in a Friday release, cited its November report that stated that Boeing was one of 30 corporate heavyweights that had a subzero federal tax liability between 2008 and 2010.

In the process, the group also questioned the White House push to incentivize U.S. manufacturing with targeted tax breaks.

“President Obama says he wants to help American manufacturers. But cutting their already very low taxes even further is not the way to do so,” the release said. “Repairing our decaying infrastructure and better educating our workforce would be much more promising approaches.”

Boeing has been tagged in the past, including by CTJ, for having a relatively low tax bill. But the company has consistently said it follows U.S. tax rules and pays millions of dollars a year in taxes.

Click here to find out more!
In all, CTJ found in its report last year that many Fortune 500 companies paid well below the top statutory corporate tax rate of 35 percent – with 67 companies paying below 10 percent between 2008 and 2010.

The White House has said it plans to offer a framework for corporate tax reform in the coming weeks, and has already proposed that U.S. companies with offshore operations pay a minimum amount in taxes.

Treasury Secretary Timothy Geithner also said this week that administration’s corporate tax ideas would include lowering rates and eliminating tax preferences – an idea embraced by key lawmakers on both sides of the aisle, though not some liberal groups like CTJ.

But like many other Washington observers, Geithner also suggested that an agreement on tax reform might not be coming soon.

“We took a run at trying to negotiate a framework like that with the Republican leadership in the House over the course of the summer," he said. "We found no basis for agreement on even the broad framework.”

(Original Post)

By Kim Dixon
February 17, 2012

Obama went to aircraft giant Boeing on Friday to tout U.S. manufacturing and to pitch changes in the U.S. tax code – including slashing tax deductions for corporations that shutter U.S. plants, and a new minimum tax on foreign profits earned in tax havens.
“My attitude is every multinational company should have to pay a basic international tax. You should not have an advantage by building a plant over there, over somebody who is investing here and hiring American workers,” Obama said visiting a Boeing plant in Everett, Washington.

“And every penny of that minimum tax should go towards lowering taxes for companies like Boeing that choose to stay and hire here in the United States of America,” he said.

Ironic, since most business groups are privately groaning about the idea of a basic minimum tax on foreign profits earned in low tax countries like the Cayman Islands.

Meanwhile, a left-leaning tax policy group cried foul about Obama’s choice of venue. By their calculation Boeing has paid no net taxes over the past decade, using legal means that the group says are undermining the integrity of the U.S. tax code.

Citizens for Tax Justice, which is funded in part by labor unions, estimates that Boeing got money back from the U.S. government over the past decade – paying a negative 6.5 percent tax rate, even though it was profitable every year from 2002 through 2011. “Every time (Obama) sees a company that pays no taxes, he wants to be its best friend,” said Bob McIntyre, a veteran Washington D.C. tax activit who helped push changes that led to a 1986 overhaul of the tax code, which raised taxes on corporate America.

McIntyre may have been referring to General Electric, which McIntyre’s group says also has paid no taxes in recent years, and whose Chief Executive Officer Jeff Immelt heads Obama’s advisory “Jobs Council.”

Boeing, for its part, says its effective tax rate over the past several years has been in the high 20-percent to low 30 percent range. One of the biggest tax breaks Boeing takes advantage of is the research and development tax credit, which is widely praised by lawmakers of both parties.

But the company’s estimated tax rate includes taxes it has not paid yet on income still sitting offshore. Companies can defer taxes on profits earned abroad, take deductions for interest but wait to pay taxes until the cash is brought back as a dividend for investors, for example.

A company spokesman said including deferred taxes accounts for Boeing’s large airplane inventory and pension contributions.

“We will pay more cash taxes in the years ahead as we begin delivering our new airplane programs in large numbers and emerge from this period of investment,” the spokesman said.

(Original Post)

Ray Madoff, ©2012 Bloomberg News

Thursday, February 16, 2012

(For more Bloomberg View, click on VIEW <GO>.)

Feb. 16 (Bloomberg) -- From Warren Buffett's secretary to Mitt Romney's tax returns to the general uprising against the 1 percent, tax reform is on everybody's radar. In the cross hairs is the preferential treatment for capital gains.

Profits from investments are taxed at a maximum rate of 15 percent, which is less than half the 35 percent maximum tax rate imposed on wages and other ordinary income. One can hardly open a newspaper or click on a blog without seeing a call to eliminate this special rate for capital gains to increase fairness and raise federal revenue.

To achieve true fairness and generate increased revenue, however, it is necessary to make two more changes -- to allow capital-gains taxpayers to account for inflation and to close the loophole that allows wealthy Americans to avoid capital- gains taxes altogether by passing on assets at death.

Before elaborating, I'll explain why it's smart to eliminate the preferential tax rate for capital gains.

First, the lower rates cost the government a significant amount of revenue. In 2008, if capital gains had been taxed at 35 percent instead of 15 percent, the federal treasury would have received an additional $100 billion. (Capital gains were unusually low that year; in 2007, the increase would have been closer to $200 billion.) In the next five years, the capital- gains preference will cost the government more than $450 billion, according to estimates from Congress's Joint Committee on Taxation.

Benefit for Wealthy

Second, preferential treatment of capital gains disproportionately benefits the wealthy. In the past 20 years, more than 80 percent of capital gains have gone to the wealthiest 5 percent of Americans, and half have gone to the wealthiest 0.1 percent -- that is, the richest 1/10th of the 1 percenters. Most Americans who own stock don't benefit from the lower rate because they own their stock through retirement plans. When proceeds from these plans are distributed to the taxpayer, they are subject to tax at ordinary income rates.

Finally, the special capital-gains rate makes it difficult to simplify the tax code. Much of its complexity is due to the myriad rules that are meant to ensure that income is properly categorized as ordinary income or capital gains. Eliminate the rate differential, and the tax code could become far less complex.

It's no wonder that people from across the political spectrum -- from President Ronald Reagan to the Bipartisan Policy Center to the liberal tax policy group Citizens for Tax Justice -- have supported the idea of taxing capital gains and ordinary income at the same rate. Nonetheless, to ensure that a rate change would be fair and effective, two more changes are needed.

First, the tax should be imposed only on real gains, and not inflationary ones. One important justification for the lower rate on capital gains has been that if property is held for a long time or during a period of significant inflation, the gains may be illusory. Consider the person who invested $100,000 in a building in 1980 and sold it 30 years later for $250,000. Under current rules that taxpayer would be subject to tax on $150,000. Yet, because $100,000 in 1980 had about the same buying power as $250,000 in 2010, the investment arguably produced no real profit for the taxpayer. The lower tax rate on capital gains mitigates this problem. The tool is too crude, though, to provide true fairness, because the same advantage given to property held for 18 years is given to property held for only 18 months.

Account for Inflation

A fairer system would impose regular tax rates, but allow taxpayers to account for inflation when calculating gain. This fix was proposed in the 1980s, but rejected at the time as being too complicated for the average taxpayer. However, with the advent of the Internet, it's easy for anybody to calculate inflation -- and therefore true gain -- with a few keystrokes. (Try it for yourself using this calculator from the Bureau of Labor Statistics.)

The second, and more important, needed change is to close the "angel of death" loophole. Under current rules, capital- gains taxes are imposed only when property is sold. This means that in any given year, people can easily avoid capital-gains taxes by holding on to their property. Moreover, if property is held until death, then no capital-gains taxes are ever paid, because the tax code treats heirs as if they had purchased the inherited property for its fair market value. This loophole is available even though heirs pay no income taxes on their inheritance and regardless of whether any estate taxes are imposed on the donor.

Thus, if a taxpayer invested $100,000 in Apple Inc. in 2006 and died in 2012 when the stock was worth $1 million, that $900,000 profit is never subject to tax. The decedent is not taxed because he didn't sell the stock, and the heirs are not taxed because they are treated as if they had purchased it for $1 million.

Even at 15 percent capital-gains rates, this angel of death loophole costs the federal government about $60 billion each year. It also creates a powerful incentive for people to hold on to their appreciated property until death. This so-called lock- in effect impedes the efficient flow of capital.

A lower tax rate on capital gains presumably counters lock- in by making it less onerous for taxpayers to sell. However, no matter how low the tax rates are set, they can never compete with a rate of zero. Nonetheless, increasing the rate on capital gains would only increase the lock-in effect, and do little to generate federal revenue.

The simple solution is to modify the tax code to require that all capital gains and losses be realized on a decedent's final income tax return. In our example, this would mean that the decedent's profits from his investment in Apple (adjusted for inflation) would be subject to tax at ordinary income rates. This would not only ensure that profits are fairly taxed but also free people to make their best investment decisions.

Meaningful reform of the capital-gains tax is a good idea. Let's make the change logical and effective as well.

(Original Post)

President Obama has repeatedly and falsely claimed that “right now, we’re scheduled to spend nearly $1 trillion more” in tax cuts for the “wealthiest 2 percent of Americans.” That’s simply not true. The Bush tax cuts — which Obama and Congress extended for two years — expire at the end of this year, so any plans to “spend” beyond Dec. 31, 2012, would require Congress to act again.

The White House told us that the president is referring to the $968 billion that “we save” over 10 years by allowing the Bush tax cuts to expire as scheduled for high-income wage earners and returning the estate tax rate to 2009 levels. But that’s money “saved” compared with extending the expiring cuts, not compared with current law. The fact is that the U.S. is not “scheduled to spend” that money and can’t spend it without changes to current law.

On the day he released his fiscal year 2013 budget, Obama visited Northern Virginia Community College in Annandale, Va., to discuss his budget proposals. He talked about “shared responsibility” — referring to his belief that the Bush tax cuts should be allowed to expire, as planned, at the end of 2012 for the families making more than $250,000 a year and individuals earning more than $200,000.

Obama, Feb. 13: Right now, we’re scheduled to spend nearly $1 trillion more on what was intended to be a temporary tax cut for the wealthiest 2 percent of Americans. We’ve already spent about that much. Now we’re scheduled to spend another trillion.

This has become a standard line in the president’s stump speech as he begins to campaign for reelection in earnest. He made a similar statement in his Jan. 24 State of the Union address and again and again in a string of follow-up speeches in Arizona, Michigan and Iowa.

Obama, State of the Union, Jan. 24: Right now, we’re poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2 percent of Americans.

The president often refers to families earning more than $250,000 a year (and individuals earning more than $200,000) as “the wealthiest 2 percent of Americans.” He did it throughout the debate in the final months of 2010, when he failed to convince Congress to allow the Bush tax cuts to expire as scheduled on Dec. 31, 2010, for “the wealthiest 2 percent of Americans,” and keep them for those earning less than that. We figured — correctly — that the president was referring to the temporary income tax cuts enacted by Bush in 2001 and 2003 and extended by Obama in 2010.

But we were puzzled by Obama’s repeated claim that the U.S. “right now” is “poised” to spend “nearly $1 trillion more” on the Bush tax cuts. The fact is that when Obama and Congress negotiated a two-year extension of the Bush tax cuts for all taxpayers, the nonpartisan Joint Committee on Taxation estimated it would cost $363.5 billion through Dec. 31, 2012. That’s not close to “nearly $1 trillion” and that was the cost for all taxpayers, not just the wealthy.

