Tax Break

Essential reading: Payroll tax cut on track to quietly expire

Good morning and welcome to the top tax and accounting headlines from Reuters and other sources.

* Payroll tax cut on track to quietly expire. Naftali Bendavid – The Wall Street Journal. Amid a high-decibel fight over the nation’s budget, there is one emerging area of agreement: Both parties appear willing to quietly let a major tax cut expire—a payroll tax break enjoyed by about 122 million people. Republicans were unenthusiastic about the tax cut to begin with, preferring instead a broad overhaul of the tax code and contending it would weaken Social Security. Now the party is openly opposed to extending the tax break. Link

* Study: Romney tax plan would result in cuts for rich, higher burden for others. Lori Montgomery – The Washington Post. Mitt Romney’s plan to overhaul the tax code would produce cuts for the richest 5 percent of Americans — and bigger bills for everybody else, according to an independent analysis set for release Wednesday. The study was conducted by the Brookings Institution and the nonpartisan Tax Policy Center. To cover the cost of his plan — which would reduce tax rates by 20 percent, repeal the estate tax and eliminate taxes on investment income for middle-class taxpayers — the researchers assume that Romney would go after breaks for the richest taxpayers first. Link

* House lawmakers head toward election-year tax votes with political messaging on their minds. Associated Press. An election-year tax faceoff between Democrats and Republicans in the GOP-controlled House is heading toward a predictable outcome Wednesday. Republicans are poised to pass a bill to renew a full slate of Bush-era tax cuts for every working American. Democrats are countering with a doomed plan that would extend the tax cuts for all but the highest-earning Americans. Link

* Leaders reach tentative deal on spending to avoid fight before election day. Jennifer Steinhauer – The New York Times. Congress is nearing another budget deadline, and Republicans still want to cut spending. But this time, the presidential and Congressional elections are just months away. As a result, House and Senate leaders on Tuesday, with little fanfare and no drama, said they had reached a tentative agreement that would pay for federal government operations through next March, averting the prospect of another messy shutdown debacle. Link

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

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

Calendar

Some important tax and accounting events in the week ahead:

Monday, July 23 – Wednesday, July 25  * American Institute of Certified Public Accountants conference on gift and estate taxation, the generation-skipping transfer tax, income tax considerations related to trusts, estates, and large IRAs, and more. Las Vegas.

Monday, July 23 – Tuesday, July 24  * Practicing Law Institute seminar on foreign tax credits, tax treaties, international tax reform, the Foreign Account Tax Compliance Act, and passive foreign investment companies. New York and webcast.

Tuesday, July 24  * U.S. House of Representatives Judiciary Committee hearing on the Marketplace Fairness Act, which would permit states to require online retailers to charge sales tax. 10:00 a.m. EDT, Rayburn House Office Building. Washington.

Essential reading: Obama challenges Republicans to keep tax cuts for middle class, and more

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

* Obama challenges Republicans to keep tax cuts for middle class. Jeff Mason and Alister Bull – Reuters. President Barack Obama called on Monday for a one-year extension of Bush-era tax cuts for families earning less than $250,000 a year, seeking to steer the election-year debate away from high unemployment and portray himself as a champion of ordinary Americans. The tax proposal is unlikely to sway Obama’s Republican opponents in Congress, who argue that the cuts should be maintained for everyone, including higher earners. Link

* Tax bill aims to encourage small business hiring. Corey Boles – The Wall Street Journal. Senate Democrats will try this week to pass a targeted tax relief package aimed primarily at encouraging small businesses to hire new workers. The $28 billion bill, the latest in a series of election-year tax maneuvers by the political parties, would provide a tax credit to all firms that hire new workers or increase pay for existing staff. Companies could earn a maximum credit of $500,000 against their 2012 income tax liability under the bill. Link

* Maine Governor LePage apologizes for “Gestapo” comment. Reuters. Maine Governor Paul LePage apologized on Monday for calling the U.S. Internal Revenue Service the “Gestapo” during criticism of President Barack Obama’s healthcare law. The Republican governor compared the tax agency to Nazi secret police during a weekend radio address on healthcare. Link

David Cay Johnston on how the well-to-do can pay no taxes

In this video Reuters tax columnist David Cay Johnston interprets some of what we know — and don’t know – about the wealthiest Americans and their taxes.

Tax fairness has been a hot topic this year.

An IRS analysis shows that of the 3,975,288 tax returns reporting income of $200,000 or more for 2009, 35,061 had no U.S. income tax liability at all.

Another IRS report looks at the 400 very highest incomes and finds that a handful of this group also hit the tax-free list.

That’s not fair! may push U.S. tax revamp

It may seem too simple to be true, but the urge among humans for basic fairness may be among the biggest drivers for a revamp of the U.S. tax code, at least competing with the influence of lobbyists, general greed and politics.

That was one message of tax war veterans gathering at the Urban Institute in Washington on Tuesday where Nietzsche, Marx and other philosophers were mulled along with the hard-nosed lessons of the last revamp in 1986 under Republican President Ronald Reagan.

