Posts Tagged ‘CBPP’

Tax Roundup, February 20, 2013: Fire fail and tax reform frenzy!

Wednesday, February 20th, 2013 by Joe Kristan
Flickr Image courtisy Llima under Creative Commons license

Flickr Image courtisy Llima under Creative Commons license

If you are going to say the dog ate your tax records, make sure you have a dog.  A New Jersey man was having a hard time coming up with records supporting his deductions in Tax Court.  He blamed a fire.  The success of the argument can be guessed from the Tax Court’s discussion of “Petitioner’s Alleged Fire”:

The circumstances surrounding petitioner’s purported fire are vague, and he has offered no evidence, apart from his testimony, that a fire occurred and that his 2006 tax records were destroyed in such a fire. Significantly, he failed to introduce insurance documentation or third-party testimony describing the alleged events or the extent of any fire.

The Tax Court said the man couldn’t support his deductions.

The Moral?  Back up your work.  And if you are going to have a fire, something needs to actually burn.  (Cite: Mears, T.C. Memo 2013-54)

 

It looks like the dreaded automatic “sequestration” spending cuts are going to happen, so there is a flurry of proposals to stop this sliver of random spending discipline:

Martin Sullivan, A Proposal to Get Tax Reform Back on Track:

Before earmarking what we will do with the money from limits on chimerical loopholes, our leaders need to clear the path for the painful process of broadening the tax base. President Obama has now poisoned the well by turning Republicans’ tax reform instincts against them. If they were to put any revenue increases on the table, the President would claim the proposals have the Republican seal of approval and incorporate them into his tax hike plans.

At the same time Republicans tax reform strategy is wearing thin. Their extravagant claims about cutting the top individual rates below 30 percent are just hollow speechifying as long as they refuse to put specific revenue-raisers on the table.

Inspiring leadership.

 

Jeremy Scott, Simpson-Bowles Try Again (Tax.com):

Simpson-Bowles is just another deficit reduction plan — and a politically infeasible one at that.  Its authors want to make it seem grander by attaching tax reform to it, just like Obama wanted his own proposals (which simply include ways to raise revenue that Democrats have proposed ad infinitum over the years) to sound better when he mentioned tax reform at least three times during the State of the Union.  But what they are offering isn’t comprehensive enough to qualify as true tax reform.  Deficit reduction has its place, but conflating it with tax reform will stall whatever momentum people like Camp are trying to create for a true tax system overhaul. 

They just aren’t serious yet.

Also:

Howard Gleckman, Bowles-Simpson II: A New Plan to Avoid the Sequester (TaxVox)

Patrick Temple-West, Simpson, Bowles revive deficit plan, and more

Jacob Sullum on Obama’s Misguided Vision of Tax Reform (Reason.com)

 

High taxes are good for us, so infinite taxes will make us perfect.  The high-tax advocacy group Citizens for Budget and Policy Priorities has generated a paper that says that state tax cuts do no good:

This paper argues that state personal income tax cuts won’t help small businesses create jobs, and in fact could harm the ability of the small-business sector to contribute to economic growth.  For all the reasons  stated in this paper, the converse is also true:  personal income tax increases, including those on the highest earners, won’t harm small-business job creation. 

Really?  There is no level of taxation that would discourage economic activity?  There is no level of tax increase that would cause economic activity to be located in a neighboring state with lower taxes?

The paper makes the same mistake as the guy who drowned trying to wade across the river that was only two feet deep, on average.  You can see it on the headings of the paper: “The vast majority of those who would get a personal income tax cut are in no position to create small-business jobs.”  “Most small businesses make too little money for tax cuts to produce enough income to pay new employees.”  “Most small business owners are not significant ‘job creators’ and have no plans to be.”

This is the same logic we heard when we were told that individual tax increases wouldn’t hurt business because most small businesses wouldn’t be affected.  When you define “small business” to include your office Avon Lady and a manufacturer with dozens or hundreds of employees, of course “most” businesses won’t hire more if taxes are lower.  Just the ones that matter.