We asked the White House to explain the president’s claim. In an email exchange with us, the White House pointed us to Table S-9 on page 236 of the budget summary tables. The White House said that the federal government would realize a “combined savings” of $968 billion by allowing the income tax cuts to expire for high-income taxpayers and returning the estate tax to 2009 rates.

But saving money is not the same thing as spending money if the payments are automatically scheduled to stop. By the president’s logic, a car owner is scheduled to spend $36,000 in car payments over the next 10 years, even though the $300 monthly car payments are due to end on Dec. 31, 2012. Unless, of course, the car owner goes out and buys a new car. Likewise, the only way the tax cut can be extended beyond 2012 is if Obama signs a law extending it, or if Congress overrides his veto — or if Obama loses reelection and the next president retroactively reinstates the tax cut.

It’s true that Republicans would like to extend the Bush tax cuts, and there is legislation that proposes to make them permanent. But right now the Bush tax cuts are due to expire, so claiming the U.S. is “scheduled” or “poised” to pay “another trillion” is just wrong.

In delivering his $1 trillion talking point in Michigan, the president was interrupted by a member of the audience, who shouted out, “That’s not fair!” The president agreed. “That’s not fair,” he said. To which, we would add: It’s also not true.

It would be true, however, if the president said it would cost the U.S. nearly $1 trillion in lost tax revenue to extend the Bush tax cuts for the wealthiest 2 percent of Americans for another 10 years and return to the 2009 estate tax rates.

Now, Obama also said that “we’ve already spent” about a trillion dollars on the Bush tax cuts. It wasn’t clear whether he was talking about lost revenue from just the wealthy or all taxpayers. The tax cuts cost the federal government $1 trillion in lost revenue over 10 years from all taxpayers, according to a December 2010 report by the nonpartisan Congressional Research Service. And, as we said earlier, the two-year extension cost an additional $363.5 billion in lost revenue. Other partisan groups have put the figure much higher. Citizens for Tax Justice puts the total at more than $2 trillion over 10 years. The Tax Foundation says that “there is no definitive answer” for how much the Bush tax cuts cost in lost revenue.

– Eugene Kiely

By Mark Trumbull

Feburary 15, 2012

To achieve his goal of 'insourcing,' Obama proposes rewarding firms that create jobs in the US while imposing higher effective taxes on profits earned by overseas operations.

President Obama used a Milwaukee factory Wednesday as the venue to amplify his call for the US to create more manufacturing jobs – including by enticing companies to move jobs back to the US from overseas.

After years in which American workers faced challenging trends labeled "outsourcing" and "off-shoring," some people use the word "insourcing" to describe this goal.

The president proposed a blend of tax-code carrots and sticks. Companies would face higher effective taxes on profits earned by overseas operations, and Obama proposes using the proceeds to reward firms that create jobs in the US. Obama also outlined what appears to be a tougher stance on enforcing current trade laws against China, a policy that could aid the cause of US-based factories.

Mr. Obama won loud cheers from workers at the Master Lock plant where he spoke. But many independent economists, while applauding the general goals Obama espoused, doubt whether the policies he framed in Milwaukee would work.

“The president is absolutely right to focus on this [manufacturing issue],” says Robert Atkinson, who heads the Information Technology and Innovation Foundation, a policy think tank in Washington. But he says he's “not really enamored” of Obama's proposals.

A central problem for US manufacturers, Mr. Atkinson says, is that they are currently asked to pay higher tax rates than their overseas competitors. He argues that what's needed is an overhaul of the corporate tax system to bring rates lower, making the US a more attractive place to invest.

Obama, instead, offered proposals that create new incentives for investment at home, but would also penalize multinational manufacturers based in the US:

"No American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas," Obama said. "From now on, every multinational company should have to pay a basic minimum tax.  And every penny should go towards lowering taxes for companies that choose to stay and hire in the United States of America."

Obama cited Master Lock as an example of a nascent revival for US manufacturing. It has moved about 100 jobs, previously outsourced offshore, back to Milwaukee since the middle of 2010, according to the White House.

Some tax-policy analysts say Obama is right to seek disincentives for firms that shift jobs overseas.

The group Citizens for Tax Justice, for instance, decries a current loophole that allows American corporations to defer US taxes on their offshore profits until those profits are brought home. They pay taxes in the overseas nation. But if they don't "repatriate" the profits, they may avoid the current tax code's goal of having them pay enough US tax to make up the difference between the foreign-country and US-side tax rates.

"This ... provides an incentive for US corporations to shift operations and jobs to a lower tax country, or just use accounting gimmicks to make their US profits appear to be 'foreign' profits," a recent report by Citizens for Tax Justice said.

Other economists, however, say the US needs to tread carefully on tax policy, and that the main problem is that the US corporate tax rates exceed those in other nations.

Gary Hufbauer, at the Peterson Institute for International Economics, says in an audio commentary on the issue that when US firms invest abroad they also tend to create export demand for their products made in the US. If you try to get them to bring their jobs "home," the result may be that they lose a foothold in foreign markets, which can ultimately benefit US workers.

Currently, US corporations pay an effective tax rate of about 27 percent of profits, compared with an average of about 20 percent for many other advanced nations, Mr. Hufbauer says. If that tax-rate gap persists, and if the US cracked down on the deferral loophole, it might encourage more US firms to be bought by corporations based overseas, over time, to get around the higher tax.

Atkinson says Obama is "long overdue" in pursuing tougher enforcement of trade laws against China.

(Original Post)

Karen Dolan

Posted: 02/14/2012 8:14 pm

Mitt Romney said it this way: "I'm not concerned about the very poor. We have a safety net there. If it needs a repair, I'll fix it. I'm not concerned about the very rich, they are fine... I'm concerned about the very heart of America..."

President Barack Obama said it this way: "We can restore an economy where everybody gets a fair shot, everybody does their fair share, everybody plays by the same set of rules -- from Washington to Wall Street to Main Street. That's the America we believe in."

Both want to appeal to a hurting middle-class electorate. Only one has a populist message with appeal and effect. He most likely will win re-election in 2012.

Obama's $3.8 trillion 2013 budget proposal, with its 10-year outlook, is, by design, a populist campaign tool. Though not politically viable now, his newly released budget is critically important in this election year both for the values it reflects, the vision it promotes, and the potential it promises.

Obama's budget has a populist tone, appeals to the middle class, and has some good proposals, both on investment and revenue-raising. But it also reflects the strict spending caps mandated this past summer by the Budget Control Act and hits some struggling families hard. It doesn't go nearly far enough in revenue-raising. For instance, it doesn't propose a tax on financial transactions that would curb Wall Street's worst speculation or propose significant corporate tax reform that would actually raise needed funds. And, by reducing non-security discretionary spending from its current 3.1 percent of GDP to a 50-year low of 1.7 percent over the next decade, a lot of pain will set in when the populism starts to wears off.


Let's start with the good. Among the good proposals on investment side:

• The extension of the payroll tax cut and unemployment benefits through the end of 2012.
• School modernization and plans to retain teachers and first responders.
• Project Rebuild which helps to match unemployed in distressed communities with those communities' infrastructure needs.
• A small business tax credit that incentivizes new hiring.
• Increased child care funding.
• Improvements in Earned Income Tax Credit and Child Tax Credit.
• Tax incentives for manufacturers that keep and create jobs here in the United States.
• A National Infrastructure Bank that would fund projects that increase sustainable transportation and infrastructure investment.
• A total of $850 million in Race to the Top education proposals intended to improve the quality of education from early childhood through higher education.
• Efforts to make college more affordable through sustaining Pell grant funding, keeping interest on student loans from increasing, and reining in tuition hikes.
• A seven percent increase in new biomedical research grants.
• Support for a more sustainable economy through goals of increasing electric car production, doubling the share of "clean energy" electricity sources, and reducing the energy consumed by buildings by 20 percent by 2020.


And, among good proposals on the revenue side:

• Support sustainable energy and environment innovations by eliminating 12 tax breaks to the oil, gas, and coal industries by $41 billion over the next 10 years.
• Spend $487 billion less on the military over the coming decade.
• Make the "Buffett Rule" law, ensuring that millionaires pay a 30 percent tax rate on un-earned income.
• Let the Bush Era tax cuts for families making over $250,000 a year expire.


On to the bad. Here are some aspects of Obama's proposed budget that aren't as good as they might first seem:

• According to the Citizens For Tax Justice, although the Obama plan proposes revenues from letting Bush-era tax cuts expire for couples making over $250,000, it makes permanent 78 percent of the Bush tax cuts at a cost of $3.4 trillion over the next 10 years.
• Obama's proposal to replace the Alternative Minimum Tax with the "Buffett Rule" may not produce any new revenue at all.
• Details remain undisclosed about corporate tax reform proposals, but Obama has suggested they will be revenue-neutral. How is that a good thing?
• Even with this modest reduction in Pentagon spending, Obama's budget proposal still leaves an extreme imbalance between military and non-military spending.


Now, for the Ugly: Last year's Budget Control Act mandated $1 trillion in discretionary cuts. Much of that must come from programs that low-income people rely on for critical human needs. After a hard year of cuts in 2011, this budget proposal calls for a devastating 14 percent cut in social spending. Here are some examples where cuts occur:

• Health care services, career opportunities programs for low-income people
• Children's mental health services
• Housing for disabled people
• Housing for people with HIV/AIDS
• Rental Assistance benefits for low-income people
• Home heating assistance for low-income people
• Community Development Block Grants which help to fund critical human need services
• Programs in the Environmental Protection Agency
• Programs in the National Park Service

This budget proposal will appeal to the middle class and puts Obama in a more popular position than Romney as the 2012 presidential election season heats up. But while this budget has the populist thrust of cutting long-term deficit and debt by attempting to balance spending cuts and revenue increases, it falls short. It bolsters some needed programs, but unnecessarily de-funds others. By not calling for all of the Bush-era tax cuts to expire, not calling on Wall Street to pay its fair share through enacting a small levy on speculative financial transactions, not cutting military base and war spending deeply enough and not calling for the kind of corporate tax reform that will produce revenue, Obama is letting the 1% off rather easy, while the rest of us, especially the poor, shoulder the pain.

(Original Post)

Alexander Eichler First Posted: 02/13/2012 1:38 pm Updated: 02/13/2012 1:38 pm

Facebook's recent decision to go public may be a boon for the company in more ways than one.

Facebook is structuring its initial public offering in a way that will allow the company to sidestep federal and state income taxes on its 2011 earnings, according to a report from Citizens for Tax Justice, a nonprofit advocacy group focused on tax policy. In addition, Facebook expects to see about half a billion dollars come back in the form of tax refunds.

It's all thanks to the stock options Facebook is offering its employees -- 187 million stock options, to be exact.

