Skip navigation.
Home
Get & Give Tax Help for Small Businesses

tax news

Colorado governor supports most tax votes, but refuses to release his own tax info - Watchdog.org

Google IRS Federal Income Tax - Wed, 2014-10-15 02:16

Colorado governor supports most tax votes, but refuses to release his own tax info
Watchdog.org
“Because your conservation easement is within that group, the IRS proposes to resolve the issue(s) related to the conservation easement contribution claimed on your federal income taxes for 2002, 2003, 2004 and 2005 … (the IRS) has concluded the ...

Categories: Tax news

Federal income taxes due Wednesday - Daytona Beach News-Journal

Google IRS Federal Income Tax - Tue, 2014-10-14 14:23

Newswire (press release)

Federal income taxes due Wednesday
Daytona Beach News-Journal
The Internal Revenue Service recently issued a reminder that the extensions run out Wednesday and recommends that individuals and businesses file their tax returns electronically to ensure they make the deadline. “More than a quarter of the nearly 13 ...
Check out these last-minute filing tips as Oct. 15 tax extension deadline loomsAL.com
Top 5 Mistakes to Avoid Regarding 2014 Tax Extension DeadlineNewswire (press release)

all 9 news articles »
Categories: Tax news

U.S. Companies Continue to Flee Uncompetitive U.S. Tax System

Tax Foundation - Tue, 2014-10-14 12:45

Yesterday, another U.S. company announced plans to leave the U.S. via inversion in order to reduce their tax burden, according to Bloomberg:

The U.S. government’s attempt to prevent companies from seeking a tax address outside the country hasn’t stopped Steris Corp. (STE)

The Mentor, Ohio-based provider of hospital sterilization products and services announced today that it will buy the smaller Synergy Health Plc (SYR) and establish the combined company’s tax address to the U.K., even as senior executives remain in the U.S.

Steris’s effective tax rate will reach 25 percent, potentially saving the company about $13 million a year, according to calculations based on the two companies’ annual reports.

Bloomberg correctly points out the massive tax savings of moving to the UK, or just about anywhere else in the world. The U.S. has the third highest corporate tax rate in the world, at 39 percent, and an outmoded system of worldwide taxation.

The Treasury Department last month adopted new rules to make inversions, such as this one, less attractive, but the rules do nothing to address the fundamental problem, which is that the U.S. relies far too heavily on business taxation, particularly corporate taxation. The rest of the world has realized it is self-defeating to excessively tax highly mobile multinational corporations, which is why the average developed country has reduced its corporate tax rate from 48 percent in 1985 to 25 percent today.

It is an interesting turn of events that the UK now attracts U.S. companies, because back in 2008 the UK was losing companies to lower tax locals, such as Ireland. Back then, the UK had a 28 percent corporate tax rate, compared to Ireland’s 12.5 percent, and also a worldwide tax system like ours. When about a dozen companies announced plans to leave, the UK promptly switched to a territorial tax system that largely exempts foreign profits from UK taxation. That one move stemmed the tide of UK corporate inversions.

But the UK didn’t stop there. In 2010, they began lowering the corporate tax rate from 28 percent to 21 percent this year and 20 percent next year. These major reforms, along with a few more minor changes, dramatically improved the competitiveness of the UK, particularly as a location for the headquarters of multinational corporations. The whole story is spelled out in our report released today: Tax Reform in the UK Reversed the Tide of Corporate Tax Inversions.

The following chart from that report shows the decline of corporations in the U.S., and the rise of corporations in the UK. The U.S. loses about 50,000 corporations a year, not all to inversions of course, while the UK gains about 50,000 corporations a year.

