Las Vegas Man Cheated IRS, Taxpayers Using False Home Buyer Credits
Assistant Attorney General Kathryn Keneally for the Tax Division and U.S. Attorney Daniel G. Bogden for the District of Nevada announced that Damon Boswell of Las Vegas pleaded guilty to conspiracy to submit false federal income tax returns. Working ...
The unique puzzle Rhode Island faces—high public spending, low per-capita income relative to its neighbors—means the state has become notorious for high tax rates on nearly everything. In 2010, the state took a positive first step by reducing the top individual income tax bracket from 9.9 percent to 5.99 percent, reducing the number of tax brackets and credits, increasing standard deductions for most except wealthier taxpayers, and eliminating the state’s alternative minimum tax and optional flat-tax Legislators are currently considering an effort to undo a good chunk of those valuable reforms.
Claiming this reform has depressed tax revenue while hurting local communities, Rep. Scott Guthrie (D) has introduced 2014-H 7245, which would raise the rate on income over $250,000 to 7.99 percent. The revenue raised would go to municipalities in the state via revenue sharing.
The narrative is that property taxes are going up in Rhode Island because local aid has slowed. While local aid has slowed to some degree, there are two reasons that state income tax hikes are not the answer here. First, 2014-H 7245 does not address whether local property taxes would decrease as a result of the additional state aid. This means localities would get an influx of new state funds and then taxpayers presumably just hope for consequential property tax rate cuts.
Further, it’s important to note that the recent decrease in state aid is actually a return to the norm for Rhode Island. As Figure 1 shows, state aid was much more modest in the 90s, but exploded in the 2000s.
Figure 1: Rhode Island State Aid to Local Governments (FY 1990-2012)
Raising top individual income tax rates at the state level might take the sting out of local spending issues in Rhode Island temporarily, but it fails to offer a sustainable solution because it asks one small portion of the population to pay for services everyone uses. Ultimately, if people want additional local government services, they are going to have to pay for them with the primary tool in the local tax toolkit: property taxes.
On the better note, check out the recent Rhode Island corporate tax reform proposal.
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The City of Los Angeles has sued JPMorgan Chase & Co , accusing the largest U.S. bank of engaging in discriminatory mortgage lending practices that drove up foreclosures among minority borrowers. The lawsuit on Friday is part of the second most populous U.S. city's effort to hold mortgage lenders liable for lost property tax revenue caused by falling home values, and the cost to maintain vacant foreclosed properties. "LA continues to suffer from the foreclosure crisis - from blight in our neighborhoods to diminished revenue for basic city services," City Attorney Mike Feuer said in a statement. "We're fighting to hold those we allege are responsible to account." The complaint filed in Los Angeles federal court accused JPMorgan of engaging in a "continuous pattern and practice of mortgage discrimination" in the city since 2004.
Pfluegers' Accountant Sentenced in Federal Tax Fraud Cause
The U.S. Attorney said more than $14 million in proceeds “were sent to a bank account located in Switzerland” and that James Pflueger failed to disclose the existence of the foreign bank account to the IRS. Alan Pflueger pleaded guilty to one count of ...
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Regular readers of this blog have followed the DC tax reform process, from the hearings of the Tax Revision Commission last year, to their final report this February, to Mayor Gray’s budget proposal, to the vote this week to implement most of the proposed reforms.
Generally, the proposal seeks to boost the District’s tax competitiveness by reducing tax burdens on middle-class young professionals, childless low-income workers, and businesses. All taxpayers see a more generous standard deduction. (In fact, nearly all taxpayers will see an income tax cut.) Estate taxes and excise taxes are rationalized to reduce compliance burdens.
The Tax Revision Commission also recommended two changes to the sales tax: (1) increase the rate back to 6 percent (it is currently 5.75 percent), matching Maryland and northern Virginia, and (2) eliminate sales tax carveouts for certain services (construction contractors and other construction-related services, storage of household goods and mini-storage, water for consumption at home, barber and beautician services, carpet and upholstery cleaning, health clubs and tanning studios, car washes, and bowling alleys and billiard parlors). The D.C. Council did not increase the rate but adopted the tax expansion to services.
