Posts Tagged ‘Obama Tax Policy’

Tax Roundup, 11/5/14: Red waves and extenders. And: RIP, Gordon Tullock

Wednesday, November 5th, 2014 by Joe Kristan

20130113-3So what does it mean for bonus depreciation? Sure, there was a turnover of power in the Senate, but we have tax returns to do here, people. What does the new makeup Congress mean for the upcoming filing season?

Well, technically for now, nothing. The same old congresscritters hold their seats until January. These are the same critters who have failed to to pass a bill extending all of the perpetually-expiring provisions that technically died at the beginning of 2014, including $500,000 Section 179 deductions, 50% bonus depreciation, and the research credit.  With the election over, they may finally move these Lazarus provisions. I think they will, considering that failure to do so will make an ugly filing season even worse.

Yet they may not. The Republican House of Representatives has passed a series of bills making some of the extenders permanent. These have been bottled up in the Democrat-controlled Senate. An emboldened GOP may insist on their versions, a stance which at least has fiscal honesty going for it. If so, nothing happens until January. And even then, the President may veto the permanent extenders in the name of “fiscal responsibility,” keeping up the pretense that passing tax breaks every year or two forever is less costly than just passing them once for good.

So we may just all be doomed. But we knew that.

 

20120906-1Meanwhile, nothing changes in IowaGovernor Branstad, avid distributor of economic development tax breaks, cruised to an easy victory over low-income housing credit developer Jack Hatch. The results show that with respect to corporate welfare tax credits, it truly is better to give than to receive.

While the GOP Governor won easily, the Democrats retained their 26-24 margin in the Iowa Senate.  That means no comprehensive Iowa tax reform is likely for at least the next two years. Not that it would be anyway, as Governor Branstad seems to have made his peace with high rates and complexity, given the ribbon cuttings he gets to attend when tax credits are awarded. But if he changes his mind, the The Tax Update’s Quick and Dirty Iowa Tax Reform Plan, with its elimination of the corporation income tax and all the credits and its 4% top rate, is ready any time he is.

 

In other election-related newsThe lame smear of an Iowa congressional candidate for “moving his corporation to Delaware to dodge Iowa taxes” failed. Entrepreneur Rod Blum won the race for the seat vacated by Bruce Braley, who lost his bid for Iowa’s open U.S. Senate seat. Really, implying that it is somehow improper for a public company to incorporate in Delaware is right up there with accusing someone of being a notorious extrovert in a relationship with an admitted thespian.

And the attempt to get a local option sales tax passed in the Iowa City area failed.

 

train-wreckMeanwhile, we may be headed for a disastrous filing seasonBoth Commissioner Koskinen and Taxpayer Advocate Nina Olson had grim forecasts for the coming tax season, reports Tax Analysts ($link):

“I think it will rival the 1985 filing season,” Olson said. “Those of you who have been in practice that long remember that time when all the returns disappeared, and Philadelphia melted down, and bags were stuffed in the trash full of returns, and we all got nice little calls from the IRS saying, ‘We know your client filed a return, but would you please file it again because we lost it.’ And it took years to undig ourselves from that.”

Oh goody. Of course, the Commissioner used the occasion to try to jack up his budget:

Both Koskinen and Olson said that there is only so much they can do without increased funding from Congress. 

“You really do get what you pay for,” Koskinen said. “And if you’re not paying for it, there’s no way you’re going to get it.”

The IRS will offer no tax return preparation at its walk-in assistance centers and will answer only limited tax law questions over the phone, Olson noted.

Yet with his condescending dismissal of GOP concerns over the Tea Party scandal, and his continuing stonewalling, he has done everything he could to antagonize the folks that set his budget. I’ll believe the IRS needs more money when it stops spending what it has on a “voluntary” preparer regulation regime nobody wants, when it stops using its “scarce” resources to steal cash from small businesses, when it stops giving away millions in cash to ludicrous fraud schemes, and when it stops covering up its harassment of the President’s political opponents. In other words, I’ll believe they are out of money when they don’t have money to spend on dumb things.

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Kay Bell, Tax reform a big factor for mid-term election voters

Peter Reilly, AICPA Wasted Member Dues On IRS Lawsuit. I don’t think it’s wasteful to fight IRS overreach.

Robert D. Flach, FEAR OF CPAs

Keith Fogg, Rare Suspension of Statute of Limitation Due to Continuous Absence from United States (Procedurally Taxing)

David Brunori, Taxing the Internet Is a Bad Idea – As the Hungarians Learned (Tax Analysts Blog)

Howard Gleckman, Will Consumers Come To Love Longevity Annuities? (TaxVox)

TaxProf, The IRS Scandal, Day 545

 

20130110-2RIP, Gordon TullockAn intellectual giant left the scene this week when Gordon Tullock died Monday in Des Moines, where he moved in the past year. It was sadly appropriate that he died just prior to election day, given his aversion to voting.

Gordon Tullock was a father of the “Public Choice” school of economics. The online “Concise Encyclopedia of Economics” explains:

As James Buchanan artfully defined it, public choice is “politics without romance.” The wishful thinking it displaced presumes that participants in the political sphere aspire to promote the common good. In the conventional “public interest” view, public officials are portrayed as benevolent “public servants” who faithfully carry out the “will of the people.” In tending to the public’s business, voters, politicians, and policymakers are supposed somehow to rise above their own parochial concerns.

A bureaucrat is as human and as selfless, or selfish, as any businessman. This insight helps explain why so many good intentions go awry when they become law.

Dr. Tullock also had important observations on the tendency of powerful interests towards “rent seeking,” whereby the well-connected enrich themselves by to suppressing competitors via regulation and other government intervention.

I met Dr. Tullock once doing tax work for his family, before I understood who he was. He struck me as an absent-minded professor at first, until I realized that he seemed distracted because he was about five steps ahead of me in the discussion. He later sent me an inscribed copy of one of his books, “The Economics of Non-Human Societies.” The inscription said that my profession was described in the chapter beginning on page 47.

The chapter is about termites.

Other Gordon Tullock coverage from Don Boudreaux, Brian Doherty, Bryan Caplan and Tyler CowenFrom Caplan:

While I often disagreed with him, everything he wrote is worth reading.  Start with this excellent compendium.  Unlike many “interdisciplinary” economists, Tullock was a genuine polymath; his knowledge of history was especially impressive.

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Tax Roundup, 8/7/14: Imitation and Flattery edition. And: How to get California to want your $800.

Thursday, August 7th, 2014 by Joe Kristan

20130819-1You might be surprised just how easy it can be to get sucked into tax in another state.  Cara Griffith explains how easy it is to get California to come after you for their $800 minimum return fee in Doing Business in California (Tax Analysts Blog):

The California Franchise Tax Board recently issued Legal Ruling 2014-01, which addresses when a business entity with a membership interest in a limited liability company is required to file a California return and pay applicable taxes. The ruling comes while a case is pending on that very issue.

The case is Swart Enterprises Inc. v. California Franchise Tax Bd. (Fresno County Superior Court, Case No. 13 CE CG 02171 (July 9, 2013)). Swart operates a farm in Kansas and provides farm labor contractors. The company is incorporated in Iowa, has estimated annual revenues of $280,000, and has three employees.

Swart has no physical presence in California. It doesn’t have employees in California and it doesn’t own real or personal property there. Swart did, however, own a 0.02 percent interest in a California limited liability company that invested and traded in capital equipment. Swart was not the manager of the fund and was not involved in the management or operation of the fund. Yet its status as a member is enough for the FTB to allege that Swart is doing business in California. 

