Paul L. Caron

Friday, January 14, 2011

Geithner Kicks Off Obama Administration's Corporate Tax Reform Effort

Treasury Secretary Timothy Geithner today kicked off the Obama administration's efforts at corporate tax reform by meeting with executives of more than a dozen major U.S. companies.

January 14, 2011 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, January 13, 2011

Forbes: Rich Donors Seek to Undo Taxable 2010 Gifts

Forbes, Rich Folks Seek To Undo 2010 Taxable Gifts, by Deborah L. Jacobs:

Many wealthy people got pitches from their estate planning lawyers last year encouraging them to make taxable gifts. It seemed like a good idea at the time. Lifetime gifts are an important estate-planning tool. Not only do they leave less for the government to tax later, but if the assets increase in value after you have passed them along, the appreciation is tax-free.

Even people in a position to shift substantial wealth to family tend to be reluctant to make gifts so large that they will incur gift tax. Still, for much of 2010, it seemed like a wise financial strategy to do just that. With both the gift tax and the estate tax automatically scheduled to increase to 55% in 2011, the 35% gift-tax rate on gifts of more than $1 million in 2010 looked like a bargain.

If, due to procrastination or lack of interest, you ignored what lawyers then dubbed a unique "opportunity," you avoided a quandary that’s consuming a lot of airtime this week at the Heckerling Institute on Estate Planning, the annual Super Bowl on the subject sponsored by University of Miami School of Law. The lawyers meeting here in Orlando are in the awkward position of trying to figure out what clients who followed their advice can now do to reverse those 2010 taxable gifts.

Their collective chagrin stems from the sweeping tax overhaul President Obama signed Dec. 17. Under this law the amount that anyone can transfer tax-free during life went up this year from $1 million to $5 million ($10 million for married couples). So by simply waiting until 2011 to make gifts, it might have been possible to avoid gift tax altogether.

January 13, 2011 in News, Tax | Permalink | Comments (1) | TrackBack (0)

Indiana and Wisconsin Court Illinois Businesses Fleeing 66% Individual and 46% Business Tax Hikes

Wall Street Journal editorial, Illinois Exit Fee:

Jubilation has broken out in the Midwest—or at least in Wisconsin and Indiana, now that Democrats in neighboring Illinois have rushed their tax increase into law.

Late Tuesday night, Democrats in the Illinois house and senate rammed through Governor Pat Quinn's 67% hike in the state income tax and a nearly 50% jump in the state corporate tax. The increase will add $1,400 to the average family's tax bill, and we doubt it will help job creation in a state that has lost 374,000 jobs since 2008.

New Wisconsin Governor Scott Walker immediately rolled out a press release inviting Illinois businesses to decamp to the Badger State, contrasting his agenda to reduce taxes and welcome business with the Illinois increase. Indiana Governor Mitch Daniels added: "We already had an edge on Illinois in terms of the cost of doing business, and this is going to make it significantly wider."

That's for sure. Small businesses will pay the new 5% income tax rate, up from 3%, and the effective corporate tax rate will rise to 9.5%, which, when combined with the federal rate of 35%, will make the Land of Lincoln one of the most expensive places in the world to conduct business.

January 13, 2011 in News, Tax | Permalink | Comments (21) | TrackBack (0)

Man Arrested for Threatening to Kill Congresmman Because of His Tax Views

Charles Habermann, 32, of Palm Springs, California, was arrested yesterday for phone calls he made in December to the office of Representative Jim McDermott (D-WA), threatening to kill the congressman for, among other things, his position on extending the Bush tax cuts for the wealthy. (Hat Tip: Jim Maule.)

January 13, 2011 in Congressional News, News, Tax | Permalink | Comments (1) | TrackBack (0)

Pratt: Tax Expenditures Are Key to Deficit Reduction

Los Angeles Daily Journal, Show Me the Money: A Hidden Source of Funding for Federal Deficit Reduction, by Katie Pratt (Loyola-L.A.):

If President Barack Obama and Congress ever decide to get serious about federal deficit reduction, there is a potential $1 trillion deficit reduction funding source that they have ignored. With annual federal budget deficits projected to average $1 trillion for the next decade, they should seriously consider this funding source, instead of assuming - contrary to fact - that radical cuts in federal discretionary spending programs can painlessly and equitably achieve meaningful deficit reduction. ...

Although we can cut some discretionary spending, we also can search for wasteful, duplicative or inefficient federal spending in another place most voters would never think of - the federal tax code. Subsidies totaling over $1 trillion, known as "tax expenditures" are woven throughout the federal tax code. These tax expenditures provide federal subsidies that are targeted to specific industries and activities. Some of these tax expenditures (e.g., the home mortgage interest deduction) are well known and considered by most Americans as entitlements. Many tax expenditures are hidden from public view, however, buried in the complex morass of the federal tax code.

