Posts Tagged ‘Tax Foundation’

Tax Roundup, 7/30/14: Iowa Illustrated! And: an unhappy take on IRS offshore account enforcement.

Wednesday, July 30th, 2014 by Joe Kristan

iowa-illustrated_Page_01Iowa’s tax system in pictures.  The Tax Foundation yesterday posted “Iowa Illustrated: A Visual Guide to Taxes & the Economy.”  It is a valuable and sobering introduction into Iowa tax policy.  Anybody interested in Iowa’s tax policy mess should start here.

The Tax Foundation summary:

Here are just a few examples of the more than 30 key findings:

  • Iowa relies on federal funding for one-third of its budget
  • Iowa’s sales tax rate has tripled since its creation
  • Iowa’s business taxes rank poorly nationally, and are uncompetitive regionally
  • Iowa has had a net loss of 63,287 people over the last 20 years
  • Effective tax rates in Iowa vary widely across different industries.

By offering a broader perspective of Iowa’s taxes and illustrating some of the lesser-known aspects of Iowa’s business environment, this guide provides the necessary facts for having an honest debate about how to improve the structure of The Hawkeye State’s tax system. 

There’s too much good stuff to summarize, but I will highlight a few items.

This might explain why property tax reform is such a big deal here:

iowa-illustrated_Page_38

 

Raising individual tax rates on “the rich” means taxing employment:

iowa-illustrated_Page_39

 

Despite its highest-in-the-nation corporation tax rate, Iowa’s corporate tax is a sub-par revenue generator:

iowa-illustrated_Page_41

While agriculture is important in Iowa, financial services are a bigger industry:

iowa-illustrated_Page_13

Iowa has a diverse economy, but our tax system still parties like it’s 1983:

iowa-illustrated_Page_40

A lot of the tax receipts go out the back door to the well-connected via tax credits:

iowa-illustrated_Page_42

It’s hard to make a case for the current Iowa tax system.  Maybe the legislature will finally be ready to do something about it next session.  The Tax Update’s Quick and Dirty Iowa Tax Reform Plan would be a great place to start.

 

Now to our regular programming:

 

20130419-1Jack TownsendTime for an IRS Ass Kicking? Herein of Lack of Honor and a Dumb Decision in OVDI/P and Streamlined:

So, one could ask, why wouldn’t it be an easy decision for the IRS to let taxpayers in OVDI/P who had not yet signed a Form 906 to proceed fully under Streamlined.  Well, it appears, that the IRS wanted to keep all of the income tax, penalties and interest for closed income tax years and penalties for open years that it was not entitled to, while giving a partial benefit of the Streamlined program (the 5% penalty applied to innocents, many of whom should owe no penalty).  Basically, the IRS wanted something that it was not entitled to. 

Bad faith seems to be a part of the IRS culture in dealing with offshore issues.

 

Peter Reilly, Retailer Can Only Deduct Perks When Redeemed  “I suspect that the accrual is probably not what makes or breaks these programs.”

Jim Maule continued his “Tax Myths” series while I was away.   I like his “The Internal Revenue Code Fills 70,000 Pages” post.

 

David Brunori, Lawyers Whining About Taxes (Tax Analysts Blog):

For the record, I don’t like taxes. But if you’re going to have a government, you should pay for it the right way. Sales tax should be paid by consumers on all their purchases. Business inputs should never be subject to sales tax. Everyone who has ever studied or even thought about consumption taxes knows that. So it makes sense that legal services should be taxed. Lawyers don’t like that because, well, people might use less of their services. That would be a tragedy beyond comprehension.

Not that I’m in a hurry to charge sales taxes to my individual clients, but David is right on the policy.

 

20140730-1Howard Gleckman, Are Tax Inversions Really Unpatriotic? (TaxVox)  “Selling war material to an enemy or financing a terrorist organization is unpatriotic—and illegal. Using legal avoidance strategies to reduce taxes may be distasteful or unseemly, but it is not unpatriotic.”

Kay Bell, Defense Department workers, some with top security clearance, owed $730 million in back federal taxes.  So tell me again about corporate tax “deserters.”

 

Annette Nellen, IRS Voluntary Preparer Regulation System – Worthwhile? Legal?

TaxProf, The IRS Scandal, Day 447

 

Because Hollywood needs more taxpayer money!  29 Members of Congress Ask California to Boost Film Tax Credits (Joseph Henchman, Tax Policy Blog).  In a just world, this would automatically cost all 29 of these critters their seats.

 

Rebecca Wilkins, Stop the Bleeding from Inversions before the Corporate Tax Dies (Tax Justice Blog).  Darn, I’ll have to stroll into town for a Band-aid.

 

Share

Tax Roundup, 10/10/13: Climate change edition. And great moments in web design!

Thursday, October 10th, 2013 by Joe Kristan

Iowa has moved out of the bottom 10 in the Tax Foundation’s State Business Tax Climate Index for 2014.  That’s the good news.  The bad news is that it’s not the result of Iowa’s tax climate improving, but because Connecticut’s got worse.

 

2014 State Business Tax Climate Index

Iowa’s 49th-place rating for Corporation taxes accounts for much of Iowa’s poor showing.  Iowa has the highest stated corporate tax rate, at 12%.  It has a state corporation alternative minimum tax and is full of complexity — yet is so full of loopholes and carve-outs that it generated only around $425 million of Iowa’s $7.8 billion in 2012 tax revenues.  By comparison, Iowa’s (also complex and loophole-ridden) individual income tax generated over $3 billion of that revenue.

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Iowa’s Association of Business and Industry has made improving Iowa’s business tax climate its legislative priority for the upcoming session.  Here’s what I think we need:

- Repeal of the futile Iowa corporation income tax.

- Repeal of every last economic development credit, including the refundable research credit and especially including enterprise zone and similar credits.  No company is so important that it should be receiving cash subsidies in excess of taxes paid to Iowa.

-  Drastic simplification of the Iowa individual tax, including repeal the deduction for federal taxes and of as many special breaks and credits as possible, in exchange for rates of 4% or lower.

In other words, the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.  We can do a lot worse — in fact, we do now.