The post explains that California would have let Swart off the hook if they owned in interest in a limited partnership, rather than an LLC.  So if your business sneezes in the general direction of California, make sure you stick an old-fashioned limited partnership in the ownership chain somewhere, or California will shake you down for $800, or maybe a lot more.

This should especially make businesses wary about buying interests in publicly-traded or broker marketed LLCs.  Most of these have at least a little bit of California income, and they might just make a California filer out of your LLC or corporation.  And it’s not just California — wherever the LLC might be, so might you be also.  It can mean increased state taxes, not to mention increased tax return prep fees.

 

TaxGrrrl, Son Of Powerful Congressman Charged With Bank & Tax Fraud.

Howard Gleckman, Does Congress Really Care About the Deficit? Not When It Comes to Vets and Highways (TaxVox).  The answer would have been correct if it stopped after the first two letters.

Annette Nellen, Push for state film credits from Congress.  They don’t care about state solvency either.

 

Peter Reilly, FAIR Tax Abolishes IRS – Then What?

Paul Neiffer, Another Conservation Easement Tax Court Case – Mostly in Taxpayer’s Favor:

When valuing a conservation easement, you must determine the value of the property before the easement and the value after the easement.  The difference in value becomes the charitable deduction amount.  In the case of the Schmidt’s, their apprisal determined the before easement value was $1.6 million and the after easement value was $400,000 for a net contribution deduction of $1.2 million…

The IRS appraiser valued the property at $750,000 for the before easement value and $270,000 for the after easement value for a net deduction of $480,000. 

The deduction came down a little, but the IRS lost its bid for penalties.

Me, Obamacare mandates: What’s a taxpayer to do? (IowaBiz.com, where I discuss what the Halbig decision on tax credits for policies purchased on federal exchanges means now for taxpayers subject to the individual and employer mandates.

TaxProf, The IRS Scandal, Day 455

 

There’s a new Cavalcade of Risk.  This edition of the venerable roundup of insurance and risk-management posts is up at The Population Health Blog. Among the worthy posts is Hank Stern’s Rideshare Tricks – An Update, on the insurance implications of participating in ride-share services like Uber.

 

nra-blue-eagleBut Mr. President, imitation is the sincerest form of flattery!  Accounting Today reports on yesterday’s presidential press conference in Obama Blames Accountants for Inversion Trend:

During a press conference Wednesday following a summit with African leaders, Obama said, “You have accountants going to some big corporations—multinational corporations but that are clearly U.S.-based and have the bulk of their operations in the United States—and these accountants are saying, you know what, we found a great loophole—if you just flip your citizenship to another country, even though it’s just a paper transaction, we think we can get you out of paying a whole bunch of taxes.”

Wherever would anyone get the idea to do such a thing?  Well, Accounting Today points to a suspect: Obama Aides Let Delphi Avoid Taxes with Tactic President Assails:

 President Barack Obama says U.S. corporations that adopt foreign addresses to avoid taxes are unpatriotic. His own administration helped one $20 billion American company do just that.

As part of the bailout of the auto industry in 2009, Obama’s Treasury Department authorized spending $1.7 billion of government funds to get a bankrupt Michigan parts-maker back on its feet—as a British company. While executives continue to run Delphi Automotive Plc from a Detroit suburb, the paper headquarters in England potentially reduces the company’s U.S. tax bill by as much as $110 million a year.

One might almost get the impression that this whole inversion panic isn’t really a serious policy effort, but instead a desperate diversion by a foundering politician and his partisans.

Kay Bell, Walgreens decides to keep U.S. tax residency

 

The problem might be the tax system, not wobbly patriotism.  Record Numbers of Americans Are Renouncing Their U.S. Citizenship (TaxProf).  Paul Caron links to Andrew Mitchel’s report on the latest quarterly numbers of published expatriates, which includes this chart:

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Our worldwide tax system makes it difficult, dangerous and expensive to be a U.S. taxpayer abroad.  Rather than impugning their patriotism, the President ought to try to make it affordable.

 

Bob McIntyre of the Tax Justice Blog makes perhaps the worst appeal to authority ever seen in the tax literature: Woody Guthrie on Corporate Tax Inversions.  Woody Guthrie’s economic gurus weren’t exactly cutting-edge .

 

The Iowa State Fair Starts today!  

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If you show up on Saturday, look for me at the Sertoma booth at the Varied Industries Building from 1-5; I will be distributing educational hearing safety info and ear plugs, and you may even be able to get a free hearing screening from a trained audiologist.  And you might want some music to fire you up for a really big show!

 

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Tax Roundup, 1/29/14: E-cigarette panic! And: SOTU, SALY.

Wednesday, January 29th, 2014 by Joe Kristan
Via e-cigarettepedia.com

Via e-cigarettepedia.com

Jeff Stier, Iowa should tread carefully on e-cigarette rules, on the weird impulse to restrict and tax water vapor:

Restricting the use of e-cigarettes, known as “vaping” for the vapor they emit, would undermine the very goal of this law.

First, it wouldn’t reduce exposure to environmental smoke, better known as second-hand smoke, because there is no smoke. There isn’t even any first-hand smoke.

More important, a ban on vaping in public places would damage public health because it would make e-cigarettes a less convenient alternative to cigarette smoking. It would also send the implicit (and incorrect) message that they are also equally dangerous, not only to the user, but to those exposed to the vapor.

All true.  There are two explanations for the why politicians have their dresses over their heads over what amount to very small room vaporizers.

First, because people vaping look a little like smokers, and smoking is a great sin these days, they must be sinning, and sin must be stopped.  For the children!

The second explanation is more cynical, so it probably is true.  The state has a nicotine addiction.  Iowa collected $227 million in tobacco taxes in 2013.  If smokers use e-cigarettes to quit, that money dries up.  We can’t have that.

 


EITC error chart
Tax Analysts’ 
headline ($link) on its story about the tax proposals in the State of the Union doesn’t exactly scream Hope and Change:  “Obama Proposes EITC Expansion in State of the Union, Otherwise Reiterates Old Tax Proposals.”

One hopes that Congress will do something to keep 20-25% of the EITC from being issued “improperly” to grifters before it increases the theft pot.  We can expect the President’s other tax proposals to go nowhere, as they went nowhere when he was in better political shape.  The dead-on-arrival proposals include disallowing more of the Section 199 deduction for f0ssil fuels and tax credits to “build fuel infrastructure” and to subsidize alternative fuels.

His budget also provides for a hodgepodge of other tax incentives.  His revenue-raisers include repealing LIFO inventories, slower depreciation for aircraft, changing grantor trust rules so they are treated the same for income and tax purposes, and limiting the size of retirement accounts — all doomed absent an unlikely comprehensive tax reform.

Related:  Tax Policy is MIA in the State of the Union (Howard Gleckman, TaxVox). “The president perfunctorily restated his support for business tax reform but added no new twist to make his plan any more acceptable to congressional Republicans.”

Good Jobs First, a left-side think tank, has released Show us the Subsidized Jobs, a report on state tax incentives.  Iowa only scores 27%, largely because there is no online disclosure of recipients of the Industrial New Jobs Training program and the Iowa New Jobs Tax Credit.  I would give Iowa zero percent, because these hidden subsidies wouldn’t exist in a well designed tax system.  They should be repealed and replaced by the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

Broadbandits.  Speaking of corporate welfare, SSB 3319 was introduced yestarday in the Iowa Senate.  Among other ways to pay providers for something they will do anyway if customers want it, the bill includes a 3% credit on the cost of “new installation of broadband infrastructure.”  Just one more step away from simplicity and transparency.

