Tax Break

Essential reading: Firms pass up tax breaks, loopholes impact U.S. deficit, and more

July 23, 2012

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

* Firms pass up tax breaks, citing hassles, complexity. John McKinnon – The Wall Street Journal. Many companies are saying “no, thanks” to tax breaks and are likely paying more taxes than legally required. Corporate breaks that Washington hopes will boost the economy often prove ineffective. Firms are leaving tens of billions of dollars on the table every year. Out of 1.78 million corporate tax returns in the United States, only about 20,000 claimed any of the three dozen main business tax credits in the code, according to Internal Revenue Service estimates. Link 

* Tax loopholes block effort to close gaping U.S. deficit. Jonathan Weisman – The New York Times. Senator Mike Crapo made sure that a $3 billion loophole — protecting “black liquor,” an alcoholic sludge used as fuel in timber mills and factories — remained open in the negotiations over the highway bill that President Obama signed this month. Many budget experts criticize the loophole as a tax dodge because it allows the sludge to qualify for an energy subsidy created to wean the country off imported oil for vehicles, which black liquor does not do. Link

* Cost difference: GOP and Democrats tax plans not so far apart. John McKinnon – The Wall Street Journal. Democrats sought to highlight the lower cost of their bill to extend Bush-era tax cuts, compared to the GOP version, in an analysis they released Friday night. Senate Democrats touted their $250 billion plan as $155 billion cheaper than a competing Republican version that costs about $405 billion. The real difference between the competing plans, of course, is the GOP extension of tax breaks for families making more than $250,000 next year. That costs about $49 billion, according to the latest estimate from congressional experts. Link

* Crackdown on tax-dodge sellers. Vanessa Houlder – The Financial Times. Sales people promoting abusive tax dodges will be forced to hand over client lists, under proposals aimed at cracking down on those who “artificially and aggressively” reduce their tax bills. The UK Treasury is also considering extending the financial services misselling rules to penalize advisers who market schemes that clearly do not work, as part of new measures aimed at pricing open schemes and warning taxpayers of the risks of aggressive avoidance. Link

* Art’s sale value? Zero. The tax bill? $29 million. Patricia Cohen – The New York Times. The object under discussion is “Canyon,” a masterwork of 20th-century art created by Robert Rauschenberg that art dealer Ileana Sonnabend’s children inherited when she died in 2007. Because the work, a sculptural combine, includes a stuffed bald eagle, a bird under federal protection, the heirs would be committing a felony if they ever tried to sell it. So their appraisers have valued the work at zero. The IRS has appraised “Canyon” at $65 million and is demanding that the owners pay $29.2 million in taxes. Link

* Super rich hold $32 trillion in offshore havens. Reuters. Rich individuals and their families have as much as $32 trillion of hidden financial assets in offshore tax havens, representing up to $280 billion in lost income tax revenues, according to research published on Sunday. The study estimating the extent of global private financial wealth held in offshore accounts – excluding non-financial assets such as real estate, gold, yachts and racehorses – puts the sum at between $21 and $32 trillion. Link

* Ari Fleischer: The latest news on tax fairness. The Wall Street Journal opinion. You wouldn’t know this from President Obama’s rhetoric, but our tax system, according to a recent report by the Congressional Budget Office (CBO), is incredibly progressive. Consider: The top 1 percent of income earners pay an average federal tax rate of 28.9 percent. The average federal tax rate on the top 20 percent is 23.2 percent. The 20 percent of taxpayers earning between $50,100 and $73,999 pay an average 15.1 percent, and so on down the line. The CBO report includes payroll as well as income taxes paid. Link 

* Mr. Obama’s stand on taxes. The Washington Post editorial. It’s impossible to tackle the federal debt by taxing only the wealthy. As the cost of retirement and health care for an aging population rises, the middle class is going to have to pay more, and federal benefits are going to have to be adjusted. It would be irresponsible to extend all tax cuts indefinitely and revoke all spending reductions without any progress on long-term deficit reduction. It would cripple long-term economic growth, as the government’s financing needs drained capital from the private sector. Link

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