When you measure by amount of income, the amount of business affected by individual rates is huge:20130220-1

 

Sure, relatively few businesses achieve enough success to hire a lot of employees.  Yet some do, and they do a lot of hiring.  And, contrary to the CBPP paper, their ability to expand does shrink if they have to pay more taxes.  As a tax accountant, it’s part of the world I live in.  Prices matter in making decisions — including the price of living, doing business and paying taxes in a state.  Any argument to the contrary has to overcome the basic rule of economics that incentives matter.

 

Paul Neiffer, 1031 Tax-Deferred Exchange Does Not Always Defer All Taxes!

Jack Townsend, Another Plea Agreement and Sentencing for HSBC and Bank Woori Depositor

Tax Trials,  Petition for Writ of Certiorari Filed in Historic Boardwalk Hall Tax Credit Case

Trish McIntire, FASFA?

 

Kay Bell, Tax Carnival #113: Presidents Day 2013 or maybe you, too, can one day be Acting President of the United States

Breaking news from 1147: Tax Havens: The Second Crusade (Robert Goulder, Tax.com)

Going Concern, The IRS Is Wasting Millions on Unused Blackberrys and Aircards Because Of Course It Is.  Meanwhile they prepare to lay off their useful employees when sequestration hits.

 

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Tax Roundup, 1/30/2013: Bah. Humbug. And where states get their cash.

Wednesday, January 30th, 2013 by Joe Kristan

20130130-4Why so grumpy?  Because it’s the first “official” day of tax season as the IRS begins processing returns.   But only some of them.  The last-minute Fiscal Cliff tax law is delaying the processing of many forms, delaying most business filings until “late February or into March.”  They also have delayed processing of returns with education credits until sometime next month.

Oh, and the streets are a mess.

Kay Bell,  Tax filing on hold for taxpayers who need 31 federal forms

TaxGrrrl, IRS Opens For Business Today, Many Taxpayers Qualify To File For Free

 

Taking your money to give to the well connected.  From Taxing the Rich to Pay for Big Business Tax Credits by Veronique de Rugy:

 

20130130-1

Taking from the small businesses, giving to the big business with pull.

 

Brian Gongol on the decision of Senator Harkin to not seek an umpteenth U.S. Senate term:

Wouldn’t it be wonderful if we could start with a blank slate and ask ourselves (as Iowans): Who is the smartest, most dependable, most thoughtful person we could send to an august body of decision-makers who are challenged with bringing wisdom and sobriety to the decision-making process of government?

Like somebody like that would stand a chance.

 

Why bother with a state corporate income tax?  While state income taxes are a reliable source of work for people like me, they do surprisingly little for the states, according to a new report released by the Tax Foundation yesterday.  Nationwide state corporate income taxes accounted for only 3% of 2010 state revenues.  In Iowa, it’s even lower.  Here are the revenue sources from Iowa and some nearby states:

Source: Tax Foundation

Source: Tax Foundation

 

The corporation income tax raises little revenue, is expensive to administer, is exploited by the well-connected and well lobbied, and is almost certainly a job-killer.  Why not go for a low-rate, low-loophole system like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan?

TaxProf,  A Distributional Analysis of the Tax Systems in All 50 States, passing on a report from the Center on Budget and Policy Priorities says state tax systems are regressive.  Keep this in mind:

Source: Heritage Foundation/

Source: Heritage Foundation/

If you only look at the distribution of taxes paid and ignore the value of services and cash payments received, you miss a lot.

 

Janet Novack,  IRS Tips Won’t Protect You From Identity Theft Tax Fraud.

Jack Townsend,  Article on Importance of Jury Instructions in White Collar, including Tax, Crime Cases

Jason Dinesen, An Obligatory 1099-K Post for 2013

Trish McIntire,  Before You Sign.  A timely reminder that you are responsible for what’s on your return, even when you use a paid preparer.

Patrick Temple-West,  Mickelson and the sports star migration, and more (Tax Break)

William McBride, CRS: Tax Rates Do Matter for Profit Shifting (Tax Policy Blog)

Joseph Thorndike, The Income Tax Is Inquisitorial — Get Over It(Tax.com) May he have a good National Research Project exam in his future.