 

20111040logoDavid Henderson, Marginal Tax Rates: Singing Taxman to My Class:

Think about the Beatles’ earnings. Late 1963 was when they first started making real money. Then in 1964, they hit it big. Presumably they didn’t spend it all but started investing, figuring that they would get interest and dividends on their investments. They probably did. But those returns would be taxed at the 95% rate. When would they start noticing this? Probably some time in 1965. Thus the 1966 song. 

And we all know what an economic dynamo the UK was then.

Martin Sullivan, The Obama Administration’s Backdoor Bailout of Puerto Rico (Tax Analysts Blog):

But here’s a little secret that the powers that be inside and outside government don’t want you to know: The Obama administration has already provided a multibillion-dollar bailout to Puerto Rico. Nobody in the major media outlets has noticed because the issue is highly technical.

And because Look!  Justin Bieber!

 

Tony Nitti, Tax Geek Tuesday: Why You Should Never Hold Real Estate In A Corporation? 

William Perez, Filing Requirements for Tax Year 2013

TaxGrrrl, ‘Same Love’ Grammy Wedding: Married Is Married For Tax Purposes

Leslie Book, Corbalis v Commissioner: Tax Court Holds it Has Jurisdiction to Review Interest Suspension Decisions (Procedurally Taxing)

 

Scott Hodge, President Obama Signs Executive Order to Increase Minimum Wages Paid by Federal Contractors (Tax Policy Blog).  Spending our money to show us how generous he is.

Tax Justice Blog, Has the Tax Code Been Used to Reduce Inequality During the Obama Years? Not Really.   They’ve tried, but it doesn’t work.

Jeremy Scott, BEPS Project Should Include Digital Economy Permanent Establishment (Tax Analysts Blog).   Should companies be taxable in a country because they have a “digital permanent establishment”?  I say they shouldn’t be taxed at all.

 

TaxProf, The IRS Scandal, Day 265

Jack Townsend, DOJ Tax AAG Keneally Reports on Swiss Banks Joining DOJ Swiss Bank Program

Kay Bell, Mortgage tax break contributes to fading American dream.

 

Robert D. Flach is a sensible man:

I did not watch the State of the Union address last night.  Instead I watched the wonderful film GAMBIT with Michael Caine and Shirley MacLaine on TCM.

I ate a delicious dinner and had pie for dessert, with the TV off.  My view of the whole SOTU thing is well-reflected here.

 

Career Corner: You Can Run But You Can’t Hide. Therefore, Sabotage Your Coworkers (Going Concern)

 

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Grand bargains and other mistakes

Wednesday, July 31st, 2013 by Joe Kristan
Economic supergenius

Economic supergenius

The President has offered a new “grand bargain” on taxes.  While cutting corporate rates, it would be structured to generate a bunch of new revenue to finance yet another “jobs” program.  While details weren’t offered, expect pretty much the same package of deduction cutbacks and international tax increases that he has offered every year.  LIFO inventories are surely part of the package.  Some bargain.

One item that would be in the package would be a 28% corporation top rate, with a 25% top rate for manufacturers.  The President’s offer isn’t serious, so there’s no point spending a lot of time analyzing it, but it includes disorganized thinking that is found in both parties in the tax debate.

The President’s special rate for manufacturers assumes that one sort of economic activity is special and more worthy of favor than others.  (The current foolish Section 199 does the same thing).  There are two big problems with this:

1. Why is manufacturing something inherently better than other things? Is it better to make a Whoopie Cushion in America than, say, save a life with a kidney transplant?  Is making an IPhone more worthy than relieving chronic pain with a hip operation?  More worthy than making someone’s life a little more beautiful by playing music?

2.  Where does manufacturing stop?  Yes, somebody on the assembly line is manufacturing.  But he wouldn’t be able to do it very long without trucks delivering raw materials and driving off with finished products.  It wouldn’t work without trains delivering coal to the powerplant that feeds the machinery.  It wouldn’t run without lawyers keeping the company from being sued to death, or without accountants balancing the books and preparing tax returns.  Yet only the guy on the assembly line is considered “manufacturing.”  It’s a futile and false distinction.

This is just part of a bigger problem: trying to do too much with the tax law.  As anybody who has taken their first corporation tax accounting course will tell you, it’s hard enough to determine taxable income.  When you ask the tax law to finance research, provide health insurance, run the pension system, oversee national housing policy, and be a welfare program, you are asking too much.

Bruce Braley does the same thing in his Des Moines Register op-ed, Tax reform should provide incentives for innovation.  No, the tax law needs to collect revenue.  The biggest incentive for innovation would be to simplify the tax law and let innovators use the money not spent on tax advisors to pay for their own innovation.  The ability to make money after tax is all the incentive people need.

The fallacy that the government should be micromanaging the economy through “incentives” — really, tax breaks for the well-connected and well-lobbied — is bipartisan, as Iowa GOP State Senator Randy Feenstra illustrates in “Attacks on incentives harm state “:

They failed to check the facts before delving into the discussion. The tax credits being offered to the Iowa Fertilizer Company are not new. The tax credits were always part of the good faith understanding between the company and the state and were necessary to ensure that the new jobs and investment occurred in Iowa.

I am not sure what Senate Democrats are taking issue with most, if it is the 165 jobs being created or the $1.8 billion investment being made in a county struggling to lower unemployment rates. However, I take great issue with the attack on this company investing in our state, amid a history of Democratic support of tax credit programs.

Sen. Feenstra falls victim to the fallacy that the tax credits being spent on the fertilizer company are some kind of cost-free pixie dust that magically creates jobs.  Yet they are really tax dollars taken from everybody else in the state and sent to a company with connections.  If they hadn’t been taken from the rest of us, these dollars would have been used by taxpayers to buy and to invest in ways that would have been just as real, but which would have not given politicians any excuses for press releases.  It’s just another version of the broken window fallacy.

The only tax reform worthy of the name is one where politicians get out of the business of playing favorites for certain businesses and activities — something like the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.  Anything else is just blowing smoke.

 

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Look at a celebrity return? You’re fired! Harass a Tea Party outfit? Carry on.

Friday, May 10th, 2013 by Joe Kristan
Former IRS Commissioner Shulman, showing how much he cares about IRS political integrity.

Former IRS Commissioner Shulman, showing how much he cares about IRS political integrity.

Confession:  I never took seriously complaints that the IRS was harassing Tea Party organizations who filed for tax-exempt status.  It didn’t seem impossible, but the IRS can be difficult to anybody, regardless of political affiliation.  Don’t be paranoid!

Silly me.

The legacy of the Worst IRS Commissioner Ever gains new luster with this shocking revelation:

In a practice that conservatives complained about during the 2012 election campaign, organizations that used the words “patriots” or “Tea Party” in their tax-exempt status filings were flagged by the IRS for further review.

Lois Lerner, director of the IRS tax-exempt office, said the practice “was absolutely incorrect and it was inappropriate.”

Speaking at an American Bar Association conference in Washington, Lerner said, “We would like to apologize for that.”

Oh, but don’t worry:

Lerner said the screening process was “absolutely not” influenced by anyone in the Obama administration.