January 13, 2011 in News, Tax | Permalink | Comments (2) | TrackBack (0)

Wednesday, January 12, 2011

Individual Income Tax Receipts Are Soaring (But So Is Spending)

Wall Street Journal editorial, Revenues Are Rising: Individual Receipts Are Up 23% in Three Months:

[T]here's some good budget news to report for a change. Federal tax revenues are rising briskly again, which should allow progress against deficits if the politicians can control their spending appetites.

The CBO reported last week that federal tax receipts climbed in December by $18 billion, following somewhat smaller gains in the previous two months. For the first quarter of fiscal 2011, revenues have climbed by $44 billion, or nearly 9%, to $531 billion. Especially encouraging is that these revenue gains came predominantly from individual income taxes, which rose 23% in the first three months to $256 billion. ... We should add that the deficit declined only modestly in the first fiscal quarter because spending rose by $26 billion to $902 billion.

January 12, 2011 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Pay Your Taxes or We'll Kill Your Dog

Time Magazine, Swiss Village to Dog Owners: Pay Your Taxes, or Poochie Dies:

The taxman has never been a popular figure anywhere. But in the tiny Swiss village of Reconvilier, that functionary has assumed the even more detestable profile as the guy who'll waste your dog if you don't cough up what you owe.

Pierre-Alain Némitz said he's been overwhelmed by insults and threats since the Reconvilier municipal council he heads informed residents in late December they risked seeing their dogs killed if they don't pay the $48.50 annual tax the village levies per pooch.

January 12, 2011 in News, Tax | Permalink | Comments (4) | TrackBack (0)

Monday, January 10, 2011

2011 Tax News

January 10, 2011 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 5, 2011

NY Times Debate: Tax Breaks for Home Schoolers?

Room for Debate New York Times, Room for Debate -- Do Home Schoolers Deserve a Tax Break?:

The new Republicans in Congress have vowed to challenge Washington's role in American public education, and said they will seek to turn more power over to the states on many fronts. But one of their priorities is a new federal rule: to give parents in every state tax credits if their children are home-schooled.

Previous efforts in Congress to adopt a nationwide tax break have failed, and currently only three states -- Illinois, Louisiana and Minnesota -- allow some benefit for home schooling.

Will the idea succeed in the new Congress, given some conservatives' longtime opposition, on the grounds that the credits might open the door to more government regulation of education? How would such a system work? Is it a threat to public education, as its critics claim?


January 5, 2011 in News, Tax | Permalink | Comments (2) | TrackBack (0)

Tuesday, January 4, 2011

Forbes: New Estate Tax Law Could Hurt Charity

Forbes, New Estate Tax Law Could Hurt Charity, by Deborah L. Jacobs:

Billionaires Gates, Buffett and Zuckerberg will still give big. But what about ordinary donors?

For donors, a crucial question has always been how much to give to charity while alive and what to leave as charitable bequests in their wills or trusts. The economic crisis has caused many people to cut back on current charitable giving, perhaps figuring they could always make up for it with bequests. But changes in the federal estate tax system signed into law by President Obama on Dec. 17 may well lead some of those who had postponed charitable giving to cut back on future bequests too.

The new tax law raises the exemption from federal estate tax to $5 million a person ($10 million per couple) for deaths in 2011 and 2012. As a result, fewer families will even come close to paying the tax. That means that, except for the super wealthy, the tax benefits of giving through an estate plan have been wiped out. ...

[M]eanwhile, the possibility of converting a traditional IRA to a Roth IRA -- an option that became available in 2010 to all taxpayers, regardless of their income or filing status -- has given the charities some stiff competition for IRA nest eggs that account owners don’t expect to need.

January 4, 2011 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Monday, January 3, 2011

U.S. Bank Sues FDIC for Bad Tax Advice

The Blog of Legal Times, U.S. Bank: FDIC Should Cover Cost of Bad Tax Advice:

U.S. Bank has filed a federal suit in Washington against the Federal Deposit Insurance Corp., alleging that the failed bank for which the FDIC was acting as receiver gave U.S. Bank bad tax advice that cost it millions in IRS penalties.

From 2005 to 2010, U.S. Bank acted as trustee for R-G Crown Mortgage Loan Trust and made regular payments to R-G Premier International Bank, a division of R-G Premier Bank of Puerto Rico, from the proceeds of recoveries from a portfolio of mortgage assets.

According to U.S. Bank’s complaint, filed on Dec. 28 in the U.S. District Court for the District of Columbia, R-G Premier directed the trust not to withhold taxes from its payments, saying that the distributions were not subject to withholding or income taxation based on the “portfolio interest” exemption under the IRS code.

