Thursday, June 13, 2013
The House Ways & Means Committee holds a hearing today on Tax Reform: Tax Havens, Base Erosion and Profit-Shifting:
The hearing will examine different tax planning strategies used by multinational corporations to shift income out of the United States and into low-tax jurisdictions. The hearing also will consider when profit shifting truly is eroding the U.S. tax base and when companies are shifting profits amongst different foreign jurisdictions without affecting U.S. tax collections. (Hearing Advisory)
- Pascal Saint-Amans (Director, Centre for Tax Policy and Administration, OECD)
- Edward Kleinbard (Professor of Law, USC) (Testimony)
- Paul Oosterhuis (Partner, Skadden, Washington, D.C.)
Friday, June 7, 2013
This document is the eighth in a series of papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system. This compilation is a joint product of the majority and minority staffs of the Finance Committee with input from Committee members’ staffs. ... The paper notes that tax reform provides an opportunity "to rationalize the patchwork of inconsistent rules regarding the taxation of income, investments, and tax structures."
The paper lists the following broad principles for reform in this area:
- Simplify the law in order to reduce the cost to businesses and individuals of complying with the tax code;
- Make the tax code more neutral by reducing or eliminating differences in overall tax burdens across different types of entities, owners, and income; and
- Reduce or eliminate differences in the tax treatment of debt and equity
The following reform options are listed with more specific proposals detailed for each:
I. TAXATION OF DIFFERENT TYPES OF INCOME AND ENTITIES
- Treat all or most types of income the same, while maintaining the two levels of tax on the earnings of C corporations
- Fully integrate the corporate and individual income taxes through one of the following approaches
- Partially integrate the corporate and individual income taxes
- Redraw line between passthroughs and C corporations
- Simplify other rules related to types of income and entities
II. CORPORATE FINANCE DECISIONS
- Expand thin capitalization rules to limit deductions attributable to excessive debt financing
- Further limit deductions associated with exempt or deferred income
- Create greater parity between debt and equity financing for C corporations
- Create greater parity between retaining and distributing earnings for C corporations and reduce lock-in incentives
- Reform treatment of carried interest and other partnership interests received in whole or in part in exchange for services
- Reform treatment of S corporation income received in whole or in part in exchange for services
IV. FINANCIAL PRODUCTS
- Harmonize the tax rules governing most or all derivatives
- Reform mark-to-market treatment (section 475)
- Reform rules governing certain futures and other contracts (section 1256)
- Simplify and expand hedging treatment
- Reform treatment of debt
- Reform “wash sales” rules
Thursday, June 6, 2013
J. Richard (Dick) Harvey (Villanova), Apple Hearing: Observations from an Expert Witness, 139 Tax Notes 1171 (June 3, 2013):
The US Senate Permanent Subcommittee on Investigations held a highly publicized hearing on May 21, 2013 to discuss Apple’s international tax planning. As the first expert witness (testimony here), I had a ring-side seat to the hearing and Apple’s international tax planning.
One purpose of this article is to clearly identify the two key tax policy issues that need to be addressed by policymakers both in the US and internationally. Because the discussion at the hearing was very U.S. centric, these two issues may have been lost in the rhetoric.
- Should the US and the rest of the world allow Apple to record approximately two-thirds of its global income in an Irish entity that has few or no employees and little or no real activity?
- Assuming the answer is “no”, where should the income be recorded? Should it be the US, other countries, or some combination?
Another purpose is to discuss arguments made at the hearing by Apple and Sen. Johnson to support Apple’s allocation of only 30% of its global income to the US. These arguments were not fully explored during the hearing and warrant additional discussion. In short, Apple should not be able to argue one thing to support its US income allocation and then argue something different for allocating income to foreign countries.
Finally, the article briefly discusses several items, including: Apple’s effective tax rate, and whether they used tax gimmicks.
All Tax Analysts content is available through the LexisNexis® services.
Senate Finance Committee press release, Baucus Welcomes Kara Getz as New Tax Counsel:
Senate Finance Committee Chairman Max Baucus (D-Mont.) today named Kara Getz as Tax Counsel for the committee where she will work on taxation and pension issues. ... Getz joins the committee from the Office of Congressman Richard Neal (D-MA) where she served as tax counsel and legislative director, advising the congressman on taxation, pension and budget issues. Prior to joining Congressman Neal’s office, she was Chief Counsel for the Senate Special Committee on Aging for Chairman Herb Kohl (D-Wis). Before that, she served as tax counsel for Senator Gordon Smith (R-OR) for almost four years. Getz also has experience in the private sector.
(Hat Tip: Steven Sholk.)
Thursday, May 30, 2013
Congressional Budget Office, The Distribution of Major Tax Expenditures in the Individual Income Tax System:
A number of exclusions, deductions, preferential rates, and credits in the federal tax system cause revenues to be much lower than they would be otherwise for any given structure of tax rates. Some of those provisions—in both the individual and corporate income tax systems—are termed “tax expenditures” because they resemble federal spending by providing financial assistance to specific activities, entities, or groups of people. Tax expenditures, like traditional forms of federal spending, contribute to the federal budget deficit; influence how people work, save, and invest; and affect the distribution of income.
This report examines how 10 of the largest tax expenditures in the individual income tax system in 2013 are distributed among households with different amounts of income. Those expenditures are grouped into four categories:
- Exclusions from taxable income—
- Employer-sponsored health insurance,
- Net pension contributions and earnings,
- Capital gains on assets transferred at death, and
- A portion of Social Security and Railroad Retirement benefits;
- Itemized deductions—
- Certain taxes paid to state and local governments,
- Mortgage interest payments, and
- Charitable contributions;
- Preferential tax rates on capital gains and dividends; and
- Tax credits—
- The earned income tax credit, and
- The child tax credit.
- Accounting Today, Congressional Report Finds Tax Expenditures Skewed Toward Wealthy
- Bloomberg, Income Extremes Reap Most Benefit From Tax Breaks: CBO
- Bloomberg, Tax Reformers Must Kill Subsidies for the Rich
- Fox News, CBO: Tax Breaks Cost $1.2 Trillion Over Decade
- L.A. Times, How 10 Major Tax Breaks Benefit the Rich -- and the Poor
- L.A. Times, Tax Breaks Benefit Rich Households the Most, Report Says
- Mother Jones, Tax Expenditures Favor the Rich—But Probably by Less Than CBO Says
- Wall Street Journal, CBO: More Than Half of Biggest Tax Breaks Go to Top Quintile of Households
- Washington Post, CBO Study: Wealthy Win Lion’s Share of Major Tax Breaks Like Mortgage Interest Deduction
- Wall Street Journal, Give Us a Break: The Congressional Budget Office's Misleading Report on "Tax Expenditures"
Tuesday, May 28, 2013
Congressional Budget Office, Effects of a Carbon Tax on the Economy and the Environment:
Lawmakers could increase federal revenues and encourage reductions in emissions of carbon dioxide (CO2) by establishing a carbon tax, which would either tax those emissions directly or tax fuels that release CO2 when they are burned (fossil fuels, such as coal, oil, and natural gas). Emissions of CO2 and other greenhouse gases accumulate in the atmosphere and contribute to climate change—a long-term and potentially very costly global problem.
The effects of a carbon tax on the U.S. economy would depend on how the revenues from the tax were used. Options include using the revenues to reduce budget deficits, to decrease existing marginal tax rates (the rates on an additional dollar of income), or to offset the costs that a carbon tax would impose on certain groups of people. This study examines how a carbon tax, combined with those alternative uses of the revenues, might affect the economy and the environment.
Friday, May 24, 2013
This document is the seventh in a series of papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system. This compilation is a joint product of the majority and minority staffs of the Finance Committee with input from Committee members’ staffs. ..
