Category: Archive

September 13, 2012 09:50 AM | Permalink |

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Continental Resources, an American oil company that is particularly active in North Dakota and Montana, has enjoyed pre-tax U.S. profits of $1,872 million over the past five years, but paid a mere $40 million in federal corporate income taxes over that same period. Continental Resources has enjoyed an effective federal corporate income tax rate of just 2.2 percent over the past five years.

These figures are taken directly from the company’s public filings with the Securities and Exchange Commission (SEC).

What makes this particularly noteworthy is that Harold Hamm, Continental Resources’ Chairman and CEO, as well as Mitt Romney’s top energy advisor, has submitted testimony to the House Energy and Commerce Committee in which he claims that his company’s effective corporate income tax rate is 38 percent.1 This figure does not reflect reality.

The figures from his company’s SEC filings make it clear that Hamm’s 38 percent calculation includes both “current” taxes, which are the taxes actually paid each year by the company, and “deferred” taxes, which are taxes the company has not paid, but might pay at some point in the future.

Hamm calculates his company’s 2011 effective income tax rate to be 38 percent by counting taxes the company did not pay. Besides the $13 million of “current” income taxes that the company did pay, Hamm also wants to count $245 million in “deferred” income taxes, which the company didnot pay. Combined, these paid-and-not-paid taxes were 38 percent of Continental’s 2011 pre-tax income of $687 million. But that’s a meaningless figure. The income taxes the company actually paid in 2011 — a mere $13 million — equaled just 1.9 percent of its 2011 pre-tax profits.

Any deferred income taxes that are actually paid will be reported as “current” taxes in the year that they are paid. At that point (if ever), CTJ will automatically include them in its calculation of the company’s effective corporate income tax rate.

This ridiculously low effective income tax rate was not unique to 2011. In fact, Continental Resources paid just $40 million, or 2.2 percent of its profits, in “current” federal income taxes over the 2007-2011 period.2

1 “American Energy Independence within a Decade and The Policies Necessary to Achieve it,” testimony of Harold Hamm, Chairman and CEO, Continental Resources, Inc. September 13, 2012.
http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/Hearings/EP/20120913/HHRG-112-IF03-WState-HammH-20120913.pdf

2 Companies sometimes point to their “cash income taxes paid,” which is a figure in their public filings that some argue is closer to what companies actually pay in income taxes in a given year. Over the past five years, Continental Resources’s “cash income tax paid” have been essentially identical to its “current” tax figures.

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September 12, 2012 03:49 PM | Permalink |

Testifying before the Congressional Progressive Caucus, CTJ’s legislative director explains why tax cuts are an ineffective tool to stimulate the economy and are making deficit-reduction impossible. The testimony also explains why our tax system should be made more progressive.

Read the testimony

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August 29, 2012 05:30 PM | Permalink |

Romney and Ryan Both Propose Plans that Would Give Millionaires Average Breaks of at Least $250,000, and Possibly as High as $400,000

Read the PDF version of this report.

Presidential candidate Mitt Romney and his running mate, Congressman Paul Ryan, have both proposed tax plans that would make the Bush tax cuts permanent, further slash personal income tax rates, reduce the corporate income tax rate, and enact several other tax cuts.

Both candidates also say that they would reduce or eliminate many “tax expenditures” (deductions, credits, exclusions and loopholes) so that their plans would cost no more than making all the Bush tax cuts permanent would cost. That’s hard to believe because neither has specified a single tax expenditure they would target. But one thing is clear: for the richest Americans, the rate reductions and other breaks would be far more valuable than any tax expenditures they could lose under either plan. (The details of the Romney and Ryan tax plans are in the appendix.)

Both Romney and Ryan’s plans would give people making over $1 million an average tax cut of about $250,000 if these millionaires had to give up all of their tax expenditures. If Romney or Ryan’s plan was implemented without closing any tax expenditures for the rich, then people making over $1 million would receive an average tax cut of around $400,000.