Follow William McBride on Twitter

Categories: Tax news

Check out these last-minute filing tips as Oct. 15 tax extension deadline looms - AL.com

Google IRS Federal Income Tax - Tue, 2014-10-14 10:32

Newswire (press release)

Check out these last-minute filing tips as Oct. 15 tax extension deadline looms
AL.com
The six months of extra time your tax-filing extension bought you April 15 expires at midnight Oct. 15 - as in Wednesday - and Internal Revenue Service records indicate more than one-quarter of the nearly 13 million taxpayers who requested the ...
Federal income taxes due WednesdayDaytona Beach News-Journal
Top 5 Mistakes to Avoid Regarding 2014 Tax Extension DeadlineNewswire (press release)

all 9 news articles »
Categories: Tax news

UnFair - One Night Stand Tonight - Exposing IRS Or Fair Tax Infomercial? - Forbes

Google IRS Federal Income Tax - Tue, 2014-10-14 06:41

AmmoLand.com

UnFair - One Night Stand Tonight - Exposing IRS Or Fair Tax Infomercial?
Forbes
Tonight I am going to see UnFair – Exposing The IRS. If you want to see it on the big screen, I hope you don't have plans tonight, because it is a one time showing on over 600 screens. You can check here to see if it is playing at a theater near you ...
Unfair: Exposing The IRS ~ VideoAmmoLand.com

all 3 news articles »
Categories: Tax news

Malloy writes off nearly $200K in rental income - CT Post

Google IRS Federal Income Tax - Mon, 2014-10-13 20:16

CT Post

Malloy writes off nearly $200K in rental income
CT Post
Dannel P. Malloy and his wife Cathy declared just $1,795 of the rent as taxable income on their federal tax returns. The Malloys wrote off almost all rental income on their Shippan residence, thanks to various deductions for local property taxes, home ...

and more »
Categories: Tax news

This is crazy: Once again, Congress taxes our patience - The Detroit News

Google IRS Federal Income Tax - Mon, 2014-10-13 06:37

The Detroit News

This is crazy: Once again, Congress taxes our patience
The Detroit News
Once again, thanks to the solons of Capitol Hill, the Internal Revenue Service is likely to delay accepting returns, waste money scrambling to update computers, tax forms and regulations, and will be late when it finally sends out about $275 billion in ...
Federal tax code cries out for reformMontgomery Advertiser
Tax Fraud Blotter: Dependents Priced to Move!Accounting Today
Tax scams: Criminals seeking your moneyColumbia Daily Herald
WHAV News
all 16 news articles »
Categories: Tax news

Pierce County man sentenced for false IRS claim | US District Court - Bonney Lake and Sumner Courier-Herald

Google IRS Federal Income Tax - Sun, 2014-10-12 20:09

Pierce County man sentenced for false IRS claim | US District Court
Bonney Lake and Sumner Courier-Herald
A Tacoma man who claimed more than $1.8 million in false income tax refunds was sentenced today in U.S. District Court in Tacoma to 46 months in prison, announced Acting U.S. Attorney Annette L. Hayes. Seeney Ristick, 33, pleaded guilty in June 2014.

Categories: Tax news

Tax Fraud Blotter: Dependents Priced to Move! - Accounting Today

Google IRS Federal Income Tax - Sun, 2014-10-12 08:51

Montgomery Advertiser

Tax Fraud Blotter: Dependents Priced to Move!
Accounting Today
Cincinnati: Preparer Ruth Benton, 37, has been sentenced to 27 months in prison and three years of supervised release and been ordered to pay $748,843.80 in restitution to the IRS for conspiring to submit false claims for federal income tax refunds.
Federal tax code cries out for reformMontgomery Advertiser
Tax scams: Criminals seeking your moneyColumbia Daily Herald

all 13 news articles »
Categories: Tax news

Some tax relief begins now for local flooding victims - Detroit Free Press

Google IRS Federal Income Tax - Sat, 2014-10-11 22:13

Detroit Free Press

Some tax relief begins now for local flooding victims
Detroit Free Press
Joseph DeGennaro, tax director for Doeren Mayhew in Troy, points out that on Sept. 26 the Internal Revenue Service issued information on tax relief for victims of severe storms and flooding in Michigan. Part of the help includes postponing certain ...
Michigan to grant tax filing extensions for victims of August floodingSouthgate News Herald

all 2 news articles »
Categories: Tax news

Tax scams: Criminals seeking your money - Columbia Daily Herald

Google IRS Federal Income Tax - Sat, 2014-10-11 17:19

Tax scams: Criminals seeking your money
Columbia Daily Herald
Phone shakedowns — Each year, criminals call taxpayers and allege that they owe the IRS money, which must be paid quickly via wire transfer or a pre-loaded debit card. Visual and aural tricks can lend authenticity to the ruse: The caller ID may show ...

