Tax Break

California coast REUTERS/Mike Blake

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

* Strong majority back Jerry Brown’s tax-hike initiative-poll. Anthony York – The Los Angeles Times. California voters strongly support Gov. Jerry Brown’s new proposal to increase the sales tax and raise levies on upper incomes to help raise money for schools and balance the state’s budget, according to a new USC Dornsife/Los Angeles Times poll. Sixty-four percent of those surveyed said they supported the governor’s measure, which he hopes to place on the November ballot. It would hike the state sales tax by a quarter-cent per dollar for the next four years and create a graduated surcharge on incomes of more than $250,000 that would last seven years. Link

* Will a dividend-tax hike spoil the party. Jack Hough – The Wall Street Journal. Apple’s dividend announcement this past week is good news for income investors, but bad news might be lurking around the corner. Unless Congress takes action, the top tax rate for the highest earners on most dividends, currently 15 percent, is set to jump to a whopping 43.4 percent next year. That is a maximum income-tax rate of 39.6 percent —since dividends will once again be taxed as regular income — plus a 3.8 percent tax on investment income as part of the health-care overhaul passed in 2009. Link

* Tax breaks exceed $1 trillion: Report. John McKinnon – The Wall Street Journal. A congressional report detailing the value of major tax breaks shows they amount to more than $1 trillion a year — roughly the size of the annual federal budget deficit — and benefit wide swaths of the population. The new report, by the nonpartisan Congressional Research Service, underscores how far-reaching many of the tax breaks are. They include the exclusion from taxable income for employer-provided health insurance, the biggest break, at $164.2 billion a year in 2014; the exclusion for employer-provided pensions, the second-biggest, at $162.7 billion; and the exclusions for Medicare and Social Security benefits. Link

* The rich get even richer. Steven Rattner – The New York Times opinion. New statistics show an ever-more-startling divergence between the fortunes of the wealthy and everybody else — and the desperate need to address this wrenching problem. Even in a country that sometimes seems inured to income inequality, these takeaways are truly stunning. In 2010, as the nation continued to recover from the recession, a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers, those with at least $352,000 in income. That delivered an average single-year pay increase of 11.6 percent to each of these households. Link

* Death tax defying – The Wall Street Journal editorial. While Washington continues to debate what to do with the federal death tax — the top rate is now 35 percent and is scheduled to rise to 55 percent  next year — states are starting to recognize that their high estate taxes are a good way to chase away wealth producers. Last year Ohio abolished its estate tax, joining the 28 other states that do not impose such a tax at death. The left has long been flummoxed by polls showing that roughly two of three Americans want this tax abolished. Americans instinctively understand that the tax is unfair. It punishes a lifetime of thrift and investment solely due to the accident of death. And it does so in a way that imposes another tax on income that in most cases has already been taxed once, or sometimes twice. Link

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

* Top watchdog, U.S. Chamber clash on auditor rotation. Dean Aubin – Reuters. At a forum on whether corporations should be required by regulation to switch auditors every few years, Public Company Accounting Oversight Board Chairman James Doty clashed with the U.S. Chamber of Commerce. The chamber had written the PCAOB urging it to withdraw a white paper that it issued asking for public comment on auditor rotation. Doty said that the PCAOB has been looking at other ways of improving audit quality at the two-day forum. He suggested it was important for the PCAOB to look into rotation so it could have input on an issue being considered in other countries. Link

* IRS audit rate jumps for U.S. millionaires. Reuters. U.S. tax officials are looking more closely at the tax filings of multimillionaire earners, with the audit rate for those making more than $10 million a year jumping in 2011, according to newly released documents. The Internal Revenue Service audited about 30 percent of the returns of those with adjusted gross income of $10 million or more in 2011, according to statistics released on Thursday. By contrast, in 2010, the agency audited about 18 percent of that group. Link