Related:

Russ FoxThe 2014 State Business Tax Climate Index: Bring Me the Usual Suspects.  “And for those who think that taxes don’t matter, I’m in Nevada as a result of taxes and California’s miserable business climate.”

TaxGrrrl, Go West, Young Man: Best States For Businesses Are In The West

Joseph Hechman and Scott Drenkard, A Response to Matt Yglesias on the 2014 State Business Tax Climate Index (Tax Policy Blog):

There is however a brief blog post by Slate’s Matt Yglesias that went up this morning, which is along the lines of (1) there’s businesses in California and New York, (2) Tax Foundation criticizes California and New York for their tax policy, so therefore (3) taxes don’t affect business and individual location decisions. Center for Budget and Policy Priorities’ affiliates have already started spreading around Yglesias’s post on Twitter, and we imagine it will show up in other places.

The answer to this is easy. Those high-tax states also have other non-tax qualities—and often legacy investments and industries—that overcome the obstacle of a broken mess of a tax system for many businesses and individuals.

Taxes aren’t everything, but they’re definitely something.

 

 

The Tax Foundation has helped draft a new tax reform proposal for Nebraska. Some thoughts from David Brunori in A Solid, Albeit Mild, Tax Reform Proposal:

The primary plan is relatively straightforward. It is revenue neutral, reduces personal and corporate income tax rates, reduces incentives, expands the sales tax to more services, and simplifies administration. Moreover, belying the assertion that conservatives hate poor people, it doubles the earned income tax credit, greatly increases the personal exemption, and indexes the tax rates. In other words, the plan is consistent with virtually every notion of sound tax policy. It would make the Nebraska tax system fairer, simpler, and more conducive to retaining people and firms.

I think increases in the earned income credit are unwise because their high hidden marginal rates as taxpayers improve their incomes serve to punish emergence from poverty.  Still, the plan would be a big improvement for Nebraska — and for Iowa, for that matter.

 


Tony Nitti, Custom Homebuilders Are Subject To Section 263A And A Primer On The UNICAP Rules.  “Today is the day we discuss Section 263A, among the more dry topics in the driest area of law known to man”  I covered the case Tony writes about here.

Jason Dinesen, Basics of the Iowa Pension Exclusion

Kay Bell, Avoid common mistakes on your extended Oct. 15 tax filing

Paul Neiffer, Watch our for FBAR.  As Paul points out, you don’t have to be even trying to hide anything from the IRS to get clobbered.

 

 

Wikipedia image courtesy Tallent Show under Creative Commons license

Wikipedia image courtesy Tallent Show under Creative Commons license

Jack Townsend, IRS Information on Operations During Government Shutdown 

William Perez, IRS Shut Down, Week 2


Peter Reilly,  Blame It On the Lawyers – Creating Basis Out Of Thin Air Not The Taxpayer’s Fault   

 

TaxProf, The IRS Scandal, Day 154

Howard Gleckman,  It is Never Good When the U.S. Treasury Gets Compared to Brazil (TaxVox)

Tax Justice Blog, Stop the Presses: Apple Has Not Been Cleared on Tax Avoidance Charges.  So they should seek out new taxes to pay?

Keith Fogg, Vince Fumo: Local Political Corruption Meets Tax Procedure (Procedurally Taxing)

 

Going Concern, The Definitive Guide to Accounting as a Second Career.  Maybe I should consider that.

 

Janet Novack, Dumbest Identity Thief Ever? “He contacts police looking for wallet he lost stuffed with debit cards issued in 13 stolen names.”  Yes, he may be dumb, but what does it say about the IRS that he and other dummies are stealing $5 billion of our money through identity theft fraud annually?

Great moments in web design.  From Instapundit: “HEALTHCARE.GOV NOT ONLY THE WORLD’S WORST WEBSITE, it’s also the world’s most expensive, with a price tag of $634,320,919.”  The Tax Update website cost approximately 1/400,000 of that, and we may have enrolled as many folks in Obamacare as Healthcare.gov has so far.

 

Share

Bloggers on Brief against preparer regulation

Tuesday, May 28th, 2013 by Joe Kristan
Flickr image courtesy Tim under Creative Commons license

Flickr image courtesy Tim under Creative Commons license

I have joined an “amicus” brief to the D.C. Circuit Court of Appeals on the Loving case against the IRS preparer regulation regime.  Also on the brief are boggers Russ Fox and Jason Dinesen, as well as The Tax Foundation.

The IRS is appealing the district court ruling rejecting their power grab over preparers.  Accounting Today reports:

The brief argues that the IRS violated the APA’s arbitrary and capricious standard in issuing the regulations, for example, by engaging in a flawed cost/benefit analysis under Executive Order 12866 in rejecting alternative approaches. “The IRS ignored the increased costs to consumers of tax-return preparation services in making this analysis,” said the brief.

Jason’s argument:

As an Enrolled Agent, Mr. Dinesen is not directly affected by the regulations. Nevertheless, Mr. Dinesen believes the regulations would have an indirect adverse effect on his business (and on Enrolled Agents generally) because the Registered Tax Return Preparer designation created by the regulations would have the effect of diminishing the value of the Enrolled Agent designation in the market for tax-preparation services, largely because the number of Registered Tax Return Preparers would be substantially greater than the number of Enrolled Agents.

Next to consumers, I think enrolled agents are the folks most harmed by the regulations.  The RTRP designation would make it very difficult for EAs to market their much higher level of credentials.

Russ Fox is also an enrolled agent,  but he raises different points:

As an Enrolled Agent, Mr. Fox is not directly affected by the regulations. Nevertheless, based on his extensive experience in tax practice, he has a number of objections to the regulations. In addition to the defects in the regulations described by the district court, the plaintiffs-appellees, and this brief, Mr. Fox objects to the regulations because the IRS already has ample statutorily authorized tools to apply against incompetent or unscrupulous tax-return preparers; because the regulations will not be effective in eliminating incompetent or unscrupulous tax-return preparers; because they will give a tacit stamp of approval to preparers who are not competent; because they will have the effect of driving many low-volume tax-return preparers out of business, thereby increasing the cost of tax-return preparation services for the clients of those preparers; and because administering the regulations will require scarce IRS resources that could be better used for other purposes, such as combatting identity theft.

He is correct, in my view.