Categories: Tax news

For Now, No Deduction for Teaching Supplies - Wall Street Journal

Google IRS Federal Income Tax - Sat, 2014-10-11 17:05

For Now, No Deduction for Teaching Supplies
Wall Street Journal
That means eligible teachers and other educators could claim it on their federal income-tax return for 2013. But, as the Internal Revenue Service points out on its website: “Under current law, the deduction is not available for tax years after 2013 ...

Categories: Tax news

Trying To Reach IRS? Hold On Until Tuesday - Forbes

Google IRS Federal Income Tax - Sat, 2014-10-11 06:25

Trying To Reach IRS? Hold On Until Tuesday
Forbes
If you haven't yet filed your tax return, you'll want to be aware of those outages – especially if you are relying on your tax professional or a tax software provider to file your return electronically. Remember that individual federal income tax ...

and more »
Categories: Tax news

Taxpayers Freaking Out Over Hoax Claiming 2015 IRS Refunds Already Delayed - Forbes

Google IRS Federal Income Tax - Fri, 2014-10-10 14:34

Taxpayers Freaking Out Over Hoax Claiming 2015 IRS Refunds Already Delayed
Forbes
I glanced at the article on my phone and fired off a quick inquiry to the media department at Internal Revenue Service (IRS) questioning whether it was true. A few minutes later, I sent IRS an apologetic “Doh!” Once I had the chance to sit down at my ...

and more »
Categories: Tax news

Massena woman pleads to identity theft, mail fraud, defrauding IRS of over ... - North Country Now

Google IRS Federal Income Tax - Fri, 2014-10-10 14:33

Massena woman pleads to identity theft, mail fraud, defrauding IRS of over ...
North Country Now
SYRACUSE -- A Massena woman today pleaded guilty in U.S. District Court to mail fraud and aggravated identity theft in a case involving false federal income tax returns. Lacey Jane Hollinger, 27, admitted theft of over $200,000 from the Internal ...
Massena woman faces up to 20 years in prison for IRS fraudWatertownDailyTimes.com

all 3 news articles »
Categories: Tax news

It Matters How Tax Brackets are Adjusted

Tax Foundation - Fri, 2014-10-10 08:00

Every year, the IRS adjusts more than 40 tax provisions for inflation. This is done to prevent what is called “bracket creep.” This is the phenomenon by which people are pushed into higher income tax brackets or have reduced value from credits or deductions due to inflation instead of an actual increase in real income.

The IRS uses the Consumer Price Index (CPI) to adjust the value of the parameters. It does this by taking the tax parameter’s base value and multiplying it by the current year’s CPI and dividing it by the base year’s CPI. For example, the base value for the top of the 10 percent income tax bracket is $7,000 with a base year of 2002. This is multiplied by 2014’s CPI-U of 235.69 and divided by 2002’s value of 178.68. The result is $9,225 (after rounding).

The CPI-U is not the only way to adjust tax parameters. Tax brackets could be adjusted in a number of ways including average wage growth (as Social Security brackets are currently adjusted) or the Chained CPI-U, which is another measure of inflation.

The choice of adjustment, although an obscure public policy, is meaningful for taxpayers. It could mean higher or lower tax burdens over a long period of time.

The difference can be demonstrated comparing how the income tax brackets are calculated under the CPI-U versus how they would be under the Chained CPI-U.

The Difference Between the CPI-U and the Chained CPI-U

The difference between the CPI-U and Chained CPI-U is in how each accounts for immediate changes in the behavior of consumers when they face higher prices. The CPI-U assumes that increases in price do not lead to substantial substitution effects. In other words, an increase in the price of chicken would not lead many people switching to another product—consumers would just face the high price level. It is calculated by taking a set of consumer goods in a base year and tracking their price changes year-to-year.

The Chained CPI-U on the other hand better accounts for substitution effects. As a result, a price increase in chicken may not lead to an overall large increase in price levels because consumers may switch to lower-priced pork. Technically, this is done by varying the weights on specific goods each month to reflect shifts in consumer behavior.

