Tax Break

David Cay Johnston dissects the manufacturing tax proposal

Reuters columnist David Cay Johnston has zeroed in this week on President Obama’s proposal to apply a lower tax rate to manufacturers.  It’s an idea that may sound appealing at first glance, but will, Johnston predicts, end up more about defining the word “manufacturing” than supporting true manufacturing and manufacturing jobs.

In the video below Johnston explains his thesis. His full argument can be found in this column . And over at Double Taxation, Toni Nitti  lends his support to the argument, writing :
“even code reform based on good intentions comes with the price of complexity and confusion.” YouTube Preview Image

Tax and Accounting Calendar

Some important events in the week ahead:

Sunday, March 11 – Wednesday, March 14  
The National Association of State Boards of Accountancy will hold its conference in San Antonio, Texas.

Tuesday, March 13
Comment letters due to the Financial Accounting Standards Board on proposed standards on revenue recognition from contracts with customers.

Wednesday, March 14
The Practising Law Institute briefing on hedge fund tax issues that have attracted IRS attention will touch on ”effectively connected income” loan origination and dividend withholding, tax penalties, and managing an IRS hedge fund audit.

Essential tax and accounting reading: Swiss eager for U.S. deal, E&Y auditor/advocate, slow refunds, and more

Internal Revenue Service office near Times Square in New York.

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

* Swiss president wants tax accord with U.S. David Jolly – The New York Times. In the view of Switzerland’s president, her country would sign a deal on banking secrecy with the United States “tomorrow” if not for an impasse created by Washington. “We are ready,” President Eveline Widmer-Schlumpf, who is also finance minister, said on Wednesday. “We’ve made a lot of constructive proposals. We could sign it tomorrow if the United States wants to do it.” She said the countries had made “considerable progress” toward a global deal in the last few months. An agreement will include deferred prosecution deals against Swiss banks accused of helping American tax evaders, fines and a “substantial” transfer of client data to the Internal Revenue Service, she said. Widmer-Schlumpf said that Switzerland, which accounts for more than one-quarter of the world’s offshore wealth, was not prepared to abandon banking secrecy altogether and that the data transfer “has to take place within the existing legal procedures in both countries.” Link

* Ernst & Young tightropes between audit, advocacy. David Ingram, Dean Aubin and Sarah Lynch. Corporate audit giant Ernst & Young operates a lobbying firm in Washington, D.C., that has been hired in recent years by several corporations that were at the same time E&Y audit clients, prompting two senior lawmakers to demand closer regulatory scrutiny. Amgen Inc, CVS Caremark Corp and Verizon Communications Inc have ongoing lobbying contracts with Washington Council Ernst & Young, an E&Y unit, while also using the audit firm to review the corporations’ books, according to documents reviewed by Reuters. U.S. rules on “auditor independence” include one that bars auditors from serving in an “advocacy role” for audit clients. The rule is focused on legal advocacy, such as providing expert witness testimony, but several accountants said the general prohibition on advocacy may cover lobbying, as well. Link

* Tax break goes far beyond factory floor. Kim Dixon – Reuters. A Reuters analysis of company filings and government data shows how broadly the Section 199 manufacturing deduction is now used, suggesting it may be nearly impossible to keep it focused on manufacturing. From Starbucks Corp to Time Warner Cable Inc, businesses far beyond traditional manufacturers use the benefit. President Barack Obama wants to cut the top corporate tax rate from 35 percent to 28 percent, with a special 25 percent rate for manufacturing. Critics say the manufacturing focus is in large part politics as Obama faces a potentially tough re-election fight in battleground states such as Ohio and Pennsylvania, where manufacturing is important. Link

Trying to move a mountain: Why Congress debates tax reform in an election year

Max Baucus, chairman of the Senate Finance Committee REUTERS/Kevin Lamarque

Tax reform is coming! 

Many people say that momentum is building to revamp the tax code, but the pace can seem glacial on Capitol Hill.

Nearly everyone agrees the tax code needs a rewrite but they also agree it won’t happen in an election year.

In an effort to lay the groundwork, congressional leaders held another set of major tax reform hearings this week, dragging experts into Capitol Hill hearing rooms to discuss something that’s less likely to hit DC than a blizzard in March.

Essential tax and accounting reading: Targeting private equity taxes, IASB slows rate of change, struggling taxpayers get a break, California’s stock option addiction, and more

Hans Hoogervorst, head of the International Accounting Standards Board REUTERS/Gil Cohen Magen Welcome to the top tax and accounting headlines from Reuters and other sources.