My case:

 Mr. Kristan objects to the regulations because they will reduce options  for consumers of tax-preparation services by driving many low-volume but competent and conscientious tax-return preparers out of business because of the cost of compliance with the regulations; will increase the compliance cost and burden on low-volume tax-return preparers that remain in business; will increase the cost of tax preparation services without increasing the value of those services; will prompt some low-income individuals to resort to tax-return preparers who will evade compliance with the regulations; will prompt some low-income individuals to prepare their own returns, rather than using paid preparers, resulting in less accurate returns; will prompt some low-income individuals to cease filing altogether; will adversely affect Enrolled Agents by diminishing the value of their Enrolled Agent designation; and will likely ultimately be extended to CPAs, attorneys, and Enrolled Agents.

After the revelations regarding the IRS treatment of the administration’s political opponents, why would anyone think it wise to let the IRS regulate preparers?  It makes as much sense as having prosecutors regulate defense attorneys.

Share

Tax Roundup, April 3, 2013: Six days to Iowa Tax Freedom Day.

Wednesday, April 3rd, 2013 by Joe Kristan

Tax Freedom Day for Iowans will arrive April 9, according to the Tax Foundation.  That’s nine days sooner than for the whole country.  From the Tax Policy Blog:

Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. A vivid, calendar-based illustration of the cost of government, Tax Freedom Day divides all federal, state, and local taxes by the nation’s income.

 In 2013, Americans will pay $2.76 trillion in federal taxes and $1.45 trillion in state taxes, for a total tax bill of $4.22 trillion, or 29.4 percent of income. April 18 is 108 days, or 29.4 percent, into the year. Americans will spend more in taxes in 2013 than they will on food,  housing, and clothing combined.

You can find Tax Freedom Day for your state from this Tax Foundation Map:

 20130403-1

The national Tax Freedom Day is five days later than last year:

Tax Freedom Day is five days later than last year, due mainly to the fiscal cliff deal that raised federal taxes on individual income and payroll. Additionally, the Affordable Care Act’s investment tax and excise tax went into effect.

But cheer up!  If taxes were high enough to pay for all government spending without borrowing, it wouldn’t be until May 9.

 

TaxProf, ESPN: Athletes’ Charities Fall Short of IRS, Nonprofit Standards.  Chis Zorich might agree.  Actually, the arguments against athletes setting up their own charitable foundations are the same as those for anybody else.  They take more work and expertise to run than most people realize.  Compliance with federal tax laws and state laws can be costly.  It’s easy to get into trouble with them, like Mr. Zorich did.  It’s much wiser for athletes with a charitable interest to work with an established charity that knows what it’s doing.

 

So you owe the IRS on your 2012 return and cash is tight. What now?My new post at IowaBiz.com, The Des Moines Business Record blog for entrepreneurs.

Jason Dinesen,  Taxpayer Identity Theft — Part 14 .  The latest adventures in trying to get the IRS to pay the refund of his client, an identity theft victim, for 2010.  She may have it in “another 6-8 weeks.”  We’ll see.

 

Kaye Thomas,  Last Call for Refundable AMT Credit.  Congress didn’t extend the refundability of long-term alternative minimum tax credits, making the exercise of incentive stock options once again potetially ruinous.

TaxGrrrl,  Taxes From A To Z (2013): R Is For Recapture

 

Kay Bell, What do you plan to do with your tax refund?

Jack Townsend,  FBAR Penalty Collection — Beyond the Collection Suit, Administrative Offsets Loom Large and Long

Tax Trials:  4th Circuit: District Court Abused Discretion by Allowing Evidence of CPA’s Personal Tax Situation in Tax Shelter Promoter Case

Peter Reilly:  Lawyers Unite To Keep Dark Money Dark

Howard Gleckman,  The Economics of Corporate Rate Cuts are More Complicated than Politicians Think

 

Joseph Thorndike: Hate Filing Your Tax Return? Good.  (Tax.com).  Good for those of us who charge money to prepare returns, anyway.

 

Russ Fox,  Bozo Tax Tip #8: 300 Million Witnesses Can’t Be Right:

For a tax blogger, people like Richard Hatch are wonderful. Hatch, for those who don’t remember, was the winner of the first Survivor and won $1 million. About 300 million individuals worldwide saw Hatch take down the $1 million.

Hatch received a Form 1099-MISC for his winnings. In the United States, winnings from contests are taxable. Hatch claims that CBS and/or the producers of Survivor promised him that they would pay his taxes. (Both CBS and the producers of Survivor deny this charge.)

Of course Mr. Hatch failed to pay the taxes on income he earned in front of millions, serving a prison sentence as a result.  Sometimes watching somebody else get into real trouble can be instructive.

Share

Tax Roundup, 1/31/2013: Happy IRA mulligan day! And on brief, the Tax Update!

Thursday, January 31st, 2013 by Joe Kristan

20111109-1Today is the last day to make a charitable IRA rollover for 2012.  Yes, 2012 is over, but taxpayers who are required to make IRA minimum annual distributions may still have one 2012 transaction left in them.

Taxpayers who are born before July 1, 1942 who took cash from an IRA in December 2012 can contribute up to $100,000 to a charity today and have it excluded from their 2012 income.

- Taxpayers who have failed to take their required minimum 2012 distribution can avoid the 50% penalty for failing to take their distribution by arranging for the IRA to transfer the minimum amount, up to $100,000, to a charity today.

These opportunities are part of the retroactive extension of the rule allowing up to $100,000 to be transferred from an IRA directly to a charity without including the amount in the IRA owner’s income.  This avoids the 50% of AGI charitable contribution limit.  It also avoids other potentially unpleasant consequences of having the IRA income above-the-line, like making your Social Security taxable.

 

On brief, the Tax Update Blog.  The Institute for Justice, the victorious legal team behind the shutdown of the preparer regulation program, has filed a brief opposing a stay in the injunction against the program.  Making their case airtight, they cite the Tax Update, along with tax bloggers Kelly Phillips Erb (TaxGrrrl), Robert D. Flach  and Jason Dinesen.  From Footnote 18 of the brief:

For an example of the disruption routinely caused by the IRS’s misadministration of the RTRP regulations, see Alban Decl., Ex. 3 (the comments from preparers are illustrative and reference previous examples of similar disruptions); see also Joe Kristan, IRS quietly delays CPE requirement under new preparer regulation scheme , Tax Update Blog (January 8, 2013), http://rothcpa.com/2013/01/irs-quietly-delays-cpe-requirement-under-new-preparer-regulationscheme/ (describing IRS message as “a quiet admission of failure”).

