Tax Break

Where do your federal tax dollars go? This White House calculator gives the answer

It’s that time of year – taxes are due in the United States on April 17 — and the Obama administration wants you to know where your tax dollars are going. The White House updated a calculator on Wednesday that aims to show you where your money is being spent,  which federal programs your tax dollars are funding and in what amount.

“Your Federal Taxpayer Receipt” asks for estimates of taxes paid, or lets you choose a category.

For example, a family with $80,000 of income and two children that pays 5 percent into a 401(k) and claims a workers and child care credit should pay about $9,110 in taxes – including those for Medicare and Social Security.

The biggest chunk of federal taxes — nearly 25 percent — goes to fund defense programs, according to the current budget, the calculator says. Healthcare is a close second at close to 24 percent.

Net income on the debt takes up about 8 percent of federal taxes, while international affairs eats up just 1.6 percent.

Essential reading: Islamic finance may enter accounting mainstream, tax pitfalls for fund investors, and more

 

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

 * Geithner swings back at critics of tax and regulatory policy. Damian Palleta – The Wall Street Journal. Treasury Secretary Timothy Geithner sharpened his rebuke of his political and private sector critics on Wednesday, saying many “misread the underlying dynamics of the economy today.” Geithner, in remarks at the Economic Club of Chicago, called out “business lobbyists” and others and said “many have claimed that the basic foundations of American business are in crisis, critically undermined by taxes and regulation.” Link 

* Christie leaning on tax subsidies in hunt for jobs. Charles Bagli – The New York Times. Since taking office in 2010, Republican Gov. Chris Christie has approved a record $1.57 billion in state tax breaks for dozens of New Jersey’s largest companies after they pledged to add jobs. Christie has emphasized that these are prudent measures intended to help heal the state’s economy, which lost more than 260,000 jobs in the recession. The companies often received the tax breaks after they threatened to move to New York or elsewhere. Link  

Questions of tax season

Why do people in California have so many tax questions?

In the last three months,Avvo, a site where people from all over the United States can go for free answers to legal and medical questions, has seen a more than 200 percent climb in its tax-related questions. The area with the most tax questions was Los Angeles, but San Francisco and San Diego  were also leaders in the area.

Josh King, a Seattle lawyer who’s also vice president of business development and general counsel for Avvo, said a lot of the California tax questions are property-related, the leftovers of that state’s real estate meltdown. Among them: the tax implication of short sales and foreclosures, as well as how to get property tax reassessed.

A second big tax category in California is business taxes with questions focused on tax collection and filing requirements.

Essential reading: Canada v. US, Indonesia and Japan mull tax hikes, and more

A hockey player skates on Lake Louise in the Canadian Rocky Mountains REUTERS/Shaun Best

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

* Obama assails Republican budget plan, aims at Romney. Alister Bull – Reuters. President Barack Obama accused Republicans on Tuesday of favoring the rich with a “radical” budget plan that focuses on cutting popular programs, which the White House sees as a potent vote winner for Democrats in this year’s election. The Republican blueprint proposes broad tax reform, including closing loopholes to raise revenue, while advocating a simplification in the tax code and lowering the top tax rate. White House officials said the goal of Obama’s speech was to hammer home a message that if Republicans win in November, their budget is coming to America. Link

* KKR’s Kravis says U.S. tax overhaul needed. Greg Roumeliotis – Reuters. Henry Kravis, the co-chief executive of private equity group KKR & Co LP, said on Tuesday that a reform of the tax system was necessary to jumpstart the U.S. economy. On Monday, one of Kravis’s peers, David Rubenstein, billionaire co-founder of Carlyle Group LP, defended the lower rate of taxation enjoyed by private equity managers, arguing they are merely following the laws that Congress wrote. Kravis, whose net worth as of March 2012 was $4 billion according to Forbes, refrained from making a prediction about the future tax treatment of carried interest and said he tried to keep his firm out of politics. Link

Your tax dollars at work

If you are writing a check to your state department of revenue or the IRS over the next few weeks, or are simply reminded by tax time just how much you send along to the government each year, you may well wonder where all that money is going.

The Center on Budget and Policy Priorities put together two graphics which capture the highlights.

First the states:

Like the states, the federal government spends big on healthcare.

Education drops off, however, replaced by spending on Social Security and national defense:

Essential reading: RBC accused of tax scheme, Groupon hiring more auditors

Around 50 percent of Irish homeowners have boycotted a new tax. Here, an empty and unsold housing development in the village of Keshcarrigan, County Leitrim. REUTERS/Cathal McNaughton Welcome to the top tax and accounting headlines from Reuters and other sources.