All righty, then.  Not even the senior administration official who said this about the president of another exempt organization:

“President [Michael] Crowe and the Board of Regents will soon learn all about being audited by the IRS.”

In fact, that was the most senior administration official of all.

The tone of any organization is set at the top.  Unwittingly or not, the President’s statement endorsed IRS harassment of his opponents in a Chicago-style wink-nudge kind of way.  As it’s safe to assume that IRS employees overwhelmingly voted for the President, a hint might have been all that was needed.

His subordinate IRS Commissioner Doug Shulman wasn’t worried about it.  In March 2012 The Worst Commissioner Ever testified:

The Internal Revenue Service is not making it harder for tea party groups to attain tax-exempt status because of their political views, the  agency’s chief told Congress on Thursday.

“As you know, we pride ourselves on being a non-political, non-partisan organization,” Shulman said.

Many tea party groups are applying under section 501 (c) (4) of the federal tax code, which grants tax-exempt status as long as organizations are not primarily involved in activity that could influence an election. That determination is up to the IRS.

“There’s absolutely no targeting. This is the kind of back and forth that happens to people” who apply for tax-exempt status, Shulman said.

In Washingtonspeak, that’s “inoperative.”  Yet whatever “mistakes were made,” they don’t bother the IRS enough to fire anybody, as far as anybody knows.   This is an organization that will fire employees for peeking at movie star tax returns.   But political harassment — well, mistakes were made.

Worse still, after the initial revelation, the IRS had the nerve to say this:

Mistakes were made initially, but they were in no way due to any political or partisan rationale.

Right.  Because “patriot” and “Tea Party” have no political connotations.  Exemption applications with those names were beaten to death just by some amazing coincidence.

The next time some poor schmuck is on trial for not reporting income, he should try saying that his underreporting of taxes “was in no way due to any tax avoidance rationale,” just to see how it works.

So I stand corrected.  I’ll remember now paranoia about the IRS is perfectly justified.  This is a big deal, and it should result in firings.  If it’s a firing offence to look at a starlet’s 1040, it should at least be as serious to use the power of the IRS to pick on disfavored political groups.

 

The TaxProf of course has an excellent roundup.  And the right side blog world is all over this:

Ann Althouse

James Taranto:  The New Nixon

Damon Root,  Will The New York Times Apologize for Applauding IRS Harassment of Tea Partiers?

Mike Riggs,  IRS Targeting Tea Party Groups Is “Unconscionable,” Says Rep. Darrell Issa

Scott Shackford  IRS Admits Targeting Tea Party Groups During 2012 Elections (Updated with Actual Letters)

Megan McArdle, IRS Singled Out Conservative Groups for Extra Scrutiny

Kevin Williamson, ‘Mistakes Were Made’

 

On the left, nothing yet from Linda Beale, Jim Maule,  TaxVox, or Citizens for Tax Justice.

 

Related: Some people just can’t tell good IRS jokes

 

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Tax Roundup, 4/11/2013: A new Iowa income tax reform proposal. And: new Obama budget, same as the old one.

Thursday, April 11th, 2013 by Joe Kristan

20130117-1Iowa Senate Republicans advance income tax plan.  TheGazette.com reports:

Sen. Randy Feenstra, R-Hull, said all 24 minority Senate Republicans have signed onto a proposal to significantly lower state personal income tax rates and simplify the Iowa tax code by offering a two-pronged approach that would eliminate federal deductibility and benefit most Iowans.

The Hull Republican said the proposed new tax structure would flatten the current nine income tax brackets into three, elimination of federal deductibility as a competitive impediment, enhance the current standard deduction for all taxpayers and provide an  extra boost for blind, elderly and dependent Iowans, eliminate itemized deduction, increase personal exemption credits, and raise filing thresholds.

So far I have been unable to find the bill (though it being April 11, I’m not going to spend a lot of time looking for it today).  As Senate Republicans have no chance of advancing a bill in the face of majority Democratic opposition, it’s really a gesture.  Still, it’s nice to see that income tax reform remains alive, in spite of the Governor’s indifference this year.  It’s also nice to see that the insistence on keeping the deduction for federal taxes is eroding.  Much better to build it into a lower rate.

If they keep talking taxes, they may finally see that The Quick and Dirty Iowa Tax Reform Plan is the way to go!

Radio Iowa has more.

 

Megan McArdle,  “Tax Breaks for Corporate Jets”: The Non-Issue at the Heart of the Presidential Agenda:

This is a bit weird given that President Obama rides on what is essentially the nicest corporate jet in the world.  To be fair, the President is quite right that companies do not need a tax break to buy corporate jets.  But since they don’t really get a tax break for buying corporate jets, we probably don’t need to spend this much valuable presidential time worrying about this non-problem.  

Anything to make life difficult for a high-tech U.S. manufacturer.   As long as the President continues to beat dead horses like this and the “Buffett Rule,” we know he is not at all serious.

Tony Nitti, Tax Aspects Of The President’s FY 2014 Budget

Howard Gleckman,  The Real 2014 Budget Battle May Be Over Spending, Not Taxes

William McBride,  President Obama’s 2014 Budget Takes another Whack at Savers (Tax Policy Blog)

Paul Neiffer,  Here We Go Again!

 

Cara Griffith, Crafting a Better Mainstreet Fairness Act? (Tax.com)

By enacting it?  How Democrats Will Destroy Progressive Government (Joseph Thorndike, Tax.com):

Sure, Democrats pay lip-service to infrastructure, education, and the like. But for the most part, they are profoundly unwilling  to make a wholistic case for activist, progressive government.

Actually, they probably wouldn’t get very far making the case honestly.

 

TaxProf,  Is the IRS Stalking You on Facebook, Twitter?  Is that how they caught “The Queen of IRS Tax Fraud?

Jason Dinesen,  Same-Sex Marriage, Divorce and Taxes

Me:  How much K-1 loss can I deduct?  Start with your basis.  Part of my 2013 filing season tips series.  My exciting installment on partnership debt basis goes up later this morning.

 

Oh, but it’s for our own good.  IRS Claims It Can Read People’s E-Mails Without Needing a Warrant (Joseph Henchman, Tax Policy Blog).

Jack Townsend,  KPMG Publication on FBAR Filing Requirements for Corporations and Executives

Russ Fox,  Bozo Tax Tip #2: Nevada Corporations

Kay Bell,  Top 10 things you don’t want to hear from your accountant.  How about “I’m calling from Brazil, thanks for the cash!”

He’d have had trouble during tax season.  FYI: The Guy Who Stabbed 14 People At a Texas College Wanted To Be an Accountant When He Grew Up (Going Concern)

Christopher Bergin, Why Transparency Is Like Porn (Tax.com)  No, it’s not about Lululemon.

 

News you can use.  Make Your Own Bubble in 10 Easy Steps (Bryan Caplan)

 

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Tax Roundup, 2/13/2013: The President wants more taxes. Because they’re doing such a good job with what they get now.

Wednesday, February 13th, 2013 by Joe Kristan

State of the union:  raise taxes more.  It will never be enough.  If you think we don’t have a spending problem, or think we can solve it through “closing loopholes,” check out three charts gathered by Veronique de Rugy:

20130213-120130213-2

20130213-3

The President proposes nothing serious.

