Tax Break

Essential tax and accounting reading: defending big oil’s taxes, taxing the rich, risky deductions, and the payroll tax cut’s impact

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  

* A nation with too many tax breaks. Eduardo Porter – The New York Times. President Obama’s insistence that the rich must pay more to preserve programs that help the poor and middle class has crashed against the Republican claim that the president’s Robin Hood policies amount to class warfare. Whatever their merits, both arguments rely on an assumption that is at best overstated: that the government uses resources from those who are richer to pay for programs that mostly benefit the less fortunate. Link  

* Romney vs. Obama on Corporate tax reform. Kevin Hassett and Glenn Hubbard – The Wall Street Journal opinion. The one thing on which our political leaders seem to agree is the need for corporate tax reform. President Barack Obama and Mitt Romney unveiled new proposals on the same day last month, with Obama cutting the top corporate tax rate to 28 percent and Romney reducing it to 25 percent. Obama, ignoring the second reality, would also raise taxes on noncorporate business, in the interest of requiring the “rich” to pay for the “privilege” of being an American, to paraphrase a recent statement by Treasury Secretary Tim Geithner. 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.”

Essential tax and accounting reading: Politicians and taxes: U.K., French and U.S. editions, NYSE to keep tax break on Grasso pay, Brazilian tax aims to dampen real

In Brazil a new tax on loan sales aims to dampen inflation as prices of food and other consumer staples rise. REUTERS/Nacho Doce

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

* Parsing Santorum’s proposals. Floyd Norris – The New York Times opinion. Election-year tax rhetoric has never been notable for its frankness. A promise to raise someone’s taxes does not seem particularly likely to win that person’s vote, and no one wants to follow in the footsteps of Walter Mondale, the last major-party nominee to propose a general tax increase. But this year has been worse than any campaign I can remember. The most amazing proposal came from Rick Santorum. He would reduce almost everyone’s taxes. He would slash tax rates for all, his campaign Web site promises, while preserving “deductions for charitable giving, home mortgage interest, health care, retirement savings and children.” Link

* NYSE wins dispute over Grasso pay. Jacob Bunge – The Wall Street Journal. The Internal Revenue Service has backed down from efforts to claw back $161 million in tax deductions taken by the New York Stock Exchange linked to the pay of former Chief Executive Richard Grasso. The IRS in late 2009 sought to disallow deductions taken by the Big Board from 2001 to 2003 for compensation paid to Grasso, and two years ago the exchange’s parent NYSE Euronext challenged the U.S. government on the matter. Grasso led the NYSE for eight years and his $187 million pay package sparked outcry when he departed the exchange in 2003. In October 2011 the IRS determined, following an appeal process, that “there was no deficiency in the tax returns filed by NYSE for the years 2001, 2002 and 2003, thereby resolving the matter in favor of the NYSE,” according to documents filed by the exchange group late Wednesday. Link

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  

Essential tax and accounting reading: Barclay’s tax schemes, GM’s tax break, Swiss compromise, and a 75 percent French tax

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

* Swiss lawmakers set for tax plan vote. Katherina Bart – Reuters. Swiss lawmakers are set to back a tax proposal with the United States on Wednesday in a move which could pave the way for Switzerland to settle a U.S. probe into Swiss banks and hidden offshore accounts. The lower house will vote on a proposal clarifying how Switzerland would hand over data on Americans suspected of dodging taxes at home. The proposal, which passed the upper house in December, seeks to backstop an expected deal over U.S. probes into 11 banks including Credit Suisse and Julius Baer. Link

* French front-runner pledges 75 percent tax bracket. Gabriele Parussini – The Wall Street Journal. French presidential front-runner François Hollande said taxpayers earning over 1 million euros ($1.34 million)a year would be subjected to a special 75 percent tax bracket should he be elected, underscoring heightened interest across Europe in raising taxes on the wealthiest individuals. Speaking on French television late Monday, the Socialist candidate lamented the “considerable increase” in French corporate executives’ pay, which he put at €2 million a year on average. His proposal caused an uproar in the ruling UMP party, and surprised even Hollande’s own advisers. President Nicolas Sarkozy pointed to the “appalling amateurism” of his opponent’s proposals. Link

