Posts by:

Renu Zaretsky



The ACA, Extenders, and More Swiss Banks

May 27th, 2014

Employers can’t “dump” their employees in ACA exchanges. Some large employers hoped to offer tax-free cash to employees to help them pay Affordable Care Act insurance premiums, a cheaper alternative to covering workers directly. But the IRS ruled against that. The penalty for doing so could cost firms $36,500-a-year per employee. If employees need help paying for premiums for ACA exchanges or elsewhere, employers could instead offer higher—and taxable—wages.

The House GOP asks the Senate to get on with it, already. The Hill reports that Ways and Means Chairman Dave Camp and his allies would like the Senate to act quickly on a stalled measure to resurrect the 50-plus tax breaks that expired in December 2013. They “believe that quick action in the Senate opens up the chance for a conference committee before November’s election, increasing their odds of permanent extensions.” There’s still no plan to pay for them, by the way.

What about repealing the medical device excise tax and replacing it with a higher cigarette tax? Senate action on the bill to restore those tax breaks is stalled thanks in part to a fight over a GOP amendment to repeal the medical device tax. It’s an ACA provision unpopular with Republicans, but Democrats find it irrelevant to the tax bill at hand. TPC’s Len Burman considers an alternative. He argues the device tax would mostly hit consumers with little impact on manufacturers’ profits and would be costly to administer given the revenue it would generate. A cigarette tax, however, might “be viewed as a kind of benefits tax—paying for health insurance that is more valuable to smokers than the rest of us.”

Thirteen more Swiss banks could follow Credit Suisse’s example. Cooperating with the US  investigations of how they’ve helped Americans evade taxes will determine their penalties upon pleading guilty. The 13 banks vary in size and scope. Only HSBC has major US operations, and if it pleads guilty, it could continue to operate in the US, just like Credit Suisse. The smaller banks without a US presence wouldn’t likely be as lucky.

Interested in subscribing to The Daily Deduction, the Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at dailydeduction@taxpolicycenter.org.

No Comments >



Spending, Rules, and Revenues

May 23rd, 2014

What if we counted tax expenditures as “spending,” and not “tax cuts?” Characterizing tax subsidies as tax cuts rather than spending leads to bigger government, higher taxes, larger deficits, and a misallocation of resources, according to a new paper by TPC’s Len Burman and George Washington University’s Marvin Phaup. Their new National Bureau of Economic Research paper shows the dangers of mischaracterizing tax expenditures as tax cuts instead of spending, which is what most of them really are.

Speaking of allocating resources… The IRS should collect delinquent taxes, not turn the job over to private debt collectors, says TPC’s Howard Gleckman. Government contractors do some things well, but when it comes to tax collection, the IRS offers clear authority and necessary nuance in its approach to recovering funds. And doing the job in-house is likely to return more than privatizing it.

The IRS will revise proposed rules for nonprofits’ political involvement. The draft regs, released last year, were met with broad resistance, and congressional Republicans told the IRS and Treasury to drop the project. Instead, the IRS will go back to the drawing board. It’s not clear when the new proposed rules will be published or when they’ll take effect, but today the IRS stated it would hold a public hearing upon their release.

Some tax preparers want more from the IRS. CPAs are not fans of the IRS’ expected move to impose voluntary education standards on preparers. The American Institute of Certified Public Accountants worries the standards may be inadequate and not weed out bad actors. Exacerbating the issue, the group says, “The proposed voluntary system would undoubtedly leave the impression among most taxpayers that certain tax return preparers are endorsed by the Internal Revenue Service.”

One player in the sharing economy might end up paying more taxes. Airbnb, a short-term home rental service that competes against regulated and highly-taxed hotels, says the majority of its hosts are “regular people, renting out their own home to travelers” for extra income. But, it will comply with a New York State probe of its activities aimed at determining whether they violate occupancy or tax codes. Airbnb will now inform its hosts about occupancy laws and the New York City occupancy tax of 14.75 percent.

Tax dodgers, s’il vous plait, come clean.” The French government will ease interest payments due on taxes owed by any firms that disclose their previously undeclared taxable funds. It expects to recover 1 billion euros. France has been in gentle pursuit of lost revenues: It has already recovered 764 million euros after cutting fines and penalties on individual taxpayers if they declared assets abroad.

The Daily Deduction will return to its regular schedule on Tuesday, May 27.