Breaking news from yesterday: Look for a Call to End Oil “Subsidies” in Tonight’s State of the Union (Andrew Lundeen, Tax Policy Blog)

Howard Gleckman, Obama’s State of the Union and the Great Deficit Smackdown (TaxVox)

 

How H&R Block guy got to write preparer regs.  Civil Service! Tim Carney reports:

In 2009, the Obama administration hired Mark Ernst, the previous CEO of tax prep giant H&R Block, as IRS deputy commissioner. Ernst became a “co-leader” (in the words of an IRS spokesman) in drafting new regulations for tax preparers.

This seems to clash with President Obama’s executive order barring appointees from working on regulations directly affecting their former employers.

But thanks to a fine legal distinction, these rules didn’t cover Ernst. “Mark Ernst is a civil servant at the IRS; he is not a political appointee,” an IRS spokesman wrote me. “The Presidential Executive order on Ethics Commitments by Executive Branch Personnel only applies to political appointees.”

Nobody here but us chickens.

 

Jason Dinesen has a new installment about his client whose identity was stolen in the ID theft epidemic that really got rolling while the IRS was busy regulating preparers.  “If you hired the best comedy writers and satirists in Hollywood, they couldn’t come up with a more farcical script about government ineptness.”

Speaking of government competence:

Not only will most farmers have to file after March 1, 2013 due to a delay in tax forms by the IRS, we  now have an announcement that almost all form 1099s issued by the USDA for Natural Resources Conservation Services payments in 2012 are either wrong or were never issued.

via Paul Neiffer.

 

David Brunori, If You Hate or Love Excise Taxes Read this New Report:

A new working paper  recently released by the Mercatus Center at George Mason University… finds that contrary to conventional wisdom, sin taxes are often not used to correct externalities but rather for general fund spending. My take on that is politicians don’t really care about externalities. They would like to raise money from people whose activities they despise. The report also found that the goal of “sin taxes” has changed from correcting market failures to protecting consumers from their own choices. That is, people are too stupid to run their own lives and they need help. Finally, the report finds that sin taxes are regressive, i.e., they punish the poor. Unfortunately, my liberal friends never get exercised over this issue. Maybe it’s as the great PJ O’Rourke surmised, liberals hate poor people. 

If they would just not wear those icky Wal-Mart clothes and watch their weight, like they tell them to… (Tax.com)

 

Peter Reilly,Even Real Estate Salesman Has Trouble With Passive Loss Exception

Even accepting that he spent 520 hours working on his own properties, he still lost.  Two of the properties were short-term vacation rentals and one was being readied for sale.  The time spent on those properties could not be grouped with the time spent on properties dedicated to long term rentals.

As Peter notes, this becomes an even more important tax issue with the new 3.8% tax on “passive” income this year.

 

Kay Bell,  When will you get your tax refund? Whenever

Trish McIntire, Child Tax Credit Delays

TaxGrrrl, Spammers Target Taxpayers Expecting Tax Refunds.  If you get an email about your refund from the IRS, it’s not from the IRS.

Jack Townsend, Another Bull**** Tax Shelter Bites the Dust

Roger McEowen, Another Court Issues Ruling on Tax Impact of Demutualization.

Tax Trials,  Second Circuit: Co-Op Owner Is Entitled to Casualty Loss

Patrick Temple-West, Navigating between tax avoidance and evasion, and more

Gene Steurle, Desperately Needed: A Strong Treasury Department (TaxVox)

Robert Goulder, La Bella Italia: Fast Cars & Loose Taxes (Tax.com)

Jim Maule, When Spending Cuts Meet Asteroids: The Value of Taxes.  Taxes and spending can never be too high because, you know, asteroids!

The Critical Question.  Minnesota’s Sexiest Accountant Contest: Cute or Creepy? (Going Concern)

 

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Tax Roundup, 1/1/2013, New Year’s Day Special: Senate passes fiscal cliff bill in wee hours; House acts today.

Tuesday, January 1st, 2013 by Joe Kristan

While decent people were celebrating a new year, the Senate passed a “Fiscal Cliff” compromise early this morning.  The Wall Street Journal reports20121116-1iabiz:

President Barack Obama and Senate leaders Monday reached a New Year’s budget agreement that would let income-tax rates rise for the first time in nearly 20 years, maintain unemployment benefits for millions of people and blunt the impact of spending cuts that were looming as part of the so-called fiscal cliff.

The long-sought compromise, which will raise taxes on income over $450,000 for couples, was approved by the Senate in the early morning hours Tuesday. The House was expected to consider it later in the day.

The legislation, HR 8,:

  • Raises the top marginal rate to 39.6% for single filers with taxable income over $400,000 and joint filers over $450,000.
  • Raises the capital gain rate to 20% for taxpayers subject to the 39.6% rate, but retains the 15% top rate for other taxpayers.
  • Permanently “patches” the alternative minimum tax retroactive to 2012.
  • Permanently extends the $5 million estate tax extension, including the transfer of the unused exemption of a deceased spouse, but increases the estate tax rate to 40% (from 35%)
  • Re-enacts the phase-outs of personal exemptions and itemized deductions for taxpayers with AGIs exceeding $250,000 (single filers) or $300,000 (joint filers), providing a hidden and dishonest rate increase for taxpayers under the $400,000/$450,000 thresholds.
  • Extends 50% bonus depreciation and the $125,000 $500,000  Section 179 deduction limit through 2013 (retroactive to 2012!)

The bill also miraculously extends most of the “expiring provisions” that technically died a year ago today through at least yesterday.

The one notable expiring provision that was allowed to die: the 2% reduction in employee FICA taxes (see here).  This will reduce take-home pay for everyone starting with the first paycheck of 2013.

While the big-ticket expiring provisions were permanently extended, the Senate ensured continuing work for their friends in the lobbying industry by passing the “expiring provisions” only temporarily.  Some of the notable extensions include

Oh, and the special depreciation break for “qualified motor sports entertainment complexes” was extended another year, so the republic is saved.

While the bill could require a scramble by payroll providers to update withholding tables, it should prevent the disruption of tax season; the AMT patch was the key to that.

Some bad ideas that had been tossed around failed to make the bill, including a cap of $25,000 or $50,000 on itemized deductions and a restriction on the value of itemized deductions to 28%.

The House still needs to pass the bill, so you have something to watch on C-Span today if you don’t care for parades or football.

Other coverage:

Robert D. Flach, A LAST MINUTE AGREEMENT

Kay Bell, Senate passes fiscal cliff deal

Janet Novack, The U.S. Is Going Over The Fiscal Cliff, But A Tax Deal Might Cushion The Landing.

Business Insider,  5 Things You Won’t Believe That Are In The Fiscal Cliff Bill That The Senate Passed At 2 AM While Most Americans Were Drunk

TaxProf, CBO on Fiscal Cliff Deal: $1 in Spending Cuts for Every $41 in Tax Increases

TaxGrrrl, No, Virginia, There Isn’t A Tax Cut Deal – Yet

Dean Zerbe, Fiscal Cliff Tax Deal: What Does It Mean for Small Business?

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Tax Roundup, 12/18/2012: Fiscal cliff rumors — higher threshold for rate hikes; deduction benefit limits.

Tuesday, December 18th, 2012 by Joe Kristan

20121116-1iabizThe “Fiscal Cliff” negotiations seem to be heating up.  The inane haggling over the final version of the inevitably awful tax law that we will have for this year and next year seems to have heated up a bit yesterday.  Details are cloudy and could change, but here’s what it looks to me like they are talking about for taxes:

  • An increase of the top ordinary income tax rate to 39.6%, but at a level of $400,000 or higher; the President had been holding out for a $250,000 threshold.
  • Some stupid restriction in the tax benefits of itemized deductions — perhaps capping the value of the deductions at 28%.
  • An AMT patch retroactive to last year and extension of all of the “expiring provisions.”