* Barclays’ tax plans clash with sentiment. Megan Murphy, Sharlene Goff and Vanessa Houlder – The Financial Times. Has Barclays’ attempt to avoid more than 500 million pounds ($791.93 million) in UK tax dealt a lasting blow to the bank’s nascent efforts to put better citizenship at the heart of a new feel-good corporate agenda? The British Revenue & Customs’ announcement that it has closed down two “highly abusive” schemes designed by the bank has thrust Barclays’ tax practices back into the spotlight, at a time when the bank is trying to rebuild its reputation with politicians and the public. Barclays’ insiders say they are genuinely shocked by the government’s announcement, emphasising that both schemes had been signed off by the bank’s professional advisers and were voluntarily disclosed. Link

Essential reading: Romney to explain tax plan, AIG to take tax breaks, rising stakes for Japan’s sales tax, and gas taxes drop

Window shopping in Tokyo's Ginza district REUTERS/Toru Hanai

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

•    Romney narrows the gap on Santorum. Richard McGregor in Washington and Anna Fifield in Mesa, Arizona – Financial Times. Republican presidential hopeful Mitt Romney will outline his tax plans in a speech in Detroit on Friday that has been moved from a ballroom in the city convention center to Ford Field, home of Detroit’s football Lions, to accommodate an expected large crowd. It’s his first detailed outline of the economic and tax plan he would take into the November election and it comes four days before the Michigan and Arizona primaries. Link

•    Giving tax edge to manufacturing carries risks. Kathleen Madigan – The Wall Street Journal. The U.S. tax code is a mess. Favoring one sector over others will only make it messier. U.S. President Barack Obama and GOP candidate Rick Santorum recently released proposals that would give manufacturing enterprises a tax break. Santorum advocates factories pay no federal income tax at all. The goal is to make manufacturing a contributor of economic growth and a provider of middle-class paying jobs. The unintended consequences, however, are likely to be businesses gaming the system for a cheaper tax rate and a government policy that values some jobs over ones that are needed more. While certain employees, companies and regions will benefit, the U.S. economy as a whole is unlikely to be better off from the proposed tax changes. Link

•    AIG profit surges on tax benefit. Erik Holm and Serena Ng – The Wall Street Journal. American International Group Inc. reported profit of $19.8 billion in the fourth quarter, thanks to a large tax benefit the bailed-out insurer booked after predicting it can keep generating profits in coming years. AIG recognized $17.7 billion in tax benefits in the last three months of 2011. AIG’s tax boost came about from the reversal of write-downs it had taken to lower the value of its deferred-tax assets, which are unused tax credits and deductions that can be used to defray future tax bills. The insurer had taken those write-downs starting in 2008, when it suffered huge losses during the financial crisis. What changed, AIG said, is that it expects to report sustainable future profits that will enable it to use its deferred tax assets after all. Link

Essential tax and accounting reading: Contrasting tax plans from Obama and Romney, unequal tax payments, dividend tax hike, and more

A Rick Santorum campaign video screens at Mitt Romney's South Carolina primary rally, January 21, 2012. REUTERS/Brian Snyder

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

* Obama, Romney offer contrasting tax plans. Zachary Goldfarb and Philip Rucker – The Washington Post. President Barack Obama and Republican presidential contender Mitt Romney offered competing proposals for how the government should tax citizens and companies, previewing the ideological clash over taxes that is likely to be at the forefront of the general-election campaign. Obama released a long-awaited plan to overhaul the country’s corporate tax code that plays directly to his base, following his call this month for significant tax hikes on the wealthiest Americans. A short time later Romney unveiled a series of deep cuts in personal and corporate income tax rates, the kind of reductions that have become a tenet of Republican economic thinking. The former Massachusetts governor proposed reducing the rates for individual taxpayers by a fifth, meaning that the highest earners would pay a top rate of 28 percent, compared with 35 percent today. He also suggested taxing corporate profits at a rate of 25 percent. Link