With the Tax Update Blog on their side, who can be against them?

 

What does a poor college student have that could be lucrative to a thief? A Social Security number.  From the Memphis Business Journal:

With tax season bearing down, the IRS has a warning about a new refund scam aimed at college students, seniors and church members.

The Internal Revenue Service said Tuesday the scam tries to get students to give their personal identification and file tax returns claiming fraudulent refunds. It has sent misleading and bogus refund claims using the American Opportunity Education Tax Credit on college campuses throughout the Southeast.

Be very cautious about giving anybody but your employer, your bank, a medical provider or the IRS your Social Security number.  And never give it to a scammer.

 

David Brunori, Stifling Lefty — Political Correctness in the Tax Debates (Tax.com):

So the pro tax people managed to shut Mickelson up. Rather than engaging  in a discussion about why it is okay to take his money, they stifled him.

Shut up, they explained.

 

Paul Neiffer points out that now that penalties are waived for farmers who file after March 1, they may not want to file by their usual deadline:  File Your Return After March 1 Not Before!

 

Have you mailed your 1099s and W-2s?  Today is the deadline for sending them to recipients.  Russ Fox has the scoop.

TaxGrrrl, Ask the taxgirl: Tax ID Numbers and 1099s

Kay Bell,  Tax e-filing and Free File is now available for most taxpayers

Trish McIntire,  Freebies.  Don’t ask for them.

Chris Sanchirico,  Camp’s Investment Tax Plan: Implications for Lower Rates on Capital Gains? (TaxVox)

Tax Foundation, New Report: Cell Phone Taxes Exceed 20% in Several States

Margaret Van Houten and Jodie Clark McDougal,  Iowa Trust Industry Breathes a Sigh of Relief after the Supreme Court’s Reversal in Trimble

Cara Griffith, Kentucky DOR’s Disregard of Transparency (Tax.com)

Jack Townsend,  Another UBS Depositor Pleads

Patrick Temple-West,  India sees end to Vodafone tax dispute, and more

 

News you can use. IRS: No One Is Too Old, Too Poor Or Too Sympathetic To Avoid Prosecution  (Brian Mahany)

How to catch a dinosaur.  Not Income Tax Evasion – Structuring – That’s How They Got Kent Hovind (Peter Reilly)

Robert D. Flach goes into blog hibernation for the remainder of tax season:  SO LONG, FAREWELL, AUF WIEDERSEHEN, GOOD NIGHT!

These are a few of my favorite things…  Guns and Tax Returns. (Christopher Bergin, Tax.com).

 

Today’s morale builder: Les Misérables-Inspired Video Reminds You That Busy Season Kills Your Dreams (Going Concern)

 

Share

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)

 

Share

Tax Roundup, 10/24/2012: Despite the Yankees, New York is #1!

Wednesday, October 24th, 2012 by Joe Kristan

A deserved number 1 rating for New York.  The Yankees may have left the postseason meekly, but their state still gets a richly deserved number 1 rating:  State and Local Tax Burdens Highest in New York (Tax Foundation):

 

It certainly is a better measure of New York’s tax system (bad) than the strange rating we reported on yesterday, ranking New York as the best system in terms of “Progressivity, adequacy and efficiency.”

Related: Russ Fox,  Tax Foundation Releases State & Local Tax Burdens

 

Jason Dinesen has an excellent analysis of how “targeted” tax breaks fail:  Small Business Health Insurance Credit — Nice in Theory But Not in Execution: 

There are many, many problems with this credit. One,  it’s quite possible that a business might be better off NOT taking the credit and instead just taking a deduction for the premiums paid. In other words, some businesses might owe more tax by claiming the credit! (I have run the numbers on this, and it’s true.)

In addition, the credit has unfriendly phaseouts: as soon as your employee count gets above 10 or average wages tick above $25,000, the credit starts to phase out. Plus, the calculation of full-time employees, and the calculation of the credit in general, is cumbersome.

With these things in mind, it’s no wonder that most businesses aren’t taking the credit.

The tax law is a big clumsy hammer.  When you try to use it as a scalpel, nothing good happens.

 

A parting gift to preparers from Doug Shulman:  IRS Sells Confidential Information of 850,000 Tax Preparers for $35 (TaxProf)

Jim Maule thinks its fine for the government to track your auto use: Defending the Mileage-Based Road Fee.  He trusts the government much more than it deserves.

Robert D. Flach posts his Wednesday Buzz roundup of tax posts.

 

Brutal Assault on Reason Watch: 

Kay Bell,  Tax talk sneaks into foreign policy debate

Patrick Temple-West,  Essential reading: Checking tax facts from the presidential debate, and more (Tax Break)

Howard Gleckman,  The Ten Biggest Differences between the Romney and Obama Tax Plans (TaxVox)

Philistines.  NY’s Highest Court Rules 4-3: Lap Dances Are Not ‘Art’ and Thus Not Exempt From Sales Tax  (TaxProf).  More from Peter Reilly and Anthony Nitti. Lest you think this is of interest only to the boy bloggers, Adrienne Gonzalez posts Majority of New York Court Rules Lap Dances Taxable; Questions the Artistic Integrity of Strippers Everywhere.

Share

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.

Share

Tax Roundup, 10/10/2012: Happy Spiro Day! Also: Iowa’s business tax climate still frosty.

Wednesday, October 10th, 2012 by Joe Kristan

The Tax Foundation released its 2013 State Business Tax Climate Index.  Iowa dropped one place, to 42nd, switching places with Maryland in the bottom 10.  Iowa’s poor score has much to do with its terrible 49th-place ranking for corporation income tax.

Iowa scores badly on its corporation tax on a number of fronts:

– We have the highest stated corporation tax rate, and the second-highest effective rate taking the deduction allowed for half of the federal corporation income tax.

– Iowa has its own state corporation alternative minimum tax.