Robert Goulder, French Budget Minister Caught In Tax Probe (Tax.com)

That wouldn’t take much.  Payroll Tax Cuts May Boost the Economy More than You Think (Howard Gleckman, TaxVox)

 

Bad news, good news:  The Twinkie is Dead! Long Live the Twinkie! (Megan McArdle).

News you can use.  Tax Law Warning: Don’t Cut Mom a Rent Break (Jim Maule)

 

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Most small business don’t create many jobs. Because once they do, they’re not small.

Wednesday, January 11th, 2012 by Joe Kristan

Martin Sullivan feels the earth move:

In an October 23, 2011, op-ed in The New York Times, Jared Bernstein neatly laid out some earthshaking facts. The former economic adviser to Vice President Joe Biden summarized recent research that says small business is not the engine of job creation that politicians and the press repeatedly claim it to be. “To the extent that size matters at all for job growth, it’s really about new companies that start small,” he wrote.

Mr. Sullivan seems to think this is an argument for higher tax rates:

The Bush tax cuts are scheduled to expire at the end of 2012. Whether they should be extended for high-income taxpayers will be a hotly debated issue in Congress and on the campaign trail. Central to Republican support for across-the-board extension is the claimed detrimental effect high-bracket tax increases will have on small businesses and job creation. The research cited by Bernstein blows the Republican argument out of the water.

It’s funny. On one hand, fans of raising the top individual bracket say small business doesn’t generate jobs. On the other hand, they say that much of the benefit of the top bracket for pass-through businesses is for businesses that aren’t really small.
A Wall Street Journal piece yesterday helps square that circle (via the TaxProf). The piece tells how businesses have been moving to pass-through entities like partnerships and S corporations since the 1986 tax reforms. The owners of these entities pay the tax on the businesses on their own returns. In contrast, old-fashioned C corporations pay tax on their own returns, and their owners pay more tax when the earnings are distributed. In short, while most small businesses wouldn’t be affected by a hike in the top tax rate, most pass-through business activity would be.
So even if you accept the argument that “small” business isn’t the engine of job creation, it doesn’t follow that increasing the top individual tax rate doesn’t affect business growth and employment. A large and growing amount of economic activity is affected by the top individual rate.
It’s becoming widely accepted (though not universally so, to be sure) that the 35% top corporate rate is a job killer because it is not competitive with tax rates worldwide. In fact, the U.S. corporate rate is one of the highest in the developed world. If 35% is non-competitive, it’s hard to argue that a 39.6% rate is a good idea — let alone the even higher rates that will result if Obamacare takes full effect.

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Leftish think tank: film credits stink

Thursday, November 18th, 2010 by Joe Kristan

The left-of-center Center for Budget and Policy Priorities chimes in on the policy behind state tax credits for filmmakers:

Film subsidies don

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The ‘it’s a tax on somebody else’ fallacy

Monday, July 20th, 2009 by Joe Kristan

Of all the lame arguments for the health care surtax, one of them is this one by the reliably pro-tax Center for Budget and Policy Priorities (via the Tax Prof):
20090720-1.jpg
Does the argument that something “only affects a few people” really support any argument? If the health bill required that everybody making over $1 million AGI have their entrails sliced from their bodies without anesthesia and burned in front of them, would it be OK just because it would only affect a few wealthy taxpayers?

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The surtax will hit only a few businesses: just the good ones

Monday, July 20th, 2009 by Joe Kristan

One of the “arguments” for the proposed surtax to finance the destruction of health care in this country is summarized by this chart, from a Ways and Means Committee press release:
20090720-2.JPG
This sort of argument tries to dance around the issue of whether the tax is wise or not by saying hey, it won’t affect many people anyway. The lameness of this argument becomes apparent when you think about what they are counting. For this purpose, a “business” means every Schedule C, Schedule E, or Schedule F filed in the country. It embraces every free-lance writer, part-time musician, moonlighting handyman or Mary Kay salesman in the country. It counts every Shaklee business the same as a family-held multi-state manufacturer or retailer. In short, it’s a garbage number.
When you look at how much economic activity gets hit by the surtax, the picture looks different:
20090720-3.jpg
Source: The Tax Foundation
The surtax means pass-through businesses that account for 60% of small business profits will be sending more money to the government instead of developing new products, opening new locations, and hiring new employees. Or, more likely, they will be spending money on people like me to change their tax strategies to keep their money from going into the black hole of out-of-control government spending.
Related: Department of Meaningless Statistics

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It’s called the ‘personal income tax.’