The President’s most recent offer includes some surprisingly good tax policy in the midst of the general awfulness of the tax increase plans.  From the Wall Street Journal:

On the tax side, the administration’s biggest proposal would permanently
extend relief from the alternative minimum tax. That’s a provision
designed decades ago to target the wealthiest Americans that now hits
tens of millions of middle-class households, in part because it wasn’t
indexed for inflation.

That would be great news.  The politicians play with fire by temporarily increasing the AMT exemption every year or two as a cheap ploy to pretend they will receive additional AMT revenue after the temporary “patch” expires — allowing them to appear slightly less irresponsible.

Also:

The administration’s new proposal also would permanently extend a raft
of temporary tax breaks that Congress has passed over the years,
benefiting businesses as well as individuals. Notable examples include
the research and experimentation credit for businesses, as well as the
deduction for state and local sales tax for individuals.

While I would prefer just letting these expiring provisions expire, I’d rather they be made permanent than going through the charade of re-enacting them every year or two just to play stupid budget games.

Fiscal Cliff Notes:

Nick Gillespie & Veronique de Rugy,  Obama and Boehner, Both Reckless Spenders

New York Times,  Obama’s New Offer on Fiscal Crisis Could Lead to Deal

Russ Fox,  Fiscal Cliff Deal Near?

Kay Bell,  Boehner offers Obama a $1 million top income tax bracket in fiscal cliff talks

Ashlea Ebeling,  Millionaires Are Doing Roth Conversions Before The Fiscal Cliff Hits, Should You Too? (Forbes)

Jason Dinesen,  An Example of What Could Happen if an AMT Patch Isn’t Passed

 

IRS extends employee – independent contractor settlement program.  The IRS yesterday announced (Announcement 2012-46) that it is extending its program to resolve the classification of workers as employees or independent contractors.

 

Rudy Penner,  How Eisenhower and Congressional Democrats Balanced a Budget (TaxVox).  They spent a lot less, that’s for sure.

Dan Alban,  IRS Rule Threatens Tax-Preparing Entrepreneurs

Jeremy Scott,   Democrats Should View Japan as a Warning (Tax.com)

Joseph Henchman,  IRS Reverses Course, Will Continue Providing Migration Data (Tax Policy Blog)

Paul Neiffer,  What Does Unified Credit Mean?

Robert D. Flach,  WHAT’S NEW FOR NEW YORK STATE INCOME TAXES FOR 2012

TaxGrrrl,  Actor Called Out As Unpatriotic For Move Over Taxes Fires Back.  So patriotism means letting them pick your pocket?

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Tax Roundup, 11/8/2012: Denison Day! And some things to look forward to.

Thursday, November 8th, 2012 by Joe Kristan

The Tax Update is on the road in beautiful Denison, Iowa, birthplace of Donna Reed!

 

I’m speaking at the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School.  There’s still time to register for the remaining five sessions!

 

“‘There are a lot of sales right now,’ explains Steve Bruere, president of Peoples Co. in West Des Moines.”  From IowaFarmerToday.com:

“I see a drop off (in the number of sales) after the first of the year.”’s one logical response to the looming increase in capital gain rates. 

With potential sellers concerned they may have to pay a 20 percent capital gains tax rate instead of 15 percent, and with many of them questioning what other tax changes may be coming, there has been a push to sell now.

The logic says if you were seriously considering a land sale, you would make sure it happened before the end of the year, Bruere says.

Actually, the rate will probably be 23.8%, including the new Obamacare tax on investment income.

More to look forward to:  “The IRS Small Business/Self-Employed Division plans to increase its audit activity for passthrough entities beginning in 2014, SB/SE Commissioner Faris Fink said November 7,”  reports Tax Analysts ($link).  But if you operate a C corporation, don’t be smug:

SB/SE is planning a one-year National Research Program project to study areas of noncompliance. Under the project, the division will examine 2,500 returns from corporations with assets of less than $250,000, Fink said.

Something to look forward to, like a colonoscopy appointment.

 

The Election is over. Now what?

TaxProf, Boehner Would Accept ‘New Revenue’ Under ’Right Conditions’

Going Concern, Hold the Phone, John Boehner Didn’t Say Anything About Taxes Going Up

 Martin Sullivan,   Wanna-Be Tax Reformers Need a Dose of Reality (Tax.com)

Daniel Shaviro,  Boehner on the possible terms for a fiscal cliff deal

Kay Bell,  Investors sell stock ahead of fiscal cliff, plus locking in 15 percent capital gains

Patrick Temple-West,  How far can Obama push on key issues including tax increases, and more

Anthony  Nitti,  With The Election Over, We Can Finally Do Some Meaningful Tax Planning. Six Year-End Steps To Consider.  #6 is bold planning indeed.

 

In other news… 

Robert D. Flach,  DEDUCTING SANDY

William Perez,  New Jersey Tax Relief for Hurricane Sandy

Linda Beale,  Tax Relief for Victims of Sandy

Richard Morrison,   Chart of the Day: Can Taxing Millionaires Eliminate the Deficit?  (No).

Brian Strahle,  How Virginia Based Companies Can Reduce Their State Income Tax Liability

TaxGrrrl, IRS Commissioner Says Public Goodbye After Election 2012

Jack Townsend,  Commissioner’s Swan Song – Excerpts on Offshore Bank Initiatives

 

Tomorrow is Doug Shulman’s last day as IRS Commissioner.  So how is the fight against tax refund fraud going?

Tampa Police Chief Jane Castor went public with her irritation at the slow pace of the investigation into a piece of the tax fraud scourge spreading among street criminals. Authorities say hundreds of millions of dollars in bogus income tax returns have been processed from the Tampa area alone.

“We have an individual that we know did in the ballpark of $9 million in tax fraud,” Castor said in February. “He was arrested and charged in September. And there’s no reason for us to believe that he’s slowed down at all.”

In March, Tampa Police Detective Sal Augeri testified before a U.S. Senate subcommittee in Washington about tax refund fraud and described the Simmons case without naming him.

“We have no reason to believe he has stopped committing this crime,” Augeri said then.

Russell B. Simmons, the man referred to above, pleaded guilty this week to tax fraud. He has to give up ill-gotten goods, including “… a $60,000 Bentley coupe and diamond jewelry that included a $30,000, 18-karat gold Rolex watch with a diamond dial; a 14-karat gold men’s bracelet with 2,420 diamonds; a 14-karat chain and “RS” pendant with 703 diamonds; and a 14-karat ring with 110 diamonds.

Every day the IRS let the identity thief continue to operate, he created new little nightmares, like those experienced by Jason Dinesen’s client, for the innocent taxpayers whose identities he stole.  Meanwhile, Commissioner Shulman was focusing IRS resources on creating a big, expensive and futile preparer regulation bureaucracy.  A man has to have priorities, after all.

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Tax Roundup, 11/6/2012: Election day! And a flawed Plan B.

Tuesday, November 6th, 2012 by Joe Kristan

Brutal Assault on Reason Watch.*  Today is election day, so we’ll run one more rundown of election-related news.  We”ll start with my post from last week at IowaBiz.com, Tax stakes for entrepreneurs next Tuesday.  An excerpt:

Mitt Romney’s tax plan is built around a 20% across-the-board individual tax rate cut, to be paid for by a eliminated deductions and tax breaks. He would also repeal the 3.8% investment income tax. 

