Tax Break

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  

* Transocean says may face $473 million U.S. tax bill. Braden Reddall – Reuters. Transocean Ltd may face $473 million in U.S. back taxes, according to its annual filing, though it also said it was cleared in a similar dispute dating back eight years, which may give its lawyers a useful precedent. Transocean, owner of the world’s largest offshore oil rig fleet, said the latest assessment received this month for 2008 and 2009 related to accounting between subsidiaries, for both engineering services performed between them and transfer pricing for rig charters. Link 

* California cities hit the wall. Bobby White and Vauhini Vara – The Wall Street Journal. Confronted by declining tax revenue and rising employee costs, Stockton, Calif., is considering bankruptcy—while several other struggling California cities warn they could eventually face the same predicament. Stockton officials voted Tuesday night to take the initial step toward a bankruptcy filing by the city of 290,000, located in the agricultural Central Valley. The decision launches the first test of a new state law that requires cities to negotiate with employees, creditors and others to try to stave off a filing before making the move. Link  

Democrats peg Buffett rule to expiration of Bush tax cuts

Democrats are hoping to peg their White House-proposed thirty percent tax on millionaires to major end-of-the- year fiscal deadlines — including the expiration of tax cuts for all Americans. They hope that will box Republicans into a corner.

Known as the Buffett rule, named for the billionaire investor who famously complained that his tax rate is lower than that of his secretary, the proposal has virtually no chance of moving on its own with Republicans in control of the U.S. House of Representatives and Democrats with only a razor-thin majority in the Senate.

Democrats hope that the looming expiration of tax cuts for all individuals enacted by former Republican president George W. Bush will motivate them. Plus polls show many Americans back raising taxes on the rich.

Essential tax and accounting reading: Pushing a U.S. tax overhaul, Germans volunteering to sort out Greek taxes, Santorum’s plan, and more

U.S. Republican presidential candidate Rick Santorum addresses supporters during a campaign stop in Michigan. REUTERS/Rebecca Cook

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

* Tangled tax code primed for pruning. John McKinnon – The Wall Street Journal. President Barack Obama’s business-tax-overhaul plan underscores the growing likelihood of a serious effort to revamp the nation’s much-criticized tax system, no matter who wins the White House. The question now isn’t whether a tax rewrite will happen, but how far it will go, and whether it will stop at business rules or also extend to individuals. Increasingly the answer appears to be that the entire tax code, all 70,000 pages, could be in play. Powerful dynamics are reducing the significance of partisan differences. One is the expiration of Bush tax breaks at the end of 2012. A broad tax overhaul could give each party a way to break the cycle of short-term tax extensions that is frustrating businesses and individuals. Another is the government’s grim fiscal situation. Many Democrats and even some Republicans see a streamlined tax system as a way to generate more revenue. Link

* Plans for US manufacturing may yield more votes than jobs. Andy Sullivan – Reuters. U.S. factories are hiring again, and Democratic President Barack Obama and some of his Republican rivals are pitching tax breaks to fuel a rebound in manufacturing and help rebuild a battered middle class. Economists on the left and the right say promises to bring back factory work may yield more votes than jobs. Industry experts say the United States is long past the days when steel mills, auto plants and machine shops boosted millions of unskilled Americans into the middle class. Economists say the middle class would benefit more from efforts to boost the economy as a whole, rather than a particular sector such as manufacturing. Link 

Tax and Accounting Calendar

A worker arranges a saree drying after dyeing in a village south of Kolkata REUTERS/Rupak De Chowdhuri

Some events in the week ahead:

Monday, February 27 – Tuesday, February 28
The Practicing Law Institute will sponsor a two-day program in New York featuring speakers from Treasury and the IRS on a number of topics including investment adjustments, accounting issues, Treasury Department developments, inter-company transactions, and tax attributes and consolidation.