But on Feb. 17, the trust received a notice from the IRS that it had failed to withhold 30% of the payments as required by law. The IRS told the trust that it owed tax liabilities of $860,000 for 2006 and $764,000 for 2007. ...

U.S. Bank has asked that a judge hold the FDIC liable for the tax penalties and other costs. The complaint also alleges that U.S. Bank is entitled to set-off against any amount owed to the FDIC as receiver “any and all amounts arising from or in any way related to any taxes, penalties or interest accrued upon any amounts previously distributed to premier. U.S. Bank is also seeking attorneys’ fees.

January 3, 2011 in New Cases, News, Tax | Permalink | Comments (0) | TrackBack (0)

Mankiw: How President Obama Can Get Along With the GOP on Taxes

New York Times op-ed, How to Break Bread With the Republicans, by N. Gregory Mankiw (Harvard University, Department of Economics):

Dear President Obama:

Sorry to bother you. I know you are busy. But I have the sense that you could use a few words of advice. ... As a sometime adviser to Republicans, I’d like to offer a few guidelines to understanding their approach to economic policy. Follow these rules of thumb and your job will be a lot easier.

Think at the Margin.  Republicans worry about the adverse incentive effects of high marginal tax rates. A marginal tax rate is the additional tax that a person pays on an extra dollar of income. ... From the standpoint of incentives, a tax cut is worthy of its name only if it increases the reward for earning additional income.

Stop Trying to Spread the Wealth.  Ever since your famous exchange with Joe the Plumber, it has been clear that you believe that the redistribution of income is a crucial function of government. A long philosophical tradition supports your view. It includes John Rawls’s treatise A Theory of Justice, which concludes that the main goal of public policy should be to transfer resources to those at the bottom of the economic ladder.

Many Republicans, however, reject this view of the state. From their perspective, it is not the proper role of government to fix the income distribution in an attempt to achieve some utopian vision of fairness. They believe, instead, that in a free society, people make money when they produce goods and services that others value, and that, as a result, what they earn is rightfully theirs. This view also has a long intellectual tradition. The libertarian philosopher Robert Nozick has suggested revising the old leftist slogan “From each according to his ability, to each according to his needs” to “From each as they choose, to each as they are chosen.”

Spread Opportunity Instead.  Despite their rejection of spreading the wealth, Republicans recognize that times are hard for the less fortunate. Their solution is not to adjust the slices of the economic pie, as if they had been doled out by careless cutting, but to expand the pie by providing greater opportunity for all. Since the mid-1970s, the gap between rich and poor has grown considerably. One of best analyses of this long-term trend is by the Harvard economics professors Claudia Goldin and Lawrence Katz in their book, The Race Between Education and Technology. The authors conclude that widening inequality is largely a symptom of the educational system’s failure to provide enough skilled workers to keep up with the ever increasing demand.  Educational reform, therefore, should be a high priority.

January 3, 2011 in News, Tax | Permalink | Comments (5) | TrackBack (0)

Sunday, January 2, 2011

The Best Magazine Essays of 2010

New York Times, The Best Magazine Essays of 2010, by David Brooks:

January 2, 2011 in Legal Education, News, Tax | Permalink | Comments (1) | TrackBack (0)

Thursday, December 30, 2010

2 Former Jenkens & Gilchrist Partners to be Tried in Tax-Shelter Case

Am Lawyer ABA Journal, 2 Former Jenkens & Gilchrist Partners on Track for Trial in Tax-Shelter Case:

Rejecting an argument that the conduct of two former partners of the now-shuttered Jenkens & Gilchrist and three other non-law firm defendants lacked requisite willfulness, a federal judge has denied a motion to dismiss and put the case on track for a February trial.

Charged with conspiring to defraud the IRS, ex-partners Paul Daugerdas [right] and Donna Guerin are accused of helping clients generate some $4 billion in losses via bogus tax shelters that were never intended to be profit-making ventures. ... Meanwhile, the lawyers earned hefty fees for the firm by writing opinion letters that indicated the tax shelters were legitimate.

December 30, 2010 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 29, 2010

Michele Bachmann, Tax Geek

Bachmann From Michele Bachmann's Wikipedia profile:

She graduated from Winona State University and later received her J.D. degree from Oral Roberts University and an LL.M. degree in tax law from the College of William and Mary's Marshall-Wythe School of Law. ...

From 1988 to 1993, Bachmann was a U.S. Treasury Department attorney in the US Federal Tax Court located in St. Paul. According to Bachmann, she represented the Internal Revenue Service "in hundreds of cases" (both civil and criminal) prosecuting people who underpaid or failed to pay their taxes. She left her government position to become a full-time mother. ...