The paper ... outlines the following potential goals for reform in this policy area:
- Minimize the disruption to business practices and employee expectations inherent in any fundamental tax reform;
- Simplify the taxation of retirement savings and health insurance;
- Increase the number of people with enough resources for an adequate standard of living in retirement, and expand access to health insurance;
- Maximize the bang-for-the-buck of any tax incentives that are retained or reformed; and
- Develop neutral rules regarding compensation and fringe benefits to ensure that business needs and not tax planning drive compensation decisions, while minimizing compliance costs.
The paper lists and expounds upon the following broad policy reform options:
- Limit or eliminate tax preferences for retirement saving;
- Replace deductions, exclusions and credits for retirement savings with a single refundable tax credit;
- Increase retirement savings incentives;
- Attempt to increase effect of tax expenditures for retirement savings on retirement security;
- Simplify process of selecting and administering a plan for employers;
- Establish new plan options for employers;
- Reduce “leakage” from retirement plans;
- Allow more flexibility in distributions from retirement savings accounts;
- Reduce tax expenditures for employer-provided health benefits;
- Modify the Affordable Care Act (ACA);
- Expand the tax benefits for health;
- Expand long-term care benefits;
- Reform excise taxes and other tax provisions that may affect health;
- Reduce tax expenditures for life insurance products;
- Reduce tax expenditures for annuities;
- Limit exclusions for other employee fringe benefits;
- Expand tax preferences for other employee fringe benefits;
- Harmonize employee fringe benefit rules;
- Revise the limits on the deductibility of executive compensation;
- Revise the rules related to non-qualified deferred compensation;
- Revise the rules related to equity-based compensation; and
- Revise the rules related to golden parachute payments to executives upon a change in control.
Thursday, May 23, 2013
One Infinite Loop
United States of America
Or maybe Ireland
Dear Mr./Ms. Apple,
I am writing to you at the request of Senator Rand Paul, who suggested that I apologize to you for investigating your offshore tax planning.
I should note at the outset that I wasn’t sure how to address this letter. Mr. Paul said to apologize to Apple, but I’m not sure if Apple is a person, and if so if you are a boy or a girl. I thought you were a company, but after hearing Mr. Paul tell the story of how you recovered from near death in the 1990s, maybe you are some kind of superhero.
I’m also not really sure where you live. You have an address in California, but your tax returns also claim residency in Ireland, except not really. So I hope this letter gets to you.
I have to say, the whole Ireland thing kind of sounded like a scam. I was relieved when your CEO, Timothy Cook, explained that you don’t use any tax gimmicks. A professor testifying at the hearing yesterday said that he nearly fell off his chair when he read Mr. Cook’s statement, but that’s probably because tax professors are known for being silly and theatrical. You should see what their conferences are like.
So, I apologize. In order to improve our service to you in the future, we are implementing two new changes in our customer service policy.
The first is a promise to do a better job of scheduling. If we have to mention taxes again, I’ll be sure to just add it to the agenda when your lobbyists drop by for a closed-door meeting. And I don’t mean to badger you, but Google and Microsoft spend a lot more money on lobbying, and we do offer special treatment for regular donors.
The second is a promise to stop holding Congressional tax investigations. The IRS never has enough to do, and they are pretty entrepreneurial. I’m sure they are competent to handle all of this on their own without our help or oversight.
Finally, I want to emphasize just how much we appreciate your willingness to comply with your legal obligation to pay taxes. If you think about it, taxes are really just a form of charitable giving. Our goal is to reach a high level of participation from both American and Irish corporations, and your donation in any amount makes a difference. We also welcome any in-kind donations in the form of iPhones and iPads. My daughter knows how to use them.I hope you can forgive us. In hindsight, we were cavalier in our efforts to find out more about how our tax system is or isn’t working. We know now that it’s not really any of our business, and promise to base any future tax legislation on naïve intuition and wild rhetoric instead of facts.
Your humble servants,
The United States SenateP.S. At your earliest convenience, please let us know what stance we should take on immigration policy.
Annual “Taxes” Giving Pledge Form
☐ I wish to support the United States Government with a gift/pledge* of
☐ 35% ☐ 15% ☐ 5% ☐ 0% ☐ Other _____
* This gift may or may not be tax-deductible. Please consult your tax advisor.
Wednesday, May 22, 2013
Following up on yesterday's post, Senate Holds Hearing Today on Apple's Tax Avoidance:
- Blog of the Legal Times: Senators Question IRS Over Targeting Conservative Groups
- Bloomberg editorial: Apple's Taxes Expose the Rotten U.S. Tax Code
- Bloomberg: Apple CEO Cook Rebuts $9 Billion Tax-Avoidance Claim
- Bloomberg: Google Joins Apple Avoiding Taxes With Stateless Income, by Jesse Drucker
- Bloomberg: Tim Cook, Taxes, and Avoiding the Right Thing
- The Guardian: Apple Chief Calls on U.S. Government to Slash U.S. Corporate Tax; Tim Cook Warns Congress That He Would Refuse to Repatriate $100bn Stashed Offshore Unless U.S. Severely Reduced its 35% Tax Rate
- The Hill: Apple CEO Denies Using Tax ‘Gimmicks’
- The Hill: Rand Paul: Senate Should Apologize to Apple for ‘Spectacle’ Hearing on Taxes
- National Law Journal: Senators Grill Apple Executives About Tax Strategy
- National Review: The Big Apple Circus: Apple Pays All the Taxes It Owes, and Congress Pretends It’s a Crime
- New York Times DealBook: Finding the Economic Roots of Apple’s Taxable Product, by Victor Fleischer (San Diego)
- New York Times: Even Before Apple Tax Breaks, Ireland’s Policy Had Its Critics
- New York Times: For U.S. Companies, Money ‘Offshore’ Means Manhattan, by David Kocieniewski
- New York Times: Disarming Senators, Apple Chief Eases Tax Tensions
- New York Times: One Response to Apple Tax Strategy May Be to Copy It, by Floyd Norris
- Politico: Apple’s Tim Cook Shines in D.C. Spotlight
- Politico: Tim Cook Defends Apple Tax Policy
- Reuters: Factbox: Apple, Amazon, Google and Tax Avoidance Schemes
- Wall Street Journal editorial: The Apple Tax Diversion: Senators Beat Up a U.S. Success for Following the Tax Laws They Wrote
- Wall Street Journal: Apple CEO Defends Tax Practices as Proper
- Wall Street Journal: Apple CEO Tim Cook, Lawmakers Square Off Over Taxes
- Washington Post editorial: Apple Is Shifting its Tax Burden
The House Committe on Oversight and Government Reform holds a hearing today on The IRS: Targeting Americans for Their Political Beliefs at 9:30 a.m. EST (webcast here):
- Neal S. Wolin (Deputy Secretary, Treasury Department)
- J. Russell George (Treasury Inspector General for Tax Administration)
- Lois Lerner (Director of Exempt Organizations, IRS)
- Douglas Shulman (Former Commissioner, IRS)
Tuesday, May 21, 2013
The Senate Permanent Committee on Investigations holds a hearing today on Offshore Profit Shifting and the U.S. Tax Code - Part 2 (Apple Inc.):
J. Richard Harvey (Villanova
Stephen E. Shay (Harvard)
Timothy D. Cook (Chief Executive Officer, Apple)
Peter Oppenheimer (Senior Vice President & Chief Financial Officer, Apple)
Phillip A. Bullock (Head of Tax Operations, Apple)
Mark J. Mazur (Assistant Secretary for Tax Policy, U.S. Treasury Department)
Samuel M. Maruca (Director, Transfer Pricing Operations, Large Business & International (LB&I) Division, IRS)
Documents and press coverage:
- Memorandum from Sn. Levin & Sen. McCain
- Apple Statement
- Sen. Levin Press Release
- Bloomberg, Apple CEO to Take on Lawmaker Statements on Tax Avoidance
- Bloomberg, Apple Urges Simpler U.S. Tax Code Ahead of Senate Hearing
- Christian Science Monitor, Apple 'Tax Gimmicks': Rotten to the Core or Sensible Business?
