Tax Break

The payroll tax cut: what it means for you and your neighborhood

President Obama signed in December a two-month extension of the payroll tax cut (Reuters).

The Washington debate over a payroll tax holiday grinds on with House and Senate members meeting to work out just how Congress might extend the Social Security tax break for the rest of the year.

So who benefits from this tax break in your neighborhood?

Everyone with taxable earnings gets the break, but the more you make, the bigger the break. So an extension could have an especially big impact on parts of the country with high income levels, as illustrated by a report from the Joint Economic Committee released on Wednesday. The report analyzes the payroll tax cut savings by county or city.

Taxpayers in America’s richest counties and cities are set to take home $500 or more in tax savings if Congress and the president extend the tax break past February.

Do you live in St. Johns County in Florida, just south of Jacksonville? The median worker’s salary is $32,434, the highest in the state. The median taxpayer will take home an additional $541 if the 10-month tax cut extension goes through.

Map of identity theft cases in January 2012

Criminal Investigation Activity January 2012A major IRS and Justice Department crackdown on identity theft shows how widespread and common it has become. Tuesday the tax collector announced that a national sweep had led to 69 indictments, targeting 105 people in 23 states,  including cases where people are alleged to have impersonated the dead, the mentally disabled and citizens of Puerto Rico in order to get their hands on millions in fraudulent tax refunds.

The government asserts that it stopped $1.4 billion in bad refunds last year, up from $262 million in 2010.

You can get a full version of the graphic by clicking on the map here or by going to the IRS site at http://www.irs.gov/pub/irs-utl/ci-idt-casemap.pdf.

The alternative minimum tax and one man’s 74 percent tax rate

In his Saturday column in the New York Times, Pulitzer-prize winning reporter James B. Stewart tallied up his tax rate and found it to be a shocking 74 percent of taxable income. Is he possibly the most taxed man in America, he wonders?

Tax rates have been much discussed of late, with Mitt Romney’s tax returns disclosing his 13.9 percent tax rate, and the appearance of Debbie Bosanek, Warren Buffett’s secretary, at the State of the Union address last week to boost President Obama’s push for more tax equity.  Bosanek is reported to pay a 35.8 percent tax rate, while her famous boss says his rate is 17.4 percent of his taxable income.

How could Stewart’s rate be so stratospheric? After some research, he determined that his personal situation is “a near-perfect storm of punitive tax policies.” He lives in one of the highest tax districts in the country (New York City), earns his income (rather than getting it from capital gains or carried interest, a la Romney), doesn’t have a significant mortgage deduction and pays an unincorporated business tax on some of his income, like book royalties.

Tax and accounting this week

Some events in the week ahead:

Tuesday, January 31

1. Senate Finance Committee Chairman Max Baucus to convene a hearing to discuss the 50-plus tax provisions that expire annually or biannually, termed “tax extenders.” The Joint Committee on Taxation has estimated that a one-year extension of all would cost $37 billion over the next decade. Witnesses will be:

    Dr. Rosanne Altshuler, Professor and Chair of the Economics Department, Rutgers University Dr. Jason J. Fichtner, Senior Research Fellow, Mercatus Center, George Mason University Calvin H. Johnson, Andrews & Kurth Centennial Professor of Law, The University of Texas School of Law Caroline L. Harris, Chief Tax Counsel and Director of Tax Policy, U.S Chamber of Commerce

2. The Financial Accounting Standards Board to hold an open meeting with its investors’ technical advisory committee in Norwalk, Connecticut.

3. The Congressional Budget Office to release its annual budget and economic outlook, with director Douglas Elmendorf to testify on it before the House Budget Committee on Feb. 1 and before the Senate Budget Committee on Feb. 2.

Tax clips from the Web: Best states for business tax, slow IRS returns and a very wealthy candidate

Politics!

Republican presidential hopeful Mitt Romney released his 2010 tax returns to the public, shedding some light on what puts him among America’s top income earners. This chart on CNNMoney has been making the rounds all week, showing tax breakdowns for Mitt Romney, Newt Gingrich and President Obama.

Anyone who was expecting Romney’s 2010 tax filing to expose the candidate for unscrupulous manipulations of the tax law was delivered a goose egg. The returns did show a tax rate of 13.9 percent for the multimillionaire, but due to the laws on taxation of investment income, this was exactly the amount that Mr. and Mrs. Romney were required to pay, Forbes’s Tax Girl blog writes.

Is something of a seismic shift happening in American rhetoric over taxes? Politico polled members of Congress this week and found that Democrats largely agree with the sentiment that tax increases are now needed to address an expanding gap between wealth levels in the U.S. This suggests the tax issue may have the potential to remake the campaigns for many Democrats, including the president.

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?

Mitt Romney’s tax returns explained: David Cay Johnston on CNN

 

Reuters Tax Columnist David Cay Johnston appeared on CNN earlier this week to discuss some of the interesting details in Mitt Romney’s tax returns.

For a direct link, click here.

Canary in the tax code: Will Kansas give up tax breaks for lower rates?

Kansas governor Sam Brownback

U.S. tax experts agree Congress won’t see a tax reform plan ahead of the 2012 election, but Kansas lawmakers already have.

The tax reform blueprint, lowering rates but broadening the base of income that’s taxed by eliminating current tax breaks, is playing out in the state capital Topeka. The legislature convened on Monday and will debate Republican Governor Sam Brownback’s new tax overhaul plan.

Brownback’s plan would condense the state’s five tax brackets to just two –  4.9 percent and 3 percent – eliminating three additional rates currently in place, including the current top rates of 6.45 percent and 6.25 percent.

Governors call for tax cuts in 2012 despite uncertainty

New Jersey's Chris Christie wants tax cuts

In December, hopeful children around the world mailed in their requests to Santa Claus. Now it’s January, and governors across the country are standing before citizens and legislatures using State of the State addresses to lay out their wishes for the coming year. Top of the list, with a few notable exceptions, are tax cuts.

State revenues have climbed from 2009 and 2010 lows, largely on increasing individual income tax receipts. Still, that recovery is seen as tenuous due to a generally tepid economy and concerns that pivotal federal funding to the states could be on the cutting block as the country struggles with its growing debt and deficit.

Governors of a few states, including New York and Missouri, are not calling for cuts but say their states can avoid increasing taxes by relying on shrinking government and other moves to balance their budgets.

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