– Iowa no longer allows a corporation net operating loss carryback, distorting the tax on cyclical businesses.

– Iowa’s tax code is distorted by “incentive” tax credits that tend to favor pet industries and the well-lobbied.

Here’s what the full Tax Foundation report says about incentive tax credits (my links and emphasis):

Many states provide tax credits which lower the effective tax rates for certain industries and/or investments, often for large firms from out of state that are considering a move. Policymakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a bad business tax climate. Economic development and job creation tax credits complicate the tax system, narrow the tax base, drive up tax rates for companies that do not qualify, distort the free market, and often fail to achieve economic growth.

Recently Iowa City policy analyst Peter Fisher wrote an op-ed piece saying that Iowa’s corporation buisness climate is just great, largely on the basis that it doesn’t collect much tax.  A big part of the reason it doesn’t collect much is the special breaks granted to favored businesses by smokestack-chasing politicians.  The Tax Foundation notes that these “economic development incentives” don’t work, citing the work of none other than Peter Fisher. 

The Tax Update’s Quick and Dirty Iowa Tax Reform Plan has a better approach to state business tax policy.  Key points:

- Abolish the state corporation income tax.

- Abolish all economic development tax credits and special deductions.  You name the special break, I’m against it.

- Lower the personal income tax rate to 4% or less with the money saved by eliminating complicated deductions, tax credits and subsidies.

Iowa’s political leaders —  both parties — trip over themselves throwing tax credits and special breaks around.   But does anybody think that “no corporate tax” wouldn’t be a better way to attract and grow industry than “we have dozens of special tax breaks if you know the right people”?

Related:

Tax Roundup, 9/27/2012: Misdirected charity edition.  Also: No, Iowa, you don’t have a good tax climate.

TaxProf,  2013 Business Tax Climate: Chilliest in Blue States

Russ Fox,  Why I’m Happy to be in Nevada and Not in California

Roberton Williams,  Marginal Tax Rates Matter More than Average Tax Rates (TaxVox).  This is relevant to Peter Fisher’s argument that Iowa’s highest-in-the-nation corporation taxa rate doesn’t matter because Iowa’s loopholes let so much revenue slip through.  It’s the rate on the next dollar of income that affects decisions.

 

Thirty-nine years ago today, Spiro Agnew resigned the vice-presidency to pursue other interests, but mostly to plead guilty to tax evasion.   The Washington Examiner reports:

He was accused of receiving kickbacks from contractors while he was governor of Maryland. He claimed the charges were “damned lies” and eventually pleaded in federal court in Baltimore to no contest to not paying taxes on $29,500.

As part of his plea deal, Agnew agreed to resign from office. He was sentenced to three years’ probation and fined $10,000. He was disbarred.

Coincidentally (I think), the debate between the two major party Vice-Presidential nominees is tonight.

In other crime news:

Judge rejects Wasendorf’s bid for jail release (KTTC.com).  The confessed embezzler couldn’t convince the judge that a prison term that will keep him behind bars past his 100th birthday might be a reason he might flee.

It’s not just Harleys:  Sturgis surgeon convicted of income tax fraud, faces prison, reports the Mitchell Republic:

A federal jury has convicted a Rapid City surgeon on 13 felony charges related to income tax evasion. 

Edward Picardi, of Sturgis, was accused of sending millions of dollars of income out of the country and filtering the money through offshore accounts to avoid paying taxes on it. His trial lasted three weeks.

Sturgis would seem like a funny place to look for the Tax Fairy.

 

 

Regarding yesterday’s news about the West Des Moines payroll firm that apparently has not been remitting client payroll taxes timely:   Victims in Alleged $3.8 Million Payroll Fraud by West Des Moines Company Coming Forward.  West Des Moines Patch reports that the payroll firm founder:

…is the subject of a first-degree theft and fraud investigation, according to a report on file at the West Des Moines Police Department.

In that report, Des Moines contractor Priority Excavating claimed losses of $850,000 the company paid InFocus Partners’ subsidiary, ILC Staffing Inc., to administer its payroll.

Owner Tobias “Toby” Torstenson told police Detective Tom Boyd that he was contacted by the IRS and informed his company has not paid federal taxes since 2009.

Torstenson paid the money to InFocus, who was supposed to forward it to the IRS but never did, the police report said.

The IRS will still want the taxes from clients that have forwarded them to the payroll provider.  If you outsource your payroll compliance, sign up for EFTPS so you can verify  online that your payroll provider is remitting your payments.

 

Kay Bell,  Mortgage interest, charitable donation deductions are safe, says Romney

Dan Meyer,  Presidential Debates and Changing Accountants

TaxGrrrl,  9 Tax-Related Myths About Selling Your Home

Jack Townsend,  Render Unto Caesar — Another Intersection of Alleged Religion and Tax

Margaret Van Houten, ACTEC Wealth Advisor: A New App For Your iPad (Davis Brown Tax Law Blog)

Jason Dinesen,  Would a Name Change Help Enrolled Agents? Part 2

Robert D. Flach comes through with his Wednesday Buzz.

The Critical Question:  Will Farmers Have More “Repairs” This Year? (Paul Neiffer)

News you can use:  The IRS Is Not Obligated to Pursue Your Whistleblower Claim  (Anthony Nitti)

 

 

Share

Tax Roundup, 9/25/12: Pretty pictures of ugly truths. Plus: the most unlikely undecided ever.

Tuesday, September 25th, 2012 by Joe Kristan

The Tax Foundation has put together a wonderful “chartbook” of statistics on federal taxes.  Just flipping through the slideshow would increase the average congresscritter’s tax IQ by 100 points, to about 110.  It’s all great stuff, but I have favorites.  The charts and captions are by the Tax Foundation.

Chart 28. It is often said that raising top tax rates will have little effect on business activity because only 2% of taxpayers with business income will be impacted. However, the more economically meaningful statistic is how much overall business income will be taxed at the highest rates. In 2010, the vast majority (72%) of pass-through business income was reported by taxpayers earning more than $200,000. Millionaire tax returns earned 36% of all private business income while taxpayers with incomes below $100,000 earned just 12%.

Lesson: increasing the tax on “the rich” means increasing business taxes, reducing the ability of businesses to hire and grow.