Elected in 2006, Congresswoman Michele Bachmann is the first Republican woman to be elected to the U.S. House of Representatives from Minnesota. She served her first term from January 3, 2007, and January 3, 2009. Bachmann's third term will begin January 3, 2011.

(Hat Tip: Ann Murphy.)

December 29, 2010 in Celebrity Tax Lore, News, Tax | Permalink | Comments (21) | TrackBack (0)

U.S. Multinationals Bring Home Cash, Dodge $25 Billion/Year in Repatriation Taxes

Bloomberg, Dodging Repatriation Tax Lets U.S. Companies Bring Home Cash, by Jesse Drucker:

At the White House on Dec. 15, business executives asked President Obama for a tax holiday that would help them tap more than $1 trillion of offshore earnings, much of it sitting in island tax havens.

The money -- including hundreds of billions in profits that U.S. companies attribute to overseas subsidiaries to avoid taxes -- is supposed to be taxed at up to 35% when it’s brought home, or “repatriated.” Executives including John T. Chambers of Cisco Systems Inc. say a tax break would return a flood of cash and boost the economy.

What nobody’s saying publicly is that U.S. multinationals are already finding legal ways to avoid that tax. Over the years, they’ve brought cash home, tax-free, employing strategies with nicknames worthy of 1970s conspiracy thrillers -- including “the Killer B” and “the Deadly D.”

Merck & Co Inc., the second-largest drugmaker in the U.S., last year brought more than $9 billion from abroad without paying any U.S. tax to help finance its acquisition of Schering- Plough Corp., securities filings show. Merck is also appealing a federal judge’s 2009 finding that Schering-Plough owed taxes on $690 million it had earlier brought home from overseas tax-free.

The largest drugmaker, Pfizer Inc., imported more than $30 billion from offshore in connection with its acquisition of Wyeth last year, while taking steps to minimize the tax hit on its publicly reported profit.

Disclosures in Switzerland and Delaware by Eli Lilly & Co. show the Indianapolis-based pharmaceutical company carried out many of the steps for a tax-free importation of foreign cash after its roughly $6 billion purchase of ImClone Systems Inc. in 2008.

“Sophisticated U.S. companies are routinely repatriating hundreds of billions of dollars in foreign earnings and paying trivially small U.S. taxes on those repatriations,” said Edward D. Kleinbard, a law professor at the University of Southern California in Los Angeles. “They devote enormous resources first to moving income to tax havens, and then to bringing those profits back to the U.S. at the lowest possible tax cost.”

With the exception of the Schering-Plough case, no authority has accused Merck or Pfizer or Lilly of paying less tax than they should have. While corporations have no obligation to pay any more than the legal minimum, “the question is what should that minimum be?” said Kleinbard, a former corporate tax attorney at Cleary Gottlieb Steen & Hamilton LLP and former chief of staff at the congressional Joint Committee on Taxation.

U.S. companies overall use various repatriation strategies to avoid about $25 billion a year in federal income taxes, he said.

December 29, 2010 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 28, 2010

Some States Are Taxing (and Freezing) Themselves to Death

Following up on yesterday's post, Some States Are Taxing Themselves to Death:  Roberta Mann (Oregon) notes, Some States Are Freezing Themselves to Death (from these data):

House Seats Gained

Mean Temperature

House Seats Lost

Mean Temperature

Nevada (1)


Michigan (1)


Texas (4)


Iowa (1)


Florida (2)


New York (1)


Arizona (1)


Massachusetts (1)


Georgia (1)


Ohio (1)


South Carolina (1)


New Jersey (1)


Washington (1)


Pennsylvania (1)




Illinois (1)




Missouri (1)




Louisiana (1)


December 28, 2010 in News, Tax | Permalink | Comments (4) | TrackBack (0)

Monday, December 27, 2010

WSJ: Cash-Strapped Cities Hit Tax-Exempt Nonprofits With Plethora of 'Fees'

Front-page story in today's Wall Street Journal, Strapped Cities Hit Nonprofits With Fees:

Facing budget gaps and an aversion to new debt and taxes, states and local governments are slapping residents with an array of new fees—and some are applying them to nonprofits.

That marks a sharp departure from long-standing tax exemptions mandated by state law or adopted on the theory that churches, schools and charitable organizations work alongside governments to provide services to the community.

The issue is on display in Houston, where some flood-prone roads are in such disrepair that signs warn drivers, "Turn around, don't drown." Houston's taxpayers in November narrowly voted to adopt a "drainage fee" to raise at least $125 million a year toward the cost of improving roads and storm-water systems. The city will charge fees to property owners, and it won't grant exceptions to churches, schools and charities. ...