The estimates of the minimum average tax breaks assume that wealthy taxpayers would have to give up all of the tax expenditures that benefit them directly — except the huge breaks for investing and saving, which Romney and Ryan both pledge to leave in place. These tax breaks for investing and saving, particularly the lower tax rates for capital gains and stock dividends, provide the greatest benefits to the richest taxpayers. The estimates of the minimum average tax breaks also assume that the reduction in the corporate income tax rate would be offset by the elimination or reduction in tax expenditures that benefit businesses.

The estimates of the maximum average tax breaks, on the other hand, assume that no tax expenditures are eliminated or reduced.

In addition to the personal income tax breaks, both sets of estimates include the plans’ estate tax breaks and the break that would result from the repeal of the increase in Hospital Insurance taxes for high-income individuals. (The Hospital Insurance tax increase was enacted as part of health care reform, which both Romney and Ryan would repeal.) The estimates of the maximum average tax cuts (which assume that none of the proposed rate reductions or other breaks are offset by limiting tax expenditures) also include the corporate income tax cuts. Cutting the corporate income tax benefits the owners of corporate stock and business assets, about half of which are concentrated in the hands of the richest one percent of taxpayers.

Romney’s plan is more generous to the rich in some ways, while Ryan’s plan is more generous to the rich in other ways. For example, Romney’s plan includes a total repeal of the estate tax, which is not included in Ryan’s plan. (We assume that Ryan’s pledge to make permanent the Bush tax cuts includes making permanent the provision in effect now that eliminates most, but not all, of the estate tax.) On the other hand, the top personal income tax rate on “ordinary” income would be 25 percent under Ryan’s plan but 28 percent under Romney’s plan. In the end, both plans offer tax breaks of about the same size to those with incomes exceeding $1 million.

 

Notes:

1. A previous CTJ analysis of Rep. Ryan’s most recent budget plan found that it would provide people making over $1 million with average personal income tax cuts of at least $187,000. This previous report focused only on personal income tax cuts, not cuts in other types of taxes such as the estate tax, Hospital Insurance tax, and corporate tax. See Citizens for Tax Justice, “Ryan Budget Plan Would Cut Income Taxes for Millionaires by at Least $187,000 Annually and Facilitate Corporate Tax Avoidance,” March 22, 2012. https://ctj.sfo2.digitaloceanspaces.com/pdf/ryanplan.pdf

2. A previous version of Rep. Ryan’s plan analyzed by CTJ would have allowed individuals (like Mitt Romney) who live on investment income to essentially pay no personal income taxes, while at the same time imposing a “value-added” tax (VAT) that would result in tax increases for low- and middle-income Americans. See Citizens for Tax Justice, “Rep. Ryan’s House GOP Budget Plan: Federal Government Would Collect $2 Trillion Less Over a Decade and Yet Require Bottom 90 Percent to Pay Higher Taxes,” March 9, 2010. https://ctj.sfo2.digitaloceanspaces.com/pdf/ryanplan2010.pdf

 

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August 10, 2012 10:36 AM | Permalink |

(Read the PDF version of this fact sheet)

Presidential candidate Mitt Romney proposes to make permanent all the Bush tax cuts, slash income tax rates by a fifth, enact several other new tax breaks, and eliminate or reduce tax expenditures — which are left unspecified — to offset the costs of the tax cuts (other than the Bush tax cuts, which would be deficit-financed). For the richest Americans, the value of the tax cuts would be much larger than the tax expenditures they might have to give up.

For example, taxpayers making over $1 million in 2013 would receive a net tax cut of a little more than $250,000, on average, under Romney’s plan even if they had to give up all of their tax deductions and tax credits and the exclusion from income of the generous health benefits they receive.

These figures assume that wealthy taxpayers would have to give up all of their tax expenditures — except the many breaks for investing and saving, which Romney has made clear he would keep. The very tax breaks for investing and saving that Romney has pledged to retain, particularly the lower tax rates for capital gains and stock dividends, provide the greatest benefits to the richest taxpayers.

As a result, it would be impossible for Romney to keep all of the promises he has made — extend the Bush tax cuts, slash income tax rates by a fifth, enact additional breaks, make up the revenue but retain breaks for investment income — without giving a windfall to very high-income people.