Facebook staffers, including CEO Mark Zuckerberg, are expected to buy these shares at low prices this year and then exercise them once they hit a higher value. Because of the way the tax law is set up, whatever the difference is between the price of shares when the workers originally purchased them and their price by the time they are exercised, Facebook can deduct that amount from its taxes.

That's projected to bring in $7.5 billion in tax breaks for Facebook, including a $3 billion deduction from its federal and state income tax bill. In addition, Facebook will likely pay no federal or state income taxes this April, and is expected to get money back from the government on its 2009 and 2010 taxes to the tune of $500 million dollars.

Facebook's initial public offering has created buzz in the tech and trading worlds, but by shrugging off federal and state income taxes in a year when it made $1 billion in profits, the company is also placing itself at the center of a long-running debate over what kind of tax burden corporations should be asked to shoulder. President Obama's budget, which he released Monday, includes proposals to boost taxes on some corporations -- setting him up for a battle with some of his Republican rivals.

But Facebook isn't the only major company looking to get the best deal on its taxes. There are any number of accounting strategies firms can use to reduce their tax obligations, from moving assets overseas to structuring their business in a way that passes the tax burden directly on to investors. By using these and other techniques, 30 major U.S. firms -- including General Electric, Wells Fargo, Boeing and Verizon -- managed to avoid paying a dime in income tax in 2008, 2009 and 2010, according to a report last fall from CTJ.

Thanks to Facebook and so many other companies deducting the value of their stock options when exercised, the Treasury stands to lose as much as $20 billion over the next 10 years, the Joint Committee on Taxation has found.

(Original Post)

By Anthony Mancini
Staff writer

February 13, 2012
Legislators and economists support the reintroduction of a bill sponsored by Assemblyman James Brennan, D-Kensington, to increase the alternative minimum tax on corporations in a push for greater enforcement of corporate tax law.

"For many years now, we've known that our corporate tax policy is more akin to Swiss cheese than we would like to think because it's filled with holes," said Ron Deutsch, executive director of New Yorkers for Fiscal Fairness.

Brennan's bill, A.5591, would increase the corporate minimum tax, the lowest percentage a company can usually pay, from its current rate at 1.5 percent to 3.5 percent. It would require companies to pay a 15 percent surcharge on their final tax payment and limit their savings from tax credits to $15 million. The bill is under review by the Assembly Ways and Means Committee. There is no companion bill in the Senate.

Brennan said the 5 percent corporate minimum tax in New York enacted in the 1980s dropped steadily to 1.5 percent in 2007. "That is too low in relation to paying a fair share of taxes in New York state," he said.

Matt Gardner, executive director of the Institute for Taxation and Economic Policy of Washington, D.C. said, "If anyone should be the gauge of the health of the corporate tax at the state level, it should be the biggest, most profitable corporations."

Gardner's group, along with Citizens oforTax Justice, also of Washington, released a report, "Corporate Tax Dodging in the Fifty States, 2008-2010," in December 2011, which lists large corporations that did not pay state income taxes during at least one of the years reviewed. The report claims companies such as Pepco Holdings, American Electric Power and DuPont did not pay taxes for all three years despite multi-million dollar profits.

The report explains how many large companies avoid paying state taxes. It says many states compete to have low corporate tax rates to attract business. Some corporations, according to the report, shift their profits to subsidiary companies in tax haven states such as Delaware or Nevada to save on taxes. The report suggests states should steer away from implementing federal corporate tax cuts, consider parent companies and subsidiaries a single entity to curb tax avoidance and implement an alternative minimum tax.

Gardner said corporate tax rates have steadily declined over the years, but have become especially severe in recent years. "It's only really right now that this long term worrying trend is really becoming embedded in the public consciousness," he said.

Assemblyman William Colton, D-Brooklyn, said corporate tax enforcement is unfair because it punishes small businesses over large corporations. He said many of the top offenders published in the Department of Taxation and Finance's delinquent taxpayer list still conduct business in the state and are not being forced to pay. Trade-winds Environmental Restoration, Mecca Wholesales and New York Baking Co. top the list of delinquent businesses in the Tax Department's January 2012 report.

Colton said, "When I have a small business person in my district who may owe $10,000 in unpaid tax liens and he finds a padlock is put on his door, but yet when there is a million, multi-million dollar corporation … they were not paying what was their fair share."

Colton said real estate partnerships hurt other taxpayers as well. He said partnerships receive tax benefits from buying and owning a piece of property. After a partnership sells the property, he said, they would either not report any gains from the sale or report the sale as a capital gain, which is taxed at 15 percent. Colton said the members of a real estate partnership should be taxed as individuals.

James Parrott, deputy director and chief economist of Fiscal Policy Institute of Latham and New York City said companies are taking advantage of tax loopholes by reorganizing into limited liability companies. He said instead of paying corporate income taxes, limited liability companies pay a filing fee, the maximum in New York being $4,500.

"Even if you have a limited liability company that has millions or tens of millions of dollars of income … they're not paying business income tax in New York state," said Parrott.

"We think basically the only thing worse than these corporate tax dodgers are the elected officials that allow them to dodge their taxes," said Jessica Wisneski, legislative campaigns director of Citizens Action of New York.

On Jan. 9, advocacy groups such as Citizens for Tax Justice, AFL-CIO and Occupy Albany also held a press conference to push for a higher corporate minimum tax and real estate tax reform.

Gov. Andrew Cuomo's 2012-2013 Executive Budget includes one provision to fix tax loopholes. It requires banks to pay clients' tax levies, such as property seizure or wage garnishment, in full. Banks often charge a fee to process levies, which reduces the amount paid to the state.

(Original Post)

By YanaKunichoff, Monday at 4:57 pm

The scales are tipped in Illinois, and not in favor of the 99 percent, community groups say. A series of reports and actions, including the delivery of a golden toilet, seek  to highlight the state cuts and corporate loopholes that advocates say are leaving Illinois citizens in the dust.

“We keep hurting both our tax base and our jobs base in Illinois. Once and for all, we must rid ourselves of this myth that tax breaks for the rich and big corporations create jobs,” said David Hatch, executive director of the Indiana Illinois Regional Organizing Network, a member of Make Wall Street Pay Illinois.

Illinois’ budget deficit is more than $500 million, and the preferred response to budget cuts has been taking social programs to the chopping board. Medicaid, community mental health services, school education funding and education operation funding have all seen cuts since the recession hit in 2008.

Meanwhile, in the spirit of creating jobs, big companies have been offered tax breaks at both the state and city level. Sears Holdings Corp. and the Chicago Mercantile Exchange Group have been some of the biggest recipients with a $371 million tax break from the state passed in December.

But there is an unintended consequence of this strategy, found a report by Make Wall Street Pay Illinois and authored by the Alliance for a Just Society, and it’s not the promised job creation. A cut in general funding of 1 percent is tied to the loss of 6,230 jobs, found The Cost of Cuts in Illinois investigation. And without revenue coming in from corporate taxes, this report predicts this will only get worse.

Communities of color have been hit hardest by the ripple effects of the cuts. The unemployment numbers in Illinois in 2011 were for white adults was 8.4 percent, while for African Americans and Latinos, it was, respectively, 19.4 and 12.1 percent. The state average was 9.7 percent.

How much are these communities missing out in lost corporate tax money? A report released by the Institute on Taxation and Economic Policy with Citizens for Tax Justice found that a significant percentage of Fortune 500 companies paid, on average, only half of the standard state corporate tax rate of 6.2 percent. Between 2008 and 2010, 265 of America’s 280 largest companies only paid 3.0 percent of their U.S. profits in taxes.

The Chicago Mercantile Exchange, in addition to the $77 million tax break it would receive from the state’s bill passed in December, was also offered $15 million in Tax Increment Financing District subsidy money by Mayor Rahm Emanuel. But analysts with the coalition group Stand Up! Chicago said that the money wouldn’t go to create jobs.

“As it was awarded its multimillion-dollar tax loophole, [Chicago Mercantile Exchange] announced that it would use electronic trading to set grain and livestock prices, a move that would put many floor traders, as well as the clerks and runners who support them, out of a job,” wrote Elizabeth Parisian, policy analyst for Stand Up! Chicago.

The group also said that the public money would have been for bathroom and café improvements and, to protest the plan, delivered a golden toilet to the Chicago Mercantile Exchange.

The company eventually rejected the TIF funds, as did the CAN Group and Bank of America.

Pressuring the Chicago Mercantile Exchange to decline the funds, and being successful, is not only a win but also a chance to change the narrative around where public money is best spent, say activists.

“We're pleased that [the Chicago Mercantile Exchange] has listened to the people of Chicago,” Parisian said, “ and recognized that TIF money belongs to our schools and communities, not billion-dollar corporations.”

Photo credit: Jose P. Isern

(Original Post)

By CONNIE CASS, Associated Press

WASHINGTON (AP) — Movie super spies James Bond and Jason Bourne use them. So does real-life U.S. presidential candidate Mitt Romney, who says he pays his taxes, and untold numbers of Americans who don't. Swiss banks and their secretive counterparts around the globe may sound like the exclusive province of the wealthy, the mysterious or the shady, but anybody can legally open an offshore account.

Here's how to do it:

Step 1: Get a million dollars.

How? There are essentially two ways — legally or illegally. For those with dirty cash to launder — drug traffickers, mobsters, smugglers, swindlers and such — offshore accounts hidden from the law are the obvious choice (skip to Step 5).

For honest money, there's more to consider.

Step 2: Decide whether to tell the Internal Revenue Service, the U.S. tax agency.

U.S. citizens are supposed to pay taxes no matter where their money is. But the IRS can't tax what it doesn't know about, and the odds of getting caught offshore have been slim. But beware — that's changing.

The government has landed some big fish — notably the largest Swiss bank, UBS AG — and tax cheats are getting scooped up in the net.

In an unprecedented break from Swiss legal tradition, UBS turned over the names of more than 4,000 suspected U.S. tax evaders in 2010 as part of a deal to settle conspiracy charges. Since then, the United States has been going after those people, charging more Swiss bankers with conspiracy, and leaning on Switzerland to name more names.

Other names came from a bank employee-turned-informant at the LGT Bank in Liechtenstein. And the IRS has been tracking down holders of credit cards issued from Caribbean hideaways, because the cards are a popular way to tap secret funds.

"The noose is tightening on those who want to hide money overseas," said J. Richard Harvey, a former senior adviser to the IRS commissioner.

Pressure to report Americans' holdings will increase substantially next year under a new U.S. law that imposes financial penalties on foreign banks and investment funds that don't comply. Some tax haven banks may skirt it completely, however. If they don't make any U.S. investments they can avoid the penalties.

When the IRS offered amnesty in 2009 and 2011, more than 33,000 tax dodgers came in from the cold, yielding $4.4 billion. A new round in the program opened in January.

Step 3: Look for legal ways to pare taxes.

Here it gets complicated.