* Tax treatment of private equity: questions over quirk. Daniel Shafer – The Financial Times. Governments in the U.S. and Germany are examining proposals to take away the preferential treatment that has helped to turn swaths of private equity managers worldwide into millionaires and a few dozens into billionaires. The prospect of lower profits as well as higher taxes not only risks denting private equity’s ability to attract talent. It also brings back to the fore accusations that buyout bosses have amassed riches by paying low taxes and taking dividends from indebted companies in their portfolio – a debate that started before the crisis but became sidelined as public anger turned towards banks. Such indictments do not come from trade unions or leftwing anti-globalization groups alone. Calpers, the California pension fund that is among the most influential investors in buyout funds, recently called the U.S. tax break on private equity managers’ profit rewards “indefensible.” Link

* IASB eyes selective reforms after frantic change. Huw Jones – Reuters. Tackling company “disclosure overload” will be among cherry-picked projects for accounting standards reform after industry calls to ease the pace of change, a top accounting rule-setter said on Wednesday. “Now we have most of the world on board, even a small change to a standard can be like dropping a pebble into still water,” International Accounting Standards Board Chairman (IASB) Hans Hoogervorst said in a speech in Mexico. Over 100 countries have introduced IASB rules for use in listed company reporting over the past decade, during which the board also worked with its U.S. peer to align each others’ standards. The aim was to persuade the world’s biggest economy to adopt IASB rules, too. But America has delayed its decision, recently prompting Singapore to put back full adoption of IASB rules. Meanwhile, the IASB is finalizing work for its next phase. Link

Essential tax and accounting reading: Taxing the rich, Germany and the financial transactions tax, global tax dodges, and more

German Chancellor Angela Merkel REUTERS/Thomas Peter Welcome to the top tax and accounting headlines from Reuters and other sources.

* Opposition presses Merkel on transaction tax. Quentin Peel – The Financial Times. Angela Merkel, the German chancellor, is facing growing pressure to accelerate the introduction of a financial transaction tax in Europe, in order to win approval for the eurozone’s new treaty on fiscal discipline in her parliament. Both leading German opposition parties – the Social Democratic party and the Greens – are calling for action on the FTT as the price of their support for the new treaty, signed last week by 25 of the 27 European Union member states. Merkel’s legal advisers say she needs a two-thirds majority in both the German Bundestag, the directly elected parliament, and the Bundesrat, the chamber representing Germany’s 16 federal states, in order to ratify the treaty. That means relying on both the SPD and Greens to back it in both houses of parliament. Merkel and Wolfgang Schäuble, German finance minister, have both said that if an EU tax is not possible, they would be prepared to back it for the 17 eurozone countries. Link

* Swiss amend U.S. tax treaty. Laura Saunders and Goran Mijuk – The Wall Street Journal. The Swiss parliament on Monday amended a tax treaty with the U.S., allowing Washington to more easily identify U.S. taxpayers with undeclared Swiss accounts. The lower house’s approval following the Swiss senate’s backing in December paves the way for the ratification of a tax-information-sharing agreement between the two countries. Lawmakers hope the change also will help end a years-long tax battle and lessen U.S. pressure on some Swiss banks. Under the new treaty, U.S. authorities will be able to ask the Swiss to disclose names of U.S. taxpayers at a bank who exhibit certain “behavioral patterns” indicating tax evasion under U.S. law, such as trying to conceal the ownership of the account through a trust. The U.S. also will be able to request information even from small cantonal banks that, unlike UBS and Credit Suisse Group, don’t do business in the U.S. Link

* U.S. watchdog finds deficiencies in BDO audits. Dena Aubin – Reuters. The U.S. auditing industry watchdog faulted major accounting firm BDO USA LLP on Monday for numerous deficiencies found in some 2010 audit inspections, the latest of several negative reports on U.S. accounting firms. BDO’s auditors failed to identify or address financial misstatements and in some cases failed to get enough evidence to support audit opinions, the Public Company Accounting Oversight Board said in an inspection report. The PCAOB said that in one case, BDO auditors did not properly test fair-value measurements for mortgage-backed securities and other hard-to-value securities. Link

Essential tax and accounting reading: U.S. corporate income taxes hit a low, British tax shelters, Japan’s sales tax, taxing wealth around the world, and more

Francois Hollande, Socialist Party candidate for the 2012 French presidential election REUTERS/Jacky NaegelenWelcome to the top tax and accounting headlines from Reuters and other sources.