Tuesday, February 28

* The Public Company Accounting Oversight Board will hold an open board meeting at its offices at 1666 K Street NW in Washington DC and via web conference to consider proposed standards on related parties, significant unusual transactions and other matters. Starting at 9:30 AM.

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

Who pays no income taxes?

Who pays no federal income taxes?

Republicans grabbed onto a headline number last year from a respected tax policy group noting that nearly 50 percent of Americans pay no income taxes.

The statistics from the Tax Policy Center (TPC) came up again Wednesday at a hearing of the House tax-writing Ways and Means Committee, as lawmakers grilled Treasury Secretary Timothy Geithner about President Obama’s tax proposals.

“Mr. Secretary, you know the facts: the bottom half of earners in this country pay no federal income taxes,” Dave Camp, the panel chairman,  a  Republican, said.

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

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.

Essential Reading: Ernst & Young’s fine, Swiss bank fallout and the Buffett rule

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

* Watchdog fines Ernst & Young $2 million over audits. Dena Aubin – Reuters. The watchdog board for corporate auditors on Wednesday said it has imposed a $2 million penalty, its largest fine ever, on accounting and consulting firm Ernst & Young LLP in a settlement involving past audits of Medicis Pharmaceutical Corp. The Public Company Accounting Oversight Board said it also sanctioned four current and former Ernst & Young partners for violating PCAOB rules in the audits of Medicis, which sells prescription drugs for asthma and skin conditions. Ernst & Young settled without admitting or denying the PCAOB’s findings. The audits in question involved Medicis’ 2005, 2006 and 2007 financial statements, the PCAOB said. Link.

* Payroll-tax cut extension talks bog down as time runs short. Siobhan Hughes and Corey Boles – The Wall Street Journal. U.S. Senate Majority Leader Harry Reid said on Tuesday lawmakers working on an extension of a popular payroll-tax cut had only until early next week to reach a deal, as the two sides negotiating the package showed few signs of compromise and spent a morning meeting digging in to their positions. House Ways and Means Committee Chairman Dave Camp said that if negotiators can’t agree on current proposals to offset the cost of the package, they may have to “begin looking at scaling back some of these core policies” or else rely on deficit spending or simply kick the issue “outside the scope of the conference.” House Republicans started the latest round of talks with a proposal to cover the cost partly with a freeze to cost-of-living pay increases for federal workers. That outraged Maryland Democrats, whose constituents include many government workers. Democrats were no happier with a proposal to gradually force more senior citizens to pay higher premiums for Medicare. Link.

* Wegelin boss gives up NZZ role after US tax probe. Emma Thomasson – Reuters. The head of Wegelin – Switzerland’s oldest private bank and which the United States has indicted for helping clients dodge taxes – is standing back from his role as chairman of the country’s influential Neue Zuercher Zeitung daily. Konrad Hummler, one of Switzerland’s most high-profile bankers, said on Thursday he needed to focus on the U.S. case against Wegelin on charges it enabled Americans to evade taxes on at least $1.2 billion in offshore bank accounts. Hummler had come under pressure to step down as NZZ chairman for fear the Wegelin case could damage the reputation of Switzerland’s oldest newspaper – the voice of the country’s business establishment. Link.

The coming week’s tax and accounting calendar

Some events in the week ahead:

Monday, February 6

Comment letters due on the Financial Accounting Standards Board’s proposed accounting standards updating the cumulative translation adjustment following the sale of a nonprofit or foreign business.

Tuesday, Feburary 7

The U.S. Congress Joint Economic Committee (JEC) will hold a hearing on extending the two-percentage-point payroll tax cut and continuing emergency federal unemployment insurance benefits through the end of 2012, including examining the economic impact of extending these policies versus allowing them to lapse.

Witnesses:

    Dr. Mark M. Zandi, Chief Economist, Moody’s Analytics Mr. James Sherk, Senior Policy Analyst, The Heritage Foundation Ms. Judith M. Conti, Federal Advocacy Coordinator, National Employment Law Project

Wednesday, February 8