For corporations, foundations, pension funds and others, controversial offshore maneuvers can help defer or avoid some taxes. For example, a corporation transfers a lucrative chunk of its business to a foreign subsidiary in a low-tax country. Or a nonprofit group puts otherwise taxable investments offshore.

"There's a thin line between tax avoidance and evasion," said Rebecca Wilkins, a senior counsel at Citizens for Tax Justice, which opposes corporate loopholes. "A lot of these transactions might not stand up in court if the IRS had the resources to pursue them."

Private equity and hedge funds flock to the Cayman Islands, which offer tax advantages for fund managers and some of their foreign and nonprofit investors. Setting up shop — usually nothing more than a mail drop — in these freewheeling environs also allows them to escape the tighter financial regulations of the U.S. and other nations. Some critics say that contributed to the global financial crisis.

Romney, the multimillionaire front-runner for the Republican presidential nomination, has disclosed numerous offshore investments.

His financial filings included at least six Cayman-based funds, worth between $7 million and $32 million, run by Bain Capital, the private equity powerhouse he once led. More than a dozen other funds based in the Caymans and Bermuda showed up on his 2010 federal tax returns. His campaign says he pays the same taxes he would if they were based in the United States.

Romney also had a UBS bank account in Switzerland, but it was closed in 2010 as he prepared to run for president.

Step 4: Consider other motives.

Some people want to hide wealth from spouses or business partners; doctors worry about malpractice suits; others think creditors or the government might try to seize their assets.

Wealthy residents of oppressive countries may feel safer with their savings elsewhere. Dictators, fearing revolt, often do, too.

Step 5: Choose a country.

Switzerland's famous "numbered accounts" aren't as clandestine as they're portrayed in spy movies but do cater to the rich and ensure only a few bank executives know a client's name. Hong Kong has its own version — "chop accounts," identified by a symbol. Congressional investigators counted 50 places that can be considered tax havens or financial hideaways.

Tax havens usually boast:

—Little or no income tax;

—Laws that make it a crime for banks to reveal account holders' names;

—A history of failing to cooperate with other nations' tax collectors.

Step 6: Open an account.

Law-abiding customers who can't travel to an offshore bank can usually set up an account by mail with little or no minimum deposit.

For tax evaders and those playing the angles, a network of accountants, lawyers and bankers is ready to set up shell companies and phony trusts to hide behind.

They can get creative. Former UBS banker Bradley Birkenfeld told investigators he helped a billionaire client withdraw his funds in the form of diamonds. Birkenfeld flew to America with the diamonds hidden in his luggage, inside a tube of toothpaste.

Original Post

Feburary 9, 2012

by Alan Hoffman

Watch five minute segment on CTJ's Corporate Tax Dodgers report with veteran broadcaster, Alan Hoffman interviewing CTJ's Matthew Gardner. Video is hereWNCT:.

GREENVILLE, N.C. - As you struggle to do your taxes and look for every deduction you can find, you will probably end up paying a lot more in taxes than you want.

But did you know, some of the biggest most profitable companies that do business in this country, indeed in this state, paid no taxes at all, and in some cases, paid less than nothing?

9 On Your Side did some investigating and the bad news is, with today’s political climate, there is virtually no chance to change that.

9 On Your Side asked a man filing taxes what he paid. He said $3,000 and when we told him Duke Energy and GE paid less than that in federal income taxes last year he said, “That’s not fair!”

And Duke Energy and GE aren't the only ones who don’t pay the 35 percent corporate tax rate.

A study by “Citizens For Tax Justice” says the majority of the Fortune 500 companies don't either.

Group Spokesman Matthew Gardner said, “These companies are paying about 18 percent in taxes on their profits, about half the legal rate."

In fact, he says 30 companies that made billions in profits paid less than nothing in taxes over the last three years; among them, Duke Energy, Dupont, Verizon, General Electric and Wells Fargo.

But Professor Joseph Hagan says tax avoidance is a right! He tells his graduate students at ECU, “By taking these things and hiding them in the tax law, politicians can say I cut your taxes.”

So, 9 On Your Side asked Gardner if loopholes are not illegal why should we care?

"They are shifting the cost of funding public investments from these companies to small business, to working families, to everyone else and that's a bad thing when we are in an economic downturn," said Gardner.

Hagan added, “I teach my students, a good tax system is, efficient, sufficient, convenient and fair. Our tax system is not sufficient. It does not raise enough money, it is not convenient because it is so complex it's hard for the government to administer and us to comply with it, and it's not efficient because its affecting different industries in different ways and fair."

9 On Your Side called Tom Williams with Duke Energy and he pointed out Duke is just "aggressively" using the same deductions open to any business. A big one was the 'Bonus Depreciation Act" passed in 2008 by the Bush administration. It has been an incentive until this year. It allowed companies to take a windfall of full depreciation on equipment "now" rather than waiting and doing it over time.

Williams said, "I think that makes sense because we are a very capital intensive industry. We build big stuff that last a long time.

But did Duke avoid paying taxes?

According to Williams, he said, “All the taxes are paid ultimately you’re just able not to pay them immediately.”

But Gardner disagrees. He said, “What we see, year in and year out, with companies like Duke and a lot of these energy companies is they do find ways to keep postponing these taxes indefinitely. Their taxes don't seem to be going up ever!"

And while Duke Energy made 5 billion dollars and paid no federal taxes during that time, Williams points out that Duke customers benefited. He says, they pay 10 to 30 percent less for power than the rest of the country. But Gardner said that’s better than it sounds, “Any dollar of tax revenue that these big multinational corporations aren't paying, is a dollar that you and I have to pay, it's a dollar that small businesses have to pay.”

Often industry lobbyists will hand a lawmaker’s staff a pre-written law. The staff adds something, the lawmaker adds something and Professor Hagan said before you know it "it's so complex, the waters are muddy you can't see the bottom, you don't really know what's going on in the water."

But lobbying Congress is legal and over three years electric utilities spent 1-and a half billion dollars to lobby their interest. Pharmaceutical and the insurance industry paid more.

“In many cases congress has enacted not just industry specific but company specific tax breaks. It is pitting some companies against their competitors and the high tax companies have every right to be angry about that,” said Gardner.

Hagan added, “We've got a wonderful tax system in that we ask the people to tell us what they owe and we generally take their word for it…but if they don't think they are being treated fairly, they are not going to comply. Do we wan to do incentives to spur the economy"? Sure we do! But do them more honestly, more direct.”

Hagan teaches graduate students at ECU how to help corporations wring every dollar from the tax code.

”Nobody understands the tax law. If you want to hide something, hide it in the thicket, nobody can see what's going on, and so, that's why it has gotten so complex," said Hagan.

And while he says finding ways to lower your taxes is a God given right for Americans, there are some excesses

Gardner says not only are companies not paying the standard corporate tax of 35 percent, most are paying only half the rate. And 30 paid nothing at all over the last three years.

“This isn't a story about business vs. individuals. This is a story about a small number of highly favored companies that have a lot of lobbying power that have gotten tax breaks when their competitors have not. It's an anti competitive, anti free market thing that's happening here,” said Gardner.

CTJ says the pharmaceutical, electric and insurance industries spent millions over the past three years lobbying Congress for favorable tax codes.

So what does NASCAR have to do with all of this? Well, in 1986 during the Reagan administration, Congress simplified tax rules and did away with dozens of corporation tax shelters. But it wasn't long before Congress added a loophole allowing NASCAR track owners to write off that huge investment.

“You will see little provision put into bill that will affect a very small number of tax payers,” said Gardner.

For instance, corporate jets. If the C.E.O. takes the corporate jet from Washington to LA to see family and it’s not a business trip, tax law says he has to pay, but not for the cost of the actual flight. The law says he has to pay the price of a first class ticket a little more than 2,000 dollars, even though it cost more than 15-thousand dollars to make the trip in the corporate jet.

Now, big companies are lobbying for another tax holiday. Hagan said we’ve created this ourselves, “Right now we have a real problem we've built this dam for corporation that have earned money in foreign countries, they want to bring the dollars back but if they do they'll be taxed now. So what is the recommendation going around now? Let them bring it back tax free."

In a phone interview Williams of Duke Energy told 9 On Your Side why, “There is 1.2 trillion dollars of received earnings sitting off shore. And we pay taxes on those earnings in the countries where we operate. To bring those back to the U.S., we'd have to pay another major tax of about 35 percent so in effect it's a double tax.”

In 2004 the Bush administration and Congress agreed to a tax amnesty. And let companies bring money back to the U.S. and pay only a 5 percent income tax. But Gardner said that didn’t work, “One of the biggest and most infamous beneficiaries of the 2004 tax break was Hewlett Packard, which subsequently fired a lot of people. They reduced their U.S. employment as a result of this repatriation measure.”

But Williams said the company will use the money wisely, “We would put it to work to accelerate our capital programs, to build new environmental controls and new power plants and new smart wear technology.”

But the National Bureau of Economic Research found little if any of the 2004 profits went to hire more workers. Most went to pay dividends to the share holders and Gardner said that’s a bad precedent, ”The message that sends to companies about what they should do, is they should shift their profits overseas to a tax haven and just wait until the next tax holiday.”

So is it fair for a company as big as Duke to get away with paying no income taxes on 5 billion dollars in profit?

On the surface it may not sound like it, but the fact is Duke employs 18 to 20 thousand people. Successful businesses put people to work.

And when you file taxes, you have an absolute right to get every deduction you are entitled too even if you pay less than your neighbor.

Finally, here is why this story and the idea of corporate tax reform is so important.

With today’s economy, citizen’s groups estimates corporate tax shelters cost the U.S. Treasury 18 billion dollars a year.

(Original Post)

February 8, 2012, 6:00 PM

By Samuel Rubenfeld

The U.S. Treasury Department’s proposed rule implementing the Foreign Account Tax Compliance Act, published Wednesday, yielded some concessions to critics but still requires new work by financial institutions.

FATCA , passed in 2010, requires foreign institutions to start reporting detailed information about foreign account holders to the Internal Revenue Service. The 388-page proposed rule gives a graduated roadmap for full compliance, culminating in 2017 when foreign financial institutions would be required to report not just on the value of an account but its gross proceeds. Those institutions that don’t comply face a 30% tax penalty under the statute.

Financial institutions have decried the law as overly burdensome since its passage, and have spent the last two years trying to weaken it, if not kill its enforcement outright. The proposed rule acceded to one key demand: That such reporting could violate privacy regulations in several countries, and it could cause the financial institutions to become an extension of the U.S. tax authorities.

To that end, the Treasury Department announced (pdf) along with the rule that it struck an agreement with France, Germany, Italy, Spain and the U.K. that has them exploring a “common approach” to compliance. It calls on those governments to collect the necessary information, which would be turned over to the IRS through a reciprocal exchange.

“We are pleased that today’s joint announcement on an intergovernmental approach to information exchange appears capable of addressing certain legal difficulties and compliance burdens that would otherwise arise for financial institutions affected by FATCA,” said the British Bankers Association in an emailed statement.