A number of groups—including schools, businesses, churches and senior citizens—are demanding exemptions. "We'll defeat this," says David Welch, of the Houston Area Pastor's Council, who plans to lobby state legislators in January. "This is really a tax. It is the first time that churches would not be exempt from property taxes," he says. ...

Some cities are charging religious groups property taxes on buildings no longer used for worship. Other localities are soliciting voluntary contributions. Albany, N.Y., recently passed an ordinance asking schools, hospitals and other nonprofits to contribute to city services. In Minneapolis, residents recently began paying a street-light fee that also applies to nonprofits, which in some places pay fees for elevator safety and fire inspection.

December 27, 2010 in News, Tax | Permalink | Comments (14) | TrackBack (0)

Some States Are Taxing Themselves to Death

Following up on last week's post: Census Data -- Population Flocks to States Without an Income Tax: New York Post, States Taxing Themselves to Death, by Dick Morris:

NY Post High taxes kill states. There can be no better evidence than the 2010 Census. The states that lost House seats -- because they're shrinking, relative to the nation -- had taxes 27% higher than the ones that gained seats.

Of the seven states that don't have a personal income tax, four (Texas, Florida, Nevada and Washington) account for eight of the 12 seats apportioned to the fastest-growing states.

New York and Ohio lost two more seats. Other losers -- down one each -- are Massachusetts, Missouri, Michigan, New Jersey, Pennsylvania, Illinois, Louisiana and Iowa. What do they all have in common? High taxes. ...

The states that lost seats ranked an average of 24th in taxes and had an average tax burden of $2,267 per capita. ... The states that gained seats ranked an average of 39th in taxes and had an average tax burden (weighted) of $1,788 -- 27% lower than the losing states. ...

The trend is unmistakeable: The "losing" states drove out their high-income citizens (and middle-income jobs) with heavier tax burdens.

UpdateSome States Are Taxing (and Freezing) Themselves to Death

December 27, 2010 in News, Tax | Permalink | Comments (61) | TrackBack (0)

Sunday, December 26, 2010

Married Couple's Guide to the New Estate Tax Law

Forbes: Married Couple's Guide to the New Estate Tax Law, by Deborah L. Jacobs:

Questions and answers on the new $10 million per couple federal estate tax break.

Wills, Trusts & Estates Prof Blog: Answers to Married Couples' Questions About New Estate Tax Law, by Gerry Beyer (Texas Tech):

  • Does [portability] help me if my spouse died years ago?
  • Does portability apply to lifetime gifts as well as assets that pass through an estate plan?
  • Is portability automatic?
  • Is the amount that's portable adjusted for inflation?
  • Can I use my exemption instead to provide for children from a previous marriage?
  • Is this a subject that should be covered in prenuptial agreements?
  • Does portability also apply to the exemption from generation-skipping transfer tax?
  • Do I still need a bypass trust?
  • Is portability here to stay?

December 26, 2010 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 22, 2010

State Estate Taxes Assume Bigger Role in Estate Planning

Forbes, State Estate Taxes Loom as Big 2011 Issue, by Ashlea Ebeling:

Despite the new and generous federal estate tax exemption of $5 million per estate and $10 million per couple, many less wealthy families still have to plan for estate taxes--state estate taxes that is. ...

21 states and Washington, D.C., have state estate or inheritance taxes in place for 2011. ... Thirteen states and Washington, D.C., have estate taxes only. Typically, these taxes exempt $1 million or less per estate and carry a top rate of 16%. Six states levy only an inheritance tax, with the rate depending on the relationship of the heir to the deceased and the taxes kicking in, in some cases, on the first dollar of bequest. New Jersey and Maryland levy both estate and inheritance taxes.

December 22, 2010 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Census Data: Population Flocks to States Without an Income Tax

2010 Census The U.S. Census Bureau yesterday released results of the 2010 Census.

Washington Examiner, Census: Fast Growth in States With No Income Tax, by Michael Barone:

[Population] growth tends to be stronger where taxes are lower. Seven of the nine states that do not levy an income tax grew faster than the national average. The other two, South Dakota and New Hampshire, had the fastest growth in their regions, the Midwest and New England. Altogether, 35% of the nation's total population growth occurred in these nine non-taxing states, which accounted for just 19% of total population at the beginning of the decade.

Wall Street Journal editorial, A Nation in Motion:

The Census reveals a people who are moving to pro-market red states.

The Census is in. There are now 308.74 million Americans, an increase of 27 million, or 9.7%, since 2000. ...

The Census figures also confirm that America is a nation in constant motion, with tens of millions hopping across state lines and changing residence since 2000. And more of them are moving into conservative, market-friendly red states than into progressive, public-sector heavy blue states.

