Tax Break

Mississippi steamboat REUTERS/Robert Galbraith

On March 20 the Center for Public Integrity published a project that had been more than a year in the works. Its ambitious goal: to evaluate each of the 50 states on 13 different measures of integrity.  Campaign finance law, judicial accountability and lobbying disclosure were some of the important topics tackled.

Also among the 13: the quality of each state’s internal auditing.

Internal auditing “tends to be overlooked, obscure and isolated.  But these are really key agencies of accountability,” said Nathaniel Heller, executive director of Global Integrity, an affiliate of the Center that helped design the study.

The Center describes itself as a non-partisan nonprofit that concentrates on ethics and public service, and though critics sometimes describe it as left-leaning, it has a record of critical review of politicians and policies of both parties.

Some of this study’s findings have come in for criticism, including its ranking New Jersey best across all 13 categories.  As Bloomberg columnist Jonathan Weil pointed, out,  New Jersey is the only state ever sued for fraud by the Securities and Exchange Commission. Lying to  municipal-bond investors about the underfunded condition of its two largest pension plans was the central issue. This study gave its state pension fund management an “A”.

Because the study evaluates the systems in place today, past transgressions like those are not factored in.

It’s that time of year – taxes are due in the United States on April 17 — and the Obama administration wants you to know where your tax dollars are going. The White House updated a calculator on Wednesday that aims to show you where your money is being spent,  which federal programs your tax dollars are funding and in what amount.

“Your Federal Taxpayer Receipt” asks for estimates of taxes paid, or lets you choose a category.

For example, a family with $80,000 of income and two children that pays 5 percent into a 401(k) and claims a workers and child care credit should pay about $9,110 in taxes – including those for Medicare and Social Security.

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

 * Geithner swings back at critics of tax and regulatory policy. Damian Palleta – The Wall Street Journal. Treasury Secretary Timothy Geithner sharpened his rebuke of his political and private sector critics on Wednesday, saying many “misread the underlying dynamics of the economy today.” Geithner, in remarks at the Economic Club of Chicago, called out “business lobbyists” and others and said “many have claimed that the basic foundations of American business are in crisis, critically undermined by taxes and regulation.” Link 

* Christie leaning on tax subsidies in hunt for jobs. Charles Bagli – The New York Times. Since taking office in 2010, Republican Gov. Chris Christie has approved a record $1.57 billion in state tax breaks for dozens of New Jersey’s largest companies after they pledged to add jobs. Christie has emphasized that these are prudent measures intended to help heal the state’s economy, which lost more than 260,000 jobs in the recession. The companies often received the tax breaks after they threatened to move to New York or elsewhere. Link  

Why do people in California have so many tax questions?

In the last three months,Avvo, a site where people from all over the United States can go for free answers to legal and medical questions, has seen a more than 200 percent climb in its tax-related questions. The area with the most tax questions was Los Angeles, but San Francisco and San Diego  were also leaders in the area.

Josh King, a Seattle lawyer who’s also vice president of business development and general counsel for Avvo, said a lot of the California tax questions are property-related, the leftovers of that state’s real estate meltdown. Among them: the tax implication of short sales and foreclosures, as well as how to get property tax reassessed.

A second big tax category in California is business taxes with questions focused on tax collection and filing requirements.

A hockey player skates on Lake Louise in the Canadian Rocky Mountains REUTERS/Shaun Best

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

* Obama assails Republican budget plan, aims at Romney. Alister Bull – Reuters. President Barack Obama accused Republicans on Tuesday of favoring the rich with a “radical” budget plan that focuses on cutting popular programs, which the White House sees as a potent vote winner for Democrats in this year’s election. The Republican blueprint proposes broad tax reform, including closing loopholes to raise revenue, while advocating a simplification in the tax code and lowering the top tax rate. White House officials said the goal of Obama’s speech was to hammer home a message that if Republicans win in November, their budget is coming to America. Link

* KKR’s Kravis says U.S. tax overhaul needed. Greg Roumeliotis – Reuters. Henry Kravis, the co-chief executive of private equity group KKR & Co LP, said on Tuesday that a reform of the tax system was necessary to jumpstart the U.S. economy. On Monday, one of Kravis’s peers, David Rubenstein, billionaire co-founder of Carlyle Group LP, defended the lower rate of taxation enjoyed by private equity managers, arguing they are merely following the laws that Congress wrote. Kravis, whose net worth as of March 2012 was $4 billion according to Forbes, refrained from making a prediction about the future tax treatment of carried interest and said he tried to keep his firm out of politics. Link

If you are writing a check to your state department of revenue or the IRS over the next few weeks, or are simply reminded by tax time just how much you send along to the government each year, you may well wonder where all that money is going.