However, the agreement announced Wednesday didn’t reach countries where people tend to hide their money for tax evasion, said Rebecca Wilkins, a senior counsel on federal tax policy for Citizens for Tax Justice, an advocacy group focusing on tax policy at the federal, state and local levels.

“It’s going to give some people a way out, a loophole,” she said. Further, “it remains to be seen what the Treasury will ask for when it exchanges information with these governments.”

A Treasury official speaking on a call explaining the rule said the department is working on agreements with other countries, and is open to a government-to-government approach on information sharing.

Much of the administrative burden of identifying U.S. accounts by foreign financial institutions under the proposed rule was reduced to hew closer to processes they already conduct as they check out money-laundering risks when doing due diligence on prospective customers, Treasury said.

But that doesn’t mean there isn’t more work to be done for banks to comply. The rule clarified the value thresholds necessary to report an account to the IRS, said Tony Wicks, director of AML solutions for NICE Actimize, which makes risk-management platforms for businesses.

“It’s lightened the burden but it definitely has not gone away,” Wicks said. “Many institutions had been putting plans on hold; the starting pistol is gone and they have to get off the box quickly to get their systems in place.”

Individuals are already feeling the effects of the law, which requires them to disclose more information about their overseas holdings on their tax returns for the 2011 tax year.

The Treasury official speaking on the conference call said Congress, when passing FATCA, estimated the loss of tax revenue via offshore evasion to be about $1 billion per year, but the official emphasized that it’s impossible to know the actual figure without numbers to base it on.

(Original Post)

By John Aloysius Farrell
Updated: February 7, 2012 | 5:35 p.m.
February 7, 2012 | 5:18 p.m.

Mark Zuckerberg won’t “Like” this: Two Senate committee chairmen introduced legislation on Tuesday to raise revenue by closing tax loopholes, including an increasingly notorious loophole that could save Facebook billions of dollars in state and federal taxes.

Senate analysts say the “stock-option loophole,” as it is known, will wipe out Facebook’s entire federal and state income tax bills for 2012 if it is not closed.

And because it can be retroactively applied to previous years and carried forward into the future, the tax break could relieve the social-media giant of paying taxes for “a generation,” says Sen. Carl Levin, D-Mich.

Levin, who chairs the Senate Armed Services Committee, and Sen. Kent Conrad, D-N.D., who chairs the Senate Budget Committee, introduced the legislation. It would raise $155 billion over 10 years without any increase in rates by cracking down on offshore tax shelters, repealing tax breaks that encourage firms to move jobs offshore, and closing “egregious” loopholes, Levin says.

One of those tax breaks is the stock-option loophole. It allows corporations that pay their executives with stock options to claim a deduction that is greater than the expense carried on their books. It costs the Treasury some $20 billion over 10 years.

Though Facebook cofounder Zuckerberg may have to pay some $2 billion in personal income taxes when he exercises his $4.8 billion in stock options, the current tax laws will reduce his firm’s tax burden by $3 billion, according to the watchdog group Citizens for Tax Justice. And according to Facebook, the firm could qualify for a tax refund of “up to $500 million” from past years.

“There’s something obviously wrong with a tax loophole that lets highly profitable companies make more money after tax than before, ” said Robert McIntyre, who heads Citizens for Tax Justice, in a column on the organization’s website.

Levin said closing tax loopholes is “the key which has not been turned” in finding funds for a payroll-tax cut and for long-term deficit reduction. The “longstanding festering abuse” of the tax code should be closed as a matter of fairness alone, the senator said.

(Original Post)

By Robert McIntyre, director, Citizens for Tax Justice - 02/07/12 11:59 AM ET

If you listen to GOP members of Congress and Obama administration officials, you’d think corporations can’t possibly afford to pay more in taxes to help solve our deficit problem. The evidence, however, tells the opposite story.
 
Last Fall, the Treasury Department reported that corporate income tax payments were down to historic lows as a share of the economy. About the same time, Citizens for Tax Justice issued a study of 280 of the nation’s biggest and most profitable corporations. Our report found that, on average, these companies paid only about half the 35 percent official U.S. federal tax rate on their $1.4 trillion in U.S. profits from 2008 through 2010.
 
Now the Congressional Budget Office has chimed in. Its latest budget report repeats the figures that Treasury reported last year. This shocking “news” has surprised many. As the Wall Street Journal put it on Feb. 3, “U.S. companies are booking higher profits than ever. But the number crunchers in Washington are puzzling over a phenomenon that has just come into view: Corporate tax receipts as a share of profits are at their lowest level in at least 40 years.”

What are the sources of this phenomenon that has some experts puzzled? Actually, the answers are pretty straightforward.
 
First of all, starting in 2008, our lawmakers in Washington, Republicans and Democrats alike, enacted a series of corporate tax cuts, which are officially estimated to cost $185 billion from fiscal 2008 through fiscal 2012. In fiscal 2011 alone, these tax cuts reduced corporate tax payments by about a quarter.
 
Second, American multinational corporations are getting more and more aggressive at shifting what should be U.S. taxable income to foreign tax havens. From 2007 to 2010, the 280 big corporations in CTJ’s study increased their offshore profit hoards from $771 billion to $1,266 billion, a jump of 64 percent. Much, although not all, of this is parked in tax havens.
 
A single company, Apple, increased its “total foreign holdings of cash, cash equivalents and marketable securities” from $6.7 million in September 2007 to $54.3 billion by September 2011. Apple’s SEC filings reveal that almost all of this gigantic stash was built with profits that have never been taxed by any country.
 
So, now that the news is out documenting widespread, budget-busting corporate tax avoidance, are our politicians clamoring to address the problem? Hardly. Instead, Republicans are falling over themselves to propose still more and even bigger corporate tax cuts, while many Democrats, including President Obama, seem to feel that the current level of corporate tax payments is just about perfect.
 
They’re wrong. Instead of repeating the failed policies of the past, we should shift gears.
 
Just as Ronald Reagan and a bipartisan Congress did in the Tax Reform Act of 1986, we should crack down on wasteful, often harmful corporate tax subsidies. The 1986 reforms curbed useless tax breaks for oil companies, public utilities, defense contractors and a wide array of corporate special interests. It rewrote the way we tax multinational corporations to make it harder for them to avoid their U.S. tax responsibilities by moving their U.S. profits to foreign tax havens. And by doing so, it made our economy more productive and increased corporate tax payments by more than a third.
 
Sadly, since Reagan’s reforms, major loopholes have crept back into the corporate tax code, particularly ones for multinational companies. These days, corporate offshore profit-shifting alone is estimated to cost the rest of us taxpayers as much as $100 billion a year. That adds up to well over $1 trillion over a decade.
 
Indeed, if just the 280 corporations that CTJ analyzed in our 2011 study had paid the full 35 percent corporate tax rate on their U.S. profits over the 2008-10 period (instead of only half that much), they would have paid an additional $223 billion in corporate income taxes.
 
While revenue-raising corporate tax reform can’t solve our entire deficit problem, it can produce huge savings to help reduce excessive debt while protecting essential public programs. Among the many hard choices about public spending and taxes we’ll have to face in the upcoming years, the choice between scrapping corporate tax subsidies and slashing Social Security and Medicare ought to be one of the easiest.

McIntyre is director of Citizens for Tax Justice.

(Original Post)

By Sylvia Larsen and Terie Norelli
February 07, 2012 2:00 AM

In his State of the Union address, President Barack Obama showcased his concrete ideas to move America forward. His focus was squarely on creating jobs, strengthening the middle class and building an economy to last.

He discussed his blueprint for a fair economy, where if you work hard and play by the rules you can succeed. He emphasized manufacturing jobs, college affordability and key investments in education — all pragmatic ideas in a make-or-break moment for the middle class.

New Hampshire voters are characterized by their pragmatism and their independence. In New Hampshire, there are more voters who are not registered with a particular political party ("undeclared") than are registered with either the Republican or Democratic parties. This is why New Hampshire has been and will remain a key swing state. That is also why the president's common-sense policies resonated here in 2008 and will again in 2012.

The policies proposed by the president are not Democratic ideas or Republican ideas. In fact, a recent University of New Hampshire/Boston Globe poll found that a majority of New Hampshire Republicans (53 percent) support making our tax system fairer by asking the wealthiest few to pay their fair share. According to the same poll, 78 percent of New Hampshire Republicans oppose raising taxes on middle class Americans, and 72 percent of Republicans oppose cutting spending on Medicare.

The president's policies speak not to a party or ideology but to Granite Staters who believe in the fundamental American values of fairness and equality, where a thriving middle class will drive our economy forward.

Other polls earlier this year found a majority of New Hampshire Republicans to be pro-choice and 67 percent of Republicans to support some type of legal recognition for same-sex couples, highlighting a New Hampshire majority undivided on social issues.

The contrast between the president's State of the Union address and what the Republicans in Concord, Washington and on the campaign trail are offering is stark. On issue after issue — from social issues to tax policy — these Republicans have stampeded to the right, putting them at odds with the majority of New Hampshire voters and even voters of their own party.

Republicans vying for the presidential nomination continue to promote fiscally irresponsible tax plans without regard for the middle class, while President Obama has championed a tax savings of $1,000 for middle-class American families. According to the Center for Tax Policy, under Mitt Romney's proposal to eliminate taxes on capital gains, interest and dividends, a typical middle-class family making between $40,000 and $50,000 would see an average tax savings of only $54 per year. Over 70 percent of these families would see no benefit at all. The nonpartisan group Citizens for Tax Justice recently published the conclusions of a study showing that if Romney implemented his tax proposal, he, a millionaire two hundred times over, would personally enjoy a 40 percent tax cut from an already low rate.

In Washington, our congressional Republicans are equally out of touch. All voted to end Medicare as we know it. Additionally, just last week, Rep. Frank Guinta in a hearing made it known that he would be happy if the Consumer Financial Protection Bureau had "zero employees." This agency's purpose is to protect consumers and advocate for Main Street, while reining in Wall Street abuses — a job that Congressman Guinta apparently believes is inconsequential and that the president has made a priority.

In Concord, if you can believe it, the Republicans are even further from the electorate.

While President Obama and Democrats are focused on jobs, some of the bills that came up in the New Hampshire state Legislature last week would allow businesses to discriminate against gays and lesbians, mandate all future bills passed reference and derive authority from the Magna Carta of 1215, roll back protections for survivors of domestic violence, and make deep cuts to Medicare. Republicans in the state Legislature have attempted to abolish the minimum wage, attacked collective bargaining rights and voted to defund Planned Parenthood.

In November, New Hampshire voters will have a choice to make, and we believe it is a clear one. In the past few months, Republicans have focused on an agenda that returns us to the failed policies of the past (not to be outdone, some in the New Hampshire House even proposed a return to 1215!) and panders far to the right of what even members of their own party believe.

In his State of the Union address, President Obama outlined his vision for an American future, based on pragmatic policies that will support our economic recovery and grow our middle class. It is the only plan that matches up with the ideology of New Hampshire's electorate, and it is the only plan that will move us forward as a state and as a nation.