In order the 10 states with the greatest population gains were Nevada, Arizona, Utah, Idaho, Texas, North Carolina, Georgia, Florida, Colorado and South Carolina. Their average population gain was 21%. In the fast-growing states, the average income tax rate is 4% versus 6.9% in the slowest growing states.

The average population gain of the bottom 10 states was 2%. They include most of the states now famous for fiscal distress: Michigan, Ohio, New York, Illinois. Michigan was the one state that actually had a net loss of population in the past decade. Particularly troubling is that three of America's traditionally high-octane states—California, New Jersey and New York—are in the population and economic doldrums.

Americans for Tax Reform, Lower Taxes, Less Government in States Gaining Congressional Seats:

An updated study by Americans for Tax Reform compared states gaining and losing Congressional seats in the decennial reapportionment process and found that states gaining seats had significantly lower taxes, less government spending, and were more likely to have “Right to Work” laws in place. Because reapportionment is based on population migration, this is further proof that fiscally conservative public policy spurs economic growth, creates jobs, and attracts population growth.


Ave. Top Personal Income Tax Rate

Per Capita State & Local Tax Burden

Reapportionment Gainer



Reapportionment Losers






December 22, 2010 in News, Tax | Permalink | Comments (4) | TrackBack (0)

Deutsche Bank Admits Guilt, Pays $553.6m Fine, in Tax Shelter Case

Deutsche_bank_logo Deutsche Bank yesterday agreed to pay a $553.6 million fine and admit criminal wrongdoing in connection with selling fifteen different tax shelters to 2,100 customers.

December 22, 2010 in New Cases, News, Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 21, 2010

Nobody Doesn't Like Sara Lee's Tax Opportunity

Sara Lee Wall Street Journal, Sara Lee's Businesses, Tax Bind Stir Takeover Interest:

In the past five years, Sara Lee Corp., once a hodgepodge of consumer brands, has narrowed its focus to food. But its businesses, which range from Douwe Egberts coffee to Hillshire Farm deli meats, still have little in common, one reason the company has become a tempting takeover target. ... In recent weeks, it has been considering a sale of the company to Brazilian meat processor JBS SA, say people familiar with the matter. ...

Analysts have speculated for months that the company was primed for a break-up or sale. In November, Sara Lee said it would sell its North American bread business to Mexican baker Grupo Bimbo SAB for about $1 billion. The remaining businesses in its portfolio function mostly independently, and appear to offer few sales synergies. They include its highly profitable international coffee and North American processed meats businesses, as well as its international bread and dough and food-service units.

With more than half of its profit coming from overseas—much of it from the coffee business—Sara Lee has to import cash to fund the restructuring of its North American businesses and pay its dividend. In doing so, it incurs a substantial tax burden, wrote wrote Sanford Bernstein analyst Alexia Howard, in a note to investors last week.

If the company were to stay together, executives would need to find a way to boost margins and cash flow in North America, perhaps by buying another coffee business, Ms. Howard said. Her conclusion: breaking up the company could greatly boost Sara Lee's stock price. ... "We increasingly view Sara Lee as a company whose current portfolio and geographic focus is inefficient from a tax perspective, so something has to give," Ms. Howard wrote.

December 21, 2010 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Tax Policy to Fuel Coming Iraq Economic Boom

Wall Street Journal op-ed, The Coming Iraqi Business Boom, by Bartle Bull:

Driven by what many geologists consider the world's largest oil reserves, Iraq will probably be the world's biggest crude oil producer within a decade. ... [A]s Iraq's oil production rises, its economy could grow approximately six-fold over the coming decade—gross domestic product is currently $66 billion—and add a mind-boggling $300 billion in annual GDP. This means one of the largest economic reconstruction and development booms in history. ...

[T]he big picture for foreign companies is positive, as Iraq has a substantially more modern and liberal regulatory framework than almost any nearby country. Foreigners can own 100% of Iraqi companies, must pay only the 15% flat tax that the rest of the economy pays on profits, and may take 100% of those profits home when and how they please.

December 21, 2010 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Monday, December 20, 2010

Thaler: It’s Time to Rethink the Charity Deduction

New York Times op-ed, It’s Time to Rethink the Charity Deduction, by Richard H. Thaler (University of Chicago, Booth School of Business):

Now that Congress has actually managed to enact tax legislation, it may be time to consider some bigger issues. I hope that broad-based tax reform will be high on the list of both major parties.