* Obama urges corporate tax cut, closing loopholes. Kim Dixon and Rachelle Younglai – Reuters. President Obama made an opening offer in what could be a long negotiation with corporate America on Wednesday, putting forward his first detailed plan to cut the corporate tax rate. Though it has little chance of becoming law in an election year with Congress paralyzed over fiscal issues, the plan shows Obama’s intent to favor domestic over offshore manufacturing and to broaden the tax base by closing corporate tax loopholes. Of the 30 companies that make up the Dow Jones industrial average, 19 told shareholders that their effective tax rate for their 2011 fiscal years (mostly ending Dec. 31) was lower than Obama’s proposed new tax rate. Link

Romney’s 2010 IRS return flags complex tax strategies

U.S. Republican presidential candidate Mitt Romney. REUTERS/Laura Segall

Republican presidential candidate Mitt Romney’s release of his 2010 tax return offers a rare glimpse at two sophisticated tax transactions which the U.S. Internal Revenue Service requires that taxpayers disclose for investments driven by tax considerations.

Like thousands of other Americans’ returns, Romney’s included special attachments flagging “reportable transactions” to the IRS. Known as Form 8886s, the attachments showed that these foreign currency and contingent swap transactions were undertaken by one Bain Capital fund and three Goldman Sachs funds in which blind trusts for the assets of Romney and his wife Ann have invested several million dollars.

Under disclosure rules strengthened in 2002 to grapple with rising tax evasion by Americans, the IRS requires taxpayers to disclose transactions that it has banned or warned it may challenge as improper.

Essential tax and accounting reading: Obama and rival offer tax plans, UK considers a mansion tax, and more

 

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

 * Obama to propose corporate tax rate of 28 percent. Kim Dixon – Reuters. The Obama administration will propose cutting the top tax rate for corporations to 28 percent, and pay for it by eliminating dozens of tax loopholes companies now use to lower their rates, a senior administration official said. Most analysts doubt that the convoluted tax system could be revamped by a deeply divided Congress in an election year, but the announcement is certain to fuel debate in the run-up to November’s elections. The plan, over a year in the making, is President Barack Obama’s first official foray into reform of the tax code, which most experts believe badly needs a revamp after years of being loaded up with special provisions. The centerpiece is a cut in the top corporate rate – now at 35 percent, among the highest in the industrialized world. That will appeal to businesses, which gripe that the current U.S. rate puts them at a competitive disadvantage. Controversy will erupt when officials lay out which “loopholes” they want to cut. The proposal makes a special carve-out for manufacturing – cutting that tax rate to 25 percent – and proposes a minimum tax on profits earned in low tax countries. Link 

* Romney says wants ‘flatter, simpler’ tax system. Steve Holland – Reuters. Battling to come back in Michigan, Republican Mitt Romney said on Tuesday he wants a tax system that is flatter and simpler as he laid the groundwork for a major economic address coming up in days. Romney is expected to release an updated tax plan on Wednesday ahead of the Republican candidates’ debate in Phoenix. “I want to see taxes flatter, and fairer and simpler, because I want our tax policies to encourage growth,” Romney said on Tuesday. Link

* Heralding end of ‘dark times,’ Christie offers budget that is bigger and cuts taxes. Kate Zernike – The New York Times. After two years of enforcing austerity, Gov. Chris Christie argued on Tuesday that New Jersey could afford to have it all, presenting a budget he said would cut income taxes by 10 percent at the same time it gave money to schools, provided for the poor and met the state’s pension obligations. The governor proclaimed that “we have left the dark times” as he proposed a $32 billion budget, a 3.7 percent increase over last year’s spending. While still less than the budget of 2008, when the economy faltered, it would be the largest of his tenure. Democrats argued that the income tax cut, which would be phased in over three years, was aimed more at presidential primary voters in Iowa than wallets in New Jersey. Link