- Citizens for Tax Justice, Apple Holds Billions of Dollars in Foreign Tax Havens
- Forbes, Apple Explains Position On U.S. Taxes as CEO Cook Prepares for Senate Hearing
- Forbes, Apple Used Loopholes To Skip Paying U.S. Taxes On $44 Billion In Offshore Income, Senate Committee Claims
- The Guardian, Senators Accuse Apple of 'Highly Questionable' Billion-Dollar Tax Avoidance Scheme
- L.A. Times, Apple Skirts U.S. Taxes, Panel Finds
- New York Times, Apple’s Web of Tax Shelters Saved It Billions, Panel Finds
- New York Times, Senate Panel Is Expected to Castigate Apple on Tax Tactics
- Politico, Apple Prepares for Washington Onslaught
- Politico, Senate Investigators: Apple Sheltered $44 Billion From Taxes
- Reuters, Apple's Stateless Subsidiaries Lower Tax Bills -- Senate Report
- Tax Foundation: U.S. Multinationals Paid More Than $100 Billion in Foreign Income Taxes
- Wall Street Journal, Apple Avoided Taxes on Overseas Billions, Senate Panel Finds
- Washington Post, Apple Avoids Taxes With ‘Complex Web’ of Offshore Entities, Senate Inquiry Finds
The Senate Finance Committee holds a hearing today on A Review of Criteria Used by the IRS to Identify 501(c)(4) Applications for Greater Scrutiny:
- Steven T. Miller (Former Acting Commissioner, IRS)
- J. Russell George (Treasury Inspector General for Tax Administration)
- Douglas Shulman (Former IRS Commissioner)
Press and blogosphere coverage:
- The Hill, IRS Officials on Hot Seat at Senate Finance Committee
- New York Times, Senate Panel Asks IRS Chief to Detail Communications With White House
- Politico, Max Baucus, Orrin Hatch Expand IRS Probe
- Wall Street Journal, Bipartisan Push in Senate for IRS Documents
- Washington Post, Senators Ask Ex-IRS Chief to Detail Communications with White House
Friday, May 17, 2013
The hearing will focus on the IRS’s practice of discriminating against applicants for tax-exempt status based on the political leanings of the applicants.
- Steve Miller (Former Acting Commissioner, IRS)
- J. Russell George (Treasury Inspector General for Tax Administration)
Thursday, May 16, 2013
This document is the sixth in a series of papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system. This compilation is a joint product of the majority and minority staffs of the Finance Committee with input from Committee members’ staffs.
The paper lists the following broad goals in this policy area:
- Simplify the law in order to reduce the cost to businesses and individuals of complying with the tax code;
- Carefully consider whether and how to address any positive or negative externalities;
- If policy makers choose to include incentives in a reformed tax code, make such tax expenditures more equitable and efficient; and
- Carefully consider how to treat different parts of the country and industries equitably.
On housing, the paper includes the following options:
- Gradually repeal the mortgage interest deduction;
- Limit the mortgage interest deduction;
- Convert the mortgage interest deduction to an above-the-line deduction;
- Convert the mortgage interest deduction to a credit;
- Phase out exclusion for capital gains on sale of principal residence;
- Make permanent the deduction for mortgage insurance premium payments;
- Extend exclusion from income for cancellation of certain home mortgage debt;
- Repeal the Low-Income Housing Tax Credit (LIHTC);
- Replace the LIHTC with an equivalent reduction in tax on rental income;
- Reform or expand the LIHTC; and
- Create a non-refundable tax credit for low-income renters.
The paper lists other policy options for state and local financing, tribal financing, community development, and state and local tax uniformity.
Wednesday, May 15, 2013
The Subcommittee on Select Revenue Measures of the House Ways & Means Committee holds a hearing today on Ways and Means Small Business and Pass-Through Entity Tax Reform Discussion Draft:
The hearing will focus on the Ways and Means small business discussion draft released on March 12, 2013. For purposes of this hearing, the Subcommittee is interested in comments and analysis relating to the basic architecture of the draft proposals including, in particular, the implications of the changes to the cash accounting rules, the questions that must be answered in designing a workable unified pass-through regime, and the real-world ramifications of the incremental proposals to modify the rules governing S corporations and partnerships.
- Roger Harris (President, Padgett Business Services, Athens, GA)
- Willard Taylor (Former Partner, Sullivan & Cromwell, New York)
- Blake Rubin (Partner, McDermott Will & Emery, Washington, D.C.)
- Thomas Nichols (Partner, Meissner Tierney Fisher & Nichols, Milwaukee)
Monday, May 13, 2013
The Government Accountability Office today released Improvements Are Needed to Enhance the Internal Revenue Service's Internal Controls (GAO-13-420R):
During its audit of the IRS fiscal year 2012 financial statements, GAO identified one new internal control deficiency that contributed to IRS's continuing material weakness in internal control over unpaid tax assessments as of September 30, 2012. Specifically, IRS's controls over its process for estimating the balances of federal taxes receivable and other unpaid tax assessments were not effectively implemented to ensure the proper accounting classification and dollar amounts. In addition, GAO identified the following six less significant, new internal control deficiencies as of September 30, 2012. ...
Further, GAO's work showed that as of September 30, 2012, IRS had completed corrective action on 23 of the 69 recommendations from GAO's prior financial audits and other financial management-related work that remained open at the beginning of the fiscal year 2012 financial audit. As a result, IRS currently has 60 recommendations that need to be addressed, which consist of the previous 46 open recommendations as well as 14 new recommendations GAO is making in this report.
Friday, May 10, 2013
The Joint Committee on Taxation today released Estimated Budget Effects of the Revenue Provisions Contained in the President’s Fiscal Year Budget Proposal (JCX-11-13). The Joint Tax Committee estimates that the President's budget would raise taxes by $890 billion over ten years.
This document is the fifth in a series of papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system. This compilation is a joint product of the majority and minority staffs of the Finance Committee with input from Committee members’ staffs. The options described below represent a non-exhaustive list of prominent tax reform options suggested by witnesses at the Committee’s 30 hearings on tax reform to date, bipartisan commissions, tax policy experts, and members of Congress. For the sake of brevity, the list does not include options that retain current law. The options listed are not necessarily endorsed by either the Chairman or Ranking Member. ...
The paper outlines the following broad goals for reform in this area:
- Increasing U.S. competitiveness and job creation by reducing barriers to U.S. and foreign multinationals investing in the U.S.;
- Reducing tax incentives for multinationals to be foreign-based;
- Reducing tax incentives for U.S. multinationals to keep foreign earnings abroad;
- Preventing base erosion and profit shifting to low-taxed foreign entities lacking relevant business substance; and
- Reducing complexity, uncertainty, and compliance burdens.
Some of the reform options discussed in the paper in greater detail include:
- Tightening anti-base erosion rules and reforming the treatment of non-subpart F earnings;
- Strengthening the subpart F rules via several specific changes;
- Repealing deferral for controlled foreign corporations;
- Strengthening thin-capitalization rules to limit base erosion through excessive debt financing;
- Strengthening rules against U.S. base erosion by foreign companies;
- Limiting cross-crediting of foreign tax credits;
- Improving the sourcing of income rules;
- Repealing Domestic International Sales Corporation (DISC) provisions;
- Reforming passive foreign investment company (PFIC) rules;
- Reforming effectively connected income rules;
- Providing an election to long-term nonresident citizens to be taxed as nonresident aliens if they meet certain conditions; and
- Repealing the foreign-earned income exclusion.
Thursday, May 9, 2013
Calling themselves “Max and Dave,” the top two tax writers in Congress are starting a public-relations campaign for a simpler U.S. tax code.
Max Baucus, chairman of the Senate Finance Committee, and Dave Camp, his counterpart on the House Ways and Means Committee, set up a website -- taxreform.gov -- and a handle on Twitter -- @simplertaxes -- to gather public support and input as they try to revise the U.S. tax system.
Baucus and Camp are designing their public pitch as a 21st-century update of the “Write Rosty” campaign of Dan Rostenkowski, the Ways and Means panel chairman at the time of the last major tax-code rewrite in 1986. “We want to know what people think the nation’s tax system should look like and how we can make families’ lives easier,” Baucus said in a statement.
