Tax Break

Essential tax and accounting reading: Californians support tax hikes, dividend taxes, $1 trillion of tax breaks, inheritance tax, and more

March 26, 2012

California coast REUTERS/Mike Blake

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

* Strong majority back Jerry Brown’s tax-hike initiative-poll. Anthony York – The Los Angeles Times. California voters strongly support Gov. Jerry Brown’s new proposal to increase the sales tax and raise levies on upper incomes to help raise money for schools and balance the state’s budget, according to a new USC Dornsife/Los Angeles Times poll. Sixty-four percent of those surveyed said they supported the governor’s measure, which he hopes to place on the November ballot. It would hike the state sales tax by a quarter-cent per dollar for the next four years and create a graduated surcharge on incomes of more than $250,000 that would last seven years. Link

* Will a dividend-tax hike spoil the party. Jack Hough – The Wall Street Journal. Apple’s dividend announcement this past week is good news for income investors, but bad news might be lurking around the corner. Unless Congress takes action, the top tax rate for the highest earners on most dividends, currently 15 percent, is set to jump to a whopping 43.4 percent next year. That is a maximum income-tax rate of 39.6 percent —since dividends will once again be taxed as regular income — plus a 3.8 percent tax on investment income as part of the health-care overhaul passed in 2009. Link

* Tax breaks exceed $1 trillion: Report. John McKinnon – The Wall Street Journal. A congressional report detailing the value of major tax breaks shows they amount to more than $1 trillion a year — roughly the size of the annual federal budget deficit — and benefit wide swaths of the population. The new report, by the nonpartisan Congressional Research Service, underscores how far-reaching many of the tax breaks are. They include the exclusion from taxable income for employer-provided health insurance, the biggest break, at $164.2 billion a year in 2014; the exclusion for employer-provided pensions, the second-biggest, at $162.7 billion; and the exclusions for Medicare and Social Security benefits. Link

* The rich get even richer. Steven Rattner – The New York Times opinion. New statistics show an ever-more-startling divergence between the fortunes of the wealthy and everybody else — and the desperate need to address this wrenching problem. Even in a country that sometimes seems inured to income inequality, these takeaways are truly stunning. In 2010, as the nation continued to recover from the recession, a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers, those with at least $352,000 in income. That delivered an average single-year pay increase of 11.6 percent to each of these households. Link

* Death tax defying – The Wall Street Journal editorial. While Washington continues to debate what to do with the federal death tax — the top rate is now 35 percent and is scheduled to rise to 55 percent  next year — states are starting to recognize that their high estate taxes are a good way to chase away wealth producers. Last year Ohio abolished its estate tax, joining the 28 other states that do not impose such a tax at death. The left has long been flummoxed by polls showing that roughly two of three Americans want this tax abolished. Americans instinctively understand that the tax is unfair. It punishes a lifetime of thrift and investment solely due to the accident of death. And it does so in a way that imposes another tax on income that in most cases has already been taxed once, or sometimes twice. Link

* Judge a tax plan by its loopholes. James Stewart – The New York Times opinion. Representative Paul Ryan wants two simple tax rates: 25 percent for higher incomes and 10 percent for lower incomes. He wants the results to be revenue-neutral. But there’s no getting around the fact that a 25 percent rate on the top earners would nearly double Mitt Romney’s effective rate and more than double it for the 101 of the top 400 taxpayers who pay less than 10 percent, assuming the loopholes are indeed closed. A top rate of 25 percent may sound like a cut from current higher rates, but so few wealthy taxpayers pay the top rate that it would be a significant increase for many of them. Link

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