Interested in subscribing to The Daily Deduction, the Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at dailydeduction@taxpolicycenter.org.

8 Comments >



Relief, Credits, Cuts, and Roads

May 22nd, 2014

Maybe we all can just get along. At least, that’s what other Swiss banks might be thinking, now that Credit Suisse paid penalties (the tune of $2.6 billion) to end its longstanding dispute with the US and New York for helping Americans dodge US taxes. Swiss Finance Minister Eveline Widmer-Schlumpf said the resolution created “breathing space” for other Swiss banks in similar disputes with the US.

There’s tax relief in the Minnesota. Minnesota just provided half a billion dollars’ worth of tax relief. The second round signed into law this week by Democratic Governor Mark Dayton amounted to $103 million, bringing the total to $550 million. Average tax refunds will climb for middle-class homeowners and renters. It accompanies $1.7 billion in new construction projects for the state.

There’s some in Ohio, too. The state’s Senate Republicans are speeding up action on an income tax reduction plan. Ohio is flush with cash right now: The Columbus Dispatch reports that “through April, state revenue was $310 million above estimates, while spending was $848 million below estimates.”

And there’s this wicked awesome tax credit for film crews: In Massachusetts, filmmakers who spend more than $50,000 in the state get a 25 percent tax credit to offset costs of actors, set building, and other expenses. The Los Angeles Times reports that film and TV productions spent $313 million in 2012, and Massachusetts paid out an estimated $78.2 million in film tax credits. It’s great for the makers of films like Oscar-nominated American Hustle, but does little for the state’s overall economy.

But times are tough for Governor Chris Christie… and public pensioners. New Jersey suffers from a 13-month shortage of $2.7 billion, according to the legislature’s budget and finance officer. The governor, a maybe-2016 presidential candidate, does not plan to raise taxes to cover the gap. Instead, he’s cutting state pension payments. This year, the payment will be $696 million, instead of his proposed $1.58 billion. And in fiscal year 2015, it will be $681 million, instead of his proposed $2.25 billion.

So “fix the d— roads” already! That’s apparently a quote: In Michigan, Republican state Senate Majority Leader Randy Richardville will propose significant phased-in fuel tax increases to address, for starters, debilitating pot holes throughout the state’s roads. Democratic Senator Claire McCaskill of Missouri backs a sales tax to fund roads and transportation projects. In Raleigh, North Carolina, the city manager Ruffin Hall proposed a 1-cent property tax increase to raise about $5.1 million for city street resurfacing. And in South Dakota, the up-for-re-election Republican Governor Dennis Daugaard reversed course and said he might support a gasoline tax hike to fund roads and bridges.

Interested in subscribing to The Daily Deduction, the Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at dailydeduction@taxpolicycenter.org.

4 Comments >



Tax Revenue Headaches and Hangovers

May 21st, 2014

Fourteen senators want multinationals to quit inversions cold turkey. Or at least, they’d like a two-year moratorium on the practice of a firm changing mailing its address  to lower its corporate tax bill. During that period, Congress would, theoretically, have time to advance corporate tax reform and improve the United States’ competitiveness in the global marketplace. It remains unclear how far the bill—sponsored by 13 Democrats and one independent—will go. TPC’s Howard Gleckman doubts, aside from tax implications, whether a corporation’s mailing address even matters.

Or, let them drink wine! Chilean President Michelle Bachelet proposed $8.2 billion in tax hikes, including an increase in the corporate tax rate from 20 percent to 25 percent. She doesn’t believe they’ll hurt business investment, despite her opposition’s concern. The tax bill, moving ahead now to the Chilean senate, also seeks to increase the tax on wine, much to the dismay of wine producers. President Bachelet’s coalition holds the majority in both Chilean chambers.

The recession hangover still hurts for more than half the states. State tax revenues in 26 states haven’t bounced back to 2008 levels, according to the latest from The Pew Charitable Trusts. More than half of the 24 states whose revenues climbed did so in part with tax increases.

So take two taxes and call me in the morning? New Jersey Democrats continue their push for a millionaires’ tax to cover the state’s $807 million budget shortfall. Illinois Democrats are still trying to make permanent a temporary tax hike to fund public schools and other programs.

Speaking of pain that won’t seem to go away: Tax extenders negotiations. No real surprise here, but Senator Majority Leader Harry Reid is still not interested in debating the repeal of the medical device excise tax to help advance the EXPIRE Act. The Nevadan asserted, “That’s an Obamacare amendment…. [Republicans] can have as many amendments as practical to change the bill that’s on the floor… So, the answer is ‘no’,” reports Roll Call.