- The Hill: Camp, Baucus Launch New Tax Reform Website
- NPR: Lawmakers Use Web To Request Help Simplifying Tax Code
- Politico: Dave Camp, Max Baucus Dream of a New Tax Code
- USA Today: Lawmakers Seek Public Support for Tax Overhaul
- Wall Street Journal: Camp, Baucus Launch Tax-Reform Campaign Online
Tuesday, May 7, 2013
Joint Committee on Taxation, Report to the House Committee on Ways and Means on Present Law and Suggestions for Reform Submitted to the Tax Working Groups (JCX-3-13) (568 pages):
On February 13, 2013, Ways and Means Committee Chairman Dave Camp and Ranking Member Sander Levin announced the formation of 11 Ways and Means Committee Tax Reform Working Groups. The mission of each working group was to review current law in its designated area, research relevant issues, and compile related feedback from stakeholders, academics and think tanks, practitioners, the general public, and colleagues in the House of Representatives.
This document ... provides an overview of the Internal Revenue Code as in effect for 2013 and provides a more detailed description of the Code provisions relevant to the topic area of each working group. The document also summarizes the suggestions for reform and other commentary submitted by the public to the various working groups ... In addition, at the request of Chairman Camp and Ranking Member Levin, the document briefly summarizes a selection of proposals to reform the Federal tax system that members of Congress, commissions, and others have presented to policy makers over the past several years.
Parts One and Two of this document provide a description of present law. Part Three summarizes selected tax reform proposals. Part Four summarizes the feedback received by the various working groups.
Friday, April 26, 2013
This document is the fourth in a series of papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system. This compilation is a joint product of the majority and minority staffs of the Finance Committee with input from Committee members’ staffs. The options described below represent a non-exhaustive list of prominent tax reform options suggested by witnesses at the Committee’s 30 hearings on tax reform to date, bipartisan commissions, tax policy experts, and members of Congress. For the sake of brevity, the list does not include options that retain current law. The options listed are not necessarily endorsed by either the Chairman or Ranking Member.
Thursday, April 25, 2013
The hearing will consider how certain Federal tax provisions affect the housing sector and homeownership – and the benefits of such investment. It will explore how tax policy affects the relative level of investment between residential real estate and other parts of the economy (such as business investment).
- Mark Fleming (Chief Economist, CoreLogic
- Eric Toder (Co-Director, Urban-Brookings Tax Policy Center)
- Jane Gravelle (Senior Specialist, Congressional Research Service)
- Mark Calabria (Director of Financial Regulation Studies, Cato Institute)
- Phillip Swagel (Professor, University of Maryland School of Public Policy)
- Gary Thomas (President, National Association of Realtors)
- Robert Dietz (Assistant Vice President for Tax and Policy Issues, National Association of Home Builders)
- Thomas Moran (National Multi Housing Council and National Apartment Association)
- Robert Moss (Housing Advisory Group)
In connection with the hearing, the Joint Committee on Taxation has released Present Law, Data, And Analysis Relating to Tax Incentives for Residential Real Estate (JCX-10-13):
This document ... provides general background on the tax incentives for residential housing. The first part of this document describes the tax provisions that offer incentives for homeownership. The second part describes the tax provisions that offer incentives for rental housing. The third part provides a discussion of the economic incentives and data related to residential housing.
Several provisions of the Code provide favorable tax treatment to homeowners. These include: (1) the home mortgage interest deduction; (2) the deduction for real property taxes; (3) the exclusion of gain from sale of a principal residence; (4) tax-exempt bonds for owneroccupied housing; (5) mortgage credit certificates; (6) qualified first-time homebuyer distributions from an individual retirement plan; (7) exclusion from gross income of the rental value of parsonages and military housing allowances; and (8) exclusion from gross income of discharge of certain qualified principal residence indebtedness.
There are also some tax incentives that provide favorable treatment to rental housing. These include: (1) the low-income housing tax credit; (2) the rehabilitation credit; (3) the exclusion of interest on State and local government qualified private activity bonds for rental housing; (4) accelerated depreciation for rental housing; and (5) exceptions from the passive activity loss rules for rental real estate activities. Many of these incentives increase the rate of return to investment in the residential rental housing sector and may increase the supply of rental housing.
Some of these provisions are broad in their applicability while others are relatively narrow in scope. For example, approximately 37 million returns claimed $394 billion of itemized deductions for home mortgage interest paid for 2010. That same year, only 41,733 returns claimed mortgage interest credits through mortgage credit certificates totaling $51.2 million.
While economists generally reason that subsidies may lead to inefficient outcomes, a rationale to subsidize homeownership may exist if there are spillover benefits (“externalities”) that accrue to someone other than the homeowner. For example, if homeowners maintain their homes better than renters, this may benefit others in the form of aesthetics or in fostering other desirable neighborhood characteristics such as lower crime. Part three of this document includes a review of the economic literature related to identifying and measuring the externalities of homeownership.
The Subcommittee on Oversight of the House Ways & Means Committee holds a hearing today on Internal Revenue Service Operations and the 2013 Tax Return Filing Season:
The hearing will focus on the 2013 tax return filing season, the IRS’ fiscal year 2014 budget request, and IRS operations generally.
- GAO, Internal Revenue Service: 2013 Tax Filing Season Performance to Date and Budget Data (GAO-13-541R)
Sunday, April 21, 2013
Following up on Friday's post, IRS to Close to Public for Five Days Due to Employee Furloughs: Charles W. Boustany, Jr., Chairman of the Subcommittee on Oversight of the House Ways & Means Committee, sent a letter to Acting IRS Commissioner Steve Miller seeking information about the decision to send nine IRS union employees to National Treasury Employees Union conferences in Las Vegas, New Orleans, and other cities.
- Washington Examiner, Furloughs? IRS Sends Staff to Vegas for Union Training
Friday, April 19, 2013
This document is the third in a series of papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system. This compilation is a joint product of the majority and minority staffs of the Finance Committee with input from Committee members’ staffs. The options described below represent a non-exhaustive list of prominent tax reform options suggested by witnesses at the Committee’s 30 hearings on tax reform to date, bipartisan commissions, tax policy experts, and members of Congress. For the sake of brevity, the list does not include options that retain current law. The options listed are not necessarily endorsed by either the Chairman or Ranking Member.
Wednesday, April 17, 2013
Section 6103(p)(3)(C) provides that the Secretary of the Treasury shall, within 90 days after the close of each calendar year, furnish to the Joint Committee on Taxation for disclosure to the public a report which provides, with respect to each Federal agency and certain other entities, the number of: (1) requests for disclosure of returns and return information (as such terms are defined in § 6103(b)); (2) instances in which returns and return information were disclosed pursuant to such requests or otherwise; and (3) taxpayers whose returns, or return information with respect to whom, were disclosed pursuant to such requests. In addition, the report must describe the general purposes for which such requests were made.
Pursuant to § 6103(p)(3)(C), the IRS prepared a disclosure report for public inspection covering calendar year 2012. This document sets forth the report of the IRS.
The report reveals that the IRS made 8.3 billion disclosures of tax return information to federal and state agencies. Here are the Top 5 recipients of taxpayer information:
- States: 4.5 billion disclosures
- Congressional Committees: 2.4 billion disclosures
- Bureau of Census: 1.3 billion disclosures
- Bureau of Economic Analysis: 107.0 million disclosures
- Medicare Premium Subsidy Adjustment: 39.8 million disclosures
Tuesday, April 16, 2013
The Senate Finance Committe holds a hearing today on Tax Fraud and Tax ID Theft: Moving Forward with Solutions:
- Steven T. Miller (Acting Commissioner, IRS)
- Nina E. Olson (National Taxpayer Advocate, IRS)
- Jeffrey A. Porter (Chair, Tax Executive Committee, American Institute of Certified Public Accountants)
- Marianna LaCanfora (Deputy Commissioner, Social Security Administration)
In connection with the hearing, the Joint Committee on Taxation has released Present Law and Background Information Related to Selected Tax Procedure and Administration Issues:
This document ... reviews three broad aspects of Federal tax administration and practice that are relevant to voluntary compliance: identity theft tax fraud, rules governing paid tax preparers, and civil tax penalties. The first section discusses tax rules under the Internal Revenue Code and other laws that are directly implicated in efforts to prevent identity theft tax fraud and summarizes several proposals aimed at addressing the issue. The second section discusses the tax rules governing paid tax return preparers and the attempt by the IRS to regulate the conduct of paid tax return preparers. The third section discusses the civil assessment process and provides an overview of the civil tax penalty system and summarizes selected issues raised by practitioner groups and others.