Sylvia Larsen of Concord is the Democratic leader of the N.H. Senate. Terie Norelli of Portsmouth is the Democratic leader of the N.H. House.

(Original Post)

The philosophical, economic, and political case for raising capital gains taxes.

By Eliot Spitzer|Posted Monday, Feb. 6, 2012, at 12:32 PM ET

The U.S. tax code: Never has so much been done by so many for so few who need so little. The recent public debate about the inequities built into the tax code—triggered by the disclosure of Mitt Romney’s tax returns—is all for the good. So is the call for a “Romney rule” mandating that capital gains be treated as ordinary income, and so be subject to the same top marginal rate of 35 percent that applies to ordinary income, rather than the current top rate of 15 percent.

But we shouldn’t raise the capital gains tax just because it’s a popular idea. The rate should rise for philosophical, economic, and political reasons, as several colleagues and I argued in a recent debate at the Maxwell School of Public Policy at Syracuse University.

The philosophical argument for higher capital gains taxes is not tough. Modern American political philosophy is essentially a battle between John Rawls and Robert Nozick. Rawls, whose famous dictum is that we should maximize the well being of the least well-off member of our society, is generally understood consequently to support progressive tax structures that shift income from the wealthy to the less fortunate—with the proviso that marginal rates that were disincentives to work could over time diminish the well being of the least well off. So progressivity is bounded by that practical limit.

Anybody who is a Rawlsian—which means most Democrats—should favor a Romney rule that would raise his effective 14 percent tax rate to something approaching the 35 percent rate applicable to ordinary earned income.

But how to persuade those who view the world through the prism of Nozick? Nozick acknowledges the need for government to provide certain public goods, such as the national defense and police functions, but he is generally libertarian, and skeptical of an expansive view of government. When it comes to taxation, even those from the Nozick school can be convinced that a flat tax is the best of the bad alternatives. From their perspective, the tax code should not be used to redistribute—but it also should not be used to discriminate. So here is the pitch to them: Give us a flat tax! Do not discriminate between ordinary earned income and capital gains income: Tax them the same! Bring Mitt’s marginal rate to the same level as that or ordinary income. If both can be prudently lowered through loophole closing, that is fine.

This brings us to the economic arguments for raising capital gains rates. The only real caveat—for either Rawls or Nozick—is the claim that a marginal rate of 35 percent on capital gains would be such a disincentive to economic activity that the reduced economic activity would either harm the well being of the least well of member of society—the Rawls concern—or would simply reduce the total level of output, regardless of distributional concerns—the Nozick concern.

On this pure economic issue, all serious studies of the issue (see in particular the reports by Citizens for Tax Justice and work by my fellow debater Len Burman, a superbly well-respected economist—provide dispositive evidence. The issue has been tested in the real world: Capital gains rates have through most of history been the same as those for ordinary income, but occasionally been reduced—or raised. Consequently, we have been able to measure the actual impact of rising and lowering the capital gains tax rate. Raising the rate as we have proposed would not be a disincentive to investment.

The opposition at the debate did not raise any counter evidence. Often what is not said is more important than what is. They said nothing factual about the actual impact of an increase in the marginal rate on capital gains. Instead, they simply asserted that raising the rate would be counterproductive, with no supporting evidence. Their arguments were reminiscent of the apocryphal story of the Russian economist who rejected an answer to a real-life problem by saying: It works in practice, but it doesn’t work in theory.

The argument that capital needs additional incentive to be invested is always asserted, rarely supported. It is time to put the other side to the hard test of proving its case. They can’t. Perhaps this is why so many on both sides of the political aisle—from President Reagan to the Bowles-Simpson report—have supported eliminating the disparity between capital gains tax rates and ordinary income tax rates.

The politics also favor raising capital gains rates. I do not mean the politics of Democrats vs. Republicans. Just the opposite. Americans on both sides—Tea Partiers, Occupiers, and everyone in between—is resentful of perceived inequities and preferences that inure to one favored group or another. Our sense of community, shared sacrifice, and shared obligations has been damaged. Having the benefit of equal burden sharing would be a welcome salve. Our larger politics would be better with a level playing field between earned income and capital gains.

(Original Post)

Sunday, February 5, 2012

By TERIE NORELLI and SYLVIA LARSEN

In his State of the Union address last week, President Barack Obama showcased his concrete ideas to move America forward. His focus was squarely on creating jobs, strengthening the middle class and building an economy to last.

He discussed his blueprint for a fair economy, where if you work hard and play by the rules, you can succeed. He emphasized manufacturing jobs, college affordability and key investments in education – all pragmatic ideas in a make-or-break moment for the middle class.

New Hampshire voters are characterized by their pragmatism and their independence. In New Hampshire, there are more voters who are not registered with a particular political party (“undeclared”) than are registered with either the Republican or Democratic parties.

This is why New Hampshire has been and will remain a key swing state. That is also why the president’s common-sense policies resonated here in 2008 and will again in 2012.

The policies proposed by the president are neither Democratic ideas nor Republican ideas. In fact, a recent University of New Hampshire/Boston Globe poll found a majority of New Hampshire Republicans (53 percent) support making our tax system fairer by asking the wealthiest few to pay their fair share.

According to the same poll, 78 percent of New Hampshire Republicans oppose raising taxes on middle-class Americans, and 72 percent of Republicans oppose cutting spending on Medicare.

The president’s policies speak not to a party or ideology, but to Granite Staters who believe in the fundamental American values of fairness and equality, where a thriving middle class will drive our economy forward.

Other polls earlier this year found a majority of New Hampshire Republicans to be pro-choice, and 67 percent of Republicans to support some type of legal recognition for same-sex couples, highlighting a New Hampshire majority undivided on social issues.

The contrast between the president’s State of the Union address Tuesday and what the Republicans in Concord, Washington and on the campaign trail are offering is stark. On issue after issue – from social issues to tax policy – these Republicans have stampeded to the right, putting them at odds with the majority of New Hampshire voters and even voters of their own party.

Republicans vying for the presidential nomination continue to promote fiscally irresponsible tax plans without regard for the middle class, while the president has championed a tax savings of $1,000 for middle-class families.

According to the Center for Tax Policy, under Mitt Romney’s proposal to eliminate taxes on capital gains, interest and dividends, a typical middle-class family making between $40,000 and $50,000 would see an average tax savings of only $54 per year. More than 70 percent would see no benefit at all.

The nonpartisan Citizens for Tax Justice published the conclusions of a study last month that shows if Romney implemented his tax proposal, he, a millionaire 200 times over, would personally enjoy a 40 percent tax cut from an already low rate.

In Washington, our congressional Republicans are equally out of touch. All voted to end Medicare as we know it. Additionally, just last week, Rep. Frank Guinta made it known he would be happy if the Consumer Financial Protection Bureau had “zero employees.”

This agency’s purpose is to protect consumers and advocate for Main Street, while reining in Wall Street abuses – a job the congressman apparently believes is inconsequential.

In Concord, if you can believe it, the Republicans are even further from the electorate. While Obama and Democrats are focused on jobs, some of the bills that came up in the Legislature last week would allow businesses to discriminate against gays and lesbians, mandate all future bills passed reference and derive authority from the Magna Carta of 1215, roll back protections for survivors of domestic violence and make deep cuts to Medicare.

In his State of the Union address, the president outlined his vision for an American future, based on pragmatic policies that will support our economic recovery and grow our middle class.

It is the only plan that matches up with the ideology of New Hampshire’s electorate, and it is the only plan that will move us forward as a state and as a nation.

(Original Post)

07:12 pm February 3, 2012

by Edward Schumacher-Matos

Is Mitt Romney being treated unfairly in the coverage of the taxes he pays?

Hardly.

Some might find it rich even to raise the question, but many NPR listeners have, and it is journalistically and intellectually a valid question.

According to tax returns that Romney released last week under pressure from opponents in the Republican presidential primaries, he paid what appears to be a low rate for 2010 of 13.9 percent in federal taxes on adjusted gross income of $21.7 million. His campaign also released his estimated income for 2011 and projected that the average rate over the two years would come to a slightly higher 14.5 percent. That is an uncertain number, however, and is still extraordinarily low by the standards of the nation's progressive income tax scheme. In that scheme, the wealthy supposedly pay the highest rates.

But many listeners wrote to complain that reports on Romney's tax returns by Tamara Keith on Morning Edition and All Things Considered were, if not biased against the wealthy, at least ill-informed and lacking the context that explains how he came to have the low rates. More than half of Romney's income comes from investments, which Congress purposefully taxes at a low rate. They do so on the grounds that this will encourage more investment, as well as compensate for what arguably is double taxation on some investment income. Keith's reports noted that most of Romney's income was taxed low because it came from investments, but some listeners and conservative advocacy groups felt that she and most of the mainstream media failed to explain the justification.

They are right.....to a point. NPR is obligated to provide context and explanation, especially for subjects that are controversial or that might be unfamiliar to many in its audience, including the details of tax policy, for example. But it's also important that the context is itself fair and balanced; the explanation should not be skewed to one side of an argument. Full context requires additional historical, moral and economic analysis if any of this background is to be included in straight news stories and still be fair—that is to say, not be biased in favor of Romney's low tax rates.

Omitting the full analysis, in other words, and simply labeling the rate in news stories as "low" is fair even if it is not complete.
 

Elsewhere in its coverage, however, NPR did provide some of the context that letter-writers said was missing. It did so online, and, in anticipation of Romney's returns, All Things Considered did a two-way conversation between host Audie Cornish and NPR reporter John Ydistie on capital gains rates.

It was also fair to focus only on federal taxes, even though Romney surely paid state and local taxes, too, as some listeners noted. Those are lesser taxes and vary geographically, making it difficult to make comparisons nationally. Also, Romney didn't release his state and local tax information.

None of this is to suggest that Romney did anything illegal or questionable. No NPR stories made such a suggestion.

Lets work our way through the arguments. Listener Rick Walsh, of Boca Raton, FL, summed up many of the complaining emails in this very well-reasoned letter:

    ATC's story on Jan 24th regarding Mitt Romney's tax return was very incomplete and misleading. The story utterly fails to note that any dividends upon which Romney pays 15% Federal tax have already been taxed at the Corporate level at 35%. In effect Romney is paying more net taxes due to this double taxation.

    If you want to advance the agenda that the 15% double taxation of dividends is too low, then fine — but it is unfair, and frankly economically illiterate — to fail to report all the facts about how Corporate taxes and dividends work — and to point out fairly and accurately that the dividend payment has been taxed previously.

    ATC should endeavor to provide a complete understanding of the issue, rather than the same breathless ignorance over the low rate (again, which is NOT a low net rate) that I hear and read all day long in the media.

    Failing to do so, and joining the mass of ignorance not only misinforms on the facts, it builds bad faith in the government since it sounds like corruption — when in fact it is not unreasonable at all to have a 15% rate AFTER the 35% corporate tax has already been paid.

