Tax Break

Who pays no income taxes?

Who pays no federal income taxes?

Republicans grabbed onto a headline number last year from a respected tax policy group noting that nearly 50 percent of Americans pay no income taxes.

The statistics from the Tax Policy Center (TPC) came up again Wednesday at a hearing of the House tax-writing Ways and Means Committee, as lawmakers grilled Treasury Secretary Timothy Geithner about President Obama’s tax proposals.

“Mr. Secretary, you know the facts: the bottom half of earners in this country pay no federal income taxes,” Dave Camp, the panel chairman,  a  Republican, said.

The top Republican on the Senate cited the figure a day earlier.

The TPC is a joint effort by the left-leaning Urban Institute and centrist Brookings Institution, but its director is Donald Marron, a former member of Republican president George W. Bush’s Council of Economic Advisers.

They have crunched the numbers and reported that fully 46 percent of Americans will pay no federal income taxes in 2011. The conservative Heritage Foundation finds a similar number pay no income taxes.

Study supports shareholder vote on auditors

New research lends weight to calls for shareholders to have more say in a company’s choice of an auditor.

Companies that give shareholders a choice  have fewer serious restatements that hurt stock prices, though their audit fees are also higher, the new study found.

Auditor selection has become a hot-button issue. Regulators are considering ways to make auditors more independent of companies and skeptical when checking their financial statements.

Essential tax and accounting news: “dozens” of corporate tax breaks in play, private equity taxation debated around the world, and Swiss banks’ new model

U.S. Treasury Secretary Timothy Geithner testifies before the Senate Finance Committee, February 14, 2012. REUTERS/Yuri Gripas

The top tax and accounting headlines from Reuters and other sources:

* Tentative deal reached to preserve cut in payroll tax. Jennifer Steinhauer – The New York Times. Members of a House-Senate committee charged with extending a payroll tax reduction and providing added unemployment benefits reached a tentative agreement Tuesday evening, with Republicans and Democrats claiming a degree of political victory in a fight with significant election-year implications. One day after House Republican leaders said they would offer a bill to extend the $100 billion payroll tax rollback for millions of working Americans without requiring spending cuts to pay for it, the Congressional negotiators struck a broader deal that would also extend unemployment benefits and prevent a large cut in reimbursements to doctors who accept Medicare. A vote on the measure would most likely happen by Friday. But senior aides warned that negotiators still had to sign off formally on the agreement and that obstacles could surface given the long-running tensions over the measure. Link

* Obama plan would end dozens of business tax breaks-Geithner. Kim Dixon and Rachelle Younglai – Reuters. The Obama administration’s corporate tax reform plan would end “dozens and dozens” of tax breaks, Treasury Secretary Timothy Geithner said on Tuesday as he defended the White House’s election-year call for higher taxes on the wealthy. Within days, the administration intends to unveil a blueprint aimed at eliminating inequities in the corporate tax system and lowering the top rate. Companies, which pay wildly different levels of taxes, are clamoring for a cut in the corporate tax rate – which tops out at 35 percent – but disagree about how to strip out preferences that benefit selected industries. Geithner spoke before the Senate Finance Committee a day after President Barack Obama unveiled a $3.8 trillion budget-and-tax proposal that called for aggressive government spending to boost the economy and higher taxes on the rich. Link

The slippery slope of a sugar tax

A recent study on the effect of taxes on sugary beverages is bound to give the soda industry’s lobbyists a headache.

Professor Annette Nellen, who teaches at San Jose State University and blogs at 21 Century Taxation, wrote last week about a new study on the link between a soda tax and lower diabetes rates. The report said:

Over a ten year period (2010-2020), the penny-per-ounce tax could reduce new cases of diabetes by 2.6%, as many as 95,000 coronary heart events, 8,000 strokes, and 26,000 premature deaths.

Essential tax and accounting reading: Obama’s budget, Japan’s economy, the EU’s carbon tax, and more

Japanese Prime Minister Yoshihiko Noda REUTERS/Yuriko Nakao

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

* Obama faces task of selling dueling budget ideas. Jackie Calmes – The New York Times. With the election-year budget he unveils on Monday, President Barack Obama more than ever confronts the challenge of persuading voters that he has a long-term plan to reduce the deficit, even as he highlights the stimulus spending and tax cuts that increase deficits in the short term. In his budget Obama again will commit to $4 trillion in deficit reduction over 10 years, including $1.5 trillion in tax revenue from the wealthy and from closing some corporate tax breaks, and reductions in spending for a range of programs, including the military, Medicare, farm subsidies and federal pensions. But Republicans are sure to criticize the president’s proposals as heavy on gimmickry and double-counting, and reject his proposed tax increases. Link.

* EU say it’s ‘flexible’ on carbon tax. Eric Yep and Gaurav Raghuvanshi – The Wall Street Journal. The European Union is willing to be flexible with its emissions tax on airlines, but won’t suspend the tax unless countries can agree on an ambitious alternative, EU Transport Commissioner Siim Kallas said Monday. Several countries have expressed opposition to the tax, with some threatening retaliatory measures against the EU. It is unclear whether a global agreement is possible by April 2013, when the first payments are due. Link.

* Japan’s big GDP drop a worry for PM tax plan. Tetsushi Kajinoto – Reuters. Japan’s economy shrank much more-than-expected in the fourth quarter, as Thai floods, a strong yen and weak demand hurt exports, casting doubt on hopes for a quick pick up in activity that could bolster government plans to raise the sales tax. Prime Minister Yoshihiko Noda hopes to contain the rise in the debt pile – now already twice the size of the economy – by doubling the national 5 percent sales tax by late 2015, but has yet to win over a combative opposition and a skeptical public. Link.