And my favorite:

Chart 29. The federal deficit has grown so large that tax increases only on America’s millionaires will not be our silver bullet. Even if the government took all of the income earned by those who have an after-tax income of $1 million or more, the amount of revenue generated would fall far short of eliminating the deficit. The expected federal deficit for 2012 is about $1.2 trillion. The latest IRS data indicates that the total after-tax income for all millionaires is roughly $709 billion. If every penny of that after-tax income were taken by the government through a 100% tax rate, and we assume that no spending cuts are made to accompany the tax increase, this would account for only about 60% of the amount needed to erase the deficit. With numbers like this, one thing is clear: soaking the wealthy with increasingly higher tax rates simply cannot be the only answer to our nation’s fiscal problems.

Lesson: the rich guy isn’t buying.  Unless spending is reduced, the inevitable tax increase will fall on everyone, because the rich simply can’t cover the bill.  Politicians who pretend that our fiscal woes will be solved by taxing “the rich” just hope you are easily fooled.

 

Lawmaker questions incentives for Iowa fertilizer plant (Quad City Times).  Joe Bolkom (D, Iowa City), chairman of the Iowa Senate Ways and Means Committee, is not pleased with the incentive package for the Orascom fertilizer plant:

“We’d like to suggest that there was no reason to waste $250 million to convince this giant international corporation to essentially do what it was going to do any way. This is probably the worst economic development deal in the state’s history,” Bolkcom said. “We should have used this money to cut commercial property taxes for every Iowa business instead of giving this multi-national corporation this $250 million that we did not need to.”

I would suggest buying the Mercedes and Land Rover for the film producer might have been worse, dollar for dollar, but it’s debatable.   Naturally the Governor, who got the deal done, disagrees:

Branstad spokesman Tim Albrecht rebutted Bolkcom’s claims, saying the state needed to provide up to $110 million in tax credits to sway the company to bring the 165 permanent jobs, along with hundreds of construction jobs and other financial benefits — such as lower-cost fertilizer — to Iowa rather than seeing the project end up in Illinois.

I’m pretty sure the fertilizer will cost the same in Illinois.

 

TaxProf Paul Caron reports that Accounting Today has issued its list of the 100 Most Influential People in Tax and Accounting.  Once again I missed the cut, while the TaxProf, Max Baucus, Chuck Grassley and Doug Shulman all made the list.  I’m sure I remain one of the 100 most influential tax bloggers in Polk County.

 

Russ Fox,  Las Vegas Attorney Accused of Tax Evasion and Structuring:

Mr. Goldberg is accused of keeping two bank accounts.  There’s nothing wrong with that. However, he’s being accused of only including the deposits from one of the two accounts on his tax returns.   Adding to his troubles is that he’s being accused of “structuring” bank deposits.  Structuring is adjusting your bank deposits of cash deliberately so as to avoid currency transaction reports (CTR).  If you make a deposit of $10,000 or more of cash, the bank will file a CTR.  Mr. Goldberg is being accused of structuring bank deposits 147 times.

Bank employees are trained to spot “structuring” and are required to report it.  If you do it 147 times, the chances of not getting spotted become vanishingly small.

 

Janet Novack,  Judge Shoots Down Another Forbes 400 Member’s Tax Shelter

William McBride,  Is it True that “Just About Everyone” Eventually Pays Income Tax? (Tax Policy Blog)

Peter Reilly,  Dependency Exemptions – Divorce Court Orders Not Binding On Tax Court

Jason Dinesen, Should a Small Tax Firm (Or Any Small Business) Pretend to Be Bigger than They Are?

Anthony Nitti,  IRS Rules That State Law Doesn’t Dictate Whether Two Properties Are Like Kind

Kay Bell,  Payroll tax cut on its last legs

William Perez,  Year-End Tax Planning for College Expenses

Shock!  Robert D. Flach is undecided!  MY DILEMMA

Critical questions for $200, Alex.  Great unintentional juxtaposition at Tax.com this morning:

That is indeed a critical question.  If “they” are Congress and the answer is “no,” be very afraid, because this is what they do sober.

 

Share

Tax Roundup, 8/16/2012: Kansas bleeds again. Also: super-PACs and lottery punks.

Thursday, August 16th, 2012 by Joe Kristan

Kansas, since 1861.  In a decision that will prevent a new era of border ruffians, a Federal Appeals Court has ruled that Kansas is indeed part of the United States, and Kansas citizenship doesn’t get you out of paying income tax.

From the opinion:

Mr. Richmond does not challenge the mathematical computations underlying the notice of deficiency and the Tax Court’s decision.

     Instead, he contends that he is “a citizen of Kansas that earned a living through activities occurring solely under the jurisdiction of Kansas” and that he has not received “income,” as that term is defined for tax purposes, because he has not “engag[ed] in optional, or privileged activities that fall under Federal jurisdiction and result in a meaningful gain.”

Surprise, that doesn’t work.  IRS wins.

Cite: Richmond, CA-10, No. 12-9000.

 

In other Kansas News,  Federal Court in Kansas City, Kansas, Shuts Down 
Tax-return Preparer (Department of Justice Press Release).  The manager of an Instant Tax Service franchise was permanently barred from the tax prep business.  From the press release:

The government complaint  in the Kansas case alleges that Goitom managed an Instant Tax Service store in Kansas City, Kan., where he prepared false and fraudulent income tax returns for others. The United States accused Goitom of forging forms W-2, filing returns improperly based on paycheck stubs rather than W-2 wage statements, fabricating income for phony businesses to obtain larger tax credits, claiming false education tax credits and filing tax returns without customer authorization. The complaint also alleges that Goitom sold false and deceptive loan products to Instant Tax Service customers.

It’s a safe bet that his clients have heard from the IRS about their great refunds.