The tax break for very high-income Americans under Romney’s plan could be even larger than this. For example, if the plan was enacted, it might not eliminate all tax expenditures for the wealthy, which would be politically very difficult to accomplish. Also, the Romney plan includes a steep reduction in the corporate income tax. It is unclear whether or not the corporate tax rate reduction would be offset by provisions to close corporate tax loopholes. If not, then the owners of corporate stock (which is concentrated in the hands of the richest Americans) would further benefit.

If Romney kept his pledge to avoid increasing the deficit (aside from the enormous deficit increase resulting from the Bush tax cuts), then someone will have to face a net increase in their taxes. These figures demonstrate that the very rich won’t be the ones paying for Romney’s proposals.

The estimates used to calculate the figures in the table above assume that the Romney plan would:

-Make permanent the Bush income tax cuts for all income levels.
-Further reduce all income tax rates by a fifth.
-Repeal the Alternative Minimum Tax.
-Repeal the estate and gift tax.
-Exempt up to $200,000 of long-term capital gains, dividends and interest from taxable income for taxpayers who do not have $200,000 of other income.
-Maintain 15% rates for capital gains and dividends.
-Repeal all itemized deductions (all taxpayers take standard deduction).
-Repeal all tax credits.
-Repeal exclusion for employer-provided health care.
-Repeal deduction for health insurance for the self-employed.
-Repeal the Hospital Insurance tax increase on the wealthy that was enacted as part of health care reform.

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August 2, 2012 09:39 AM | Permalink |

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Don’t extend the “active financing exception” and the “CFC look-thru rules”

Two temporary rules in the tax code that allow U.S. multinational corporations to park their earnings offshore and avoid paying tax on them expired at the end of 2011. If Congress refuses to extend these expired provisions, many U.S. companies will have much less incentive to send their profits (and possibly jobs) offshore.

The active financing exception and the CFC look-thru rules make it easy for U.S. multinational companies to move income to offshore tax havens and avoid paying U.S. tax.

Income shifting by multinational corporations using offshore tax havens, including transactions facilitated by these two rules, cost the U.S. Treasury an estimated $90 billion per year in lost tax revenue.[1]

The Extenders

Congress enacted both of these offshore measures on a “temporary” basis (sometimes noting the need for “more study”) and both have been extended numerous times. These two offshore provisions are part of the perpetual tax “extenders,” a package of more than 50 temporary tax breaks that, as their name suggests, need to be extended every 1-2 years to prevent their expiration.

Many of the extenders are of dubious merit and the provisions are generally extended without being paid for and without any meaningful discussion of whether they are achieving their intended purposes. But steady streams of corporate lobbying[2] and campaign contributions[3] continue to flow to keep the provisions from expiring. These two offshore rules, like most of the other extenders, expired on December 31, 2011 and are included in the extenders bill currently before Congress.[4]

How We Tax U.S. Multinational Corporations

A U.S. multinational corporation is taxed on its worldwide earnings. If the income is also taxed by a foreign jurisdiction, the company receives a credit against its U.S. tax for any foreign taxes paid. Tax on “active” income from a U.S. corporation’s foreign subsidiaries is not imposed until those earnings are brought back (“repatriated”) to the United States.

A U.S. multinational corporation generally cannot defer paying tax on the income of its foreign subsidiaries that is considered “passive,” such as interest, dividends, rents, and royalties. A section of the tax code, known as “Subpart F,” requires multinational corporations to include this type of income in their taxable income each year even if the income is not repatriated.[5] Congress has determined that deferral is not appropriate for this type of income because it is highly fungible and the entities that earn it are very mobile.

Subpart F was designed to prevent companies from manipulating their U.S. tax obligation by the simple act of moving intangible assets that earn this type of passive income offshore. The two exceptions to Subpart F (the offshore extenders) that are discussed in this report render Subpart F practically meaningless.