Thursday, April 9th, 2009 by Joe Kristan

The Center For Budget and Policy Priorities is a think tank whose budget and policy priorities are ever higher taxes and ever bigger government. For example:

Nineteen states impose only nominal taxes on businesses organized as subchapter S Corporations (S-Corps) or Limited Liability Companies (LLCs) even though these entities

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DEPARTMENT OF MEANINGLESS STATISTICS

Friday, September 5th, 2008 by Joe Kristan

A “Non Sequitur” is defined in Wikipedia as follows:

Non sequitur (IPA: /n?n’s?kw?t?r/) is Latin for “it does not follow”. It is most often used to indicate something which does not follow logically, such as a stated conclusion that is not supported by the facts. Non sequitur may refer to:
Non sequitur (logic), a logical fallacy
Non sequitur (humor), a comment that has no relation to the preceding comment or to an ongoing discussion or topic
Non Sequitur (comic strip), a comic strip by Wiley Miller
“Non Sequitur” (Star Trek: Voyager), an episode of Star Trek: Voyager

We’ll note that Wiley Miller lives in Iowa City. We’ll also note that a recent report from the Center for Budget and Policy Priorities illustrates the “logical fallacy” non sequitur:
The CBPP seems to like the idea of jacking up individual rates. Of course, that means raising the rates of pass-through businesses, like S corporations, whose income is taxed on the returns of their owners. As far as their recent report is concerned, that’s not a problem:

First, critics charge that allowing the 2001 tax cut’s reduction in the top two marginal income tax rates for individual taxpayers to expire as scheduled would affect a large proportion of small-business owners. In fact, only 1.9 percent of filers with any small-business income are projected to face either of the top two income tax rates in 2009.1

Where to start? Maybe with the strawman: that “critics” are saying the problem with such tax increases is the proportion of tax returns with small business income that would be affected. The otherwise well-footnoted CBPP paper doesn’t cite any such critic.
When you look at the pool of returns that give the CBPP it’s 1.9% figure, you’d find it hard to see how it could be even that high. To them, a small business 1040 is:

…any tax unit that receives any income (or loss) from a sole proprietorship, farm proprietorship, partnership, S corporation, or rental income.

That includes every Amway, Mary Kay and Shacklee salesmen. It includes any of the thousands of taxpayers who hold, for even a few days, a few shares in a publicly-traded oil and gas partnership like Kinder Morgan. It includes every duplex owner that rents the other unit out, everybody who rents out a vacation cabin, and every e-bay business. Of course, most such taxpayers wouldn’t see such income as their livelihoods; it would be a sideline or an investment. Would anyone expect that a large proportion of these returns would be in the top two brackets?
Jacking up the rate on the top two brackets — returning the top rate to 39.6% — would affect a large proportion of the income and economic activity generated by small businesses. It would affect the ones that are most important – the ones that are successful, growing and hiring. If they have less after-tax income, they won’t be doing as much growing and hiring – and the cost comes not only from the small business owner, but for the person who doesn’t get hired because the government has sucked more money out of the would-be employer’s business.
Unfortunately, the CBPP doesn’t give us statistics that tell us how much small business income would be affected by jacking up the top two tax rates. We can go to IRS statistics to get a rough idea of how much economic activity would be hit with higher taxes if the rates returned to 2000 levels. Of the S corporations, partnerships and non-farm proprietorships filing in 2003, just over 3% had over $1,000,000 in gross receipts, by my reckoning. The gross receipts of this 3% over 78% of the gross receipts of such businesses and 64% of the net income.
In short, looking at the effect of an individual rate increase based only on the percentage of 1040s effected grossly understates the impact this would have on the economic activity of small businesses — particularly the healthy ones that contribute the most to employment and growth. Using CBPP logic, you could say that breaking the legs of all NFL players wouldn’t hurt football because less than 1% of those playing football nationwide would be affected.

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