Any meaningful reform will face intense lobbying from those who stand to lose. The tax deduction for charitable giving is a case in point. Although changes will be fought both by the givers and the receivers of tax-deductible donations, there is good reason to disregard their pleas. ... I suggest three principles to help guide the debate:

  1. The tax subsidy rate should be the same for everyone. This means that rather than being a deduction from income, the subsidy should take the form of a tax credit, so that if you contribute $1,000 and the subsidy rate is 15%, your taxes would be reduced by $150. (Ideally this credit should be “refundable,” so it is payable even if your tax bill is zero or negative.)
  2. In the interest of tax simplification, the tax credit should apply only to donations above a certain minimum. The minimum could be, say, 2% of AGI. That way, only large contributors need to bother keeping records.
  3. The tax credit rate should be kept low enough to prevent large distortions. If political considerations require that we maintain this subsidy, it might make sense to peg it to the capital gains tax rate, which is now 15%.

 N. Gregory Mankiw (Harvard University, Department of Economics) disagrees:

I think there is a bit more logic to current policy than Thaler does. Suppose you believe, as I do, that consumption is a better tax base than is income. Then, starting with a measurement of income, it makes sense to allow deductions for "non-consumed income"--specifically, saving such as IRA and 401k contributions and charitable giving.

December 20, 2010 in News, Tax | Permalink | Comments (3) | TrackBack (0)

Sunday, December 19, 2010

Tax Lawyer 'Lap Dance Lou' Disbarred for Promoting Prostitution at Strip Bar

ABA Journal, Tax Lawyer Loses Disbarment Appeal After Strip Club Guilty Plea:

A tax lawyer dubbed “Lap Dance Lou” by one tabloid has been disbarred for promoting prostitution at his Manhattan strip club.

Louis Posner was disbarred because of his March guilty plea to promoting prostitution at the Hot Lap Dance Club, according to stories in the New York Post and the New York Daily News. A state appeals court rejected Posner’s suit to retain his license on Thursday, saying his disbarment was automatic because of the guilty plea.

December 19, 2010 in News, Tax | Permalink | Comments (1) | TrackBack (0)

More on the Obama-GOP Tax Bill

Saturday, December 18, 2010

Kleinbard: The Health Care Law Is Constitutional (Still)

L.A. Daily Journal, The Health Care Law Is Constitutional (Still), by Edward D. Kleinbard (USC):

Little attention was paid when two federal District Courts recently concluded that the new federal health care law was constitutional, but Monday’s ruling by a federal District Court Judge, Henry Hudson, in Commonwealth of Virginia v. Sebelius, was front page news because he held the insurance mandate at the center of the new law to be unconstitutional. The provision struck down by Judge Hudson imposes a tax penalty on individuals, other than those exempted by reason of religious beliefs or lack of suffi cient income, who fail to maintain a minimum level of health insurance coverage starting in 2014. There is good reason, though, to believe that, when the Supreme Court ultimately addresses the issues, its analysis may not follow Judge Hudson’s opinion. ...

Congress also can impose taxes on Americans, with almost no practical constraints. The Framers basically saw the remedy for Congress imposing foolish or overreaching taxes as our collective right to throw the rascals out at the next election, not for courts to decide which taxes are most appropriate. Here, the only penalty for not maintaining health care insurance is the imposition of a tax. The penalty tax will be collected on your Form 1040, like your other taxes, and it will be determined as a percentage of your income (with exemptions for low-income Americans and a cap for high-income ones). What is more, the nonpartisan budget staffs of Congress have estimated that individuals will pay some $4 billion per year in these penalty taxes. So why isn’t the penalty imposed for failure to comply with the individual mandate simply another tax?

Judge Hudson’s answer is dumbfounding: In his view, this tax is really a disguised form of regulation of commerce, citing a case (the Child Labor Tax Case) decided some 90 years ago, and one which the Supreme Court itself has said represents a line of reasoning that the Court has long since abandoned. The Internal Revenue Code is fi lled with tax provisions whose overriding purpose probably is to change behavior rather than collect revenues (for example, the disallowance of a deduction for bribing foreign offi cials, or tax penalties imposed on taxexempt foundations for self-dealing). Moreover, in this case there are substantial revenues that will be collected, yet Judge Hudson simply brushes aside as “incidental” the $4 billion in revenue that this tax will raise every year — an amount far greater than the taxes that are raised through other penalty provisions that unquestionably are taxes.

Judge Hudson makes much of the new tax’s label as a penalty, but it is clear that such labels carry little weight in constitutional analysis. The new law could just as easily have been described as a new universal tax measured by your income, with a proviso that you receive a dollar for dollar credit against the tax for the cost of private health insurance that you might obtain directly or through your employer.

The health care legislation has set American politics on edge. The law may be wise or foolish, but the remedy for those who believe the latter should lie squarely in the realm of the political process, not in resurrecting doctrines of constitutional interpretation wisely abandoned many decades ago.