*U.S. regulator accuses RBC of massive trading scheme. Alexandra Alper – Reuters. The U.S. futures regulator accused the Royal Bank of Canada of running a “trading scheme of massive proportion” to gain lucrative Canadian tax benefits. The Commodity Futures Trading Commission’s civil lawsuit alleges RBC employees created and managed a “wash trading” strategy in which they improperly coordinated to buy and sell stock futures without taking a position in the market. RBC declined to comment on whether the trades in question were structured to realize Canadian tax credits, as alleged in the lawsuit. Link

*SEC probes Groupon. Shayndi Rice and Jean Eaglesham – The Wall Street Journal. The Securities and Exchange Commission is examining Groupon Inc’s revision of its first set of financial results as a public company, according to a person familiar with the situation. Groupon has hired a second accounting firm, KPMG, in addition to its current accountant Ernst & Young. KPMG’s role is to make Groupon compliant with Sarbanes-Oxley, federal regulations around accounting and disclosures of public companies. In addition, Groupon plans to hire more accounting and finance staff, said a person familiar with the matter. Link

Surprise, your brain might value paying taxes

For today’s “man bites dog” bulletin, a recent academic paper studying the relationship between behavior and taxes has found people gain value, or “utility,” from paying taxes.

Yes, tucked in the subconscious reaches of your brain is a notion that taxes are a social good. The problem for tax writers: The tax code is so complex that people do not associate the communal value with tax payments.

The paper - ”Tax affinity hypothesis: Do we really hate paying taxes?” - was published in February by a professor and a former student at Wesleyan University in the Journal of Economic Psychology.

Essential tax and accounting reading: Obama wants Romney tax returns, battling over big oil breaks, Japan’s mega sales tax, and more

U.S. President Barack Obama walks past a pumpjack, New Mexico, March 21, 2012. REUTERS/Jason Reed

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

* Obama campaign seeks Romney tax returns. Mark Maremont – The Wall Street Journal. President Barack Obama’s re-election campaign called on Republican front-runner Mitt Romney to release his tax returns dating back to the 1980s, to see if they contain information about an uncommon investment arrangement at his former private-equity firm that may have helped swell his individual retirement account. The request follows a page-one article in The Wall Street Journal on Thursday that recounted how employees at the firm, Bain Capital, were allowed to invest their retirement money in companies the firm acquired, including investing through a special share class that could skyrocket in value in successful deals. Romney’s IRA was valued at between $20.7 million and $101.6 million as of August, according to his financial disclosures. Link

* GOP blocks Obama’s effort to end tax breaks for big oil. Zachary Goldfarb and Brad Plumer – The Washington Post. President Obama on Thursday called on Congress to end tax breaks for oil companies in a populist speech that sought to turn the blame for gas prices nearing $4 a gallon back onto his Republican critics. In fiery, campaign-style remarks delivered from the Rose Garden, Obama told lawmakers that they can “stand with big oil companies, or they can stand with the American people.” Senate Democrats followed by forcing a vote to end tax cuts for the five largest oil companies, which Republicans resoundingly defeated. Link

Essential tax and accounting reading: taxing the rich, MF Global accounting under review, Simpson-Bowles cuts get a vote, tax hike helps New York budget, and more

Fiscal Commission co-chairs Alan Simpson (L) and Erskine Bowles April 14, 2011. REUTERS/Kevin Lamarque

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

* The case for raising top tax rates. Eduardo Porter – The New York Times. The wealthy are feeling defensive about their taxes. Most Americans may think the rich pay too little but, not surprisingly, only 30 percent of the rich agree. More than two-thirds of families earning a quarter of a million dollars a year or more tell Gallup’s pollsters that their taxes are too high. It is true that high-income Americans carry the biggest tax burden. While fewer than 1 in 20 families make more than $200,000, they pay almost half of all federal taxes. However they feel about the tax man, there is a case to be made that they can pay much more. The reason has nothing to do with fairness, justice or ideology. It is about economics and math. Link

* US FASB weighs reform to accounting used by MF Global. Sarah Lynch – Reuters. The U.S. accounting standard-setting board could this year revamp the accounting treatment that MF Global used to mask risky European sovereign debt exposure, an official at the board will tell lawmakers on Wednesday. “Moving forward with this project will involve a series of public education and decision-making meetings and the exposure of a proposed standard for public comment,” said Financial Accounting Standards Board Technical Director Susan Cosper in prepared testimony. Cosper noted that while historically most repo-to-maturity transactions have involved U.S. Treasury securities, the range of instruments involved has broadened over the years to include other debt instruments such as those seen in the MF Global case. Link

Tax clips from the Web: The tax code as literature, canceled debt and TV pitchmen

Then-U.S. Senator Sam Brownback (R-Kansas) gestures as he talks about the U.S. tax code in 2007 REUTERS/Frank Polich

How big is the tax code?

Wait…how many pages do they think War and Peace is? Kay Bell writes in her Don’t Mess With Taxes blog that the floor of Congress has logged several attempts to quantify the length of the U.S. tax code. “At 1.3 million pages it is twice the length of Leo Tolstoy’s War and Peace,” said one House Representative, speaking of the United States tax code. Another popular reference for the code’s impressive verbosity – The Bible.

The quotes in the linked blog have yet to be fact-checked, but one assured fact is that the tax code in its entirety is a long, murky mess. The impulse to reform is strong, but before that happens, Bell writes, “make Congress leave the tax code alone for a while.”