These individual rates are important to entrepreneurs because most business are now organized as “pass-throughs” — typically as S corporations or LLCs taxed as partnerships. Income of pass-through businesses is taxed on their owners’ 1040s, so the top individual rate is also the top rate on business income. The Romney approach, with its 28% top rate, takes the tax law in a very different direction than the Obama 44%+ top rate.

 Also:

Kay Bell,  Ways and Means, Senate Finance incumbents should hold tax-writing seats

Robert D. Flach commands, VOTE!

Martin A. Sullivan,  The Post-Election Fiscal Mess (Tax.com)

Joseph Thorndike,  Soda Taxes and the Case for a GOP Majority (Tax.com)

Joseph Henchman,  State and Local Ballot Initiatives to Watch (Tax Policy Blog)

TaxGrrrl,   More Reasons to Vote: Election Day Freebies and Promos

*The “Brutal Assault on Reason Watch” is my roundup of election-related tax posts.  The title comes from Arnold Kling’s description of political campaigns:

To me, political campaigns are not sacred events, to be eagerly anticipated and avidly followed. They are brutal assaults on reason. I look forward to election season about as much as a gulf coast resident looks forward to hurricane season.

So if your post is listed in the Brutal Assault on Reason Watch, it doesn’t mean your post was a brutal assault on reason (though it happens).  It means that it had something to do with election season.

 

Richard Morrison,  Chart of the Day: High Earners and Business Income

 

Don’t ask if you’re not ready to tell.  If you inquire about participating in the IRS offshore voluntary disclosure program and you let slip who you are, you’d better be prepared to follow through.  From Tax Analysts ($link):

Rebecca Sparkman, CI director (operations policy and support), said that CI checks to ensure that taxpayers who undergo a pre-clearance check for acceptance into the voluntary disclosure programs follow through with disclosure. “Those [taxpayers] are suspect, and we are looking at those who decided not to continue to come through. Will it be Criminal Investigation? I don’t know; it could be a civil audit,” she said at the annual meeting of the California Tax Bar and California Tax Policy Conference in Coronado, Calif.

The IRS is long overdue for a standing simple offshore amnesty, like many states have for business non-filers.  If a taxpayers who have not been contacted by the IRS would file, say, five years of FBARS, asset disclosures and amended returns, and owe less than some generous threshold of tax — maybe $250,000 — then offshore sins would be forgiven and they can get on with their lives.  Maybe next Commissioner.

 

Many talents, but tax compliance wasn’t one of them.  A man with multiple skills will have a restricted arena in which to use them for many years.  An Ohio attorney last week received an 85-month sentence after being convicted of tax offenses, false statements and witness tampering.  From a Department of Justice press release:

According to the indictment, which was returned on June 23, 2010, and the evidence admitted at trial, Rick Matsa, who in addition to being an attorney was also an architect, a real estate broker, and a licensed minister in Ohio, created and operated several nominee entities in order to disguise and conceal his income and assets from the IRS. The false trust return charges relate to filings for at least five separate trust entities during the tax years 2003 to 2005.   In fact, the evidence at trial showed that he had been filing similarly false returns for the trusts dating back to 1990.   Each of the trusts reported receiving significant amounts of interest income each year, yet no income tax was ever reported as due because the trust tax returns fraudulently claimed deductions for distributions purportedly paid annually to a foreign beneficiary.

At least he wasn’t an accountant.  Plans like this can work great, until the IRS notices them, and then they don’t work at all.  Plan B also went badly:

 The evidence at trial further showed that after learning of the federal grand jury investigation into his business activities in May of 2006, Rick Matsa, together with Loula Matsa and others, conspired to obstruct justice by concealing evidence from the grand jury, making false statements to the grand jury, creating false documents, tampering with witnesses and lying to federal investigators.  

Rick Matsa’s tenant, P. Maria Galloway, the owner of an art gallery located next door to Matsa’s law firm, also testified after pleading guilty to conspiracy to obstruct justice.   Galloway testified that she signed numerous documents at Rick Matsa’s direction, including federal income tax returns for Matsa’s law firm and a number of his nominee entities, which Matsa used as part of his scheme to obstruct the IRS, and that she made false statements to agents and the grand jury during the investigation.

I bet that stuff wasn’t in her lease.

The Moral?  People who think trusts have magical powers to make your taxable income go away are mistaken.  You might be able to fool the IRS for awhile, but with enough time the IRS is likely to figure it out.  When Plan B involves getting your tenant to sign false papers for you, maybe it’s time to look at a plea deal.

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Tax Roundup, 10/19/2012: How big can small be? Plus: gift tax annual limit goes to $14,000 in 2013.

Friday, October 19th, 2012 by Joe Kristan

I don’t support increasing taxes on small businesses, as long as they stay that way.  Taxes have become an issue in the race for Congress in Iowa’s 4th district.  Sioux City Journal reports:

Officials with Christie Vilsack’s congressional campaign are asking eight Iowa television stations to pull a political action group advertisement that says Vilsack supports raising taxes on small businesses.

Lawyers for Vilsack, a Democrat, have sent a letter Thursday to television station managers arguing the ad makes the unfounded accusation that Vilsack supports raising taxes on small businesses.

It apparently comes down to what the meaning of “small” is.  From Christie Vilsack’s web site:

Christie Vilsack has proposed allowing the Bush Tax Cuts to expire for those making over a million dollars a year, asking them to pay their fair share. According to the nonpartisan Tax Foundation, as of 2010, less than .1 percent of all income tax filers in the state of Iowa reported an annual income over one million dollars.

That would increase the top tax rate to 39.6% for pass-through businesses successful enough to get their owners to over $1 million in taxable income.   There are plenty of Iowans whose closely-held businesses put them over $1 million.  It’s a small portion of returns filed,  but it’s surely a large portion of Iowa form 1040 business income.  Nationwide, 36% of pass-through income is taxed on returns reporting over $1 million, according to the Tax Foundation.

 

Is a business that makes over $1 million “small?”  Obviously it’s bigger than your office Mary Kay reseller’s business, but they are small compared to publicly-traded companies.  Are you only small until you are successful?   As to whether they are paying their “fair share,” millionaires have an 11% share of national income, but pay 26% of income taxes.   Whether that’s “fair,” like whether a business that makes $1 million is “small,” is inherently a matter of opinion.

 

 Brinkmanship at the fiscal cliff.  Tax Analysts reports ($link):

President Obama will veto any bill that comes before him if it includes an extension of the 2001 and 2003 tax cuts for income exceeding $200,000 for individuals or $250,000 for joint filers, White House spokesman Jay Carney confirmed October 18.

Speaking of taxes on small businesses.

 

More inflation adjustments.  In addition to the new limits for 2013 pension contributions and the new FICA base, the IRS has issued other inflation adjustments (Rev. Proc. 2012-41) for next year.  One key number: the annual exclusion for gift taxes rises to $14,000 per donor, per donee, from $13,000.

