Ring of Fire
CEO Pay Exceeds Taxes Paid by Big Firms
Seven of the 30 largest U.S. corporations paid their CEOs more in compensation than they paid the IRS in federal income tax last year, reflecting “deep flaws” in the corporate tax system, a new report says. According to “Fleecing Uncle Sam,” a report ...
Seven big US companies paid CEOs more than Uncle Sam in 2013: studyReuters
Report: Corporations Spend More on Executive Pay than Federal Income TaxRing of Fire
Some companies pay CEOs more than Uncle SamCBS News
ValueWalk -Raw Story
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Anglo-Dutch energy giant Royal Dutch Shell has won a multi-million dollar court battle against Indian authorities, marking a significant victory for multinationals involved in tax wrangles in the country. The Bombay High Court ruled in favour of Shell, whose Indian unit had been accused of under-pricing shares issued to its parent firm by about 180 billion rupees ($3 billion). The company had challenged a demand by India authorities for tax on the interest that would have been earned. The judges on Tuesday quashed the income tax department order, a move Shell welcomed.
Federal income taxes for a surviving spouse
It seems the last column regarding debts of a decedent death struck a chord with a few readers. There are a few issues regarding federal income taxes when a person dies because we all know death and taxes are inevitable. When a taxpayer dies, an estate ...
Still time to avoid surprises at tax-timeYourWestValley.com
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18 Miami Dade College students charged in tax fraud crackdown
The worst offenders — 18 all together — were charged with using their accounts to receive upwards of a half-million dollars in fraudulent income-tax refunds from the federal government, authorities said Tuesday. The college students, all recipients ...
Florida student aid accounts used in ID theftLocal 10
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Today, Japanese Prime Minister Shinzo Abe announced a delay in the implementation of the second phase of his own tax hike plan, seeking a mandate for his decision by calling for snap elections in December.
Back in April, Japan’s VAT increased from 5 to 8 percent in the first of two planned sales tax hikes orchestrated by Prime Minister Abe as part of his three-pronged economic reform plan, widely termed “Abenomics.” (The three prongs, or “arrows,” of Abenomics are fiscal stimulus, monetary easing, and structural reforms, the latter of which includes tax hikes designed to address growing budget deficits.) A further increase to 10 percent was slated for October 2015, but has been postponed in the wake of the economy shrinking a disastrous 7.3 percent in the second quarter and slipping a further 1.6 percent in the third quarter as the nation fell into recession.
Few doubt the reason. Even the plan’s patron is now expressing caution, with the Prime Minister telling the Financial Times, “By increasing the consumption tax rate if the economy derails and if it decelerates, there will be no increase in tax revenues so it would render the whole exercise meaningless.”
For many in Japan, there’s a feeling a déjà vu. Japan fell into recession following its last tax increase, when the consumption tax was raised from 3 to 5 percent in 1997. At the time, the tax increase came in for some of the blame, but falling as it did in the midst of the Asian financial crisis, determining the extent to which tax increases were responsible was all but impossible. Not so this time.
Etsuro Honda, an economic advisor to Prime Minister Abe, was remarkably candid in an interview with the Wall Street Journal: “Abenomics and the sales-tax increase are policies facing in opposite directions. If you step on the gas and hit the brakes at the same time, you know what will happen? The car will go into a spin.”
The most optimistic outlook came from Akira Amari, the minister of state for economic and fiscal policy, who could only argue that “the effect of the sales tax hike is subsiding” because the economy is no longer declining as rapidly.
Initially, many observers doubted warnings of substantial economic consequences. Back in April, a Reuters survey of sales estimates suggested that the tax increase would not be nearly as economically damaging as critics had predicted, though their poll of economists proved prescient, with economists projecting a decline of 7.1 percent. That quarter ended with an economic contraction of 7.3 percent.
After these alarming numbers came out, analysts expected a modest recovery in the third quarter, predicting growth of 2.2 percent. The economy shrank a further 1.6 percent quarter-on-quarter on an annualized basis. Few view a further increase as benign now.
On the contrary, a top government official is proposing that the second stage of the sales tax increase be delayed, and Honda, one of the architects of Abenomics, warned, “There’s a great danger from the next sales tax hike given the current situation where the positive effects of ‘Abenomics’ and the negative impact of April's sales tax hike are offsetting each other.”
Meanwhile, Prime Minister Abe has called a snap election seeking a vote of confidence in his administration and the proposed VAT hike delay against poll results showing 71 percent of respondents opposed to implementing the second phase of the sales tax increase.
