Tax Break

Essential reading: Looking for tax money to fund a student loan break, WIN America shuts down, more

April 24, 2012

A student studies on the campus of San Francisco State University in San Francisco, California REUTERS/Robert Galbraith

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

* ‘Loophole’ closing eyed to fund student loan policy. Carol Lee and John McKinnon – The Wall Street Journal. The White House and Senate Democrats are looking at ending a tax provision benefiting some small business owners to pay for a year-long extension of a freeze in student loan interest rates, which are scheduled to double from 3.4 percent to 6.8 percent this summer, people familiar with the discussions said. The measure would change a feature of tax law that critics say has allowed many owners of small businesses—particularly those known as Subchapter S corporations—to escape employment taxes on much of their earnings. Link

* SEC charges SinoTech, execs with lying to investors. Sarah Lynch – Reuters. U.S. securities regulators charged China-based SinoTech Energy Ltd and its senior executives with misleading investors on Monday, part of an effort to crack down on accounting problems at Chinese companies listed in the United States. The Securities and Exchange Commission’s civil suit, filed in a U.S. district court in Louisiana, alleges that the oil field services company and its executives “continuously and intentionally misled investors” about the value of its assets and how it used the $120 million in proceeds from its November 2010 initial public offering. Link

* Lobby group for lower corporate taxes ends operations. Patrick Temple-West – Reuters. The corporate tax lobbying group WIN America terminated lobbying work with its outside firms effectively ending its advocacy work, according to Senate disclosure documents. The group was fighting for legislation that would allow companies to bring foreign profits into the United States at a low tax rate. Under current law, businesses face up to a 35 percent tax when repatriating foreign profits. Link

* Complaint tests US conservative group’s charity status. David Ingram and Nanette Byrnes – Reuters. A conservative group that promotes legislation in state capitals is mainly a lobbying organization and should not benefit from a special tax status meant for charities, a liberal group says in a complaint to the U.S. Internal Revenue Service. The complaint, released on Monday, challenges the tax-law status of the American Legislative Exchange Council (ALEC) as a not-for-profit 501(c)(3) charity. That status lets ALEC avoid paying taxes and lets its supporters deduct their contributions. Link

* PM criticized over tax comment. Kiran Stacey – The Financial Times. David Cameron has been criticized for saying he would not mix with anyone he deemed guilty of “aggressive tax avoidance”. The prime minister told the BBC yesterday he wanted the tax authorities to chase people who take legal measures to minimize their tax burdens if they were taken solely to reduce what they paid to the exchequer. Cameron has already been criticized for hiring Sir Philip Green as an adviser, even though tax was avoided on a 1.3 billion pounds ($2.09 billion)dividend from Taveta, the parent company of Topshop, which was paid to his wife in Monaco in 2005. Link

* Assessing the small business tax cut. Robb Mandelbaum – The New York Times. Under the Small Business Tax Cut any company of any sort with fewer than 500 employees would be eligible to deduct 20 percent of income in 2012, though the deduction is limited to half of cash wages paid to employees. Congress’s nonpartisan Joint Committee on Taxation discounted the measure’s stimulative effects in an analysis of the bill. The tax cut’s effects on the economy would be “so small as to be incalculable,” the committee said. Link

* High tax rates won’t slow growth. Peter Diamond and Emmanuel Saez – The Wall Street Journal opinion. According to our analysis of current tax rates and their elasticity, the revenue-maximizing top federal marginal income tax rate would be in or near the range of 50 percent to 70 percent (taking into account that individuals face additional taxes from Medicare and state and local taxes). Thus we conclude that raising the top tax rate is very likely to result in revenue increases at least until we reach the 50 percent rate that held during the first Reagan administration, and possibly until the 70 percent rate of the 1970s. Link

* A dastardly plot to avoid taxes. Andrew Rosenthal – The New York Times opinion. Contrary to the conventional wisdom, Republicans are not against all tax increases. Rep. Eric Cantor, the House Majority Leader, thinks poor people might need a tax hike. Cantor said last week: “We should broaden the base in a way that we can lower rates for everybody that pays taxes.” Republicans have become obsessed with the idea that we must broaden the base. They like to say that poor people “don’t have any skin in the game” when it comes to economic policy – although I bet that if you asked a single mother with two kids earning $16,000 a year, she’d tell you she feels pretty well skinned by the game. Link

($1 = 0.6213 British pounds)

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