Looking at the index numbers show how the Chained-CPI grows at a slower rate compared to the CPI-U. In FY2001 they are both set to 100. As time goes on and prices increase, both measures grow. However, the CPI-U grows faster. In 2007, CPI-U has grown by 16.5 percent while the Chained CPI-U has grown by 14.4 percent. By August 2014, the CPI-U is 34 percent higher than it was in 2001 and the Chained CPI-U is only 30 percent higher. The difference has grown from 2 percent in 2007 to about 4 percent in 2014. As time goes on, the gap between the two measures would widen even further.

How the Difference Affects Tax Bills

Using the Chained CPI-U vs. the CPI-U has a significant effect on the amount an individual pays in taxes over time.

Suppose an individual earns about $30,000 in 2003 and receives pay increases of $1,500 each year until 2015. At this point he earns $48,000. Also, each year the government adjusts the income tax parameters by the CPI-U (as it currently does).

As expected, his tax bill increases as his income increases. In 2003, his tax bill would be $2,980 and grow to $5,231 by 2015 (Table 1, column 3).

Table 1. Tax Bill under CPI-U and Chained CPI-U Adjustment

Year

Income

CPI-U Tax Bill

Chained CPI-U Tax Bill

Difference

2003

 $  30,000.00

 $ 2,980.00

 $ 2,980.00

 $  -  

2004

 $  31,500.00

 $ 3,175.00

 $ 3,183.75

 $ 8.75

2005

 $  33,000.00

 $ 3,370.00

 $ 3,378.75

 $ 8.75

2006

 $  34,500.00

 $ 3,545.00

 $ 3,556.25

 $ 11.25

2007

 $  36,000.00

 $ 3,703.75

 $ 3,722.50

 $ 18.75

2008

 $  37,500.00

 $ 3,896.25

 $ 3,917.50

 $ 21.25

2009

 $  39,000.00

 $ 4,045.00

 $ 4,073.75

 $ 28.75

2010

 $  40,500.00

 $ 4,261.25

 $ 4,298.75

 $ 37.50

2011

 $  42,000.00

 $ 4,457.50

 $ 4,496.25

 $ 38.75

2012

 $  43,500.00

 $ 4,642.50

 $ 4,681.25

 $ 38.75

2013

 $  45,000.00

 $ 4,818.75

 $ 4,858.75

 $ 40.00

2014

 $  46,500.00

 $ 5,006.25

 $ 5,118.75

 $ 112.50

2015

 $  48,000.00

 $ 5,231.25

 $ 5,400.00

 $ 168.75

Now suppose in an alternate universe, the government decided to adjust the tax brackets each year with the Chained CPI-U rather than the CPI-U. The taxpayer still earns the same amount of money each year. However, because the bracket adjustments are slightly smaller under the chained CPI-U, the taxpayer’s bill each year (after 2003) is slightly higher (Table 1, column 4).

In 2004 (in this alternate universe), the taxpayer ends up paying $8.75 more. This does not seem like too much, but as time goes on, the difference in the tax bills increase. By 2015, the taxpayer ends up paying $168.75 more under tax brackets adjusted for the Chained CPI-U than under the CPI-U.

Over the entire period, he pays an additional $533.75 over what he would have paid under CPI-U adjustments.

(Data tables below show each year’s tax parameters)

This Obscure Policy Matters

Over a long period of time, different methods of adjustment can mean higher or lower tax bills without having to adjust tax rates at all. Using the Chained CPI-U, specifically, allows taxpayers’ income to move into higher brackets faster, leading to higher income tax bills over long periods of time.

It isn’t rare that policymakers look to change how brackets are adjusted. Last year, Maine proposed using the Chained CPI-U rather than the typical CPI. This would have caused no immediate tax increase in Maine, but it would have meant higher income taxes in the long term.

This also affects spending policies as well. Many benefits are adjusted each year for inflation to make sure they don’t lose their purchasing power. The choice between either CPI-U or Chained CPI-U (or other methods of adjustment) can affect how fast these spending policies grow. The President recently proposed moving to the Chained CPI-U for adjusting Social Security benefits.

