Now to finish off the extended 1040s. The extension season for business returns ended yesterday. Now it’s time to mop up the remaining extended individual returns — the “GDEs,” as Robert D. Flach calls them.
If the U.S. tax system were a baseball team, it would be worse than the Cubs. That’s the conclusion I draw from the Tax Foundation’s first International Tax Competitiveness Index released yesterday. The U.S. ranked 32nd out of the 34 rated countries, ahead of only Portugal and France. At 66-84 this morning, the Cubs are ahead of four other teams out of the 30 in the major leagues. Small but mighty Estonia is number 1 (in the Index, not in baseball).
Some “key findings” of the study:
The ITCI finds that Estonia has the most competitive tax system in the OECD. Estonia has a relatively low corporate tax rate at 21 percent, no double taxation on dividend income, a nearly flat 21 percent income tax rate, and a property tax that taxes only land (not buildings and structures).
France has the least competitive tax system in the OECD. It has one of the highest corporate tax rates in the OECD at 34.4 percent, high property taxes that include an annual wealth tax, and high, progressive individual taxes that also apply to capital gains and dividend income.
The ITCI finds that the United States has the 32nd most competitive tax system out of the 34 OECD member countries.
The largest factors behind the United States’ score are that the U.S. has the highest corporate tax rate in the developed world and that it is one of the six remaining countries in the OECD with a worldwide system of taxation.
The United States also scores poorly on property taxes due to its estate tax and poorly structured state and local property taxes
Other pitfalls for the United States are its individual taxes with a high top marginal tax rate and the double taxation of capital gains and dividend income.
Unlike the Cubs, the U.S. tax system shows little hope for improvement. What changes we’ve seen recently, or are likely to see in the coming year, only make things worse. The implementation of FATCA doubles down on the committment to worldwide taxation, while putting U.S. taxpayers at a disadvantage abroad. The inversion frenzy is likely to promote legislation to place even more burdens on U.S.-based businesses. This legislation responds to the failures of worldwide taxation by doing it harder. In baseball terms, it’s the opposite of Moneyball.
TaxGrrrl has more with U.S. Ranks Near The Bottom For Tax Competitiveness: We’re #32! “The United States is one of just six OECD countries that imposes a global tax on corporations meaning that its reach extends beyond its own border.”
Martin Sullivan, REIT Conversions: Good for Wall Street. Not Good for America. (Tax Analysts Blog). REITs are a corporate form that allows some real estate income to be taxed only once. They are a do-it-yourself response to a dysfunctional corporation income tax. It would be good for America if all corporations could move to something more like the REIT model, with a deduction for dividends paid to eliminate the multiplication of tax on corporate income.
Leslie Book, Tax Court Finds Reliance On Advisor In Messy Small Business Setting (Procedurally Taxing), addressing a case we discussed here. “VisionMonitor is a useful case for practitioners seeking a reliance defense even when advice does not come in the way of a formal opinion, and the advice and corporate formalities reflect less than perfect attention to detail. In other words, this case is representative of the way many small businesses operate.”
Peter Reilly, Grandfather Beats IRS In Tax Court Without Lawyer. “They mystery to me is why when the IRS decided to drop the penalty, they did not drop the case entirely, since, by dropping the penalty, they were indicating that they did not think Mr. Roberts was lying and, given that, it’s pretty clear that he wins.”
Jack Townsend, More on the Warner Sentencing Appeal. Did the Beanie Baby Billionaire get off easy?
Jim Maule discusses The Persistence and Danger of Tax and Other Ignorance. It’s fascinating how a man who accurately notes the prevalence of ignorance among voters still thinks policy concocted by politicians elected by these same ignorant voters is better than private solutions .
Norton Francis, How Michigan Blocked a $1 Billion Tax Windfall for Corporations (TaxVox). “The case involved the way multistate corporations calculated their state income tax liability from 2008 to 2010. The trouble for Michigan is that, during this time, they had two ways to apportion state income on the books: one, which they thought no longer applied, based on a three-factor formula—the shares of a firm’s property, payroll, and sales present in the state—and the other based only on sales in the state.”
Matt Gardner, New S&P Report Helps Make the Case for Progressive State Taxes (Tax Justice Blog). I link, but I sure don’t endorse. Using high individual tax rates at the federal level to redistribute income is futile and unwise, but at least it’s plausible. Using state income taxes for that purpose is just absurd.
News from the Profession. We Can’t Help But Wonder if This EY Conference Room Cactus Is Trying to Say Something (Adrienne Gonzalez, Going Concern)
He lost the job after he told his client to get a haircut. Former Sampson consultant guilty of fraud, conspiracy*
*For those of you who will point out that the guy in the Bible is named “Samson,” just you be quiet.