Interested in subscribing to The Daily Deduction, the Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at dailydeduction@taxpolicycenter.org.

2 Comments >



A Pleading Bank, a Rejected Offer, and Taxing Gas and Pot

May 20th, 2014

Credit Suisse pleads guilty. In the first plea of its kind in decades, the second-largest Swiss bank will pay about $2.5 billion to the federal government and New York financial regulators to settle a lengthy investigation. Credit Suisse will not have to divulge the names of any of its US clients, as that would violate Swiss law.

Pfizer hears “no.” UK pharmaceutical company AstraZeneca rejected the US pharmaceutical giant’s latest  offer to purchase it. Reuters reports that AstraZeneca chairman Leif Johansson stated, “Pfizer’s approach throughout its pursuit of AstraZeneca appears to have been fundamentally driven by the corporate financial benefits to its shareholders of cost savings and tax minimization.” Pfizer says this was its “final” offer.

And so do inversions. Pfizer’s takeover bid has prompted policymakers to try and stop “inversions,” also known as changing a mailing address for a lower corporate tax rate. Senator Carl Levin and his brother, Representative Sandy Levin, will introduce identical bills today aimed at curbing the practice.

How low can a gas tax go? Pretty low, apparently: After adjusting for inflation, New Jersey’s gasoline tax, at 14.5 cents per gallon, is just over half its 1927 rate of 27.3 cents per gallon. The state’s gasoline tax has held steady since 1990, but state legislators are currently trying to raise the tax by 15 cents over three years to support the state’s Transportation Trust Fund. New Jersey isn’t the only state with a historically low gas tax. The Institute for Taxation and Economic Policy notes the top (or low) ten: Alabama, Alaska, Delaware, Idaho, Iowa, Nebraska, New Jersey, South Carolina, Utah, and Virginia.

How might one country compete with another country’s drug dealers? If you’re Uruguay, you exempt marijuana production and sales from taxes. The country hopes that its marijuana prices will remain low enough to beat black market pot smuggled in from Paraguay.

Interested in subscribing to The Daily Deduction, the Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at dailydeduction@taxpolicycenter.org.

6 Comments >



Tax Mistakes, Collections, and Breaks

May 19th, 2014

New Jersey won’t tell its residents if it made a tax mistake. About 2,000 of the state’s taxpayers — one percent — paid too much in 2013 state income taxes due to an error on an estimated payment voucher. It’s a small enough share that the state won’t issue a refund unless a taxpayer specifically asks. The total dollar amount of wrongly billed taxes has not been tabulated by the state, the Star Ledger reports.

Affordable Care Act subsidy mistakes now could mean huge tax confusion later. An estimated 1 million ACA enrollees may have received incorrect ACA subsidy payments. And the IRS faces an enormous backlog in verifying reported income submitted by ACA enrollees, income which may have been inadvertently over- or under-stated. Federal contractors can’t start tackling the backlog until the summer (after they’ve reviewed citizenship documentation of ACA enrollees). ACA subsidies are still being paid, incorrect or not, in the interim. It is all supposed to get sorted out in the next filing season.

Congress may once again require that private debt collectors collect back taxes. A provision in the Senate’s tax extenders’ bill (delayed for now) calls for the reinstatement of collection agencies to recover funds owed by taxpayers if they are unreachable or not found within a year by the IRS. National Taxpayer Advocate Nina Olson told Congress that private debt collection lost money the last two times it was tried. The Washington Post reports that “from 2005 to 2009… private agencies collected about $98 million… [and] were paid $16.5 million in commissions… it cost the IRS an additional $86 million to administer the program.”

The European Union thinks Boeing’s tax breaks are unfair. For the past ten years, the US and the EU have had a formal trade dispute over aid to the aircraft industry. Most recently, the US has claimed that European governments ignored a global trade court by agreeing to lend money to aircraft manufacturer Airbus to build its new A350 jet. In response, the EU plans to challenge Boeing’s share of an $8.7 billion federal tax break to Washington State’s commercial aerospace industry.

A year in the life of the federal budget: The CBO presented a snapshot of federal spending and taxes in 2006 at the National Tax Association symposium late last week. The snapshot extends prior CBO distributional analysis by including spending.  