While the choice of bracket adjustment is a somewhat obscure policy, it does have a real effect on most taxpayers.

Data Tables:

Tax Parameter and Tax Bill (CPI-U Adjustment)

Year

Income

Tax Parameters

Tax Bill

 

 

Standard Deduction

Personal Exemption

10% Bracket

15% Bracket

25% Bracket

 

2003

 $ 30,000.00

 $ 4,750.00

 $  3,050.00

 $  7,000.00

 $  28,400.00

 $  68,800.00

 $  2,980.00

2004

 $ 31,500.00

 $ 4,850.00

 $  3,100.00

 $  7,150.00

 $  29,000.00

 $  70,350.00

 $  3,175.00

2005

 $ 33,000.00

 $ 4,950.00

 $  3,150.00

 $  7,300.00

 $  29,700.00

 $  71,950.00

 $  3,370.00

2006

 $ 34,500.00

 $ 5,100.00

 $  3,250.00

 $  7,550.00

 $  30,600.00

 $  74,200.00

 $  3,545.00

2007

 $ 36,000.00

 $ 5,300.00

 $  3,400.00

 $  7,825.00

 $  31,800.00

 $  77,100.00

 $  3,703.75

2008

 $ 37,500.00

 $ 5,400.00

 $  3,450.00

 $  8,025.00

 $  32,550.00

 $  78,850.00

 $  3,896.25

2009

 $ 39,000.00

 $ 5,650.00

 $  3,600.00

 $  8,350.00

 $  33,950.00

 $  82,250.00

 $  4,045.00

2010

 $ 40,500.00

 $ 5,650.00

 $  3,650.00

 $  8,375.00

 $  34,000.00

 $  82,400.00

 $  4,261.25

2011

 $ 42,000.00

 $ 5,750.00

 $  3,700.00

 $  8,500.00

 $  34,500.00

 $  83,600.00

 $  4,457.50

2012

 $ 43,500.00

 $ 5,900.00

 $  3,750.00

 $  8,700.00

 $  35,350.00

 $  85,600.00

 $  4,642.50

2013

 $ 45,000.00

 $ 6,050.00

 $  3,850.00

 $  8,925.00

 $  36,250.00

 $  87,850.00

 $  4,818.75

2014

 $ 46,500.00

 $ 6,150.00

 $  3,950.00

 $  9,075.00

 $  36,850.00

 $  89,300.00

 $  5,006.25

2015

 $ 48,000.00

 $ 6,250.00

 $  4,000.00

 $  9,225.00

 $  37,450.00

 $  90,750.00

 $  5,231.25

 

Tax Parameter and Tax Bill (Chained CPI-U Adjustment)

Year

Income

Tax Parameters

Tax Bill

 

 

Standard Deduction

Personal Exemption

10% Bracket

15% Bracket

25% Bracket

 