* UK’s Osborne takes heat over budget’s ‘Granny Tax.’ Cassell Bryan-Low and Nicholas Winning – The Wall Street Journal. UK Chancellor of the Exchequer George Osborne faced a public backlash on Thursday as his budget — pitched as a determined move to fix the economy through austerity — instead was assailed as pandering to the rich while hitting pensioners with what was quickly dubbed a “granny tax.” The budget spat began Wednesday, when Osborne included a provision dropping the country’s top personal income-tax rate to 45 percent from 50 percent for those who earn more than 150,000 pounds ($198,600) annually. At the same time, the budget included a measure freezing a threshold above which people pay income taxes, which will result in slightly higher payments for some pensioners over time. Link

Apple CEO Tim Cook REUTERS/Robert Galbraith

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

*  Republican budget plan seeks to play up tax reform. David Lawder, Donna Smith and Richard Cowan – Reuters. A much-anticipated budget plan due on Tuesday from Republicans in the House of Representatives includes sweeping tax reforms that cut rates and pare down individual income tax brackets from six to two – 10 percent and 25 percent. The plan, which aims to deflect potential fallout from controversial Medicare reforms ahead of November elections, also would nearly eliminate taxes on overseas profits and reduce the domestic corporate tax rate to 25 percent. Even though the plan has almost no chance of becoming law, Republican lawmakers believe that focusing on tax reform will draw a stark contrast with Democratic President Barack Obama’s budget plan and be popular with voters. Link

* Amazon growth under threat from sales tax. Barney Jopson – The Financial Times. Amazon faces a growing threat to its sales according to a survey in which 50 percent of shoppers said they would be likely to buy less from the retailer if it were to collect sales tax. In a Citigroup survey, 52 percent of Amazon shoppers who do not currently pay sales tax on the site said having to do so would slightly, moderately or greatly decrease the likelihood of their buying a product from the retailer. Amazon does not collect sales tax in most U.S. states where it does not have a physical presence – but several initiatives are under way to make it start to do so amid criticism by bricks-and-mortar retailers that it exploits a loophole. Link  

Senator Orrin Hatch (R-UT) REUTERS/Benjamin Myers

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

* Deloitte’s Boshiwa exit a precursor to more China auditor resignations. Rachel Armstrong – Reuters. Deloitte’s resignation as auditor of a Hong Kong-listed childrenswear company this week could be the first in a run of accountant departures from Chinese companies in the coming weeks as the audit season draws to an end. Last year’s spate of accounting scandals at U.S.-listed Chinese companies has made auditors more alert to the risk of financial irregularities and the consequences for them if they’re found to be negligent. It’s during the audit process, which usually finishes at the end of April, that problems come to the surface. Deloitte resigned from Boshiwa International Holdings, which holds the license to make Harry Potter- and Bob the Builder-branded clothes, saying it was not satisfied at the company’s response to questions about some of its transactions. Link  

* Geithner: Economy on the mend, still needs help. Glenn Somerville – Reuters. The economy shows encouraging signs of early expansion but still faces tough challenges that call for measures to create jobs to help restore fiscal sustainability, Treasury Secretary Timothy Geithner said on Thursday. In prepared remarks for delivery to the Economic Club of New York, Geithner said one way to sustain growth momentum was tax reform. The Obama administration is aiming for some tax increases for wealthy Americans, though that is opposed by Republicans. The corporate tax code is “a complex and unfair mess of subsidies…with a very high statutory rate,” he said. Link

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

 
* Big oil, bigger taxes. The Wall Street Journal editorial. President Obama says he wants to end subsidies for what he calls “the fuel of the past,” but lucky for him oil and gas will be the fuels of the future too. His budget-deficit blowout would be so much worse without Big Oil, because the truth is that this industry is subsidizing the government. Much, much worse, actually. The federal Energy Information Administration reports that the industry paid some $35.7 billion in corporate income taxes in 2009, the latest year for which data are available. That alone is about 10 percent of non-defense discretionary spending—and it would cover a lot of Solyndras. That figure also doesn’t count excise taxes, state taxes and rents, royalties, fees and bonus payments. All told, the government rakes in $86 million from oil and gas every day—far more than from any other business. Link