How this tax-engineered recession will register in Japanese elections and whether it will derail the other planks of “Abenomics” remains to be seen, but today’s decision, and the reflections of the architects of the tax hike, underscore just how much tax hikes effect behavior and economic growth.
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Hungarian lawmakers on Tuesday approved new taxes on soap, alcohol, advertising and supermarkets, the latest in a series of unorthodox levies put forward by controversial Prime Minister Viktor Orban. The new measures came after a proposed Internet tax on downloads was shelved last month following major protests. The European Commission, the EU's executive, has repeatedly criticised Hungary's special taxes, saying they negatively affect growth and warning that investment has declined in taxed sectors. The right-wing Orban, who took office in 2010, has sought the special taxes in an effort to reduce Hungary's deficit.
MIT Economist Jonathan Gruber, an architect of the Affordable Care Act, has been in the news lately for several comments on the design of the health care bill. One such story includes some remarks on the Cadillac Tax, a tax levied on employer-provided health plans. Gruber believes it was an important step towards eliminating the tax exclusion for these plans.
"Economists have called for 40 years to get rid of the regressive, inefficient and expensive tax subsidy provided for employer provider health insurance," Gruber said at the Pioneer Institute for public policy research in Boston. The subsidy is "terrible policy," Gruber said.
"It turns out politically it's really hard to get rid of," Gruber said. "And the only way we could get rid of it was first by mislabeling it, calling it a tax on insurance plans rather than a tax on people when we all know it's a tax on people who hold those insurance plans."
Dr. Gruber’s economic analysis is entirely on point. The tax exclusion for employer-provided health insurance payments is regressive in that it only benefits people with good full-time jobs. It is inefficient in that it distorts the incentive for employer-provided insurance as opposed to individually-purchased insurance. And it is expensive, too: it is the largest tax expenditure.
Lastly, he is right that insurance plans don’t pay taxes. Only people can bear the burden of taxes, and it is right to say that the people who get the taxed insurance plans are the ones who bear the burden. As we have acknowledged, the Cadillac Tax is a sort of patch for a hole in the income tax – even if it’s not a particularly good one.
Gruber’s political analysis, of course, are worthy of criticism. He takes pride in making the tax less transparent. One of our principles of sound tax policy is that taxes should be transparent, so that voters fully understand their costs.
But there is also some criticism to be made of his public policy argument. His remarks also imply that the Cadillac Tax is part of a coordinated effort to roll back the poor policy mentioned above:
"What that means is the tax that starts out hitting only 8% of the insurance plans essentially amounts over the next 20 years essentially getting rid of the exclusion for employer sponsored plans," Gruber said. "This was the only political way we were ever going to take on one of the worst public policies in America."
Unfortunately, the distortion from “one of the worst public policies in America” was actually reinforced by the rest of Obamacare. The Employer Mandate, which will go on employers’ tax forms as the “Employer Shared Responsibility Payment,” levies a new tax on businesses that fail to provide employer-provided health insurance.
All too often, the motives behind Obamacare’s taxes are incoherent. We don’t like the distortion towards employer-provided health insurance, so we levy taxes on it. But we also do like the distortion towards employer-provided health insurance, so much so that we will actually mandate it!
The tax code’s treatment of employer-provided health insurance is now incredibly muddled and conflicted. This is not just a problem in its own right. A lack of clarity in the tax code reveals a lack of clarity in the thinking behind it. Jonathan Gruber rightly disliked this economic distortion so much that he called it “one of the worst public policies in America.” Other architects of Obamacare, apparently, strongly disagreed, and further ingrained the economic distortion into law.
Critics of Obamacare – especially since Dr. Gruber’s comments came to light – have characterized the bill as opaquely imposing on the public a new vision for the health care sector. That description may be too kind. On critical issues, the bill’s architects appear to have no coherent vision at all.
The top 20 percent of taxpayers pay a disproportionate share of federal income taxes and total federal taxes, according to a new report by the Congressional Budget Office on the distribution of household income and federal taxes. (For an overview, see here.)
The report finds that the top 20 percent of households earn 52 percent of income, but pay 69 percent of all federal taxes. If we look strictly at income taxes, the top 20 percent of the country pays 88 percent of federal income taxes.
Each of the four other quintiles pay a smaller share of total federal taxes and income taxes than their share of income. Additionally, the bottom two quintiles face negative shares for income taxes, which means they receive more back in taxes than they pay.
Households with higher incomes also pay higher average tax rates. For total federal taxes, the top quintile faces an average tax rate just below 25 percent. This average tax rate is sure to rise following the tax increases on the top two tax brackets at the start of 2013.