2003

 $  30,000.00

 $  4,750.00

 $  3,050.00

 $  7,000.00

 $  28,400.00

 $  68,800.00

 $  2,980.00

2004

 $  31,500.00

 $  4,800.00

 $  3,100.00

 $  7,125.00

 $  28,950.00

 $  70,150.00

 $  3,183.75

2005

 $  33,000.00

 $  4,900.00

 $  3,150.00

 $  7,275.00

 $  29,550.00

 $  71,650.00

 $  3,378.75

2006

 $  34,500.00

 $  5,050.00

 $  3,250.00

 $  7,475.00

 $  30,400.00

 $  73,650.00

 $  3,556.25

2007

 $  36,000.00

 $  5,250.00

 $  3,350.00

 $  7,750.00

 $  31,450.00

 $  76,150.00

 $  3,722.50

2008

 $  37,500.00

 $  5,350.00

 $  3,400.00

 $  7,900.00

 $  32,050.00

 $  77,700.00

 $  3,917.50

2009

 $  39,000.00

 $  5,550.00

 $  3,550.00

 $  8,225.00

 $  33,350.00

 $  80,800.00

 $  4,073.75

2010

 $  40,500.00

 $  5,550.00

 $  3,550.00

 $  8,225.00

 $  33,400.00

 $  81,000.00

 $  4,298.75

2011

 $  42,000.00

 $  5,650.00

 $  3,600.00

 $  8,325.00

 $  33,850.00

 $  82,000.00

 $  4,496.25

2012

 $  43,500.00

 $  5,750.00

 $  3,700.00

 $  8,525.00

 $  34,600.00

 $  83,850.00

 $  4,681.25

2013

 $  45,000.00

 $  5,900.00

 $  3,800.00

 $  8,725.00

 $  35,450.00

 $  85,950.00

 $  4,858.75

2014

 $  46,500.00

 $  6,000.00

 $  3,850.00

 $  8,875.00

 $  36,000.00

 $  87,200.00

 $  5,118.75

2015

 $  48,000.00

 $  6,100.00

 $  3,900.00

 $  9,000.00

 $  36,500.00

 $  88,450.00

 $  5,400.00

Note: These parameters are only representative. In reality, base years for these parameters vary. For more information see: http://taxfoundation.org/article/2015-tax-brackets

 

Categories: Tax news

IRS denies treaty benefits despite lack of treaty shopping - Lexology (registration)

Google IRS Federal Income Tax - Fri, 2014-10-10 03:17

IRS denies treaty benefits despite lack of treaty shopping
Lexology (registration)
When AIG paid dividends on its common shares, AIG withheld and paid U.S. federal income tax to the IRS from the dividends paid to SICO. In 2004, SICO moved its headquarters to Ireland. During the time that SICO was a tax resident of Ireland, SICO was ...

Categories: Tax news

EPI Perpetuates Myth of Low Corporate Taxes

Tax Foundation - Thu, 2014-10-09 13:45

Much as Senator Bernie Sanders did a few weeks ago, Thomas Hungerford of EPI is misusing government statistics to claim corporate taxes are low relative to profits. Here is Hungerford’s chart:

The problem is the corporate profits data to which he refers includes millions of businesses that are not subject to the corporate tax, namely S corporations that are taxed under the individual tax code instead.

See the BEA definition of corporate profits here. This is not a minor mistake. S corporation profits are almost as large as C corporation profits, but, again, only C corporations are subject to the corporate tax. See the chart below. It just makes no sense to compare C corporation taxes with C plus S corporation profits.

The second chart reveals the real reason why corporate tax revenue has fallen as a share of GDP over the last few decades: corporate profits have fallen, i.e. profits of C corporations to which the corporate tax applies. The U.S. corporate tax regime itself has remained essentially the same since 1986, but C corporations have fled the tax code at the rate of about 50,000 a year. Some of them reformed as S corporations, or other pass-through businesses taxed under the individual code. Some of them inverted to lower tax countries. Others simply went out of business and never came back, and the new entrepreneurs steered clear of America’s overly burdensome corporate sector.

America’s extremely uncompetitive corporate tax hobbles American corporations, and corporations perform economic functions that cannot be done by smaller businesses, such as build airplanes. That means jobs are lost and wage growth stagnates. Obscuring these facts is unfair to American workers.

Follow William McBride on Twitter 

Categories: Tax news

The Tax Code Isn’t Good at Fighting Inequality

Tax Foundation - Thu, 2014-10-09 13:15

A recent article on Vox, How Sweden Fights Inequality—Without Soaking the Rich, notes that countries with the most success in fighting inequality do not have highly progressive tax systems, such as the United States’ tax code. Instead, these countries, such as Sweden and Denmark, rely on much flatter taxes and use spending programs to address inequality.

The authors say there is a reason why not using the tax code makes the most sense:

“The lesson for the United States is that relying on the wealthiest citizens and corporations to fund the public sector will not create the revenue necessary for large-scale initiatives to reduce inequality. Emphasizing redistribution as the central principle for tax policy is needlessly divisive, leads to smaller government revenues overall, and thus misses the positive benefits that having more revenues can offer if invested wisely in promoting success for all.”

We have seen this divisiveness in recent years as calls for the wealthy to pay their fair share and requirements of maintaining the progressivity of the tax code have inhibited efforts on tax reform.