Enter the hysterical warning from Vida Fitness, which sells gym memberships in the District of Columbia:
Dear VIDA Members, Yesterday, during an initial vote, the DC Council voted to implement a 5.75% sales tax on health club memberships. The announcement of the vote came with less than 18 hours notice and on the heels of Washington DC being named the fittest city in America. VIDA plans to lobby against the fitness tax as we do not believe DC residents should be monetarily penalized for being healthy. The fitness tax would result in an increased cost to fitness-related services across the board. VIDA Fitness was founded with the goal of giving DC residents a superior fitness experience that they could use to create a healthier lifestyle for themselves. A healthier population means lower costs for everyone.
Some facts that Vida leaves out:The overall tax package is tax cut of $67 million per year, including income tax reductions for many of Vida’s middle- and high-income customers. Vida knows many of their customers will like the tradeoff of sales tax on gym membership in return for lower income taxes, so they leave that part out. The sales tax expansion proposal has been on the table since February. The budget vote has been anticipated for some time. Vida’s executives should be reading this blog more if they were caught by surprise. The sales tax is being extended to a number of services, not just gym memberships. The real question for Vida is why they think everyone should have to collect sales tax on their sales except for Vida. The tax on gym membership sales will be the same as the tax on all other sales. This is not a special or higher tax.
There are two ways to do tax policy. One is to use taxes to reward things you like and punish things you don’t, picking winners and losers. The other is for taxes to be broad-based and low, applying to everything with one low rate. DC’s sales tax is not perfect; no state’s is. But DC’s failure to tax services is a historical accident – at one point, goods were most of the economy and services were non-existent. Now with two-thirds of the economy related to services, modernizing the sales tax to apply to services is needed. That DC was able to do it in a way to reduce tax burdens overall and for nearly all taxpayers is commendable. (And let's be honest, the tax exemption for Vida is not helping low-income people.)
If Vida is concerned that people can’t afford their product, they should lower their price—not lobby for a tax carveout to benefit their business, at the expense of the DC economy. (They are getting a business tax cut, after all, as part of this bill.) Vida members shouldn't let one company's lobbying for a tax loophole cause them to oppose a major tax reform that will benefit nearly all District residents.
Today the House Ways and Means Committee is scheduled to markup bonus depreciation, a.k.a. bonus expensing, which would allow all businesses to immediately deduct 50 percent of investment in equipment and software with the remainder to be written-off over a few years according to the normal depreciation system. One concern is the budgetary costs, which the Joint Committee on Taxation (JCT) has estimated at $263 billion over 10 years. Is this a believable number?
No. JCT is using static analysis, which explicitly assumes tax changes have no impact on economic growth. Economists know that is not the case for many tax changes, particularly those that lower the cost of investment, such as bonus depreciation. We find bonus depreciation would boost investment and other economic activity to such a degree that it would pay for itself in the end, and eventually increase revenue by $23 billion per year. JCT has dynamic macroeconomic models, and they should use them to analyze such important pro-growth changes to the tax code. The static analysis is simply not appropriate for any tax change that might plausibly affect economic growth.
Another concern is that the House proposal would make bonus depreciation a permanent part of the tax code, when it has historically only been passed on a temporary basis. However, bonus depreciation is but one of many ways Congress has historically voted to accelerate depreciation. The last major permanent change to the depreciation system that significantly accelerated investment write-offs was in 1981, the first round of the Reagan tax cuts. Besides dramatically lowering tax rates, Reagan’s first tax cut also dramatically sped up depreciation, e.g. it cut the write-off period of structures to 15 years from the old range of 16 to 45 years.
Some of these tax cuts were reversed in subsequent years, and other taxes increased, but the depreciation system from 1981 on remained relatively more accelerated than the depreciation system that existed pre-1981. Did the 1981 tax cuts pay for themselves? Some of them did, including the depreciation changes, according to simulations of the major provisions. Some of the tax cuts did not pay for themselves, but on balance the 1981 tax cuts were extremely pro-growth, and the ensuing economic boom lifted tax revenue as well. In fact, the five years following the 1981 tax cuts saw the highest average federal tax revenue as a share of GDP of any 5 year period prior to 1981. The Fed-induced recession caused revenue to drop somewhat after 1981, but never to the lows of the 1970s or the 1960s.
It is true that the Reagan years saw increased deficits, but that was due to increased spending. Average spending in the 5 years from 1981 to 1985 was higher than any 5 year period prior to 1981 (except WWII), and the increase in spending was even larger than the increase in tax revenue. The chart below shows the BEA data.
In sum, the Reagan era points to the benefits of accelerated depreciation, not only in terms of economic growth but also in terms of higher, more sustainable tax revenue.
For a more detailed review of the Reagan tax cuts, see the analysis by Steve Entin.
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