 

Tax Prof,    2d Circuit: Denial of Estate Tax Marital Deduction to Same-Sex Couple Violates Equal Protection

Linda Beale,  Another Court Strikes Down DOMA

Robert D. Flach,  2013 INFLATION ADJUSTMENTS

 

Brutal Assault on Reason Watch: 

Obama threatens veto of any ‘fiscal cliff’ bill that doesn’t hike taxes on the rich

Patrick Temple-West,   Essential reading: Officials say Obama could veto a bill blocking ‘fiscal cliff’ without tax hike for rich, and more

TaxGrrrl,   More on Romney’s Tax Returns

Howard Gleckman,   The Real Lesson About Capping Itemized Deductions  (TaxVox)

 

Jim Maule ponders Fishing for Deductions

News you can use:  Why the 2013 Tax Season May Give Me Lots More Gray Hair  (Russ Fox)

 

You can’t make this stuff up.  Tax return numbers, that is.  From the Washington Post:

A local make-up manufacturer who sold lipstick, nail polish and blush to retailers around the world pleaded guilty to tax evasion on Thursday in federal court in Maryland.

Bae Soo “Chris” Chon, the former owner of Mirage Cosmetics in Greenbelt, engaged in a scheme to divert at least $1.8 million from overseas cosmetics sales to foreign bank accounts, according to the plea deal.

The IRS prefers to see your taxable income without the benefit of foundation or blush.

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Buying you things with your own money

Monday, May 14th, 2012 by Joe Kristan

Supporters of the “Buffett Rule” aren’t being honest about U.S. Budget problems.  No matter how much you tax the rich, the rich just don’t have the money to pay for all the spending the politicians are doing.  Here is what an honest Buffett Rule fan would say:

Every nation in the world with the kind of welfare state we want for America pays for it by taxing a large majority of its citizens far more heavily than we do. To pretend we can do otherwise is to invite our countrymen to indulge a fantasy rather than call on them to make a serious commitment. Building the welfare state we need means most Americans are going to have to pay significantly higher taxes. No one likes such taxes, of course, but the reality is that they’ll fund an array of government programs that leave all of us better off than we will be with the rudimentary welfare state we’re forced to live with if we insist on a much lower tax burden.

Warren will never say anything of the sort, but that doesn’t change the math: either we spend less or everybody gets taxed more.  The rich guy isn’t buying.

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Of course the “Buffett Rule” is futile. It’s a distraction, not a solution.

Thursday, March 22nd, 2012 by Joe Kristan

The Administration has spent so much time pushing a “Buffett Rule” to increase taxes on “millionaires and billionaires,” you’d think that it would actually close the $1 trillion+ budget deficit.  Think again.  The Congressional Joint Committee on Taxation projects that it would raise $46.7 billion — not in one year, but cumulatively over 10 years. (Via the TaxProf).

BuffetRule Chart

The talk of raising taxes on “the rich” isn’t serious.  They simply don’t have enough money to pay the bills, and the U.S. tax system is already highly progressive.  If spending doesn’t come down, only a broad-based tax increase, like a VAT, will cover the tab.  But the politicians don’t want to admit this, so they point fingers at the “1%” so we won’t notice how fast they are spending our money.

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I manufactured cheeseburgers on the grill yesterday

Monday, March 12th, 2012 by Joe Kristan

20120312-1.jpgDarned if David Cay Johnston doesn’t have this right:

But his plan to treat

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Payroll tax extension looks like a done deal

Friday, February 17th, 2012 by Joe Kristan

Congressional leaders appear to have reached agreement to extend the 2 percentage-point reduction in the employee FICA and Self-employment tax rate through December 31. It had been slated to expire at month end. The agreement had been hung up on how it would be paid for, but our leaders bravely compromised by not bothering to pay for it.
More coverage:
Anthony Nitti
Christopher Bergin

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Budgeteering

Tuesday, February 14th, 2012 by Joe Kristan

The President’s new budget is out. It’s not worth a lot of busy season time, as very little of it will be enacted (thank goodness). And really, this budget is to “budgeting” what a Ghirardelli’s catalogue is to dieting. The TaxProf has a good roundup if you want the details, but Veronique De Rugy tells you all you really need to know about the tax proposals:

Remember in the president

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‘Buffett Rule’ rates are already here

Friday, February 10th, 2012 by Joe Kristan

The Tax Policy Center, a non-partisan think tank on the center-left, has issued a wonderful little paper that cuts through much nonsense on the progressivity of federal taxes.
The Obama administration is embracing a “Buffett rule” tax, a sort of alternative alternative minimum tax of 30% on AGI over $1 million, so that everybody will pay as high a rate as Warren Buffett’s secretary allegedly does. Of course this ignores the tax that is paid on corporate income before it is distributed or realized as capital gains. The Tax Policy Center has looked at real rates on cash income when all federal taxes — payroll, corporate, income and estate taxes — are accounted for. On that basis, the “Buffett Rule” rates are already in place:

Source: Tax Policy Center. Full chart available here.
Not only are Buffett Rule rates in place, but the federal tax burden is already extremely progressivemore so than in Europe, where the tax system is much more dependent on regressive consumption taxes like value-added taxes.
Of course the demagogues will still promise more free federal cheese, paid for by the rich guy. Just remember, the rich guy has already gotten his bill; when taxes go up to pay for our incontinent government, they’ll go up for you, too.

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Two months not enough time for Congress to get smarter

Wednesday, February 8th, 2012 by Joe Kristan

Congress foolishly extended the 2011 2 percentage-point FICA tax reduction only two months into 2012 because they couldn’t figure out how to cut enough from the $2+trillion federal budget to pay for a full-year extension. They still can’t, and the payroll tax may again expire, with all the compliance headaches that would entail. Kay Bell has the scoop.

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What’s the opposite of tax reform?

Monday, February 6th, 2012 by Joe Kristan

Martin Sullivan at Tax Analysts loses hope that the Obama administration will attempt tax reform:

It wouldn’t be so bad if Obama simply remained a lackadaisical supporter of tax reform. But his proposals are actually moving us in the opposite direction. As the election approaches, he and his advisers are feeling the need to dish out new tax breaks. So the president who on national television shouted at Congress to “get rid of the loopholes” now wants to add a bunch of new loopholes of his own.

Instead of cleaning up code and lowering rates, we see a batch of focus-group inspired tax breaks:

Just as with Clinton’s parade of tax breaks, the growing list of Obama’s special benefits includes features that are absurdly complex. The president wants to double the tax deduction currently available to manufacturing in the case of “advanced manufacturing technologies.” It has been difficult enough to figure out how to differentiate manufacturing from other businesses under section 199. What in the world is “advanced manufacturing technology”? Are we talking about technologically advanced production processes or about technologically advanced products? If a product or production line includes advanced technology, is the entire product or production line eligible for the benefit, or just the components with the advanced technology features?
The questions are endless. There will certainly be major disputes between the IRS and taxpayers. We can add a nice, new chapter to the book on everything we hate about tax law.

Unfortunately the tendency to make the tax law more difficult to enact pretty-sounding tax breaks isn’t confined to Washington. While the President and the Governor of Iowa are from different parties, they both are proposing to jerry-rig new narrow breaks to an already byzantine tax law. In Iowa, ESOPs are the flavor of the month. And, of course, special tax breaks do more harm than good. From Mr. Sullivan:

Only in exceptional circumstances do violations of tax neutrality promote growth. Just because these tax breaks are well intentioned and targeted to sympathetic causes does not make them exceptional.

Iowa, with the nation’s highest corporate rate and one of its most complicated tax laws, would do much better with simplicity and lower rates — with the Quick and Dirty Iowa Tax Reform, for example.
Link to Tax Analysts content courtesy of their special arrangement with the TaxProf. Tax Notes subscribers can follow this link.
UPDATE, 2/8: Free link to Sullivan story at Tax.com.

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