Daily Deduction

from the Tax Policy Center

Credits, Shelters, Gaps, Collections and Rates

By :: June 6th, 2014

On the Hill next week: The House Ways and Means Subcommittee on Oversight holds a hearing on June 10 to review the government’s ability to verify income and insurance information when it comes to the Affordable Care Act’s tax credits and subsidies. About two million people who purchased health care through the ACA exchange  provided information inconsistent with federal records—about half for reported income and half for citizenship or residency status.

When a man loves a woman… He’d trade the world for what he’s found.” But would he trade marriage for domestic partnership? TPC’s Howard Gleckman pops that question: Domestic partnerships, designed to help same-sex couples get around marriage bans, could be used in some states by heterosexual couples to avoid the federal income tax marriage penalty. Of course, you could lose the marriage bonus, too, since domestic partners can’t file jointly. Maybe tax shelters are more romantic.

Mind the gap, state governments. The wealth gap, that is. The Associated Press reports that “Since the mid-1970s, states as a whole have cut their top individual income tax rates by nearly one-fourth, while boosting state sales tax rates by almost half… That has meant lower taxes for those earning the most and a bigger proportionate tax bite for those who spend more of their income on retail sales.”

Meanwhile, tax collections are up in Massachusetts. The state collected $1.6 billion in tax revenues in May, 7 percent more than May, 2013. The revenue commissioner credited “better than expected corporate and business collections, withholding, sales and use tax collections, and estate tax payments.”

Spain wants  to cut its corporate income tax rate. Spain’s Prime Minister Mariano Rajoy has offered an economic stimulus plan worth 6.3 billion euro to create jobs and make companies more competitive. Unemployment in Spain hovers at around 25 percent. The stimulus plan would cut the  corporate income tax rate from 30 percent to  25 percent.

How low can a corporate tax rate go? Northern Ireland may be granted new taxing powers in the fall, and is considering cutting its corporate tax rate from 21 percent to  12.5 percent. That would make its tax competitive with its independent neighbor, the Republic of Ireland. Backers think the low rate will make it possible for the North to compete for companies like Google and Facebook, each with operations in the republic.  Opponents are concerned about “brass plating”—where firms set up nominal operations without employing many people. Sound familiar?

All’s fair in love and taxes? A new report from Citizens for Tax Justice and the US Public Interest Group says that “US multinationals each year avoid paying about $90 billion in federal income tax” by setting up “offshore tax havens” and using “accounting tricks.” They say “tricks,” corporations say “legal practice.” Either way, the corporate tax code needs help, stat.

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  1. Michael Bindner  ::  1:22 pm on June 6th, 2014:

    House Ways and Means Oversight of ACA is interesting – hopefully it won’t be the kind of hit job like we find in Government Oprations with Issa.

    Howard’s piece is interesting and I would add that marriage equality is inevitable. The question is, will partnership equality be as well for hetero domestic partners?

    The AP is correct on the wealth cap in states. We can probably thank ALEC for that. Even Republican voters can’t be fooled forever – although this explains why the GOP goes after social policies it knows it will lose on – it keeps their base intact.

    Massachusetts is an interesting data point – I would expect less revenue than more as the tax bubble from the ACA and the ATRA work their way out of the system – of course it could be that some of their wealthy are paying the higher taxes themselves. Still, it can’t last. Rich taxpayers are too smart.

    Spain is doing the right thing and I hope they can get away with it. If Europe wants austerity or more revenue, it needs to find a way to enact its own income tax and debt and treat important measures within a constitution – not within a treaty. The Northern Ireland situation shows why continental tax policy is needed, although there are states in the US that allow such brass plate capitalism with a corprorate HQ in a post office box.

    There is no news that US companies avoid taxes with tax havens. Perhaps a value added tax or a change in the rules of what is and is not a corporate headquarters should be enacted. Opening up the Corporate Tax Code for a feeding frenzy by lobbyists? Not so much.