Friday, April 12, 2013
This document is the second in a series of papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system. This compilation is a joint product of the majority and minority staffs of the Finance Committee with input from Committee members’ staffs. The options described below represent a non-exhaustive list of prominent tax reform options suggested by witnesses at the Committee’s 30 hearings on tax reform to date, bipartisan commissions, tax policy experts, and members of Congress. For the sake of brevity, the list does not include options that retain current law. The options listed are not necessarily endorsed by either the Chairman or the Ranking Member.
Members of the Committee have different views about how much revenue the tax system should raise and how tax burdens should be distributed. In particular, Committee members differ on the question of whether any revenues raised by tax reform should be used to lower tax rates, reduce deficits, or some combination of the two. In an effort to facilitate discussion, this document sets this question aside.
Wednesday, April 3, 2013
New York Times DealBook: A Plan to Simplify the Tax Code That May Be Too Simple, by Victor Fleischer (Colorado; moving to San Diego):
Last month, Dave Camp, the chairman of the House Ways and Means Committee, released a draft proposal to change how we tax certain types of businesses known as pass-throughs. ... Mr. Camp’s proposal includes two options.
The first option addresses what we might think of as deferred maintenance — cleaning up some corners of the tax code that have been neglected. For example, it would relax the anachronistic eligibility restrictions for subchapter S corporations. For partnerships, the proposal would repeal the confusing rules related to “guaranteed payments.” It would also make some useful changes to the partnership tax rules related to basis adjustments and revise some outdated definitions.
The second option, a more radical one, appears to be a stalking horse. This would replace our existing system with a unified set of rules for pass-throughs. This sounds simple and appealing. Many of the ideas in Option 2 are promising, but they are largely untested and not fully explained in the proposal....
In my view, there’s an additional problem with Mr. Camp’s proposal: its failure to address how the partnership tax rules are now being used, and abused, by large businesses. The partnership tax rules were originally created for small business, so a small number of individuals could work in a business together and mix together labor and capital without having to pay an extra layer of tax. The rules are now used in ways that Congress never intended. Two examples are the erosion of the corporate tax base and the tax treatment of carried interest. ...
Of course, Mr. Camp has pitched the proposal as being about simplification of the tax rules for small business. Avoiding the topic of carried interest is consistent with that message. But if Mr. Camp wants to raise some revenue to pay for tax changes elsewhere, like a reduction in the corporate tax or a shift to a territorial tax system, he will have to follow the money to where it disappears — through loopholes like carried interest and the abuse of the publicly traded partnership rules.
Tuesday, March 19, 2013
The House Ways & Means Committee holds a hearing today on Tax Reform: What It Means for State and Local Tax and Fiscal Policy:
A number of different Federal tax provisions directly affect State and local governments. By far the largest tax expenditure affecting State and local governments is the itemized deduction for State and local taxes. Individual taxpayers who itemize may generally deduct their State and local income and property taxes. For some taxpayers, this deduction is reduced by the recently reinstated “Pease” limitation on itemized deductions and it is disallowed for taxpayers subject to the Alternative Minimum Tax (AMT). In addition, taxpayers may elect to deduct general sales taxes in lieu of income taxes, although this deduction expires at the end of this year, is also subject to the Pease limitation, and is disallowed under the AMT.
State and local governments also benefit from favorable Federal tax treatment of certain types of bonds they issue, including tax-exempt bonds, tax-credit bonds, and “direct-pay” bonds. In addition, numerous other Internal Revenue Code provisions have a significant impact on State and local governments, including pension and retirement provisions and payroll tax provisions, among others.
- John Buckley (Georgetown University Law School Graduate Tax Program)
- Scott Hodge (Tax Foundation)
- David Parkhurst (National Governors Association)
- Christopher Taylor (Municipal Securities Rulemaking Board)
In connection with the hearing, the Joint Committee on Taxation has released Present Law and Background Information Related to Federal Taxation and State and Local Government Finance (JCX-7-13):
This document ... summarizes the provisions and discusses economic issues of allowing a deduction for certain State and local taxes, tax-exempt and tax-credit bond provisions, the taxation of income of States and municipalities, and the treatment of contributions in aid of construction. This document also provides select background data relating to State and local tax revenues and State and local bonds.
Tuesday, March 12, 2013
House Ways & Means Committee Chair Dave Camp today released a third tax reform discussion draft focused on small business:
The discussion draft contains several core components that simplify tax compliance for small businesses and provide certainty with respect to the ability of small businesses to recover certain costs immediately. These include widely supported reforms such as permanent section 179 expensing and expansion of the “cash accounting” method, amongst other provisions. The discussion draft also includes two separate options designed to achieve greater uniformity between S corporations and partnerships – one that revises current rules and a second that replaces current tax rules with a new unified pass-through regime.
Press and blogosphere coverage:
- Accounting Today, Ways and Means Chairman Camp Proposes Small Business Tax Reforms
- Bloomberg, Camp Offers Option That Would Revamp Partnership Tax Law
- Forbes, Tax Reform for Small Business: Ways and Means Pitches Old Ball; Small-Ball and, Big-Ball
Congressional Research Service, Tax Expenditures: Compendium of Background Material on Individual Provisions, S. Rep. No. 45, 112th Cong., 2d Sess. (1065 pages):
This compendium gathers basic information concerning approximately 250 federal tax provisions currently treated as tax expenditures. They include those listed in Tax Expenditure Budgets prepared for fiscal years 2011-2015 by the Joint Committee on Taxation, although certain separate items that are closely related and are within a major budget function may be combined. The Joint Committee on Taxation also lists about 30 additional tax expenditures with de minimis revenue losses (i.e., less that $50 million over 5 years).
With respect to each tax expenditure, this compendium provides:
- The estimated federal revenue loss associated with the provision for individual and corporate taxpayers, for fiscal years 2011-2015. as estimated by the Joint Committee on Taxation;
- The legal authorization for the provision (e.g., Internal Revenue Code section, Treasury Department regulation, or Treasury ruling);
- A description of the tax expenditure, including an example of its operation where this is useful;
- A brief analysis of the impact of the provision, including information on the distribution of benefits where data are available:
- A brief statement of the rationale for the adoption of the tax expenditure where it is known. including relevant legislative history:
- An assessment, which addresses the arguments for and against the provision; and
- Selected bibliography.
The information presented for each tax expenditure is not intended to be exhaustive or definitive. Rather, it is intended to provide an introductory understanding of the nature, effect, and background of each provision. Useful starting points for further research are listed in the selected bibliography following each provision.
Saturday, March 9, 2013
- Accounting Today, Tax-Delinquent Federal Employees and Retirees Increased 11.5% in 2011
- Bloomberg, Number of Tax-Delinquent Government Workers Up 11.5%
- Fox News, Federal Workers Owe $3.5B in Back Taxes
- Washington Post, IRS: Number of Federal Workers Owing Back Taxes Jumps by Nearly 12 Percent in 2011, to 312,000
Friday, March 8, 2013
Following up on Tuesday's post, House Holds Hearing Today on The Tax-Related Provisions in the President’s Health Care Law: Tax Foundation, Obamacare Tax Increases Will Impact Us All:
The Joint Committee on Taxation recently released a 96 page report on the tax provisions associated with Affordable Care Act. The report describes the 21 tax increases included in Obamacare, totaling $1.058 trillion – a steep increase from initial assessment. The summer 2012 estimate is nearly twice the $569 billion estimate produced at the time of the passage of the law in March 2010. ...