“Fairness is still the queen of principles that brings us back,” to trying to fix the tax code, said Eugene Steuerle, who was a key economic aide in Reagan’s Treasury Department under that historic overhaul.
Democrats and Republicans say they want a rewrite of the code and cite the mind-numbing complexity combined with the unfairness of breaks favoring select groups. The issue could gain steam after the Nov. 6 elections.

Essential Reading: Deductions Romney would target, Buffett Rule politics, more

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

* Romney specifies deductions he would cut. Sara Murray – The Wall Street Journal. In order to offset the 20 percent income tax cut he has proposed for all taxpayers, Romney would eliminate or limit for high-earners the mortgage interest deduction for second homes, and likely would do the same for the state income tax deduction and state property tax deduction. He also said he would look to the Department of Education and the Department of Housing and Urban Development for budget cuts. Link

* Q+A: The ‘Buffett Rule,’ a minimum tax on the rich. Kim Dixon and Patrick Temple-West – Reuters. President Barack Obama and congressional Democrats are laying a political trap for Republicans to be sprung on Monday when the U. S. Senate is slated to vote on the proposed “Buffett Rule,” which would slap a minimum tax on the highest-income Americans. Link

* For Americans abroad, taxes just got more complicated. David Jolly – The New York Times. Americans overseas face a new form that will add to the hassle of tax time for many and, critics say, set up the unwary for penalties. The new requirement comes courtesy of the Foreign Account Tax Compliance Act, or FATCA, an effort to crack down on offshore tax evasion by U.S. citizens. Link

Essential reading: Global focus on taxing the rich, tax day crashes, and more

U.S. President Barack Obama arrives to speak about tax fairness and the economy at Florida Atlantic University, April 10, 2012. REUTERS/Kevin Lamarque

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

* Soaking the rich might not be a panacea. Vanessa Houlder – The Financial Times. The super rich are under fire across much of the developed world. U.S. President Barack Obama is on the road this week promoting the “Buffett rule”, a minimum tax on millionaires. In France, François Hollande is proposing a 75 per cent tax rate on the rich. In Britain, George Osborne, chancellor, has expressed shock at evidence showing the scale of tax planning by some of the wealthiest people in the country. Link

*Obama to enlist millionaires in Buffett Rule campaign. Margaret Talev – Bloomberg News. President Barack Obama is intensifying his campaign for higher taxes on top U.S. earners, casting the issue against Republican opposition as one of fairness and support for the middle class. Link

Essential reading: Tax fairness or tax competiveness?, Shockingly low taxes, and more

Britain's Chancellor of the Exchequer George Osborne said he's shocked how little tax some wealthy citizens pay

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

* How to really simplify the tax code. Bruce Bartlett – The New York Times. Politicians hide behind grandiose plans for wiping the tax slate clean because they know that support for every specific tax expenditure is very high. In practice, saying that one would eliminate all tax expenditures is meaningless, nothing more than a gesture that avoids confrontation with the constituencies supporting tax expenditures. Perhaps the worst offender, in this regard, is Paul D. Ryan. Ryan steadfastly refuses to name a single loophole that he would eliminate. Link

* White House highlights tax fairness ahead of Obama speech. Alister Bull – Reuters. Taxes for America’s highest earners have fallen sharply since 1995, according to a White House report on Tuesday, released ahead of a speech by President Barack Obama on fairness in the tax code that is a key part of his campaign for reelection. The White House estimated the 400 highest income households in the country, who all earned over $110 million, paid an average of 18.1 percent of their income in federal taxes in 2007, well down for 29.9 percent those households paid in 1995.Obama travels to Florida later on Tuesday where he will urge support for the Buffett Rule. Link 

Essential tax and accounting reading: taxing the rich, MF Global accounting under review, Simpson-Bowles cuts get a vote, tax hike helps New York budget, and more

Fiscal Commission co-chairs Alan Simpson (L) and Erskine Bowles April 14, 2011. REUTERS/Kevin Lamarque

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

* The case for raising top tax rates. Eduardo Porter – The New York Times. The wealthy are feeling defensive about their taxes. Most Americans may think the rich pay too little but, not surprisingly, only 30 percent of the rich agree. More than two-thirds of families earning a quarter of a million dollars a year or more tell Gallup’s pollsters that their taxes are too high. It is true that high-income Americans carry the biggest tax burden. While fewer than 1 in 20 families make more than $200,000, they pay almost half of all federal taxes. However they feel about the tax man, there is a case to be made that they can pay much more. The reason has nothing to do with fairness, justice or ideology. It is about economics and math. Link

* US FASB weighs reform to accounting used by MF Global. Sarah Lynch – Reuters. The U.S. accounting standard-setting board could this year revamp the accounting treatment that MF Global used to mask risky European sovereign debt exposure, an official at the board will tell lawmakers on Wednesday. “Moving forward with this project will involve a series of public education and decision-making meetings and the exposure of a proposed standard for public comment,” said Financial Accounting Standards Board Technical Director Susan Cosper in prepared testimony. Cosper noted that while historically most repo-to-maturity transactions have involved U.S. Treasury securities, the range of instruments involved has broadened over the years to include other debt instruments such as those seen in the MF Global case. Link