These findings are as expected. The individual income tax system in the United States is highly progressive. While lower income households pay other taxes (payroll taxes, corporate taxes, and excise taxes), the federal tax system remains progressive when considering total federal taxes.
Last week, the Center for Budget and Policy Priorities released a report arguing that bonus depreciation should remain expired. They base this on three main claims:Bonus depreciation was a temporary stimulus and should be allowed to expire Allowing bonus depreciation to continue is an overly-generous subsidy for business investment It does not align with the goals of tax reform
The CBPP’s conclusions are based on a misunderstanding of bonus depreciation, its current place in the tax code, and its place in tax reform.
What is Bonus Depreciation?
Under current law, businesses are not able to fully deduct the initial cost of capital investments (buildings, machines, and other equipment) as they do with labor and raw material. Instead, they must write these costs off over several years or even decades, depending on the asset type.
Due to the delay between the purchase of the asset and its write-off, the business ends up not being able to fully account for the present value cost of the investment. This is due to the fact that a $20 deduction today is not as valuable as a $20 deduction ten years from now.
Bonus depreciation allows businesses to write-off 50 percent of the initial cost of the investment before depreciating the asset as it would under current rules. Because most of the initial cost is written off in the first year, the total present value of the write of ends up being larger than it was in the absence of bonus depreciation, but it still does not allow a complete write off.
Example Calculation of a Capital Allowance on a $100 Investment, with and without Bonus Depreciation
Without Bonus Depreciation
With Bonus Depreciation
Present Value Write-off
Present Value Write-off
Bonus Depreciation Should Not Be Seen as a Temporary Stimulus
CBPP makes the claim that bonus depreciation is a temporary stimulus based on the fact that Congress enacted it during the two recessions of the past decade on a temporary basis. Thus, it should be allowed to expire in order to have the desired simulative effect in the future.
This is based on the view that bonus depreciation can be likened to some sort of demand-side stimulus, in which the federal government temporarily boosts economic activity through a quick and temporary change in policy.
While it may give a boost to the economy in the short run, bonus depreciation should not be considered a temporary stimulus. Instead, it should be viewed as a way to reduce the cost of investment relative to current law over the long run. In the above example, it allows a business to recover more of the cost of an investment than it would be able to in the absence of bonus depreciation. This lowers the cost of capital, leading to higher investment, a larger capital stock, and a larger economy.
Seen this way, it makes sense that it should be made permanent as a way to reduce the ongoing cost of investment.
Bonus Depreciation Does Not Create Negative Effective Tax Rates
CBPP also makes the claim that making bonus depreciation permanent would extend a large subsidy for corporations for investment. Specifically, they claim that bonus depreciation creates a negative effective tax rate on investment.
Their claim stems from the fact that bonus depreciation allows businesses to write-off capital investments faster than “economic depreciation.” The idea behind this is that because an investment produces a flow of income over many years, the full cost of the machine should not be written off the year it was made. Instead, the cost should be written off at the same rate the machine depreciates. Any faster, the tax code provides a subsidy.
While this is a useful accounting method, it is not how businesses realize costs. When a business makes a capital investment, such as buying a machine, it purchases that machine in the first year. The costs are not spread out over the life of the machine, as the CBPP’s analysis implies.
The result of delaying write-offs at all is that effective tax rates are higher than they otherwise would be.
Making Bonus Depreciation Permanent Moves Towards an Ideal Corporate Tax Reform.
CBPP’s last point is that Representative Dave Camp’s tax reform proposal did away with bonus depreciation therefore it is not compatible with tax reform.
One of the weak spots in Chairman Camp’s tax reform proposal was his treatment of capital investment. Not only did he get rid of bonus expensing, his plan lengthened asset lives, which would exacerbate the current mistreatment of capital investments. This is the primary reason why the plan netted little economic growth in the long run.
Instead, meaningful tax reform would move towards full expensing, which would allow businesses to write-off the full cost of investments.
Making bonus depreciation permanent would be a step towards the proper treatment of investments: full expensing.
Economic growth has hovered around 2 percent in recent years. One reason for the slow growth is that saving and investment have been declining in the U.S. for nearly a half century. Both are crucial to the economy.
Investment is important, because it provides American workers with the means to be more productive. Saving is important, because it provides the money needed for investment, which explains the close correlation between the two trends.
Tax policy is one of the many factors contributing to the long-term decline in saving and investment.
For more charts like this, please see our new chart book, Business in America: Illustrated.