On the Hill this week:  The Senate Finance Subcommittee on Social Security, Pensions and Family Policy holds a hearing Wednesday on strengthening Social Security for future retirees.

Interested in subscribing to The Daily Deduction, the Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at dailydeduction@taxpolicycenter.org.

4 Comments >



A Block, a Bridge, a Treat, a Bill, and a Correction

May 16th, 2014

Senate Republicans have stalled the tax extenders bill on a procedural vote. The debate isn’t over. Senate Republicans were not pleased that Democrats blocked their amendments to the bill and, in response, blocked a vote. Republicans wanted to repeal the Affordable Care Act’s medical device excise tax and strike the wind production tax credit. Senate Majority Leader Reid (NV) filed cloture on Wednesday and the Senate will try again…sometime.

But bridge spending for highways advanced out of Committee. The Senate Environment and Public Works passed a six-year transportation bill on a bipartisan vote. The bill would keep federal spending at current levels but it does not address the Highway Trust Fund’s looming shortfall. The Fund has been financed by the federal gasoline tax, unchanged for over 20 years and diminishing as a source of revenue, given Americans’ changing driving habits and more fuel-efficient cars. The gasoline tax covers only $35 billion of the $53 billion in federal highway and mass transit spending.

Is your tax bill still your tax bill if somebody else pays it? After Endo International, a US drug manufacturer, switched to an Irish address, the company’s executives faced a $60 million tax penalty aimed at discouraging executives from reincorporating their companies in tax havens. Endo will pay those executives’ bills, contributing to its first quarter loss of $437 million.

Senator Levin is fed up with inversions. The Michigan Democrat will introduce a bill this week to limit the ability of US companies to reduce their US taxes by merging with foreign firms and changing their corporate address. He’d like to see a moratorium on such mergers. Senate Finance Committee Chair Ron Wyden also plans to address the issue: His legislation would be retroactive to May 8. Neither effort, however, is expected to get very far. Senator Orrin Hatch, the top Finance panel Republican, would rather see broader reform to solve the “root problem” of poorly designed corporate taxes. TPC’s Howard Gleckman wonders whether multinational corporations are tired of waiting.

A correction: A faithful reader points out an inaccuracy in yesterday’s item on student loans. We reported that a Pew Foundation study found the “median loan is equal to about two years’ worth of household income.” The item should have read that the “median student debtor has total loans equal to about two years’ worth of household income — loans that include mortgage, vehicle, and credit card debt, on top of student debt.”

Interested in subscribing to The Daily Deduction, the Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at dailydeduction@taxpolicycenter.org.

4 Comments >



Graduating with Student Debt and Dealing with Mortgage Interest

May 15th, 2014

It’s an election year: Senate Democrats want to help college graduates, surely Republicans want to, too? A new bill would allow student borrowers to refinance their federally subsidized loans at a rate of 3.86 percent—the current rate for new loans approved by Congress last year. The bill would be financed by the “Buffet Rule,” which would ensure that the wealthy pay a minimum amount of tax. It’s generally a dead-on-arrival idea with Republicans. The Hill reports that New York Democrat Senator Chuck Schumer offered to deal: “We’re open. We welcome suggestions on how [Republicans] would pay for it.”

Help would be good: Student loans are dragging down the economy. Low loan rates and even student loan interest deductions are not enough to lighten the weight of student debt. A new report from the Brookings Institution and TPC by Bill Gale, Benjamin Harris, Bryant Renaud, and Katherine Rodihan, shows that between 1989 and 2010, the share of households with  student loans jumped from 9 to 19 percent, and inflation-adjusted median student debt rose by more than 50 percent. Meanwhile, the Pew Research Center reports that [corrected] the median student debtor has total loans equal to about two years’ worth of household income — loans that include mortgage, vehicle, and credit card debt, on top of student debt. The Federal Reserve Bank of New York reports that student debtors are not buying houses.

If college grads did buy, maybe they’d prefer a tax credit to a mortgage interest deduction. A new report by Amanda Eng updates TPC analysis of ways to replace the mortgage interest deduction with credits designed to improve incentives for homeownership. They include: 1) a nonrefundable credit of up to 15% of eligible mortgage interest, 2) a nonrefundable credit of up to 20% of eligible mortgage interest, 3) a refundable credit of a fixed percentage of property taxes paid, and 4) a flat-amount refundable credit for all homeowners.