Tax clips from the web: A Superbowl winner, retail relief and offshore assets

New York Giants middle linebacker Chase Blackburn (L) intercepts a pass intended for New England Patriots tight end Rob Gronkowski during the third quarter in the NFL Super Bowl XLVI.

And the winning play goes to…

One of the more sensational plays on Superbowl Sunday last weekend took place in Las Vegas, where Jona Rechnitz was given 50 to 1 odds on the first scoring play in the game between the New York Giants and the New England Patriots being a safety. For those who missed it, a safety is something like a player throwing into or being tackled in his own end zone…Or something like that. Actually, Tax Break does not follow football really, so you can catch up on those details elsewhere. Anyway, the safety did occur, and Rechnitz won a cool $60,000 on the bet, Don’t Mess With Taxes writes.

Some of that win was shaved for taxes by the casino before it even paid out, and the rest is taxable on Rechnitz’s own tax return. That is – it would be. He told some tabloids that he will donate the money to charity, in which case he can deduct the whole kit and caboodle on his tax return.

Tax and Accounting Calendar

Treasury Secretary Timothy Geithner speaks with other Cabinet members at the State of the Union address, January 24, 2012. REUTERS/Jason Reed

Some events in the week ahead:

Tuesday, February 14

It’s not likely to be romantic, but the Senate Budget Committee is holding a hearing on President Barack Obama’s proposed budget for fiscal 2013 on Valentine’s Day.

Witnesses are Jeffrey Zients, acting director of the Office of Management and Budget and Treasury Secretary Timothy Geithner

Robert Shiller lays out a tax plan to address U.S. inequality

Influential Yale economics professor Robert Shiller favors a system of taxation that would keep inequality in check. He argues that such a system would help maintain harmony in the United States and benefit all, including the well-to-do.

Shiller is especially well known as co-creator of the S&P/Case-Shiller home price indices, and for two prescient calls: a 2000 forecast of the dot-com bubble’s bust, and a 2005 prediction that the housing boom would cause a recession.

In this talk (video below) with Chrystia Freeland of Reuters, Shiller said he was not trying to abolish inequality but to keep it within limits. He sees a system that addresses the outer bounds of inequality as a way to “prevent class war” and keep a harmonious nation.

Essential tax and accounting reading: Global accounting push, global tax battle and a vet tax credit

A military veterans hiring event in New York, January 19, 2012. REUTERS/Brendan McDermid

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

* Global accounting reform ups pressure on U.S. to sign up. Huw Jones – Reuters. Plans by the accounting body responsible for global standards to make itself more answerable to the public will put pressure on the United States to sign up or risk losing influence. The International Accounting Standards Board (IASB) has drawn up the standards, which are used by listed companies in over 100 countries, including the European Union. So far the United States has delayed its decision to sign up, under pressure from companies and Congress who say they do not want to cede regulatory sovereignty to a London-based body. But Thursday’s publication by the IASB’s Trustees and Monitoring Board of plans to make themselves more open and accountable in their second decade may push the United States to think again, given the far-reaching impact that accounting rules have on financial markets and investors. Link.

* Pessimism high, Republicans warn of possible expiration of payroll tax cuts. Jennifer Steinhauer – The New York Times. Congressional Republicans said Thursday that negotiations over extending a payroll tax cut were going so poorly that it was possible the tax break – along with added unemployment benefits – could expire at the end of the month. If the benefits are allowed to lapse, it will be a stunning coda to a battle that has lasted months on Capitol Hill over whether and how to extend a two-percentage-point tax break for nearly every working American and to provide additional unemployment benefits for millions more. A temporary agreement forged in December cost Republicans politically and left both parties locked in another round of fights over how to cover the costs. In addition, Republicans are seeking numerous policy changes connected to unemployment benefits – like a mandatory high school equivalency program and possible drug testing for beneficiaries – that Democrats have rejected out of hand. They would also reduce the benefits to 59 weeks, far less than the 79 weeks sought by President Obama. Link.

Appeals Court: You can’t burn down your house for a big tax deduction

The U.S. Court of Appeals ruled Wednesday against a couple who claimed a sizeable deduction after donating their house to be burned in a firefighter training. Circuit Judge David Hamilton wrote in the opinion:

“Taxpayers Theodore R. Rolfs and his wife Julia Gallagher purchased a three-acre lakefront property in the Village of Chenequa, Wisconsin. Not satisfied with the house that stood on the $675,000 property, they decided to demolish it and build another. To accomplish the demolition, the Rolfs donated the house to the local fire department to be burned down in a firefighter training exercise. The Rolfs claimed a $76,000 charitable deduction on their 1998 tax return for the value of their donated and destroyed house. The IRS disallowed the deduction, and that decision was upheld by the United States Tax Court… To support the deduction, the Rolfs needed to show a value for their donation that exceeded the substantial benefit they received in return. The Tax Court found that they had not done so. We agree and therefore affirm.”

Apparently these types of claims, though unusual, are not all together unknown, and the court found that the value of the donation would need to take into account the fact that it was made with conditions. In this case, the condition is the house being burned to the ground left the house with “essentially no value” according to the decision.

The Rolfs’ attorney, Michael Goller, declined to comment on the decisions as he was still reviewing it, though he did say it was “disappointing.” No decision has yet been made about whether or not to appeal, he said. Messages left for Ted Rolfs seeking comment on the decision were not returned.