 

TaxProf, CRS: 501(c)(4)s and the Gift Tax. Paul Caron passes on a Congressional Research Service analysis of whether donations to political advocacy groups are subject to gift tax.  CRS says “the stronger argument” is that they are taxable, but the IRS has historically not attempted to tax such donations.  The report does address the argument I find persuasive, but pooh-poohs it (my emphasis):

…some have argued that while contributions to 501(c)(4) groups may be generally subject to the gift tax, those contributions made for advocacy-related purposes (e.g., issue advocacy, campaign activity, or lobbying) are exempt. Part of this argument is statutorily based, with the assertion that these types of donations may not be taxable gifts under at least three theories: (1) the donor may receive full and adequate consideration in the form of the organization’s advocacy on his or her behalf; (2) some are made within the ordinary course of business; and (3) advocacy related contributions were not the type of transfer that Congress intended the gift tax to cover. There is case law, albeit minimal, to support some of these conclusions; however, the holdings in these cases are not without controversy, and it is not clear the extent to which other courts would agree with their analysis.

The gift tax exists as a backstop for the estate tax.  It keeps people from getting their estates to the next generation tax-free by not waiting to die before passing it on.  Gifts to super-PACs don’t accomplish this.  Also, such gifts aren’t the “disinterested generosity” of a true gift; the giver gives the money to get the 501(c)(4) to advance the donor’s political point of view.

 

Jason Dinesen has the newest installment of his report on the nightmare his client faced when her recently-deceased husband’s identity was stolen:

So how did Brian’s identity get stolen? My guess is that someone looked on the “Death Master File.”

This is a file published by the government that gives all the information an identity thief could want. Basically, whenever someone dies, their name goes in this file, along with their date of birth, date of death and Social Security Number.

The continuing publication of the social security numbers of the newly-dead is a continuing scandal; it’s mind-boggling that the government hasn’t stopped making it so easy for identity thieves.

 

Janet Novack asks,  How Much Tax Would You Owe On A $320 Million Powerball Jackpot?  Well, Do you feel lucky, lottery punk? (Kay Bell)

Wisconsin trucker skids into “self-rental” ruleMy new post at IowaBiz.com, the Des Moines Business Record’s blog for entrepreneurs.

Tax Foundation, A Global Perspective on Territorial Taxation: (Via the TaxProf)

TaxGrrrl, What Romney and I Have in Common With More Than 10 Million Taxpayers.  He extends his return, like I do.  TaxGrrrl explains why extensions are often the right tax move.

Peter Reilly, American Working Abroad Gets Nasty State Income Tax Surprise

Anthony Nitti, Plaxico Burress Shoots Self in Foot (Not Literally This Time), Fails to Pay Taxes

Why blogging is better than buying ads:  Here’s 10 Embarrassing and Irrelevant Examples of Accounting Firm Advertising (Going Concern)

Share

Tax Roundup, 6/27/2012: IRS secret shoppers and illegal hillbilly handfishing!

Wednesday, June 27th, 2012 by Joe Kristan

Another reason to file honest tax returns:Trying To Sell Bar To Undercover IRS Agents Gets Owner Free Federal Housing,” reports Peter Reilly.  A Chicagoan got ready to sell his bar, but he had to explain a little discrepancy between how profitable he told potential buyers that the business was, and what he told the IRS:  

 A couple showed significant interest in the place and met with him three times.  Mr. Psihos’s tax saving plan was elegant in its simplicity.  He simply did not report his entire gross income.  Besides not being a legitimate strategy, the plan has another flaw.  If you decide to sell the business, it will not appear to be worth nearly as much as it really is.  Mr. Psihos addressed that contingency by keeping extremely detailed records of his actual cash receipts.  He told the couple that he had the records that showed what he was “actually getting”.

Unfortunately for Mr. Psihos, the “couple” were really IRS agents.  As you might imagine, things went downhill quickly for Mr. Psihos, and now the Seventh Circuit Court of Appeals has upheld his two-year prison sentence.  Related: I lie to the IRS, but of course I’m telling you the truth!

75 years of pushing that rock uphill.  The Tax Foundation is celebrating its 75th anniversary of pushing for simple tax systems with low rates and without special interest breaks.  Much has been accomplished, but much work remains:

The tax structure of the 1950s was complex and over-burdensome, with a top marginal rate of 91 percent. 

Thankfully we have managed to move away from such a high marginal rate, yet many of the other issues mentioned persist, and in many ways our contemporary tax code is even more inefficient and stifling than it was in the late 1950s. Our concern over the growing “distorting effects” of taxation was well-founded; today, federal, state and local governments implement a host of taxes that exist primarily to alter individual and family behavior, often to the detriment of taxpayers.

Use the tax law to collect revenue, and forget using it to accomplish your wildest dreams.  Measuring income is hard enough to do by itself.

Look, Mom, no hands!  Iowa DNR cracks down on hillbilly handfishers.

 Anthony Nitti: If You Want To Argue A Home is Your Primary Residence, Perhaps You Shouldn’t Claim a Home Office Deduction on A Different Residence

Margaret Van Houten: Farmer’s Markets May Not Be Tax Exempt Organizations.  Banding together to sell things isn’t considered a charitable activity.  (Davis Law Firm Tax Blog)

Ways & Means members demand data on failed, costly debit card tax refund test  (Kay Bell)

It’s Wednesday, so it’s a Buzz Day for Robert D. Flach!

Kaye A. Thomas: Estate Exclusion Portability Regs Confirm Critical Deadline 

That casino buffet isn’t really free, high rollers: Nevada Tax Commission Votes to Approve Regulations to Tax Complementary Meals (TaxTV.com)

Tax policy nerds having too much fun: Bowles-Simpson Budget Reform and Ecstatic Memory (Howard Gleckman, TaxVox)

Share

Smokes and Beer

Tuesday, March 20th, 2012 by Joe Kristan

The Tax Policy Blog has been focused on simple pleasures lately.  This week they have a map of state cigarette taxes nationwide.

http://taxfoundation.org/UserFiles/Image/maps/cigtaxlarge.png

Tax Foundation map of State cigarette taxes. Click image for larger map.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Two weeks ago it was beer:

 

http://taxfoundation.org/UserFiles/Image/maps/beermap_large_r1.png

Tax Foundation map of State beer taxes. Click to enlarge

Use these maps to find where the tax climate fits your lifestyle.