2010 Estimate, 2010-2019, $billion
2012 Estimate, 2013-2022, $billion
0.9% payroll tax on wages and self-employment income and 3.8% t tax on dividends, capital gains, and other investment income for taxpayers earning over $200,000 (singles) / $250,000 (married)
“Cadillac tax” on high-cost plans *
Employer mandate *
Annual tax on health insurance providers *
Individual mandate *
Annual tax on drug manufacturers/importers *
2.3% excise tax on medical device manufacturers/importers*
Limit FSAs in cafeteria plans *
Raise 7.5% AGI floor on medical expense deduction to 10% *
Deny eligibility of “black liquor” for cellulosic biofuel producer credit
Codify economic substance doctrine
Increase penalty for nonqualified HSA distributions *
Impose limitations on the use of HSAs, FSAs, HRAs, and Archer MSAs to purchase over-the-counter medicines *
Impose fee on insured and self-insured health plans; patient-centered outcomes research trust fund *
Eliminate deduction for expenses allocable to Medicare Part D subsidy
Impose 10% tax on tanning services *
Limit deduction for compensation to officers, employees, directors, and service providers of certain health insurance providers
Modify section 833 treatment of certain health organizations
Other Revenue Effects
Additional requirements for section 501(c)(3) hospitals
Employer W-2 reporting of value of health benefits
Total Gross Tax Increase:
* Provision targets households earning less than $250,000.
** Includes CBO’s $216.0 billion estimate for “Associated Effects of Coverage Provisions on Tax Revenues” and $6.0 billion within CBO’s “Other Revenue Provisions” category that is not otherwise accounted for in the CBO or JCT estimates.
Source: Joint Committee on Taxation Estimates, prepared by Ways and Means Committee Staff
Tuesday, March 5, 2013
The Senate Budget Committee holds a hearing today on Reducing the Deficit by Eliminating Wasteful Spending in the Tax Code:
The hearing will focus on making sure we are tackling the deficit in a balanced and fair manner and calling on the wealthiest Americans and biggest corporations to pay their fair share, rather than solely by cutting programs that are critical to families, seniors, and communities nation-wide.
- Jared Bernstein (Senior Fellow, Center for Budget and Policy Priorities)
- Edward D. Kleinbard (Professor of Law, USC)
- Russell Roberts (Research Fellow, Hoover Institution)
The Subcommittee on Oversight of the House Ways & Means Committee holds a hearing today on The Tax-Related Provisions in the President’s Health Care Law:
According to the Government Accountability Office, the President’s health care law contains 47 tax or tax-related provisions. Estimates by the Congressional Budget Office and the Joint Committee on Taxation confirm that tax increases associated with the law total more than $1 trillion over the next ten years. Many of these provisions are already in effect, and others will become effective in 2014. Key provisions include: a tax on medical device and drug manufacturers, and health insurers; a tax on individuals and families who do not purchase government-mandated health insurance, a tax on employers that do not offer government-mandated health insurance, additional Medicare taxes and taxes on investment income.
In its review of the tax provisions of the President’s health care law, the Subcommittee will consider the: (1) status of implementation of key tax provisions; (2) compliance issues associated with the tax provisions and accompanying regulations; and (3) economic effects of the provisions.
- Douglas Holtz-Eakin (President, American Action Forum)
- Walt Humann (President & CEO, OsteoMed)
- Hugh Joyce (James River Heating & Air Conditioning Company)
- David Kautter (Managing Director, Kogod Tax Center, American University)
- Dan Moore (Chairman, Medical Device Manufacturers Association)
- Shelly Sun (CEO & Co-Founder, BrightStar Care)
- Paul N. Van de Water (Senior Fellow, Center on Budget and Policy Priorities )
In connection with the hearing, the Joint Committee on Taxation has released Present Law and Background Relating to the Tax-Related Provisions in the Affordable Care Act (JCX-6-13):
This document ... provides a summary of health insurance changes made by the ACA and a description of the present-law rules with respect to the ACA revenue provisions and includes a discussion of implementation6 of these revenue provisions. The descriptions of the ACA revenue provisions are divided into three sections. Section I describes provisions in effect as of 2013; Section II describes provisions becoming effective in 2014; and Section III describes the one provision becoming effective in 2018. In the case of new Code provisions and the ACA revenue provisions creating new industry fees, this document describes the new provisions (reflecting post-enactment amendments, if any). In the case of pre-existing Code provisions amended by the ACA, this document describes the present law with respect to the relevant Code provision, as amended by the ACA. Other background with respect to a provision is included in the description to the extent needed to understand the present law with respect to that provision.
Saturday, March 2, 2013
The House Ways & Means Committee yesterday announced a new email address, firstname.lastname@example.org as another way for stakeholders, advocacy groups and the public to share information, facts and data relevant to the Committee's review of current federal income tax law within the Committee’s 11 Tax Reform Working Groups:
The working groups, announced earlier this month by Chairman Dave Camp (R-MI) and Ranking Member Sander Levin (D-MI), will review current law in their designated issue areas and then identify, research and compile feedback related to the topic of the working group. The working groups will be responsible for compiling feedback on their designated topic from: (1) stakeholders, (2) academics and think tanks, (3) practitioners, (4) the general public and (5) colleagues in the House of Representatives. Once the work of those groups has been completed, the Joint Committee on Taxation (JCT) will prepare a report for the full Committee that describes current law in each issue area and only summarizes these submissions and other information gathered by the Committee Members.
Those interested in sharing information, facts, and data can email their comments to the Committee. To ensure that comments are widely available and accessible, comments that are received will be posted on the Ways and Means website.
Public comments will be accepted through Monday, April 15, 2013. Those comments will be included in the final JCT report, which will be delivered to the Ways and Means Committee on Monday, May 6, 2013.
(Hat Tip: Roberta Mann.)
Tuesday, February 26, 2013
The Joint Committee on Taxation yesterday released General Explanation of Tax Legislation Enacted in the 112th Congress (JCS-2-13):
This document ... provides an explanation of tax legislation enacted in the 112th Congress. The explanation follows the chronological order of the tax legislation as signed into law. For each provision, the document includes a description of present law, explanation of the provision, and effective date. Present law describes the law in effect immediately prior to enactment. It does not reflect changes to the law made by the provision or subsequent to the enactment of the provision. For many provisions, the reasons for change are also included. In some instances, provisions included in legislation enacted in the 112th Congress were not reported out of committee before enactment. For example, in some cases, the provisions enacted were included in bills that went directly to the House and Senate floors. As a result, the legislative history of such provisions does not include the reasons for change normally included in a committee report. In the case of such provisions, no reasons for change are included with the explanation of the provision in this document.
Monday, February 25, 2013
The Treasury Inspector General for Tax Administration has agreed to investigate whether an IRS employee improperly steered more than $500 million in government contracts to Signet Computers, after receiving this letter from House Committee on Oversight and Government Reform Chair Darrell Issa.
“At best, this is a conflict of interest that runs afoul of ... Federal Acquisition Regulation,” Issa writes. “At worst, the IRS may have a situation in which a contracting official is awarding sole source contracts based on false justifications, or receiving kickbacks in exchange for government contracts.” ... The IRS’ contracts with Signet Computers also may have been tailored so that Signet was the only company that could win them in open bidding, Issa writes.
Sunday, February 24, 2013
New York Times DealBook: A Revolving Door in Washington With Spin, but Less Visibility, by Jesse Eisinger (ProPublica):
Obsess all you’d like about President Obama’s nomination of Mary Jo White to head the Securities and Exchange Commission. Who heads the agency is vital, but important fights in Washington are happening in quiet rooms, away from the media gaze. ...
