Tax Break

Essential tax and accounting news: “dozens” of corporate tax breaks in play, private equity taxation debated around the world, and Swiss banks’ new model

U.S. Treasury Secretary Timothy Geithner testifies before the Senate Finance Committee, February 14, 2012. REUTERS/Yuri Gripas

The top tax and accounting headlines from Reuters and other sources:

* Tentative deal reached to preserve cut in payroll tax. Jennifer Steinhauer – The New York Times. Members of a House-Senate committee charged with extending a payroll tax reduction and providing added unemployment benefits reached a tentative agreement Tuesday evening, with Republicans and Democrats claiming a degree of political victory in a fight with significant election-year implications. One day after House Republican leaders said they would offer a bill to extend the $100 billion payroll tax rollback for millions of working Americans without requiring spending cuts to pay for it, the Congressional negotiators struck a broader deal that would also extend unemployment benefits and prevent a large cut in reimbursements to doctors who accept Medicare. A vote on the measure would most likely happen by Friday. But senior aides warned that negotiators still had to sign off formally on the agreement and that obstacles could surface given the long-running tensions over the measure. Link

* Obama plan would end dozens of business tax breaks-Geithner. Kim Dixon and Rachelle Younglai – Reuters. The Obama administration’s corporate tax reform plan would end “dozens and dozens” of tax breaks, Treasury Secretary Timothy Geithner said on Tuesday as he defended the White House’s election-year call for higher taxes on the wealthy. Within days, the administration intends to unveil a blueprint aimed at eliminating inequities in the corporate tax system and lowering the top rate. Companies, which pay wildly different levels of taxes, are clamoring for a cut in the corporate tax rate – which tops out at 35 percent – but disagree about how to strip out preferences that benefit selected industries. Geithner spoke before the Senate Finance Committee a day after President Barack Obama unveiled a $3.8 trillion budget-and-tax proposal that called for aggressive government spending to boost the economy and higher taxes on the rich. Link

* Calpers to buyout funds: Give up carried interest. Michael Corkery – The Wall Street Journal. California Public Employees’ Retirement System’s investment chief urged private-equity industry executives to abandon the fight to preserve a lucrative tax break on much of their income or “risk becoming the robber barons of the 21st century.” At issue is the tax break known as carried interest, which gives private-equity and venture-capital executives a relatively low 15 percent tax rate on much of their income because it isn’t taxed like ordinary income. “It’s indefensible,” Joe Dear, who oversees investments at the $230 billion pension fund, said Tuesday in an interview. “They risk becoming the robber barons of the 21st century if they are not careful. And that is an unfortunate characterization of private equity.” Link

* Pressure rises on private equity bosses’ tax. Daniel Schafer and Richard McGregor – The Financial Times. Pressure is rising across the globe to raise taxes for private equity bosses, with German and Swedish authorities pushing for legislative changes and a leading US pension fund investor calling the 15 per cent rate in America “indefensible”. Both the German and Swedish governments are considering proposals to lift tax rates for on the industry’s profit-sharing schemes, in what private equity executives say is likely going to trigger similarly sweeping changes across Europe. In Germany, four regional governments are studying a plan to remove an exemption clause which allows only 60 percent of a private equity manager’s profits to be taxed. In Sweden, tax authorities are pushing key executives from Nordic Capital, IK and Altor to retrospectively pay a 56 per cent rate of income tax. Link

Essential tax and accounting reading: Obama’s budget, Japan’s economy, the EU’s carbon tax, and more

Japanese Prime Minister Yoshihiko Noda REUTERS/Yuriko Nakao

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

* Obama faces task of selling dueling budget ideas. Jackie Calmes – The New York Times. With the election-year budget he unveils on Monday, President Barack Obama more than ever confronts the challenge of persuading voters that he has a long-term plan to reduce the deficit, even as he highlights the stimulus spending and tax cuts that increase deficits in the short term. In his budget Obama again will commit to $4 trillion in deficit reduction over 10 years, including $1.5 trillion in tax revenue from the wealthy and from closing some corporate tax breaks, and reductions in spending for a range of programs, including the military, Medicare, farm subsidies and federal pensions. But Republicans are sure to criticize the president’s proposals as heavy on gimmickry and double-counting, and reject his proposed tax increases. Link.


* EU say it’s ‘flexible’ on carbon tax. Eric Yep and Gaurav Raghuvanshi – The Wall Street Journal. The European Union is willing to be flexible with its emissions tax on airlines, but won’t suspend the tax unless countries can agree on an ambitious alternative, EU Transport Commissioner Siim Kallas said Monday. Several countries have expressed opposition to the tax, with some threatening retaliatory measures against the EU. It is unclear whether a global agreement is possible by April 2013, when the first payments are due. Link.

* Japan’s big GDP drop a worry for PM tax plan. Tetsushi Kajinoto – Reuters. Japan’s economy shrank much more-than-expected in the fourth quarter, as Thai floods, a strong yen and weak demand hurt exports, casting doubt on hopes for a quick pick up in activity that could bolster government plans to raise the sales tax. Prime Minister Yoshihiko Noda hopes to contain the rise in the debt pile – now already twice the size of the economy – by doubling the national 5 percent sales tax by late 2015, but has yet to win over a combative opposition and a skeptical public. Link.

Obama in bind over corporate tax reform-ex-Aide

Former White House Adviser Jared Bernstein

President Barack Obama spent a lot of time during his State of the Union speech last week talking about taxes – from Warren Buffett secretary’s high tax rate to a call to give tax breaks for manufacturers and promote ‘in-sourcing’ of U.S. jobs.

The president also said he’d be putting out more meat on several policy ideas he floated – including a minimum tax on foreign income and a pitch to give tax credits to companies that bring jobs back to the United States.

But whatever happened to a corporate tax overhaul plan Obama’s Treasury Secretary Timothy Geithner called imminent this time last year?

Tax and accounting this week

Some notable events in tax and accounting during the week ahead:

Tuesday

    Republican president candidate Mitt Romney to release his tax returns, which he has said will show a tax rate of around 15 percent, likely kept low by the tax treatment afforded private equity compensation like that he earned at Bain Capital before entering politics. The Government Accounting Standards Board to meet in Norwalk, Connecticut. President Barack Obama will give his State of the Union speech to Congress and is expected to repeat calls for higher taxes on the wealthy and tax breaks to bring American manufacturing jobs home.

Wednesday

    Financial Accounting Standards Board open board meeting in Norwalk, Connecticut.

Thursday

    The Senate Permanent Subcommittee on Investigations will hold a hearing on the IRS permitting mutual funds to directly invest in commodities despite statutory restrictions.

Thursday and Friday

Impact of Obama Jobs Panel’s Tax Advice Likely Limited

President Barack Obama’s corporate “Jobs Council,” a who’s who of corporate titans including General Electric chairman Jeff Immelt and luminaries from American Express and Facebook said in a report on Tuesday they recommended  . . .  cutting corporate tax rates.

Perhaps unsurprising, given the vast majority of the panel are corporate officers — also on the committee are union umbrella AFL-CIO president Richard Trumka, and Roger Ferguson, chief executive of TIAA-CREF, one of the biggest providers of U.S. pension funds — but also unlikely to  have much impact, despite the big names behind it.

The council called on lawmakers and the president to begin work “immediately” on corporate tax reform.