    I don't want to make this a media bias issue, since the real issue is the evident economic illiteracy of the reporting staff, but I don't recall John Kerry's dividend income and effective tax rate being so closely scrutinized in 2004.

On one level, Walsh is correct. Of Romney's $21.7 million in reported 2010 income, $12.6 million was taxed at the capital gains rate, which is a maximum of 15 percent. Of this money, according to his campaign, $5.4 million—or roughly a quarter of his total income—was mostly in qualified dividends, stock sales and other gains from the profits of companies. The companies may have already paid taxes on these profits, reducing the after-tax profits to be distributed to investors and giving rise to the argument of double taxation. The maximum corporate tax rate is 35 percent.

Putting the two tax rates together, John Berlau and Trey Kovacs, of the conservative Competitive Enterprise Institute, estimated in an op-ed piece in The Wall Street Journal last week that the total effective tax rate on income from investing in corporations is as much as 44.75 percent. This compares to a top rate on salary income of 35 percent, which is applied to wages of more than $379,150. This suggests that Romney in fact could have paid a high effective tax rate.

But this context is itself incomplete. First, numerous studies over the years have shown that few companies pay the maximum 35 percent corporate rate. According to a recent study of 280 corporations by the non-partisan Citizens for Tax Justice and the Institute on Taxation and Economic Policy—both of whom advocate for middle- and low-income tax payers and tax transparency—the three-year effective tax rate of the group averaged 17.3 percent. Some large corporations manage some years to pay no corporate taxes at all.

The second issue has to do with the concept of double taxation itself — a concept that is highly disputed. For example, almost all of us who earn salaries are hit by double taxation. Our employers match our payroll taxes. Most economists agree that this "employer half" is effectively subtracted by companies from the wages they pay us, in effectively the same way that corporate taxes are subtracted from the profits distributed to investors. Additionally, it is not clear that corporate tax costs are passed on to investors anyway, and might instead be paid by employees (through reduced wages) and by consumers (through higher prices).

This debate over corporate tax "incidence" has divided economists for years and will surely do so for years more. This suggests that there is nothing conceptually special, galling or even agreed-upon about double taxation paid by corporate investors.

Almost all of Romney's investments in companies, moreover, were not directly in the companies themselves but in funds. It is the funds that are the direct investors in the companies. A "pass-through" concept links the fund investors and the companies, but this concept becomes ever more tenuous in the modern financial world of hedge funds and derivatives.

In Romney's particular tax case, there is more still to consider. Much more. Until now, we have been exploring the quarter of his income that is indisputably capital gains. Another nearly 30 percent of his income—$7.4 million—was in so-called "carried interest," according to Romney campaign chief counsel Benjamin Ginsberg in a conference call with reporters. Carried interest is taxed like a capital gain but is a very different type of income altogether. It has almost no ties to corporate profits and thus is not subject to a double-taxation claim.

Almost all this income continues to come from Romney's past interest in Bain Capital, a private equity firm he founded. Carried interest is considered by many economists to be conceptually more like a commission because it is earned by private equity managers from the investments made by their firm even if they don't invest their own money. Additionally, a core strategy of private equity firms is to borrow against the target company in which they are investing precisely so that the interest on the loans reduces corporate taxes to as low as zero. Perversely, in other words, instead of there being a double taxation claim, it can be argued that firms such as Bain borrow, take risks and grow at the expense of other taxpayers.

None of this is secret. Congress repeatedly has made a value judgment in devising the tax structure and rates that have benefited Romney. Congress—both parties, at different times—voted to benefit investors and financiers with lower tax rates for investments than those paid on wages on the grounds that this would help stimulate more investment and, in turn, the economy.

Romney benefited from a host of other deductions, such as for charitable giving, and legal maneuvers, such as in the establishing of trusts and offshore investments. Because of these deductions, his total real income was surely much more than the reported $21.7 million in "adjusted gross income."

You must decide for yourself whether you agree with the policy rationale for taxation on business investments and if it should apply in all the ways it does now. President Barack Obama and many Democrats have proposed reversing the benefit for carried interest. Newt Gingrich goes in the other direction and proposes doing away with the capital gains tax. Romney himself has proposed keeping it at current levels for high earners, but eliminating taxes on dividends and capital gains for households that earn less than $200,00 a year.

Capital gains tax is long enshrined. Until 1921, the rate was equal to that on wages, according to Roberton Williams, senior fellow at the authoritative and non-partisan Tax Policy Center. The argument that a high capital gains tax was counter-productive prevailed after the war, and it was cut to as low as 13 percent, he said. Beginning with the Great Depression it mostly fluctuated, though during four years under Ronald Reagan in the 1980s, wages and capital gains were again taxed the same—28 percent. The current rate was passed by Congress in 2003.

This history suggests that the current rates and structures are not engraved in stone, or even proven in their effectiveness. Economists are divided on what is the optimal rate that encourages investments, jobs and economic growth, plus maximizes tax income.

Then there is the moral argument. If tax levels are not seen by most Americans as fair, they lose their legitimacy, which is an existential threat to the nation itself. A democracy is held together by more than its rules. People must believe in the tax structure, and its fairness for all.

Enter the so-called Buffett Rule proposed by President Obama. The rule would impose a minimum tax rate of 30 percent on the highest income earners in the United States, no matter how the money is earned. The rule is named after legendary Warren Buffett who has complained that he paid a lower tax rate than his secretary.

You will decide for yourself what is moral and fair, and what you think the collective ethos of the nation is. My concern and that of NPR is what is fair in the reporting on Romney and the broader tax issues. Should stories be framed in the context of progressive total tax payments, of economic stimulus, of double taxation, of finance loopholes, of the lesser value of work, of the historical fluctuations or the division among economists? All these questions reflect elements of truth and are legitimate.

But one thing is clear to me. To frame a news story or analysis only in the context of double taxation would be incomplete and misleading. The rate Romney paid is what it is. The justifications are a separate argument best left to a separate story that explores these many angles.

I end with Shirish Date, the lead editor on Romney's tax coverage. I asked him to explain the editorial decisions until now. He wrote:

    What we wanted to show in these pieces was how much income Romney had, and how much he paid in taxes, against the yardsticks of his top GOP primary opponent and the typical American taxpayer. These are political measures, which are appropriate for political stories such as these.

    True, there are a number of related discussions that we didn't enter into. Maybe these are good places to explore in the coming weeks.

Back to you.

(Original Post)

Alexander Eichler First Posted: 02/ 3/2012 3:19 pm Updated: 02/ 3/2012 3:19 pm

As a percentage of ever-growing profits, corporations are paying less in taxes than they have in decades.

Thanks in part to federal tax breaks, corporations paid out just 12.1 percent of their 2011 profits in taxes, according to the Congressional Budget Office. That's well below the country's top marginal corporate tax rate of 35 percent -- and as The Wall Street Journal notes, it's the lowest percentage corporations have paid since 1972. During the two previous decades, a period that included the economic prosperity of the 1990s and the housing boom of the George W. Bush administration, corporations were paying an average percentage almost twice as high.

The CBO's numbers undercut a popular conservative claim -- that the United States places a higher tax burden on its corporations than almost any other first-world nation -- and arrive at a time when national politicians are engaged in a fierce rhetorical battle over how much wealthy institutions and individuals should pay to the government.

Corporations reported a combined $1.97 trillion in profits in the third quarter of 2011. As recently as June, they were also believed to be sitting on more than $2 trillion in cash hoardings. Most of that money has not been touched by taxation, even though the federal government has experienced budget shortfalls of more than $1 trillion for each of the past four years, and is scrambling to cut back on staff and services as a result. Meanwhile, the money isn't going to employees either, as real wages for most Americans declined in 2011 in spite of strong corporate balance sheets.

There are any number of methods available to a firm looking to avoid paying the full tax rate. Companies can take advantage of industry subsidies, restructure their operations so as to sidestep certain taxes, and offer workers payment in the form of stock options, which then allows the company to claim a greater deduction. Many companies also move assets overseas where they can't be taxed. In 2008, 2009 and 2010, thirty major U.S. corporations, including General Electric, Boeing, Verizon and Wells Fargo, used so many tax-avoidance techniques that they ended up paying no income taxes at all, according to a report last year from Citizens for Tax Justice.

President Obama has denounced low corporate taxes in specific instances while at the same time downplaying the importance of raising the corporate tax rate itself. The president is said to be planning a major revision of the corporate tax code sometime in February.

Meanwhile, much of the country continues to struggle financially, with nearly 13 million people looking for work, 49 million people officially in poverty, and almost half of households lacking the kind of savings they would need in an emergency.

(Original Post)

By Alyce Lomax | More Articles
February 3, 2012 | Comments (0)

America's fiscal situation is a shambles, and our marketplace is fraught with dysfunction. We've let dirty dealers get away with far too much. Many of those corrupt players are the "corporate people" whose wallets were loosened by the Supreme Court Citizens United case two years ago.

We could define "dirty players" in many ways, but one of the ways our market is distorted is by the torrent of shareholder capital that is deployed in an extremely unproductive way: corporations lobbying for political advantage in an increasingly false marketplace.

Dirty pool
The U.S. Public Interest Research Group Education Fund and Citizens for Tax Justice recently released a report outing what they call "The Dirty Thirty." According to the Representation Without Taxation report, these 30 Fortune 500 companies spend big bucks on lobbying, all the while taking advantage of loopholes to dodge paying billions in taxes.

The report identified 280 profitable Fortune 500 firms that paid an effective tax rate of 18.5%, about half of the statutory 35% corporate tax rate, and raked in $223 billion in tax subsidies. Those companies shelled out $2 billion on lobbying related to taxation and other issues between 2008 and 2010.

The "Dirty Thirty" were particularly aggressive at both lobbying and avoiding taxes. These 30 companies took $10.6 billion in tax rebates and avoided the $67.9 billion in taxes they would have paid had they been subject to the 35% tax rate.

Hey, big spender
The "Dirty Thirty" includes some well-known consumer names and highly recognized stocks. Let's take a look at a few.

Washington, D.C.-based utility Pepco (NYSE: POM  ) isn't just "dirty," it's hated, too. The American Customer Satisfaction Index gave it a dubious distinction; it was named "the most hated company in America" last summer because it drives its customers "berserk."

Pepco happens to reside at the very top of the Dirty Thirty list. Pepco shelled out $3.8 million in lobbying dollars while enjoying a negative 57.6% tax rate. Having also enjoyed $816.7 million in tax subsidies, it generated $882 million in profits. You'd think its service wouldn't stink so bad given the cushy deal it has at the expense of everyday Americans, right?

General Electric (NYSE: GE  ) , not surprisingly, came in at No. 2. It shelled out a mind-boggling $84.4 million in lobbying expenses, and reaped $8.4 billion in tax subsidies. It also happens to have 14 subsidiaries in tax havens.

GE landed in the tax avoidance spotlight last year, and defended itself by saying it did pay taxes, and plenty of them, too ($2.7 billion). It didn't clarify that those were worldwide taxes. Here at home, maybe GE brings good things to living, all while living relatively scot-free.