7 Big U.S. Corporations Paid More To Their CEOs Than To The IRS
WASHINGTON, Nov 18 (Reuters) - Seven of the 30 largest U.S. corporations paid more money to their chief executive officers last year than they paid in U.S. federal income taxes, according to a study released on Tuesday that was disputed by at least one ...
Seven big US companies paid CEOs more than Uncle Sam in 2013: study
WASHINGTON (Reuters) - Seven of the 30 largest U.S. corporations paid more money to their chief executive officers last year than they paid in U.S. federal income taxes, according to a study released on Tuesday that was disputed by at least one of the ...
CEO Pay Exceeds Taxes Paid by Big FirmsCFO Magazine
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'Parsonage exemption' safe, federal court rules, dismissing atheists' complaint
President Bush signs a new law allowing ministers, priests and rabbis to keep their tax break for the cost of housing, in the Oval Office of the White House, Monday, May 20, 2002, in Washington. The measure protects the ``parsonage exemption,'' a 1921 ...
Court rejects atheists' demand to end tax break for clergy housingThe Christian Century
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This week, the CBO released its estimate of the distribution of household income and federal taxes. This report measures both average household income and average federal tax burden by income quintile in 2011.
There are many important parts to this report, but the main feature of this report is its estimation of the distribution of household income and federal taxes. The CBO finds:The median household in the United States earned $66,400 in pre-tax income plus government transfers. However, the distribution of income is skewed to the top. Households at every income level benefits from government transfers (Social Security, Medicare, etc.), but low income households rely on them the most. Conversely, low income individuals pay the lowest average effective federal tax rate (1.9 percent of household income). The top quintile paid the highest (23.4 percent). Although taxes are progressive at the federal level, certain taxes are more progressive than others. The corporate income tax is born by all households, not just the highest income households
The Distribution of Median Household Income is Skewed to the Top
The CBO’s measure of income is called “market income.” This measures not just wage income, but also business income and capital income (capital gains and dividends from investments). In addition, they add in the value of major government transfers: Social Security, Medicare, Medicaid, and other in-kind cash benefits.
In 2011, the Distribution of household income was skewed towards the top. The lowest quintile earned approximately $24,600. The middle quintile earned approximately $66,400. The top quintile earned an average $245,700. Across all households the average income was $93,900.
All Households Benefit from Government Transfers, but Low-Income Households rely on them the Most
Part of the CBO’s measure of income is transfers from the federal government. The CBO shows that all households benefit from government transfers, but low-income households rely on them the most. In the lowest quintile, government transfers make up 37 percent of total pre-tax income.
As you go up the income scale, the share of income from government transfers declines, but does not go away. This is due to the fact that Social Security and Medicare are universal programs with respect to income, unlike programs like the Temporary Assistance for Needy Families and Food Stamps.
Government transfers make up 35 percent of the income of second quintile households, and 25 percent of middle quintile households. Once you hit the top two quintiles, the reliance declines quickly to 14 percent of total income for fourth quintile households and 4 percent for top quintile households.
The Federal Tax System is Progressive
In contrast with the government transfers, which decrease as you go up the income scale, federal taxes increase in importance as you go up the income scale. As household income increases, average tax burden increases. The lowest income quintile paid a total effective income tax rate of 1.8 percent. The second quintile paid 7 percent. Middle income households paid 11.2 percent and the fourth quintile paid 15.2 percent. The top income quintile paid an effective tax rate of 23.4 percent, an effective tax rate two times higher than the middle quintile and 13 times higher than households in the lowest quintile.
The Distribution of Different Federal Taxes
Although the total tax burden is progressive, not all federal taxes are progressive. The distribution of these taxes varies by both the type of tax and the income level.
The federal individual income tax is highly progressive with respect to income ranging from negative 7.5 percent for households in the bottom quintile to 14.2 percent for households in the top quintile.
In contrast, excise taxes are slightly regressive, meaning that their burden goes down as household income goes up. The lowest quintile households pay the highest rate: 1.6 percent of income, while top quintile households pay the lowest: 0.4 percent.
Payroll taxes and corporate taxes are both rather flat. For the corporate income tax, the CBO assumes that the tax is born 75 percent by shareholders and 25 percent by laborers. What this means is that shareholders, which are disproportionately high-income households, bear most of the burden. This gives the corporate tax its slight progressive feature.
It is important to emphasize, however, that although the CBO states that corporate income taxes are born mostly by shareholders, there is by no means a consensus on this. Some estimates could place most of the corporate income tax on labors rather than their shareholders, which could drastically change the perceived progressivity of this tax.
Either way, everyone ends up bearing some of the corporate tax.
