Tax Break

Essential tax and accounting reading: Another Deloitte China resignation, Volcker backs rotation, Scholastic gets sales tax bill, and more

March 22, 2012

Former US Federal Reserve Bank Chairman Paul Volker

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

* Deloitte quits second Chinese firm as auditor fears grow. Donny Kwok – Reuters. Deloitte said on Thursday it had quit as auditor for Chinese milk formula products maker Daqing Dairy Holdings Ltd hours after its shares were suspended, the accounting firm’s second resignation from a Hong Kong-listed Chinese company in days. The news has sparked fears this could be the start of a much wider and deep-rooted problem at Chinese companies listed in Hong Kong, after a series of scandals at U.S.-listed mainland companies last year that has unnerved some of the big auditors. The Daqing resignation came a week after Deloitte quit as auditor of Boshiwa International Holdings, which holds the license to make Harry Potter- and Bob the Builder-branded clothes, attracting unwanted attention to one of the Big Four accounting firms. Link

* Volcker backs contentious auditor rotation idea. Dena Aubin and Sarah Lynch – Reuters. Former Federal Reserve Chairman Paul Volcker backed a controversial proposal to impose term-limits for audit firms on Wednesday, saying it would serve as “a powerful incentive to maintain professional discipline.” The proposal would effectively break up business relationships that have existed for years, and it has provoked strong opposition from the accounting industry. Volcker said he understands that the idea of requiring rotation of audit firms every so often makes the firms “uneasy.” But he said his personal experiences, including his deep involvement in probing accounting failures at Arthur Andersen, convince him that this is the right path forward. Link

* Rich would skirt ‘Buffett Rule,’ report shows. John McKinnon – The Wall Street Journal. Millionaires likely would find legal ways to avoid paying higher taxes under President Barack Obama’s proposed “Buffett Rule,” a new congressional estimate finds. Taxpayers’ likely efforts to sidestep the rule’s effects mean it would raise about $47 billion in extra revenue over the next decade, according to a new estimate by the nonpartisan Joint Committee on Taxation. That’s less than some outside experts had expected and a relatively small amount compared with the size of federal budget deficits, which are running at more than $1 trillion a year. Link

* UK on track to erase budget deficit in five years-Osborne. Reuters. Britain’s government remains on track to meet its goal to erase the country’s huge budget deficit over the next five years, finance minister George Osborne said on Wednesday. Overall Britain’s public sector debt as share of gross domestic product (GDP) will peak at 76.3 percent in 2014/15 before falling, fulfilling the second part of the fiscal target. The budget deficit, however, hit a record for the month in February as income tax receipts dived and spending climbed. Link

* Scholastic revises results on unfavorable tax ruling. The Wall Street Journal. Scholastic Corp, the book publisher for the popular series “The Hunger Games,” revised its fiscal third-quarter results to show a larger loss than it reported last week after a court ruling increased the taxes owed by a subsidiary. Since reporting earnings last week, Scholastic said it received notice that the Supreme Court of Connecticut reversed a lower court’s decision and found that Scholastic Book Club Inc., a subsidiary, was liable for sales taxes relating to its school book clubs business in the state. Link

* The reform Republicans. The Wall Street Journal opinion. The Paul Ryan budget stakes out clear policy differences with the president on taxes and spending. Ryan’s proposal would reduce spending over a decade by some $5 trillion. President Barack Obama’s would increase spending by $1.5 trillion above the current budget baseline. Spending as a share of GDP never falls below 23 percent under Obama but slows to 20 percent of GDP under Ryan. Obama’s budget contains $1.9 trillion in tax increases over the next decade and raises income, dividend and capital gains tax rates. The Ryan budget outlines an ambitious tax reform, collapsing today’s six rates to two — 25 percent and 10 percent — while retaining the 15 percent tax rates on capital gains and dividends and eliminating inefficient tax deductions and credits. He gets the corporate tax down to 25 percent, roughly the international average, and below the 28 percent rate Obama suggests. Link

* Limits of American exceptionalism. Simon Johnson – The New York Times opinion. On Tuesday, Representative Paul D. Ryan of Wisconsin released a budget that he says represents the right path to fiscal responsibility. One of Ryan’s main ideas is to cut personal tax rates while also reducing corporate tax rates. This proposal has not yet been officially analyzed by the Congressional Budget Office, but based on the available details and Ryan’s own statements, federal government revenue would be likely to decline significantly relative to what it would be otherwise (perhaps $4.3 trillion over 10 years). Is cutting revenue in the face of large budget deficits further evidence that Americans are an exceptional people, capable of doing things that elude others? Or does it represent another round of thinly disguised fiscal folly? Link

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