Link: Old-platform posts tagged Tax Policy Blog and Tax Foundation

 

Share

Corporate tax: how Iowa plays favorites

Thursday, March 1st, 2012 by Joe Kristan

Iowa is a good place for capital intensive manufacturers. Everyone else, not so much.
That’s the scoop from an excellent new study “Location Matters” by the Tax Foundation of how the 50 states tax corporations in different industries. Iowa’s single-factor apportionment, and it’s lack of personal property taxes on equipment and machinery, make Iowa a good place for a capital intensive manufacturers. Its 12% corporation tax rate and high property taxes make it tough for everyone else. From the Iowa section of the report:

Iowa ranks 50th in two categories: the new retail establishment and the mature distribution center. Both operations face the highest property tax of their firm type in the nation. The mature distribution center also faces the highest income tax of its type in the country.

This chart summarizes the findings for Iowa; the “Rank” line shows how Iowa compares to other states for different types of businesses:

Source: The Tax Foundation. Click to enlarge.
That helps explain why Iowa has to bribe outfits like Google and Microsoft to get them to locate their data centers here. With enough bribes, they will, but they aren’t likely to relocate headquarters here. Again from the study:

Corporate headquarters in Iowa have high tax costs. The state ranks 48th for mature headquarters and 47th for new headquarters. The mature headquarters has a tax burden that is 52 percent above the national average while the new operation has a tax burden that is 67 percent above average. Again, these results are attributable to high property taxes and Iowa

Share

The rich guy can’t pick up the tab

Thursday, January 26th, 2012 by Joe Kristan

For all of the controversy surrounding the President’s depressing and lame proposals to soak the rich, the most important aspect is getting overlooked: no matter how much money you take from “millionaires and billionaires”, it will hardly reduce the budget deficit at all. The Tax Foundation explains with this helpful chart:

Click to enlarge
In so many words:

So taking half of the yearly income from every person making between one and ten million dollars would only decrease the nation’s debt by 1%. Even taking every last penny from every individual making more than $10 million per year would only reduce the nation’s deficit by 12 percent and the debt by 2 percent. There’s simply not enough wealth in the community of the rich to erase this country’s problems by waving some magic tax wand.

Even lowering the bar by taking 100% of the earnings of taxpayers over $1 million would only reduce the deficit by 35%, while of course bringing on an economic catastrophe that would make the Great Depression look like good times. By railing against “millionaires and billionaires” the President tries to distract us from the sad reality: failing to address the government’s incontinent spending will eventually require a big tax increase on everybody. The rich guy isn’t buying because he simply can’t.
Other coverage of the President’s tax proposals:
Shikha Dalmia, Obama’s Daft Plan to Insource Jobs Back to America
Howard Gleckman, President Obama

Share

How many localities have income taxes?

Thursday, September 1st, 2011 by Joe Kristan

4,933 in 17 states, according to the Tax Foundation. 297 of them are in Iowa, which allows a surtax for school funding.
Via Tax Policy Blog.

Share

The debt ceiling went up. Will taxes?

Wednesday, August 3rd, 2011 by Joe Kristan

The debt-ceiling show has gone on intermission, making the stock market so giddy that it accidentally dropped 265 points. The administration didn’t get the tax hikes it wanted, but it thinks it will get a mulligan when the committee of 12 congresscritters called for in the agreement gets together to negotiate $1.5 trillion in “deficit reductions” by November.
The agreement is apparently written to keep tax hikes from being part of the reductions by using current tax rates as the “baseline” for revenues. That means the 2013 increase in tax rates scheduled under current law wouldn’t count as “deficit reduction” under the deal. While Obama advisor Gene Sperling seems to think he has room to weasel, the Tax Foundation takes this rule as a given, and another economist calls Mr. Sperling’s argument “absurd.” At Tax.com, Martin Sullivan says:

But I will say the Sperling interpretation that “anything goes” when it comes to baselines would render the whole Phase Two $1.2-$1.5 trillion of deficit reduction meaningless. In the extreme, the Committee could assume a baseline of government spending equal to 50 percent of GDP and avoid the triggers by proposing cuts to more normal levels.

That means income tax increases will only count to the extent they raise top rates over 39.6 percent — a political impossibility. It also seems unlikely that a new broad based tax, like a VAT, will be enacted. There might be some efforts to trim deductions and tax credits, but unless accompanied by rate reductions to sweeten the deal, those are hard to do.
The agreement calls for “fail safe” spending cuts absent an agreement by November. That may well be the way to bet.
UPDATE: A Sperling defender on the right.
The TaxProf rounds up commentary on the deal.
Related:
Debt ceiling deal: no new taxes (maybe)
If the government doesn’t restrain its spending, the rich guy isn’t picking up the tab

Share

Film credits are a great idea, when you are the beneficiary

Tuesday, July 5th, 2011 by Joe Kristan

Not so much if you are the taxpayer. A new Tax Foundation commentary discusses recent New York and California studies touting fabulous returns from Film Tax Credits to taxpayers:

The New York study, conducted by Ernst & Young but commissioned by and paid for by the New York film office and the MPAA itself, reaches its positive numbers only by taking credit for all economic activity remotely related to film production. This is problematic because it ignores the concept of “opportunity cost

Share

Iowa’s business tax climate drives you to drink? It’ll cost you.

Tuesday, June 7th, 2011 by Joe Kristan

Iowa has the sixth worst business tax climate in the U.S., according to the Tax Foundation’s State Business Tax Climate Index.
Worse, if you want to down a stiff martini to help forget about our business tax climate, Iowa pairs that dubious distinction with the sixth highest distilled spirits excise tax in the land:
20110607-2.png
Source: Tax Foundation. Click image to enlarge.
By weighting the business tax climate index and the spirits tax rates equally in a combined index, Iowa has the nation’s worst Booze Goggle-adjusted State Business Tax Climate. It’s all another high-proof argument for the Quick and Dirty Iowa Tax Reform Plan.

Share

Yes, it is so terrible. Next question

Wednesday, June 1st, 2011 by Joe Kristan

Professor Maule asks, I answer:
Is the Mileage-Based Road Fee So Terrible?
Yes it is. It is creepy, and it sends us down a slippery slope to where government enforces every traffic rule, from complete stops at stop signs to highway speeding, based on GPS locator information. It also undermines any attempts to use carbon taxes or gas taxes to restrict fuel use.
Related: Paying at the Pump: Gasoline Taxes in America, by the Tax Foundation.

Share