And on the Hill this morning: The Senate Banking Committee holds an executive session to consider a bill that would provide secondary market reform: The Housing Finance Reform and Taxpayer Protection Act of 2013.

Interested in subscribing to The Daily Deduction, the Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at dailydeduction@taxpolicycenter.org.

1 Comment >



The Dead, the Devices, and the Errors

May 14th, 2014

Dead Men Ruling, future governing paralyzed. Will 21st century America be able to govern itself, given lawmakers’ effective abdication of the future? In TPC’s Gene Steuerle’s new book, Dead Men Ruling, the prospects are dim. Automatic spending and untouchable tax subsidies have limited government’s flexibility to adjust to changing times and circumstances. Short-term and  politically expedient subsides aimed at increasing today’s consumption  are funded  by debt to be paid off by future taxpayers. As TPC’s Howard Gleckman’s review of the book shares, the future is being written by those who will be “long dead when our grandchildren come of age.”

Speaking of the dead… Republicans are trying to repeal the excise tax on medical devices, no doubt pleasing corporations like Medtronic and Boston Scientific. Last year 79 senators voted to repeal the excise tax—but the vote was non-binding. The repeal effort is part of the broader tax bill that senators debate on the floor this week which would revive more than 50 tax breaks that died five months ago. The new breaks would live through through 2015, and their reanimation would add over $84 billion to the deficit.

More money, more problems. Improper Earned Income Tax Credit payments still plague the IRS. The Treasury Inspector General for Tax Administration reports that 22 percent to 26 percent of EITC payments were made in error in 2013, amounting to an estimated $13 billion to $16 billion. The error rate is up from an estimated 21 to 25 percent in 2012 and includes underpayments as well as overpayments. The problems in administering the EITC are complex. In a statement the IRS noted that there are several legislative proposals that would give the agency authority to correct certain filing errors and reduce the improper payments. Congress to the rescue! Right?

Interested in subscribing to The Daily Deduction, the Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at dailydeduction@taxpolicycenter.org.

3 Comments >



Pizza, Expats and Drugs

May 13th, 2014

As expected, the Senate could vote today on tax extenders. Senate Republicans are likely to want to make changes on the floor—meaning even more tax cuts. Just extending the now-expired tax breaks through 2015  could increase the budget deficit by $84.1 billion over the next ten years.

Is a pizza a pizza before you bake it? That is the burning question, when it comes to “take and bake” pizza. It’s not exactly edible when you purchase it, but delicious when you take it home to your oven. Problem is: Does a state apply sales tax, or not? Can you use food stamps to purchase one, or not? (If it’s taxable, you can’t.) The Streamlined Sales Tax and Governing Board will make recommendations on the issue this month, given very blurred and conflicting states’ policies. Frozen pizza, by the way (inedible at the store, and at least decent after some baking) is not subject to sales tax, as it’s a grocery item.

Sales taxes aren’t dampening Japan’s spirit. Japan raised its sales tax from 5 percent to 8 percent last month, and reports of the nation’s poor economic reaction were greatly exaggerated. Bank of Japan Governor Haruhiko Kuroda stated in an interview that the negative shock from the higher tax “is as we anticipated or even slightly less than we anticipated.”

“Wherever we go, whatever we do…” Some Americans are not so happy to be “together, wherever” with the United States. The US is the only Organization for Economic Cooperation and Development member that taxes its citizens no matter where they live. Complying with U.S tax law is no simple or inexpensive feat, either for workers, employers, or foreign bankers, given the Foreign Account Tax Compliance Act. A foreign company’s compliance costs due to US rules are estimated to be $7,000 per hired American; accounting costs for expats are roughly $4,000 a year, according to the Swiss-American Chamber of Commerce.

It’s all about the taxes (and probably not the drugs). Is Pfizer trying to buy AstraZeneca because of the drugs the company manufactures or for the tax break? AstraZeneca does not make top experimental drugs for cardiovascular disease, diabetes, or cancer. Pfizer, however, stated that it did in its bid to buy the company. At the same time, a merger would make it possible for Pfizer to  cut $3 billion in costs and get a lower corporate rate by receiving its mail in the UK. It predicts its earnings per share would rise by 14 percent three years from closing.

Interested in subscribing to The Daily Deduction, the Tax Policy Center summary of the day’s tax news? Sign-up here for free access. If you’d like to tell us about a new research paper or have any comments about our new feature, write us at dailydeduction@taxpolicycenter.org.

3 Comments >