The Active Financing Exception

The “active financing exception” is an exception to the general rule that passive income earned by a foreign subsidiary must be recognized for tax purposes when earned.[6]

The active financing exception was repealed in the loophole-closing1986 Tax Reform Act, but was reinstated in 1997 as a “temporary” measure after fierce lobbying by multinational corporations. President Clinton tried to kill the provision with a line-item veto; however, the Supreme Court ruled the line-item veto unconstitutional and reinstated the exception. In 1998 it was expanded to include foreign captive insurance subsidiaries.[7] These provisions have been extended numerous times since 1998, usually for only one or two years at a time, as part of the tax extenders.

1. The active financing exception makes it easier for multinationals to expand overseas, making investments and creating jobs in foreign countries rather than here in the U.S., by reducing the related tax costs.

2. The active financing exception allows multinationals to avoid tax on their worldwide income by creating “captive” foreign financing and insurance subsidiaries. The financial products of these subsidiaries, in addition to being highly fungible and highly mobile, are also highly susceptible to manipulation or “financial engineering,” allowing companies to manipulate their tax bill as well.[8]

3. The exception is one of the primary reasons General Electric has paid, on average, only a 1.8% effective U.S. federal income tax rate over the past ten years.[9] G.E.’s federal tax bill is lowered dramatically with the use of the active financing exception provision by its subsidiary, G.E. Capital, which Forbes noted has an “uncanny ability to lose lots of money in the U.S. and make lots of money overseas.”[10] In its SEC filings, the company notes that

GE’s effective tax rate is reduced because active business income earned and indefinitely reinvested outside the United States is taxed at less than the U.S. rate. A significant portion of this reduction depends upon a provision of U.S. tax law that defers the imposition of U.S. tax on certain active financial services income until that income is repatriated to the United States as a dividend….This provision, which expires at the end of 2011, has been scheduled to expire and has been extended by Congress on six previous occasions, including in December of 2010, but there can be no assurance that it will continue to be extended. In the event the provision is not extended after 2011…we expect our effective rate to increase significantly.”

1. The active financing exception also plays a significant role in the ability of large U.S.-based financial institutions to pay low effective rates. As a group, the financial industry has one of the lowest effective rates of all corporations, averaging only 15.5% for the years 2008-2010.[11]

2. One of the proffered rationales for the rule is, of course, to enhance the competitiveness of big U.S. banks. What that really means is that U.S. taxpayers are subsidizing these banks, allowing even more outsized profits compared to other institutions, thus encouraging the financialization of the economy.

3. The exception encourages U.S.-based financial institutions to prefer lending to foreign customers over U.S. customers because they can pay a lower (or zero) tax rate on the related earnings.

4. The Joint Committee on Taxation estimates the 2-year cost of extending this provision to be $11.2 billion.[12]

The CFC Look-Thru Rules

Another exception to the general Subpart F rules requiring current taxation of passive income, the “CFC look-thru rules” allow a U.S. multinational corporation to defer tax on passive income, such as royalties, earned by a foreign subsidiary (a “controlled foreign corporation” or “CFC”) if the royalties are paid to that subsidiary by a related CFC and can be traced to the active income of the payer CFC.[13]

The current extremely generous CFC look-thru rules were enacted in 2006 after intense corporate lobbying. The resulting loophole “looks like a narrow technical rule…[but] it has, without fanfare, effectively repealed antideferral rules for much of what subpart F of the Internal Revenue Code was originally intended to prevent.”[14] The purpose of the provisions is unclear because the legislative history is contradictory, but the result is a rule that “says that most tax haven deferral relating to intercompany payments is just fine.”[15]

Rules known as the “check-the-box” regulations allow similar tax planning with non-corporate entities. In his first budget President Obama proposed to reform the check-the-box rules, but that provision didn’t appear in later budget proposals.