* Most Americans back “Buffett tax”:Reuters/Ipsos. Kevin Drawbaugh – Reuters. Nearly two-thirds of Americans support imposing a minimum tax rate of 30 percent on those who earn $1 million or more a year, according to Reuters/Ipsos poll results released on Tuesday. The poll showed that 64 percent of those surveyed favored a “Buffett tax” as proposed by the Obama administration and named for multibillionaire investor Warren Buffett, who backs it. The poll said that support for the Buffett tax was strongest among Democrats, at 76 percent, but also significant among Republicans, with 49 percent of them viewing it favorably. Link  

* Senate defeats tax break for natural gas trucks. Roberta Rampton – Reuters. A bipartisan proposal to provide tax incentives for natural gas vehicles was defeated in a Senate vote on Tuesday, but a key backer of the bill said it will be revised and reintroduced to address concerns from industry. The five-year plan was designed to spur purchases of long-haul trucks and commercial vehicles that can run on cheap and abundant U.S. natural gas. The amendment to the Senate’s highway bill needed 60 votes to pass, but was rejected in a 51-47 vote after conservative groups panned it as an unnecessary subsidy. Link  

Filling out the 1040, New York City post office, April 15, 2010 REUTERS/Mike Segar

You’ve got a month left before the tax deadline — April 17 this year — and have you filed your taxes?

If typical patterns hold, more than one in four of us has yet to sign on the bottom line.  IRS numbers show more than 32 million individual income tax returns arrived after April 9 last year.

Japan's Mount Fuji REUTERS/Toru Hanai

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

* Whistleblower Joseph Insinga suing IRS for not being paid a reward. Lisa Rein – The Washington Post. Joseph A. Insinga was the ultimate whistleblower. The former executive with a Dutch bank says he divulged to the Internal Revenue Service details about how for years his employer helped U.S. companies dodge taxes. Now Insinga is taking tax authorities to court for failing to give him a reward that he says he is owed by the federal government. Insinga filed a whistleblower claim with the IRS in 2007, a year after Congress passed a law to help the government uncover tax cheats by encouraging informants to come forward. Those with inside information could receive up to 15 to 30 percent of any taxes, fines, penalties and interest the IRS collected from a taxpayer who was illegally sheltering taxes, usually a corporation. Insinga says he is entitled to a portion of the money the IRS collected from the taxpayers he exposed. He’s confident that at least one company, and maybe more, was forced to pay taxes based on his information. He had alleged that Rabobank Group, where he worked as an executive for more than a decade, helped seven companies avoid hundreds of millions of dollars in taxes through offshore partnerships and other corporate schemes. Link

* Delay EU carbon levy, says air industry. Peter Marsh, Joshua Chaffin and Simon Rabinovitch – The Financial Times. Seven of Europe’s leading aviation companies have joined forces to warn that the European Union’s plans to charge for carbon pollution are jeopardizing 2,000 jobs and billions of dollars of orders from China. Airbus and six large European airlines said the plan to bring global airlines into the EU emissions trading scheme for carbon dioxide, which the industry has steadfastly opposed, is creating an “intolerable” threat to the European aviation industry by opening up the possibility of trade battles with China, the US and Russia. The EU’s plan to regulate the output of carbon dioxide, as part of the effort to combat global warming, has stirred concern in the European aviation industry. Airbus – which employs more than 50,000 people across Europe – argues the proposals will damage competitiveness at a time of economic weakness, wants the EU to “put on hold” the extension of the scheme to airlines until a global plan for regulating carbon emissions by airlines can be agreed. Link

* Clegg forced to go soft on ‘tycoon tax’ Kiran Stacey, Helen Warrell and Vanessa Houlder – The Financial Times. Nick Clegg has been forced to soften proposals for a “tycoon tax” less than 48 hours after announcing it as a flagship policy at his Liberal Democrat party’s spring conference. The deputy prime minister said on Saturday that he wanted to set a minimum effective tax rate, making sure high earners did not use various loopholes to pay less than 20 per cent of their income in tax. The Treasury was surprised by Mr Clegg’s explicit mention of a minimum tax rate, as they had expected his speech to focus on general anti-avoidance measures. People close to George Osborne, the chancellor, told the Financial Times a minimum rate was not being considered. Link

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.

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

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.”