Take what happened late last month as Washington geared up for more fights about the taxing, spending and the deficit. The Senate majority leader, Harry Reid, Democrat of Nevada, decided to bolster his staff’s expertise on taxes.
So on Jan. 25, Mr. Reid’s office announced that he had appointed Cathy Koch as chief adviser to the majority leader for tax and economic policy. The news release lists Ms. Koch’s admirable and formidable experience in the public sector. “Prior to joining Senator Reid’s office,” the release says, “Koch served as tax chief at the Senate Finance Committee.”
It’s funny, though. The notice left something out. Because immediately before joining Mr. Reid’s office, Ms. Koch wasn’t in government. She was working for a large corporation.
Not just any corporation, but quite possibly the most influential company in America, and one that arguably stands to lose the most if there were any serious tax reform that closed corporate loopholes. Ms. Koch arrives at the senator’s office by way of General Electric.
Yes, General Electric, the company that paid almost no taxes in 2010. Just as the tax reform debate is heating up, Mr. Reid has put in place a person who is extraordinarily positioned to torpedo any tax reform that might draw a dollar out of G.E. — and, by extension, any big corporation.
Omitting her last job from the announcement must have merely been an oversight. By the way, no rules prevent Ms. Koch from meeting with G.E. or working on issues that would affect the company.
The senator’s office, which declined to make Ms. Koch available for an interview, says that she will support the majority leader in his efforts to close corporate tax loopholes. His office said in a statement that the senator considered her knowledge of the private sector to be an asset and that she complied with “all relevant Senate ethics rules and disclosures.”
In a statement, the senator’s spokesman said, “The impulse in some quarters to reflexively cast suspicion on private sector experience is part of what makes qualified individuals reluctant to enter public service.”
Saturday, February 16, 2013
The Congressional Budget Office yesterday doubled down on its report, Options for Taxing U.S. Multinational Corporations, in response to a January 24, 2013 letter from House Ways & Means Chair Dave Camp charging that the report was "heavily slanted and biased":
This letter responds to concerns you raised about the CBO's report, Options for Taxing U.S. Multinational Corporations, which was released on January 8, 2013. We continue to believe that it presents the key issues fairly and objectively and that its findings are well grounded in economic theory and are consistent with empirical studies in this area. Nevertheless, because of the complexity of the subject and the diverse views of experts in the field, we agree that it would have been desirable to seek comments from more outside reviewers. It is always our goal to seek outside reviewers for CBO studies who represent a broad range of views and perspectives. Following is a discussion of the various issues you raised regarding the report.
- The Hill, CBO Defends Tax Report From GOP Criticism
- Reuters, Lawmaker, Budget Agency Spar Over Taxing Corporate Profits
This dispute is similar to last year's charge by Senate Republicans that the Congressional Research Service had released a biased report on the impact of tax rates on economic growth:
- CRS: An Economic Analysis of the Top Tax Rates Since 1945 (Sept. 17, 2012)
- Dems, GOP Trade Barbs After CRS Pulls Report on Tax Rates and Economic Growth (Nov. 2, 2012)
- Republican Staff Study: CRS Report on Tax Rates Is Flawed (Nov. 14, 2012)
- CRS Re-issues Report: Tax Rates on Rich Have 'Negligible' Effect on Economic Growth (Dec. 14, 2012)
Thursday, February 14, 2013
The hearing will examine the itemized deduction for charitable contributions as part of the Committee’s work on comprehensive tax reform. It also will receive testimony from witnesses on previous proposals to modify the deduction and its value.
In connection with the hearing, the Joint Committee on Taxation has released Present Law and Background Relating to the Federal Tax Treatment of Charitable Contributions (JCX-4-13):
This document ... contains an overview of the present-law rules relating to the Federal tax treatment of charitable contributions, a discussion of economic issues relating to Federal tax incentives for charitable giving, and a description of several legislative proposals related to the Federal tax treatment of charitable contributions.
Friday, February 1, 2013
The Joint Committee on Taxation has released Estimate of Federal Tax Expenditures for Fiscal Years 2012-2017 (JCS-1-13):
Tax expenditure analysis can help both policymakers and the public to understand the actual size of government, the uses to which government resources are put, and the tax and economic policy consequences that follow from the implicit or explicit choices made in fashioning legislation. This report on tax expenditures for fiscal years 2012-2017 is prepared by the staff of the Joint Committee on Taxation. ... As in the case of earlier reports, the estimates of tax expenditures in this report were prepared in consultation with the staff of the Office of Tax Analysis in the Department of the Treasury.
The Joint Committee staff has made its estimates (as shown in Table 1) based on the provisions in Federal tax law as enacted through January 2, 2013. Expired or repealed provisions are not listed unless they have continuing revenue effects that are associated with ongoing taxpayer activity. Proposed extensions or modifications of expiring provisions are not included until they have been enacted into law. The tax expenditure calculations in this report are based on the January 2012 Congressional Budget Office revenue baseline and Joint Committee staff projections of the gross income, deductions, and expenditures of individuals and corporations for calendar years 2011-2017.
Part I of this report contains a discussion of the concept of tax expenditures. Part II is a discussion of the measurement of tax expenditures. Estimates of tax expenditures for fiscal years 2012-2017 are presented in Table 1 in Part III. Table 2 shows the distribution of tax returns by income class, and Table 3 presents distributions of selected individual tax expenditures by income class.
Friday, January 25, 2013
Congressional Budget Office, Refundable Tax Credits:
The number and total costs of the refundable credits in the income tax system have grown considerably since 1975. The number of credits peaked at 11 in 2010 before dropping to 6 in 2013 (see Figure 1). Their total costs (that is, the reduction in revenues and the increase in outlays) reached a high of $238 billion in 2008. (That amount and other annual costs discussed in this report are expressed in 2013 dollars.) Those costs will drop to $149 billion in 2013, the CBO estimates, mostly for the earned income tax credit (EITC) and the child tax credit. By 2018, three more credits will have expired, and the EITC and the child tax credit will have been scaled back.
Those cutbacks in refundable tax credits will be more than offset, however, by new health-related subsidies provided through the tax system. Starting in 2014, a new refundable tax credit will be available to some people for the purchase of health insurance through newly created exchanges. The cost of that credit will be about. $110 billion by 2021, CBO and the staff of the Joint Committee on Taxation (JCT) project, bringing the total cost of refundable tax credits in that year to $213 billion— roughly the same as the costs in 2009 and 2010, even though the number of refundable tax credits will have fallen by more than half between 2010 and 2021.
Saturday, January 12, 2013
This document ... provides a listing of Federal tax provisions (other than those providing time-limited transition relief after the repeal of an underlying rule) that are currently scheduled to expire in 2013-2023 (with references to the applicable section of the Internal Revenue Code of 1986 or other applicable law). Expiring Federal tax provisions providing temporary disaster relief are separately listed in Part II of the document.
For purposes of compiling this list, the staff of the Joint Committee on Taxation considers a provision to be expiring if, at a statutorily specified date, the provision expires completely or reverts to the law in effect before the present-law version of the provision. Certain provisions terminate on dates that refer to a taxpayer’s taxable year and not a calendar year. For these provisions, the expiration dates listed in this document apply with respect to calendar year taxpayers. The expiration dates of such provisions may differ, however, with respect to fiscal year taxpayers or taxpayers with short taxable years. Years in which there are no expiring provisions are not listed in the document.
Because of the fiscal cliff tax act, this year's document is only 21 pages, compared to last year's 32-page document.
Wednesday, January 9, 2013
Tax Foundation: CRS Study on Tax Rates and Growth Still Flunks the Test, by Stephen J. Entin:
Studies issued by the Congressional Research Service are intended to inform the Congress as it develops public policy and enacts legislation. A recent CRS publication on the effect of the top statutory tax rates on economic activity [Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945] may have influenced the debate over taxing the rich during the election and may have influenced the tax changes just enacted in the fiscal cliff legislation.