 

1. The CFC look-thru rules allow multinationals to create transactions purely for “earnings stripping” – to create dividends, interest, rents, and royalties to strip active income out of high-tax countries and move it into low-tax or no-tax countries without incurring any U.S. tax liability (or any tax liability anywhere).[16]

2. The CFC look-thru rules allow U.S. multinationals to create “stateless income”: [17] income that is treated, for tax purposes, as earned in a low-tax (or no-tax) country, where the company’s operations may consist only of renting a mailbox, instead of in the countries where the employees and assets are located.[18]

3. Transactions enabled by these (and the check-the-box) rules are the primary reason for the low effective tax rates of companies with highly-valued intangibles. High-tech companies like Apple[19] and Google[20] and pharmaceutical companies like Pfizer[21] and Forest Laboratories[22] are easily able to shift income from the U.S. (or other countries with a meaningful corporate income tax) to low- or no-tax countries.

4. The Joint Committee on Taxation estimates the cost of extending the CFC look-thru rules for two years to be $1.5 billion.[23] Based on previous Treasury estimates, reforming the check-the-box regulations would raise roughly $100 billion over ten years.[24]

CFC Look-Thru Rule Example: An Irish subsidiary of a U.S. multinational corporation pays royalties for the use of a trademark to a related subsidiary in Bermuda. Under the general rules, this would be passive income subject to immediate tax in the U.S. But if the royalties paid are related to the active business of the Irish subsidiary, the CFC look-thru rules allow continued deferral. So the payment is not currently subject to U.S. tax. The payment is deductible by the Irish subsidiary and reduces its Irish income tax. The payment is income to the Bermuda subsidiary but Bermuda has no corporate income tax. So now that income isn’t taxed anywhere! In 2008 alone, Google used its now infamous “Double Irish Dutch Sandwich” technique to move $5.4 billion[25] in royalties from its 2,000-employee Irish subsidiary to a Bermuda subsidiary through a zero-employee Dutch subsidiary (to avoid withholding taxes in Ireland). Google used the CFC look-thru rules or the check-the-box rules (or both) to achieve this result.

Good Tax Policy

Tax reform seems to be on everyone’s agenda these days, but fundamental tax reform is an enormous undertaking that will take months, if not years, to achieve. Without waiting for that magical tax-reform day to come, Congress can make meaningful changes to the current rules that will reduce the ability of U.S. multinational corporations to send their profits offshore. In fact, Congress doesn’t have to do anything – these two offshore provisions have already expired.[26] Tax reform is hard, but this is easy.

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[1] Kimberly A. Clausing, “The Revenue Effects of Multinational Firm Income Shifting,” Tax Notes, March 28, 2011.

[2] U.S. Public Interest Research Group Education Fund and Citizens for Tax Justice, “Representation Without Taxation, Fortune 500 Companies that Spend Big on Lobbying and Avoid Taxes,” January 18, 2012, available at http://www.uspirg.org/reports/usp/representation-without-taxation.

[3] U.S. Public Interest Research Group Education Fund and Citizens for Tax Justice, “Loopholes for Sale, Campaign Contributions by Corporate Tax Dodgers,” March 21, 2012, available at http://www.uspirg.org/reports/usp/loopholes-sale.

[4] Joint Committee on Taxation, “Description of the ‘Family and Business Tax Cut Certainty Act of 2012’,” JCX-67-12, August 1, 2012 available at www.jct.gov.

[5] Subpart F is comprised of Sections 951 – 965 of the Internal Revenue Code.

[6] Internal Revenue Code Section 954(h).

[7] Internal Revenue Code Section 954(i).

[8] Linda M. Beale, “More on the FY2011 budget—the active financing exception,” A Taxing Matter, February 2, 2010, available at http://ataxingmatter.blogs.com/tax/2010/02/more-on-the-fy2011-budgetthe-active-financing-exception.html.

[9] Citizens for Tax Justice, “Press Release: GE’s Ten Year Tax Rate Only Two Percent,” February 27, 2012, available at http://www.ctj.org/taxjusticedigest/archive/2012/02/press_release_general_electric.php.

[10] Christopher Helman, “What the Top U.S. Companies Pay in Taxes,” Forbes, April 1, 2010, available at http://www.forbes.com/2010/04/01/ge-exxon-walmart-business-washington-corporate-taxes.html.