While there are some limitations to the CBO’s report—especially the exclusion of state and local taxes and some major public goods provided by governments—this report is important in understanding that the United States’ federal government has progressive tax and spending policies.
For more on the distribution of taxing and spending policy see here.
Household incomes have stagnated in recent years. From 1980 to 2000, when the economy was growing at a higher rate, real household income increased from $47,668 to $56,800, where it peaked. But since 2000, and after two recessions, median household income in the United States has declined. In 2013, median household income was $51,939, the lowest it has been since 1995.
For more charts like this, please see our new chart book, Business in America: Illustrated.
Milton Friedman once said that “nothing is more permanent than a temporary government program.” However, it turns out that nothing may be as permanent as a temporary tax increase, either. According to a new report from the Urban Institute, many of the temporary taxes created to fill state budget gaps during the 2008 recession have stuck around passed their expiration date.
The group found that between 2008 and 2011, 14 states and the District of Colombia enacted 25 temporary tax increases, 10 of which have been expended or been made permanent and three of which have been replaced with other increases. Of the remaining 12, nine have expired and three are still in their in original periods.
Increase sales tax from 5.6% to 6.6%
Increase personal income by 0.25 percent
Expired but replaced
Increases sales tax from 7.25% to 8.25%
Expired but replaced
Increased tobacco product tax
Add 10% corporate income tax surcharge
Extended and increased to 20%
Increase top rate ($60,000) from 5.95% to 6.95%
Permanent at 6.6%
Increase minimum tax
Calculate estate tax based on 2001 federal law
Increase sales tax from 5.75% to 6%
Increase lodging tax from 7.25% to 9.25%
Create new top rate plus exemption phase-out
Still in temporary period
Increase corporate rate from 4.8% to 7%, phasedown in 2015 to 5.25%
Still in temporary period, but possible extension
Increase individual tax from 3% to 5%, phasedown in 2015 to 3.75%, 3.25% after 2024
Still in temporary period, but possible extension
Increase sale tax from 5.7% to 6.3%
Permanent at 6.15%
Create top rate of 6.25% over $1 million
Additional tax on wages over $62,500
Increase sales tax from 6.5% to 6.85%
Increase taxes on over $400,000 and create top bracket for over $1 million
Tax on $500,000 plus at 8.97%, married filing jointly $300,000 plus at 7.85%. Limited deductions for $1 million plus earners.
Replaced with another temporary tax
Create corporate tax surcharge and expand credits
Added 3% surcharge to top earners
Increase sales tax from 6.75% to 7.75%
Increased corporate rate for business over $250,000
Increased taxes $250,000-$500,000 to 10.8% and 11% above $500,000
Added 50 cent surcharge per bottle of distilled liquor
While most increases were one percent or less, some states aggressively increased rates. Illinois experienced one of the most significant temporary tax increases, raising its flat tax from 3 percent to 5 percent on individual income and 4.8 percent to 7 percent on corporate income. These programs are still under their original temporary periods. However, as the first rollback quickly approaches, discussions are already underway to make them permanent. Hawaii will likely face the same debate.
The fact that half of temporary taxes become permanent should be no surprise. In most situations, the tax increases have been extended at least once, if not more. This effectively creates a new tax baseline in the minds of many taxpayers and lawmakers, making it more difficult to argue for a “tax cut” that actually restores the original rates, as promised.
Even those that have expired didn’t do so without a fight. Maryland considered making its tax increase on top earners permanent in order to create a special teacher pension fund. Arizona’s increase on sales taxes was another that drew debate over permanence when a special interest group lobbied for a permanent increase, though voters rejected the initiative.
Rather than temporary increases, lawmakers should look to broad tax bases and eliminating special carve-outs, keeping rates lower for all tax payers.
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Tick-tock on 2015 Obamacare health plans
April 15, 2015: This is the deadline for Americans to file federal income tax, which for the first time will include a proof of health insurance form. ... If you received a tax subsidy to help with your premiums this year, you can expect a letter from ...
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Expired law could cause tax bills of homeowners, Sandy victims to soar
The Mortgage Forgiveness Debt Relief Act exempted homeowners from paying taxes on debt forgiven by the bank that would otherwise be considered income by the IRS. Before this law, if you got rid of your home in a short sale or were foreclosed upon, ...
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JD Supra (press release)
IRS Disregards Own Revenue Ruling in Barnes Decision
JD Supra (press release)
Barnes understood that either a dividend distribution or a loan from ASA would trigger a significant federal tax liability. A distribution to the extent of earnings and profits would result in a taxable dividend under Internal Revenue Code Sections 301 ...