It is critical that such studies reflect the best guidance that the economics and tax professions can provide. The CRS study on the top tax rates did not meet that high standard. Its original release in the fall was met with widespread and justified disbelief, and it was withdrawn for review and examination of its methodology. It has now been reissued in an updated form. However, the re-issued CRS study does not contain any changes of note that would redeem the original report.
The paper purports to determine the link (or lack thereof) between changes in the top marginal tax rates on income and capital gains and the growth rate of the economy. Unfortunately, the method used to determine the relationship depends mainly on timing, looking to see if a change in the growth rate of the economy coincides with or follows soon after a rise or fall in the tax rates. The study makes no effort to determine the channels through which the tax changes ought to work to affect the economy, looks at the wrong measure of progress over the wrong time frame, and takes inadequate account of what other tax or economic events are occurring at the same time that might mask the results. ...
The CRS study omits important variables and poisons its results by not holding other factors constant. The variables it does examine are indirectly related to the relationship one should be studying, but the study does not follow them for long enough to get the whole picture. The study is as weak now as it was when it was first issued. Grade: F.
Prior TaxProf Blog posts:
- CRS: An Economic Analysis of the Top Tax Rates Since 1945 (Sept. 17, 2012)
- Dems, GOP Trade Barbs After CRS Pulls Report on Tax Rates and Economic Growth (Nov. 2, 2012)
- Republican Staff Study: CRS Report on Tax Rates Is Flawed (Nov. 14, 2012)
- CRS Re-issues Report: Tax Rates on Rich Have 'Negligible' Effect on Economic Growth (Dec. 14, 2012)
The Government Accountability Office has released Tax Expenditures: Background and Evaluation Criteria and Questions (GAO-13-167SP):
Tax expenditures are reductions in a taxpayer's tax liability that are the result of special exemptions and exclusions from taxation, deductions, credits, deferrals of tax liability, or preferential tax rates. Similar to spending programs, tax expenditures represent a substantial federal commitment to a wide range of mission areas. If the Department of the Treasury (Treasury) estimates are summed, an estimated $1 trillion in revenue was forgone from the 173 tax expenditures reported for fiscal year 2011. Tax expenditures are often aimed at policy goals similar to those of federal spending programs. Existing tax expenditures, for example, are intended to encourage economic development in disadvantaged areas, finance postsecondary education, and stimulate research and development. For some tax expenditures, forgone revenue can be of the same magnitude or larger than related federal spending for some mission areas. The revenue the federal government forgoes from a tax expenditure reduces revenue available to fund other federal activities, requires higher tax rates to raise any given amount of revenue, increases the budget deficit, or reduces any budget surplus.
Given the interest in tax expenditures' effectiveness, Congress asked GAO to develop a framework that could be used to evaluate their performance. In response, this guide describes criteria for assessing tax expenditures and develops questions Congress can ask about a tax expenditure's performance.
Congressional Budget Office, Options for Taxing U.S. Multinational Corporations:
In 2008, 12% of all federal revenues came from corporate income taxes; about half was paid by multinational corporations reporting income from foreign countries. How the federal government taxes U.S. multinational corporations has consequences for the U.S. economy overall as well as for the federal budget.
Tax polices influence businesses’ choices about how and where to invest, particularly the profitability of locating in the United States or abroad. The tax laws also can create opportunities for tax avoidance by allowing multinational corporations to use accounting or other legal strategies to report income and expenses for their U.S. and foreign operations in ways that reduce their overall tax liability. U.S tax revenues decline when firms move investments abroad or when they strategically allocate income and expenses to avoid paying taxes here.
This study examines options for changing the way the United States taxes multinational corporations or addressing particular concerns with the current system of taxation. All of those options would affect multinational corporations’ investment strategies and reporting of income, as well as U.S. revenues from corporate income taxes.
(Hat Tip: Ed Kleinbard.)
Tuesday, January 8, 2013
The Joint Committee on Taxation today released Overview of the Federal Tax System as in Effect for 2013 (JCX-2-13):
This document ... provides a summary of the present-law Federal tax system as in effect for 2013. The current Federal tax system has four main elements: (1) an income tax on individuals and corporations (which consists of both a “regular” income tax and an alternative minimum tax); (2) payroll taxes on wages (and corresponding taxes on self-employment income) to finance certain social insurance programs; (3) estate, gift, and generation-skipping taxes, and (4) excise taxes on selected goods and services. This document provides a broad overview of each of these elements.
A number of aspects of the Federal tax laws are subject to change over time. For example, some dollar amounts and income thresholds are indexed for inflation. The standard deduction, tax rate brackets, and the annual gift tax exclusion are examples of amounts that are indexed for inflation. In general, the IRS adjusts these numbers annually and publishes the inflation-adjusted amounts in effect for a tax year prior to the beginning of that year. Where applicable, this document generally includes dollar amounts in effect for 2013 and notes whether dollar amounts are indexed for inflation. A number of the inflation indexed 2013 values have not yet been published by the IRS. In these cases, the referenced figures were calculated by the Joint Committee Staff in accordance with the governing statute and published Consumer Price Index values.
In addition, a number of the provisions in the Federal tax laws have been enacted on a temporary basis or have parameters that vary by statute from year to year. For simplicity, this document describes the Federal tax laws in effect for 2013 and generally does not include references to provisions as they may be in effect for future years or to termination dates for expiring provisions.
Wednesday, January 2, 2013
The House last night approved H.R. 8 by a vote of 257-167 to avert the fiscal cliff. The bill now goes to the White House for President Obama's signature. Highlights of the bill include:
- Raise the marginal tax rate to 39.6% on income over $450,000 (joint) and $400,000 (single).
- Raise the tax rate on dividends and long term capital gains to 20% on taxpayers with income over $450,000 (joint) and $400,000 (single). The top rate would remain 15% for taxpayers with lower incomes.
- Estate and gift tax: $5 million exemption (inflation-adjusted) and 40% rate.
- Permanent and retroactive patch for the AMT.
- Return of the exemption and itemized deduction phase-outs on taxpayers with income over $300,000 (joint) and $250,000 (single).
- One-year extension of 50% bonus depreciation.
- Extension of various tax extenders.
- Legislative Language
- Senate Finance Committee Summary
- White House Fact Sheet
- President Obama Statement.
- Congressional Budget Office Revenue Estimate
- Joint Committee on Taxation Reveue Estimate
- Len Burman (Syracuse), Senate Bill Averts Fiscal Cliff--For Now--While Ignoring our Short- and Long-Term Fiscal Problems
- CCH, Tax Briefing
- Stephen J. Entin (Tax Foundation), Modeling the Economic and Distributional Effects of the Senate Tax Bill
- Howard Gleckman (Tax Policy Center), Congress Kicks the Fiscal Can off the Front Stoop
- Joseph Henchman (Tax Foundation), Details of the Fiscal Cliff Tax Deal
- Ezra Klein (Washington Post), Wonkbook: Everything You Need to Know About the Fiscal Cliff Deal
- Greg Mankiw (Harvard), President Rejects His Bipartisan Bowles-Simpson Commission
- Greg Mankiw (Harvard), The Neverending Quest for a More Redistributionist Tax System
- David Malpass (WSJ op-ed), Nothing Is Certain Except More Debt and Taxes,
- New York Times, Tax Deal’s Passage Ends Latest Standoff
- Dan Shaviro (NYU), The Fiscal Cliff Deal
- Joe Thorndike (Tax Analysts), Is Obama the Worst Legislative Negotiator of the Last Century?
- Wall Street Journal, Congress Passes Cliff Deal
- Wall Street Journal, High Earners Facing First Major Tax Increase in Years
- Wall Street Journal editorial, Obama's Tax Bill Comes Due
- Washington Post, Congress Approves ‘Fiscal Cliff’ Measure
- Washington Post, Tea Party Backers Swallow a Bitter Pill in ‘Cliff’ Bill
- Robert Wood (Forbes), Five Things Everyone Should Know about the Fiscal Cliff Tax Deal
- George Yin (Virginia), 'Fiscal Cliff' Compromise Is a Bad Deal