[11] Citizens for Tax Justice, “Corporate Taxpayers and Corporate Tax Dodgers, 2008 – 2010,” November 3, 2011, available at www.ctg.org/corporatetaxdodgers.

[12] Joint Committee on Taxation, “Estimated Revenue Effects of the ‘Family and Business Tax Cut Certainty Act of 2012’,” JCX-68-12, July 31, 2012 available at www.jct.gov.

[13] Internal Revenue Code Section 954(c)(6).

[14] David R. Sicular, “The New Look-Through Rule: W(h)ither Subpart F?” Tax Notes, April 23, 2007.

[15] Id. “There was no allusion this time around to the fact that U.S. companies were already able to circumvent subpart F in many cases and should be allowed to do so explicitly and with improved efficiency.”

[16] Lee A. Sheppard, “Looking Through the New Look-Thru Rule,” Tax Notes, October 23, 2006.

[17] Edward D. Kleinbard, “Stateless Income,” Florida Tax Review, Vol. 11, p. 699, 2011, and “The Lessons of Stateless Income,” Tax Law Review, Vol. 65, p. 99, 2011.

[18] Martin A. Sullivan, “‘Stateless Income’ is Key to International Tax Reform,” Tax.com, June 27, 2011, available at http://www.tax.com/taxcom/taxblog.nsf/Permalink/UBEN-8J8MGL?OpenDocument.

[19] Charles Duhigg and David Kocieniewski, “How Apple Sidesteps Billions in Taxes,” The New York Times, April 28, 2012, available at http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html.

[20] Jesse Drucker, “Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes,” Bloomberg, October 21, 2010, available at http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html.

[21] David Cay Johnston, “Tax repatriation,” Reuters.com, October 19, 2011, available at http://blogs.reuters.com/david-cay-johnston/tag/offshore-profits.

[22] Jesse Drucker, “Forest Laboratories’ Globe-trotting Profits,” Bloomberg BusinessWeek Magazine, May 13, 2010, available at http://www.businessweek.com/magazine/content/10_21/b4179062992003.htm.

[23] JCX-68-12.

[24] Department of the Treasury, “General Explanations of the Administration’s Fiscal Year 2010 Revenue Proposals,” May 2009, p. 128, available at http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2010.pdf.

[25] Jesse Drucker, “Google 2.4% Rate,” note 20.

[26] Because the check-the-box rules were regulations and not a result of statutory changes, it appears that the administration could reform the check-the-box rules also without any Congressional action.

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July 19, 2012 12:52 PM | Permalink |

Tax Breaks for 13 Million Working Families with 26 Million Children Are Also at Stake

State-by-state analysis of the tax breaks for working families with children that President Obama would keep and the GOP would eliminate.

Read the report

Photo of EITC Recipient via Bread for the World Creative Commons Attribution License 2.0

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July 17, 2012 04:25 PM | Permalink |

Read this report in PDF.

The tax cut proposal circulating among Senate Democrats would provide much larger tax breaks to high-income individuals than President Obama proposes — including an average break of $166,500 for those making over $20 million — because it would extend most of the Bush tax cuts for stock dividends.

Senate Democrats are rumored to be influenced by a report commissioned by the Edison Electric Institute (a lobbying group for corporate utility companies) claiming corporate stocks will be harmed if dividends paid to high-income shareholders are taxed at the same rates as other income, as President Obama proposes. The report claims that even people who would not lose any tax cuts would be harmed because their stocks would be worth less if the richest Americans must pay ordinary income tax rates on their dividends.[1]

The gaping hole in this logic is that two-thirds of stock dividends are not paid to individuals subject to the personal income tax but rather are paid to tax-exempt entities like pension funds.[2] There is no reason why stock prices would be affected by a tax that only applies to one-third of the dividends paid on them.

Background

Before the Bush tax cuts were enacted, capital gains income was taxed at preferential income tax rates that did not exceed 20 percent, but corporate stock dividends were taxed just like any other income. Parts of the Bush tax cuts enacted in 2003 further reduced the income tax rates for capital gains (which now do not exceed 15 percent) and applied the same low rates to stock dividends.