Beyond the reasons to move away from high taxes on individuals and corporations as stated in the article, research shows that highly progressive tax systems come with additional costs: they damage economic growth.

In fact, the OECD finds moving away from corporate taxes and progressive income taxes is good for growth. Developed countries around the world have paid attention to this finding and continue to shift away from highly distortive tax policy, such as progressive income taxes and the corporate tax, and toward flat individual or consumption taxes.

Again, countries such as Sweden and Denmark provide a good example. Both countries have cut their corporate tax rates significantly in the last 30 years while relying, instead, on relatively flat tax codes that tax large amounts of the population. Sweden, for example, taxes individual taxpayers at a rate of 56 percent on income over $84,365, which is 1.5 times the average income.

This is a far cry from the tax system In the United States. Our highly progressive tax system leaves high income individuals with a disproportional amount of the tax burden, with the top tax rate of 46.3 percent (national and subnational) beginning at 8.5 times the average income level.

As a result, in the U.S. individuals with incomes over $200,000 earn 32.3 percent of the nation’s income, but pay 46.7 percent of total federal taxes and 70 percent of federal income taxes.

Additionally, we levy the third highest corporate tax rate in the entire world—behind only Chad and the United Arab Emirates—and tax investment two, and sometimes three, times in the form of capital gains and dividend taxes and the estate tax.

These types of taxes are inefficient, as many European countries might tell us. They raise limited revenue and impose a significant level of economic harm.

Instead, the U.S. should move away from highly progressive taxes on income and investment and toward flatter consumption taxes. If policymakers are set on addressing inequality, this would limit the economic damage done by the current tax code and allow them to rely on spending programs for redistribution instead. 

Categories: Tax news

Will the New European Commission Seek a Minimum Corporate Tax Rate?

Tax Foundation - Thu, 2014-10-09 08:45

The nominee for the new European Commissioner for Economics and Financial Affairs, Taxation and Customs Union, Pierre Moscovici, has announced that he will not be pursuing a minimum corporate tax rate as part of the Common Consolidation Corporate Tax Base (CCCTB) proposal.

In Moscovici’s response to the question of whether he will “… work to ensure that a sufficiently large minimum tax rate is agreed upon,” he replied:

"Differences amongst Member States result from political decisions, differences in approaches for the provision of public goods and service and national financing systems. I accept these differences. Not that some companies pay zero tax or no tax on taxable gains."

The Common Consolidation Corporate Tax Base (CCCTB) proposal was established in 2001 with a goal to harmonize corporate taxation in an increasingly integrated Europe. The ailing proposal has found new life in the shadow of the 2014 European Parliament elections, sparking debates over what should be included in the proposal.

CCCTB proposes to centralize the reporting of corporate revenue and costs in the hopes of reducing compliance costs for businesses operating in several European States. The central authority would use an apportionment system to distribute corporate profits to the Member States, to be taxed at the local corporate tax rate.

Some academics and politicians have argued that a minimum corporate tax rate should be implemented to prevent a “race to the bottom” since Member States can only compete on the corporate tax rate. Others have warned that stifling tax competition could reduce growth, a major concern for a Eurozone with 11.5% unemployment.

Although Moscovici has suggested that he will leave corporate rates to the Member States, there are other worrisome provisions in the CCCTB that compromise sensitive information and could increase compliance costs. How to protect a company’s private information is still a concern, and the factors in the apportionment formula are not well defined, which could lead to costly court battles.

In addition, the mechanism by which factor definitions change as the economy of Europe changes has not been considered. Without a clear mechanism, there could be considerable adaptive inefficiencies as new products and services are developed.

For example, if technology allows a surgeon in Germany to operate on a Spanish patient with a robot, it may not be obvious where the labor is located. The legal ambiguity created from the introduction of new technology can cause problems if the mechanism is not adaptable. The CCCTB commission has not directly addressed these issues.     

Given the political spotlight on corporate base erosion and profit shifting (BEPS) in the OECD, it understandable that politicians want to push through the CCCTB proposal. But it would behoove them to consider the details now rather than suffer the consequences later.

Categories: Tax news
Syndicate content