Tax Break

Essential tax and accounting reading: AIG tax break draws fire, Amazon’s New Jersey tax holiday, wealth tax debated, and more

March 13, 2012

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

* Crisis-era tax benefit for bailed-out firms draws fire. Erik Holm – The Wall Street Journal. Former members of a congressional panel that oversaw federal bailout spending decried on Monday a years-old Treasury Department determination that allows American International Group Inc. and other companies to avoid paying billions of dollars in taxes. The benefits at issue were accrued by AIG as it amassed record losses amid the financial crisis; the U.S. tax code allows businesses to “carry forward” such net operating losses to offset future tax obligations, in effect saving on future tax bills. The criticism of the Treasury decision comes weeks after AIG reported a $19.8 billion fourth-quarter profit that was fueled by a $17.7 billion accounting gain from the tax benefits.Link

* Brazil extends tax on foreign loans. Samantha Pearson – The Financial Times. Brazil has stepped up its “currency war” in an effort to revive its shrinking domestic industry by extending a tax on foreign loans. In its third measure this month, on Monday Brazil’s government broadened the so-called IOF transactions tax on foreign borrowing to cover any debt maturing in up to five years. The 6 percent tax had originally only applied to foreign loans of two years or shorter and was extended at the start of March to maturities of up to three years. Link

* State tax holiday a step closer for Amazon. Barney Jonson – The Financial Times. Amazon has moved closer to securing a deal that would give it a sales tax holiday in New Jersey in return for jobs and capital investment, underlining its growing economic clout and the sensitivity of tax issues. The world’s biggest online retailer has sparked a political storm by not collecting sales tax in some US states, where bricks-and-mortar retailers complain it is exploiting a tax loophole that is unfair and makes it impossible for them to match Amazon prices. In Washington a bipartisan group of senators has introduced a bill which Amazon supports that would help states collect sales tax from online retailers, but New Jersey is the latest state in which Amazon has sought an extended tax exemption for its customers. Despite fierce opposition from bricks-and-mortar retailers, a New Jersey assembly committee on Monday approved a bill that would exempt Amazon from collecting sales tax until July 1 next year if it invests $130 million in the state and creates 1,500 full-time jobs. Link

* Would a higher top tax rate raise revenues? Bruce Bartlett – The New York Times opinion. Every Republican presidential candidate favors lower taxes on the wealthy. A common reason given by conservatives for why tax rates must not be increased is that the government won’t get much, if any, additional revenue and might even get less due to the Laffer curve. If tax rates are too high, they say, the rich will stop working and investing in job-creating businesses and instead spend all their time vacationing and seeking out tax shelters. The reason for the conservative reluctance to estimate the revenue-maximizing top tax rate is that academic research generally shows that it is much, much higher than the current top rate or any that has been proposed by the Obama administration. No one is suggesting that the United States go back to the top rate of 50 percent that prevailed during most of Ronald Reagan’s administration, let alone the 91 percent rate of Dwight Eisenhower’s. But it’s clear that there is going to be continuing pressure to raise rates on the wealthy as long as the budget deficit remains a problem. Link

* The New Jersey tax evolution. The Wall Street Journal opinion. New Jersey’s long-suffering taxpayers may finally get some relief. As Governor Chris Christie presses his plan to cut income tax rates by 10 percent across the board, the pro-tax coalition in the state’s Democratic legislature has begun to fracture. Last week state senate President Stephen Sweeney broke with fellow Democrats by abandoning a proposal to raise taxes on high earners. Sweeney is now calling only for tax cuts, specifically expanded tax credits for those making up to $250,000. Link

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