President Obama proposes to allow capital gains income that falls into the top two income tax brackets to once again be taxed at 20 percent and stock dividends that fall into the top two income tax brackets to be taxed at the ordinary rates (36 percent and 39.6 percent). In other words, capital gains and stock dividends that fall into the top two income tax brackets would be subject to the pre-Bush rules.

Under Obama’s proposal, the top two income tax brackets (where reductions in the rates on “ordinary” income would also be allowed to expire) would be adjusted so that no married couple making less than $250,000, and no single person making less than $200,000 could be affected by them.[3]

News reports indicate that the Senate Democrats are circulating a plan that is the same except that it would tax stock dividends in the top two income tax brackets at a rate of 20 percent.[4] This means the proposal being considered by the Senate Democrats would extend most of the Bush tax cut for dividends even for the richest taxpayers.

 

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[1] Edison Electric Institute press release, “New Study: Dividend Tax Hike Will Hurt Millions of Americans At All Income Levels, Particularly Seniors and Retirees,” July 12, 2012. http://www.eei.org/newsroom/pressreleases/Releases/Pages/120712.aspx

[2] According to data from the Bureau of Economic Analysis and our calculations, $1.9 trillion in corporate stock dividends were paid, excluding inter-corporate dividend payments, over the 2004-2008 period (and excluding dividends from non-taxable, “pass-through” S corporations). But the IRS reports that only $0.6 trillion in such corporate stock dividends were reported on individual tax returns (as “qualified” dividends). The remaining corporate stock dividends were not subject to personal income tax, because they were paid to individuals’ accounts with tax-exempt pension plans, other retirement plans, and certain life insurance arrangements. That means that two-thirds of personal dividends from corporate stock are not subject to personal income tax. (See BEA National Income and Product Account Tables 1.16 and 7.10 and the related (albeit somewhat confusing) table accompanying BEA FAQ #318, all at www.bea.gov. See also annual data on Individual Income Tax Returns for 2004–08 from the Internal Revenue Service at www.irs.gov.)

[3] The $250,000 and $200,000 threshold are actually in 2009 dollars (meaning the actual thresholds are somewhat higher than these amounts) and taxpayers with incomes just above these thresholds are not likely to lose much of their tax cuts under President Obama’s proposal. See Citizens for Tax Justice, “Married Couples with Incomes Between $250,000 and $300,000 Would Lose Only 2% of Their Bush Income Tax Cuts under Obama Plan versus GOP Plan,” revised July 16, 2012. https://ctj.sfo2.digitaloceanspaces.com/pdf/obamavsgoptax2012.pdf

[4] “Senate Democrats Temper Obama Plan on Dividends Taxes,” Kim Dixon, Reuters, July 16, 2012. http://www.reuters.com/article/2012/07/16/usa-congress-taxes-dividends-idUSL2E8IGAWV20120716

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July 13, 2012 12:08 PM | Permalink |

Revised July 16, 2012

Read the PDF of this fact sheet.

“So I’m not proposing anything radical here.  I just believe that anybody making over $250,000 a year should go back to the income tax rates we were paying under Bill Clinton…”

President Barack Obama, July 9, 2012

There are a few things that President Obama has not explained well about his proposal to extend most, but not all, of the Bush income tax cuts for one year.

1. President Obama’s proposal would allow everyone — even billionaires — to continue enjoying the lower Bush-era income tax rates on the first $250,000 they make (or the first $200,000 in the case of unmarried taxpayers). And that’s $250,000 or $200,000 in 2009 dollars (apparently because 2009 was when the President first formally made this proposal).1

So, in 2013, a married couple would actually continue to pay the lower tax rates on at least the first $264,850 they make, and a single taxpayer would continue to pay the lower tax rates on at least the first $211,800 he or she makes. We say “at least” because the thresholds assume that these taxpayers all take the standard deduction, even though the vast majority of them have much bigger deductions because they itemize. On average, the actual threshold for married couples in 2013 will be more than $300,000.2

2. It’s essential to understand that a married couple making more than the threshold would not “go back to paying the income tax rates we were paying under Bill Clinton,” except on the amount of income above the threshold. So a couple with, say, $100 in income above the threshold would pay a higher tax rate only on the $100. The higher tax for this couple would be 3 percent of the $100 — a mere $3.00.