* U.S. corporate tax rates hit 10-year low. Telis Demos – The Financial Times. The effective tax rate paid by large U.S. public companies fell to its lowest in a decade in the fourth quarter last year as an increasing amount of revenue was generated outside of the country. According to figures compiled by Morgan Stanley, the unweighted average tax rate paid by the largest 1,500 U.S. public companies by market value in the fourth quarter was 31.9 percent of pre-tax income. About 100 companies are yet to report for the quarter. That puts the period on track for the lowest average in any quarter since 2001 and off sharply from the 35.4 per cent paid a year ago. Link

* Companies assess risks of tax planning. Vanessa Houlder – The Financial Times. Businesses are scrambling to assess the reputational risks of tax planning, after the closure of two “highly abusive” schemes designed by Barclays demonstrated the increasing public scrutiny of big companies’ tax affairs. The Treasury moved aggressively last week to block the bank from exploiting a loophole that could have cost the exchequer 500 million pounds ($792.80 million), marking the latest in a series of high-profile corporate tax disputes. Experts say the cases show how tax has joined executive pay at the forefront of debate over “responsible capitalism,” putting pressure on both the government and companies to demonstrate that businesses are paying their fair share. Link

Tax clips from the Web: Romney’s tax breaks, a plan for consumption and frequent flier pain

Where you gonna get the money?

The Tax Policy Center at the Brookings Institution has completed an analysis of presidential hopeful Mitt Romney’s tax platform, which basically lowers taxes for everyone, and it has one question: How is he going to make up for the revenue? “Without offsetting revenue increases or new spending cuts, Romney’s plan would significantly increase the budget deficit,” Howard Gleckman wrote on the Tax Policy Center’s blog.

Last week Romney went a step further in his proposed tax plan by slashing the income tax rates by 20 percent and doing away with the alternative minimum tax, which sets a floor on how small a tax rate an individual can have.

Republicans and Democrats in fact are shifting the debate from income tax reform to also include corporate tax rates. Both parties have introduced plans that will bring corporate taxes down below 30 percent from the current 35 percent rate. One big question involved in this debate, argues Christopher Papagianis for Reuters Opinion, is how each side will deal with how to tax consumption, and how the economy might or might not react differently to taxes on companies’ buying activity. A plan like the one already proposed by Rep. Paul Ryan “would have businesses determine their tax liability by subtracting total purchases from total sales. The BCT is then applied to the net receipts figure, which is also a way of expressing the added value contributed by the company.”

Tax and accounting calendar

Some events in the week ahead:

Tuesday, March 6 – Thursday March 8
Government Accounting Standards Board meeting in Norwalk, Connecticut.

Tuesday, March 6
Senate Finance Committee Chairman Max Baucus to host a hearing on tax reform and incentives currently in the tax code for capital investment and manufacturing and their contributions to job creation and economic growth. 10:00 a.m. in Room 215 of the Dirksen Senate Office Building. Speakers include:

• Dr. Jane G. Gravelle, Senior Specialist in Economic Policy, Congressional Research Service
• Dr. Ike Brannon, Director of Economic Policy & Congressional Relations, American Action Forum
• Dr. Robert D. Atkinson, President, Information Technology and Innovation Foundation
• Dr. J.D. Foster, Norman B. Ture Senior Fellow in the Economics of Fiscal Policy, The Heritage Foundation
• Dr. Michelle Hanlon, Associate Professor of Accounting, Sloan School of Management, MIT

Essential tax and accounting reading: Romney’s plan questioned, planning for a dividend tax hike, Transocean’s transfer pricing, unhappy California, and big taxes in Spain

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

* Investors gird for higher dividend taxes. Arden Dale – The Wall Street Journal. Financial advisers and their clients are starting to plan for, if not yet act on, a possible jump in taxes on dividends. Dividend-producing stocks have had a special attraction among investors in recent years, in part because of the lower-than-usual tax rates dividends have enjoyed for much of the past decade. Those low rates gained even more luster as the stock market tanked — driving up the dividend yields — while interest rates on savings accounts have been so low. A 2 percent dividend yield also looks more interesting to investors than it did before U.S. bond yields declined last year and remain near historical lows. Increases in taxes on dividends, capital gains and ordinary income all are currently planned, but dividends may be seeing one of the biggest changes. Link  

 * Credibility of Romney’s big tax cut questioned. James Politi and Richard McGregor – The Financial Times. Mitt Romney’s latest tax-cut proposals would result in $3.4 trillion in foregone revenue for the federal government, with revenues stuck at the very low level of 16 percent of gross domestic product for the next decade, according to a study by an independent think-tank. The calculations by the Tax Policy Center will raise questions about the fiscal rectitude of Romney’s economic plan at a time when the former Massachusetts governor is vowing to slash US budget deficits. Link