Tax Break

Essential reading: Romney to explain tax plan, AIG to take tax breaks, rising stakes for Japan’s sales tax, and gas taxes drop

February 24, 2012

Window shopping in Tokyo's Ginza district REUTERS/Toru Hanai

Welcome to the top tax and accounting headlines from Reuters and other sources.

•    Romney narrows the gap on Santorum. Richard McGregor in Washington and Anna Fifield in Mesa, Arizona – Financial Times. Republican presidential hopeful Mitt Romney will outline his tax plans in a speech in Detroit on Friday that has been moved from a ballroom in the city convention center to Ford Field, home of Detroit’s football Lions, to accommodate an expected large crowd. It’s his first detailed outline of the economic and tax plan he would take into the November election and it comes four days before the Michigan and Arizona primaries. Link

•    Giving tax edge to manufacturing carries risks. Kathleen Madigan – The Wall Street Journal. The U.S. tax code is a mess. Favoring one sector over others will only make it messier. U.S. President Barack Obama and GOP candidate Rick Santorum recently released proposals that would give manufacturing enterprises a tax break. Santorum advocates factories pay no federal income tax at all. The goal is to make manufacturing a contributor of economic growth and a provider of middle-class paying jobs. The unintended consequences, however, are likely to be businesses gaming the system for a cheaper tax rate and a government policy that values some jobs over ones that are needed more. While certain employees, companies and regions will benefit, the U.S. economy as a whole is unlikely to be better off from the proposed tax changes. Link

•    AIG profit surges on tax benefit. Erik Holm and Serena Ng – The Wall Street Journal. American International Group Inc. reported profit of $19.8 billion in the fourth quarter, thanks to a large tax benefit the bailed-out insurer booked after predicting it can keep generating profits in coming years. AIG recognized $17.7 billion in tax benefits in the last three months of 2011. AIG’s tax boost came about from the reversal of write-downs it had taken to lower the value of its deferred-tax assets, which are unused tax credits and deductions that can be used to defray future tax bills. The insurer had taken those write-downs starting in 2008, when it suffered huge losses during the financial crisis. What changed, AIG said, is that it expects to report sustainable future profits that will enable it to use its deferred tax assets after all. Link

•    Moody’s warns Japan on delay in sales tax bill. Stanley White – Reuters. Japan’s credit rating would be reviewed if plans to double its sales tax rate are delayed further, Moody’s Investors Service said on Friday, warning weak policy formation threatened efforts to curb the country’s massive debt burden. Moody’s said it did not plan to change Japan’s Aa3 rating with a stable outlook for now, in part because the country’s current account surplus helped offset its public debt. The government has set a revised timetable to increase the sales tax to 8 percent in April 2014 and then 10 percent in October 2015 – six months later than originally planned – but passage of the bill requires opposition support and is in doubt. Link

•    Gas tax falling short in paying for transportation needs. Larry Copeland – USA Today. The United States is at a critical juncture in how it pays for roads, bridges and transit. That’s because the federal tax on gasoline, the primary method since 1956, has lost one-third of its buying power since it was last raised in 1993. States add their own tax on top of that, but the federal tax accounts for about 45 percent to 50 percent of capital spending for transportation. The federal gas tax – 18.4 cents a gallon for gasoline, 24.4 cents for diesel – is growing anemic because of more fuel-efficient vehicles, Americans driving fewer miles and the growth of electric and alternative-fuel vehicles. Link

•    Romney’s tax plan: Progressive, but only by Republican standards. Andrew Rosenthal – The New York Times opinion. Considering how disappointing Mitt Romney’s latest tax plan is, it’s worth noting that parts of it seem better than anything proposed by the other Republican candidates. 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. The reason 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. In the end, Romney’s plan still cuts spending on vital government programs because it refuses to raise taxes on the rich. Link

•    Obama’s tax reform muddle. The Wall Street Journal editorial. The release of the White House “Business Tax Reform” marks a watershed in the corporate tax debate. Now nearly everyone acknowledges that U.S. corporate tax rates hurt American companies. The headline that President Obama wants voters to see is his new top statutory rate of 28 percent. If only the story ended there. Alas, his reform is stuffed with so many offsetting business tax increases that the overall impact of this and other proposals would make the U.S. tax system less globally competitive and raise effective tax rates above what they are today. Republicans in Congress should take the 28 percent corporate tax rate as the opening bid and scrap most of the rest of his plan. The president has acknowledged that America’s corporate tax code is a Head Start program for international rivals. Someone else needs to write a reform that is more concerned with growth than with government industrial policy. Link

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