Daily Deduction

from the Tax Policy Center

August Avoidance: Corporate Taxes and Budget Realities

By :: August 11th, 2014

Congress is in recess. The Daily Deduction will return to its regular schedule on Monday, September 8. Until then: We’ll see you every Monday morning. 

Walgreen might be the only one who’s tired of talking about inversions. The Illinois-based drugstore chain plans to keep its tax base in the US after purchasing Alliance Boots. But other companies have paid two former US Senators, Trent Lott and John Breaux, to lobby against any legislation that would block inversions. And SafeNet, a US-based data protection firm, plans to cut its tax rate not through a technical inversion but by selling itself outright to the Dutch firm Gemalto.

Why talk when you can act? TPC’s Eric Toder suggests a different way to deal with unintended corporate tax consequences like inversions: an annual “housecleaning” bill that might bypass political gridlock. Barring that, when it comes to the corporate tax code, Eric and his co-author Alan Viard urge Congress to schedule major surgery.

Retirees want to lower their tax burdens, too. Property taxes—though they vary widely by state and region—can be high in the United States. A growing share of retirees are collecting Social Security overseas and saving money on property taxes and health care costs. For what it’s worth, there has been no reported questioning of these retirees’ patriotism.

What’s the matter with Congress? TPC’s Howard Gleckman asks the perennial question. Congress claims to worry about the deficit, but continues to scramble and cry “emergency” in order to fund programs which are very necessary and very predictable. Both veterans’ health care and the US infrastructure, for example, now have money for the short-term, but the money isn’t offset in the budget. But as Howard reminds TaxVox readers, “The deficit is an issue lawmakers care deeply about, except when they don’t.”

Some in Missouri think they know what’s the matter with Kansas. Missouri’s Democratic Governor Jay Nixon continues to try to block income tax cuts put forward by the Republican-majority legislature. He vetoed measures that would exempt sales tax for particular groups and industries because he fears the revenue loss could reach $800 million annually. The legislature overrode his veto of a gradual income tax cut set to begin in 2017, arguing that the cuts—unlike those in Kansas—are contingent on continued revenue growth. They may try to override Nixon’s latest vetoes in September.

For some New Yorkers, two timely tax rebates. Next month, about a million New York households with incomes between $40,000 and $300,000 and children under age 17 will each get a $350 check in the mail as part of the state’s budget deal. New York homeowners will get a property tax rebate in October as part of a property tax freeze passed in March. The $750 million rebate programs each last three years. Coincidentally, both Democratic Governor Andrew Cuomo and the state Legislature are up for reelection in November.

What if carbon tax revenues were recycled as lump-sum rebates? Maryland Democratic Congressman Chris Van Hollen’s bill, the Healthy Climate and Family Security Act of 2014, would require companies to buy permits to produce or import carbon-containing fuels. Permit revenues would be distributed as equal lump-sum rebates to every American with a Social Security number. A new study from Resources For the Future compares three ways to distribute revenue from a carbon tax. The authors find a lump sum rebate to every American would be the most progressive option, but would be less efficient than using the revenue to cut either capital or labor taxes.

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1Comment

  1. Michael Bindner  ::  4:26 am on August 12th, 2014:

    On inversions, there is always an ex-Senator or Congressman (or one from each party) on hand to sell his or her services to block much needed legislation, whether it has any chance of passage or not.

    An annual tax house cleaning bill sounds good, but won’t get by Ways and Means – nor should it. Indeed, it would simply become the vehicle for attempts to cut tax rates for the wealthy (see above remark on lobbyists). Corporate income tax reform can’t be done without reforming pass throughs using the Personal income tax – and the way to really fix these is to include some kind of consumption tax as part of the reform (see again about ex-members lobbying the good stuff). Still, if the President went with it, it might happen. Not to put to fine a point on this, but this President was satisfited when ATRA was passed (with the Hastert Rule suspended). Another House and another President may do something, but that means no news until 2017 at the earliers,.

    Retirees voting with their feet is nothing new. both the rich ones and the poor ones. Still, living far away from relatives, especially children, and deciding if you really want to be buried elsewhere is not something to be taken lightly. I guess there is nothing wrong with dodging higher property taxes – because they get paid by whomever buys the property (or rents it from a taxpaying landlord). Of course, when they sell, par of the implict price is the premium for tax avoidance. I don’t see many selling in this market and making money unless they bought many years ago.

    As I said last Thursday on Howard’s piece, neither of these programs (Highways, Vets) should be paid for with offsets from other programs (which should be cut if needed, but not as part of some balancing act). The increase to veterans programs should be funded by an increase in income taxes – specifically in taxes on the wealthier side of the income scale (raise the top 2 or 3 brackets by enough to matter). Like the wars themselves, the aftermath should involve tax the same people we have been borrowing from – so soak the rich. Since the GOP members of the House won’t do that – get rid of them – or enough of them so they can go back to the disloyal oppossition. As for highway, raise the gas tax already – no new mileage fee schemes please – make the gas hog owners pay more per mile than those who get better MPG. The same reasons this does not happen apply – as does my solution to this gridlock.

    It is good that Jay Nixon of Missouri knew better than Sam Brownback of Kansas. Hopefully the tax cut contageon can be stopped now that we know that the 2013 revenue bump was just that – a bump.

    New York may be failing the same lesson, although a fixed rebate rather than a percentage cut in rates is at least good progress – although a property freeze is worrisome – especially as it is the natural second choice for road repears (and plowing) with the gas tax still in limbo long term.

    Van Hollen’s gas tax lump sum payments would always be welcome, but lets understand that a carbon tax is a way to sneak in a form of value added tax – it is a harm added tax rather than value. While Chris’s proposal is more progressive and a cut to corporate or labor taxes may be more efficient – I suspect that a large child tax credit to offset a VAT would be much more progressive (even if rich kids got it too as the price of admission) with the VAT being more efficient than carbon. American carbon taxes are all for show as a way to get China to get off its current coal binge which is both heating the planet and making their air unbreatheable.