3. For all these reasons, couples with adjusted gross income (AGI) between $250,000 and $300,000 would retain 98% of their Bush income tax cuts, on average, under Obama’s proposal.

The following tables show how much of the Bush income tax cuts would typically be lost by upper-income couples and singles under Obama’s plan versus the GOP plan to extend all of the Bush income tax cuts. These figures were revised to demonstrate the impacts of President Obama’s approach and also the approach considered by Senate Democrats. The Senate Democrats’ approach differs in that it would extend larger tax breaks for high-income taxpayers with stock dividends (by taxing dividends at a top rate of 20 percent instead of taxing them at ordinary rates as President Obama proposes).

 

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1Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2013 Revenue Proposals, February 2012, page 70. 

2Under Obama’s proposal, the top two income tax rates would revert to their pre-Bush levels. For a married couple under Obama’s proposal in 2013, taxable income would have to exceed $245,050 in order to be affected by one or both of the top two income tax brackets. A married couple with AGI of $264,850 will have taxable income of $245,050 if they take the standard deduction ($12,100) and have no children (and therefore take only two $3,850 personal exemptions). But couples making, say, $250,000 to $300,000 typically have itemized deductions of about $50,000 and 1 child (and thus 3 personal exemptions, worth $11,550). So with more than $60,000 in deductions ane exemptions, a couple making more than $300,000 would still have taxable income below Obama’s $245,050 taxable-income threshold. As a result, 70 percent of all couples in the $250,000 to $300,000 income range in 2013 would retain all of their Bush income-tax-rate cuts.

 

 

 

 

 

 

 

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July 10, 2012 01:41 PM | Permalink |

Citizens for Tax Justice has created an online calculator that will tell you what you’re likely to pay in income taxes and payroll taxes under three different scenarios:

1. Congress extends all the Bush tax income tax cuts as Congressional Republicans propose,
2. Congress extends most, but not all, of the income tax cuts as President Obama proposes, or
3. Congress simply allows all the tax cuts to expire.

The online calculator also tells you what income percentile you fall into and how much of the tax cuts in a given scenario will go to people in higher percentiles than you (people richer than you).

Use the Online Calculator

Basic Calculator
If you are an employee, your income comes entirely from your wages or salary, and you take the standard deduction, click here to calculate your likely taxes in 2013 under the three different scenarios.

Detailed Calculator
If you have other types of income or if your situation is more complicated, click here to calculate your likely taxes in 2013 under the three different scenarios.

Front Page Photo of Calculator via 401(K) 2012 Creative Commons Attribution License 2.0

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July 9, 2012 03:41 PM | Permalink |

Read the PDF version of this fact sheet.

Preliminary estimates by Citizens for Tax Justice (CTJ) predict that President Obama’s proposal today to extend for an additional year the Bush income tax cuts for the first $250,000 in income for couples and the first $200,000 of income for singles, along with extension of most of the Bush estate tax cut, would reduce federal revenues by $243 billion.

Other plans would cost even more.

A proposal by some congressional Democrats to extend the Bush income tax cuts for the first $1 million in income (both for married and unmarried taxpayers) would push the one-year revenue loss to $271 billion.

Congressional Republicans favor extension of all the Bush income tax cuts, along with almost all of the Bush estate tax cut. That plan would reduce revenues by $311 billion.

These figures do not include the additional interest on the national debt that would result from extending the tax cuts.

These estimates are based on data from the Office of Management and Budget and the Congressional Budget Office and calculations by Citizens for Tax Justice. Official estimates from the congressional Joint Committee on Taxation are expected to be similar, depending on the exact details of the various plans.

For more details on how the President’s approach compares to the Congressional GOP approach, and for state-by-state figures, visit http://www.ctj.org/bushtaxcuts2012.php.

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