The list included some big, big spenders. Verizon (NYSE: VZ  ) , Boeing (NYSE: BA  ) , and PG&E (NYSE: PCG  ) all coughed up some serious cash on lobbying expenses. Verizon and Boeing both shelled out $52.3 million, and PG&E expended a lot of "energy" in this area, spending $79 million.

Dirty stocks, deteriorating businesses
The Dirty Thirty report focuses on the ironic correlation between the millions some corporate managements are willing to spend on lobbying to lower tax burdens versus the millions in tax savings they generate. The irony is that both of these are uses of companies' shareholder capital, and investors will defend one use while decrying the other.

In reality, lobbying's a negative for truly free-market-minded investors who care more about owning truly good businesses than short-term, stock-price machinations (and distortions).

Although many modern investors may have swallowed the line that lobbying's an inevitable expense of doing business (and taxation is bad, bad, bad!), the truth is, lobbying at its heart probably indicates a reality nobody wants to talk about: shoddy, noncompetitive business models that may not enrich shareholders or true, American, economic well-being, even without the tax-dodging component. Call me crazy, but maybe the millions in lobbying expenditures would be better spent on good old-fashioned R&D and real, job-creating innovations.

Earlier this week, MSNBC's Dylan Ratigan, originator of the Get the Money Out of politics campaign and author of the new book Greedy Bastards, came to speak here at Fool HQ. One statement Ratigan made should resonate with all self-respecting shareholders: Lobbying is actually a sign of a deteriorating business that's not functioning well on a core level. See a related clip below:

When companies lobby government to get a leg up or preferential treatment of any kind, that's a solid sign they aren't very strong on their own business merits, even if they have the capital to sling around on lobbying. These companies are also basically pushing for a false marketplace, and as Ratigan puts it, causing distortions in price integrity that mess up our markets even worse.

Beware companies like the Dirty Thirty, and push for full disclosure of corporate political spending. This year's proxy season should follow in last year's footsteps, including a large amount of shareholder resolutions demanding that companies get the message and disclose their political spending. Let's keep an eye out for those and vote accordingly at the companies we own.

To invest with real business growth in mind, investors can seek out industry disruptors instead of lobbying, legacy losers desperate to protect their deteriorating, old-school turf. Click the link to download your report to Discover the Next Rule-Breaking Multibagger, absolutely free.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

(Original Post)

5:14 PM, Feb. 3, 2012

I will spend much of this weekend taming the beast that is my income tax folder.

I keep detailed documentation to take every deduction available.

Like Mitt Romney, my husband and I will pay Uncle Sam what we owe 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 we 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 last week, and the resulting debate has been as lively 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 relative 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 it. 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, credits and deductions passed into law at the urging of the 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. 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 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 treated equally.

(Original Post)

By Michael Kinsley Feb 2, 2012 7:01 PM ET

As everybody knows by now, Warren Buffett -- class traitor -- pays a smaller share of his income in taxes than does his secretary, Debbie Bosanek. In his State of the Union address last month, President Barack Obama proposed the “Buffett Rule” to rectify this.

The rule would be a phased-in requirement that all taxpayers making more than $1 million a year pay federal taxes of at least 30 percent of their adjusted gross incomes. If your taxes worked out to be less than that, you would owe Uncle Sam the difference.

Who could object? Well, Newt Gingrich -- class clown -- called the idea “stupid.” And Mitt Romney -- class president -- said he doesn’t believe in raising taxes on anybody under any circumstances: a nice, nuanced view, which at least saves us the trouble of arguing about it. It’s really impossible to defend a system where people at the bottom pay 30 percent or 35 percent (including Social Security and Medicare taxes) while people at the top who’ve arranged their affairs correctly -- not all that hard -- pay 15 percent, as Romney did last year. Nevertheless, there are problems with the Buffett Rule, which would become law under a bill introduced Wednesday in Congress.

First, it will affect so few people that it will have no measurable effect on income distribution. Citizens for Tax Justice, a liberal tax reform group, figures that the Buffett Rule would affect about 0.08 percent of taxpayers, or one out of every 1,250. People will be tempted to think that by enacting the Buffett Rule, we will have solved the problem of growing income inequality, when we won’t really have even touched it.
The Top Half

What about people making $500,000? Don’t they need to kick in something, too? The median family income in this country is about $50,000. That means if two people in your family are working and they bring in a total of more than $50,000, you’re in the top half. Any redistribution through the tax system for the purpose of reducing inequality will increase your taxes, not reduce them.

Democratic politicians can be eloquent about the struggling middle class. But the truth is that the middle class is where a big chunk of the money is, and there is no way that the middle class can redistribute money from itself to itself. In this country, all people, rich and poor, have the right to think of themselves as middle class. But when representatives of the middle class sit down to divvy up the spoils of redistribution, they will be disappointed.

Actually, in the past few months, the invisible line that divides the middle class from the rich in the public’s imagination has moved dramatically upward. It used to be $250,000. That was the amount of income below which Obama promised no tax increase. Now, thanks to the publicity around the Buffett Rule, it’s a cool million.

These days it takes so much energy and so many chits to enact any major piece of legislation that it’s hard to believe Congress will pass two tax reform laws in the same year. Enacting the Buffett Rule will absolve members of any concern about the current tax system, and prevent more wide-ranging reform. Meanwhile, for those who are (or might be) affected by the Buffett Rule, it will be an added complication. People will have to compute their taxes twice: once under the regular rules and again under the Buffett Rule -- and then they will have to pay the higher of the two.

The Buffett Rule would just paper over mistakes in our tax system that ought to be fixed. Let’s be clear: The reason that many millionaires pay so little income tax is that Republicans in the White House and the Congress wanted it that way. The last major tax reform, in 1986, equalized the tax rate on all forms of income: working wages, capital gains and dividends. This had the support of President Ronald Reagan and most Republican members of Congress.
Real Reform

Republicans have been campaigning on Reagan’s success (although it wasn’t really his) ever since, while also undermining the reform’s most important accomplishment. As part of George W. Bush’s tax cut of 2003, the tax rate on dividends and most capital gains was capped at 15 percent. (Immediately after the 1986 reform, it was 35 percent.) Rather than creating a whole new set of rules for about 100,000 taxpayers, that cap should be abolished. Income is income. That would be real reform.

The biggest challenge for whoever is president the next four years will be convincing Americans that we must pay more taxes. Every realistic and honest person concedes that a tax increase will be necessary to get us out of the hole we’ve dug. (Yes, yes, spending must be reined in too, and yes, yes, we don’t need to start until the recession is indubitably over.) But it can’t just be a tax on Warren Buffett and his peers. It will have to be a tax on you. The Buffett Rule makes that a harder sell.

A tax on so few people also undermines the message that taxes are not a reflection of animosity. President Obama doesn’t hate the rich. This isn’t class war. Nobody thinks that the rich are inherently evil, or that anyone who makes it in America must be a crook. Obama was careful to say all this in his State of the Union. But he segued smoothly from his discussion of financial improprieties to his discussion of the Buffett Rule, making it sound more like a punishment for misbehavior than he may have intended.

(Original Post)

February 1, 2012
Rob Groce

Charleston Democrat Examiner

While he’s yet to endorse any presidential candidate, this afternoon Sen. Jim DeMint (R-SC) came to the apparent defense of one of them.

In an interview this morning, Mitt Romney told CNN “I’m in this race because I care about Americans. I’m not concerned with the very poor.” (See video in left column.)

This gaffe has since been reported by many media in criticism of the Republican presidential candidate.

DeMint, however, defended Romney’s statement later today while speaking with Roll Call.

“I know (Romney) does care about the poor,” DeMint said; “I think he was trying to make a case that they’re taken care of.”

The senator did suggest Romney “backtrack” and clarify that statement, however.

Others are not as sympathetic in evaluation of Romney’s statement, however, stating this morning’s quote only exemplifies the focus of his campaign.

“His separation of ‘the very poor’ from the category of ‘Americans’ made it pretty clear that Romney doesn’t count them as citizens of our country,” said Deborah Mortellaro, a state delegate of the South Carolina Democratic Party.

“Romney knows the very poor aren’t going to vote for him,” Mortellaro continued, “so they don’t matter very much to him, apparently.”

In evaluation of his campaign’s platform statements, the Center on Budget and Policy Priorities found that Romney’s national budget proposals would substantially cut from programs benefiting poverty, such as Medicaid, food stamps and SCHIP.

A Citizens for Tax Justice analysis found Romney’s income tax proposals would result in 40-percent cuts from the tax obligations of wealthy Americans.

A majority of U.S. households that earn less than $50,000 annually and that claim children as tax deductions would have a tax increase under Romney’s plan, according to the Tax Policy Center.

Although he endorsed Romney in his 2008 campaign, DeMint has yet to endorse any candidate for president in the 2012 race.

On the Jan. 21 date of South Carolina’s primary, however, the Romney campaign submitted a recording of DeMint’s 2008 endorsement of the former Massachusetts governor to voters by robocall.

(Original Post)

Originally published January 31, 2012 at 8:23 PM | Page modified February 1, 2012 at 11:53 AM

About 200 people participated in a rally and march in downtown Seattle on Tuesday to protest what they describe as unfair tax advantages provided to Wells Fargo Bank.

By Christine Clarridge

Seattle Times staff reporter

About 200 people staged a rally and march in downtown Seattle Tuesday to protest what they claim are unfair tax advantages provided to Wells Fargo Bank.

The demonstration, sponsored by the advocacy group Working Washington, began with a rally at Westlake Park and ended with a march to Wells Fargo's Seattle corporate offices.

"Wells Fargo is one of the worst among corporations taking advantage of special tax benefits," said organizer Sage Wilson, of Working Washington. His group claims Wells Fargo has received $18 billion in special tax benefits since 2008, while paying "less than nothing" in federal income tax.

However, Wells Fargo spokeswoman Lara Underhill said the bank has paid "more than $30 billion in income taxes to federal and state authorities and billions more in other taxes" over the past 10 years.

She also said that the bank expects to pay an estimated $4 billion in federal and state income taxes for 2011 and that the corporation fulfills all its tax obligations.

Wilson said organizers don't argue that the tax breaks Wells Fargo has taken are legal but claim they are unethical, particularly in light of the country's dire economic situation.

Wilson said the Washington, D.C.-based think tank Citizens for Tax Justice determined that Wells Fargo was among the corporations paying the lowest percentage of taxes.

At the end of the march, the Wells Fargo headquarters, at 999 Third Ave., was shut down for approximately 15 minutes while security officers barred the demonstrators from entering.

Some employees inside the building gathered near the entrances and took photographs and videos of the protesters, who were chanting and holding signs.

The demonstrators also carried a giant check depicting the $18 billion in special tax benefits they say Wells Fargo has received from Congress. Others chanted, "Banks got bailed out, we got sold out," and "Hey, you billionaire, pay your fair share."

Police said there were no arrests.

Working Washington is an arm of the Service Employees International Union, or SEIU.