The Center on Budget and Policy Priorities put together two graphics which capture the highlights.

First the states:

Like the states, the federal government spends big on healthcare.

Education drops off, however, replaced by spending on Social Security and national defense:

Around 50 percent of Irish homeowners have boycotted a new tax. Here, an empty and unsold housing development in the village of Keshcarrigan, County Leitrim. REUTERS/Cathal McNaughton Welcome to the top tax and accounting headlines from Reuters and other sources.

*U.S. regulator accuses RBC of massive trading scheme. Alexandra Alper – Reuters. The U.S. futures regulator accused the Royal Bank of Canada of running a “trading scheme of massive proportion” to gain lucrative Canadian tax benefits. The Commodity Futures Trading Commission’s civil lawsuit alleges RBC employees created and managed a “wash trading” strategy in which they improperly coordinated to buy and sell stock futures without taking a position in the market. RBC declined to comment on whether the trades in question were structured to realize Canadian tax credits, as alleged in the lawsuit. Link

*SEC probes Groupon. Shayndi Rice and Jean Eaglesham – The Wall Street Journal. The Securities and Exchange Commission is examining Groupon Inc’s revision of its first set of financial results as a public company, according to a person familiar with the situation. Groupon has hired a second accounting firm, KPMG, in addition to its current accountant Ernst & Young. KPMG’s role is to make Groupon compliant with Sarbanes-Oxley, federal regulations around accounting and disclosures of public companies. In addition, Groupon plans to hire more accounting and finance staff, said a person familiar with the matter. Link

More bad news on Chinese companies trading on U.S. markets came this week as education company ChinaCast announced it faces possible NASDAQ de-listing.

ChinaCast shares some interesting traits with other recent Chinese accounting headline-grabbers: the company is structured as a variable interest entity (VIE), there is a dispute between its (now former) CEO and its auditor, and that auditor is Deloitte.

Deloitte has in the past few weeks resigned from two Hong Kong-traded Chinese clients as well, and remains embroiled in a lawsuit with the Securities and Exchange Commission over the work papers in its audit of software maker Longtop Financial.

For today’s “man bites dog” bulletin, a recent academic paper studying the relationship between behavior and taxes has found people gain value, or “utility,” from paying taxes.

Yes, tucked in the subconscious reaches of your brain is a notion that taxes are a social good. The problem for tax writers: The tax code is so complex that people do not associate the communal value with tax payments.

The paper - ”Tax affinity hypothesis: Do we really hate paying taxes?” - was published in February by a professor and a former student at Wesleyan University in the Journal of Economic Psychology.

A boat on Lake Untersee near the Swiss-German border. REUTERS/Arnd Wiegmann
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Swiss spy charge signals German tax deal trouble. Katie Reid – Reuters. A Swiss decision to pursue German tax inspectors for industrial espionage is a sign of growing tension that could make it hard for both sides to secure parliamentary ratification of a deal preventing Germans dodging tax on their Swiss deposits. While Berlin is trying to tax an estimated 150 billion Swiss francs ($166 billion) hidden by Germans in Swiss accounts, Berne wants to avoid revealing the identities of wealthy customers who are a mainstay of its offshore financial services industry. Link   * Global business groups warn India over tax plan impact. Henry Foy – Reuters. International trade groups representing more than 250,000 companies have warned Indian Prime Minister Manmohan Singh that new taxation proposals by his government have led foreign businesses to reconsider their investments. India’s federal budget last month outlined proposals that would allow authorities to make retroactive tax claims on overseas deals and bring in new anti-tax-avoidance measures, moves that have been criticized for further denting investor sentiment towards India. Link  

* California Democrats duel over taxes, budget. Vauhini Vara – The Wall Street Journal. California Gov. Jerry Brown’s proposed ballot measure this fall to raise taxes and restore funding to an array of state programs faces unlikely opposition from a prominent Los Angeles lawyer who supported Brown’s election only 17 months ago. Attorney Molly Munger has proposed a rival ballot issue that also would raise taxes but earmark most of the new revenues for schools. The clash between Munger and Brown highlights the tension within California’s Democrats over how to prioritize spending now that the state is beginning to recover from its fiscal crisis. Link  

* Japan in sales-tax battle. Toko Sekiguchi – The Wall Street Journal. While Japanese Prime Minister Yoshihiko Noda’s parliamentary submission of a sales-tax rise bill on Friday brings the premier one step closer to his goal of fiscal reconstruction, opposition from many lawmakers across the political spectrum is likely to make passage of the measure far from smooth. Anti-tax lawmakers within his party may hinder the premier’s attempt to push the tax discussion forward. The fiscally hawkish prime minister reiterated that he has staked his political career on writing into law the two-step national consumption tax increase to 10 percent by 2015. Link