December 18, 2010 in News, Tax | Permalink | Comments (7) | TrackBack (0)

Friday, December 17, 2010

President Obama Signs Tax Package Into Law

Thursday, December 16, 2010

More Estate Tax Commentary

December 16, 2010 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Schmalbeck: With Tax Vote, Congress Will Have Blood on its Hands

Schmalbeck Richard Schmalbeck (Duke), Protecting the Rich from Themselves:

Unless Congress acts very quickly, there will be blood as the accidental estate tax “holiday” slouches toward expiration on December 31. Tax “holidays,” during which a tax is temporarily suspended, are questionable tax policy at best. But they are truly disastrous in the case of a tax that is triggered only by death. Estates that might be exposed to the tax can channel the incidence of the taxable event into the window of the tax holiday, but only through homicide or suicide (or the practical equivalents of “pulling the plug” on life support devices).

That an estate tax holiday is a bad idea is obvious, but Congress in 2001 set the stage for exactly that, by enacting a largely symbolic one-year suspension of the federal estate tax to take effect in 2010. Everyone—on both sides of the aisle—expected that Congress would, at some point in the nine years between 2001 and 2010, come to its collective senses and revise the rules so that the tax holiday would never occur. But Congress just hasn’t managed to stop this train wreck from happening, once the course was set.

The failure to correct this situation has already cost billions in revenue, and has made estate planning absurdly difficult. But the worst aspect of this ill-conceived tax holiday is about to be upon us. The window is closing in two weeks, on December 31. If Congress does nothing, the estate tax will reemerge on January 1 with a $1,000,000 exemption and rates of up to 55%. If Congress does manage to enact the compromise reached last week between President Obama and Congressional Republicans, the new estate tax will contain a $5,000,000 exemption, and a tax rate of 35%.

Continue reading

December 16, 2010 in Congressional News, News, Tax | Permalink | Comments (2) | TrackBack (0)

Tuesday, December 14, 2010

Temporary Tax Code Puts Nation in a Lasting Bind

Wall Street Journal, 'Temporary' Tax Code Puts Nation in a Lasting Bind, by John D. McKinnon, Gary Fields & Laura Saunders:

In the late 1990s, there were typically fewer than a dozen tax provisions that had just a limited lease on life and needed to be renewed every year or so.

Today there are 141.

Now Congress, taking up a deal worked out between the Obama administration and Republican leaders, is poised to turn the whole personal income-tax system into something of a temporary structure. The plan embraces a broad range of provisions—an extension of Bush-era rates, a new estate-tax formula—but for only two years. A payroll-tax cut in the bill is for a single year.

This means that if the compromise passes largely intact, the U.S. will have no permanent regime governing levies on salaries, capital gains and dividends, the Social Security tax, as well as a slew of targeted breaks for families, students and other groups. This on top of dozens of corporate-tax provisions that already were subject to annual renewal.

The level of uncertainty, unusual for developed nations, complicates planning and discourages hiring and investment, many economists and corporate executives say. ...

The reasons the tax code has acquired an increasingly temporary cast have to do with deficits, a divided Congress and even the constitutional system. ...

Deficits tempt legislators to give tax provisions a temporary term to disguise their cost. For proponents of a new tax provision, the strategy is to get a foot in the door by passing it for a year or two, at a seemingly affordable cost, intending to renew it regularly.

Political division contributes because of the daunting task of mustering a filibuster-proof 60 votes in the Senate. ...

[Temporary tax provisions are] less likely in countries with parliamentary systems because these leave the government less subject to having its will thwarted by a large minority. "Very few countries have tax provisions that expire unless legislative action is taken," says Jeffrey Owens, head of tax at the OECD in Paris."

December 14, 2010 in News, Tax | Permalink | Comments (2) | TrackBack (0)

Monday, December 13, 2010

2011: The Best Year Ever to be Rich

Thurston Howell Forbes, Under Obama Tax Deal, 2011 Could be Best Year for the Rich, by Janet Novack:

If the Obama-Republican tax deal passes, 2011 could turn into the best year yet to be rich, tax wise. The capital gains tax, a key rate for the very rich, will remain at its historically low 15%, while the top ordinary income tax rate will stay at 35%. The 2010 $800 per couple Making Work Pay credit, which wasn’t available to the better off, will be replaced by a Social Security tax cut that will save a two-high-earner couple $4,272 in 2011. Meanwhile, the estate and gift tax regime will become even friendlier to wealthy families.

Friendlier? How could wealth transfer taxes be any friendlier?  After all, under the Bush tax cuts the estate tax disappeared in 2010 (for just one year) allowing families of billionaires who died this year, including Yankees owner George Steinbrenner and Metromedia founder John Kluge, to inherit free of federal estate taxes.

True enough. But for a family to benefit from that one year lapse, a (presumably) loved one had to actually die. For 2010, the amount a still breathing rich person can transfer to his kids or grandkids without owing taxes remains the same as a decade before: just $1 million.

By contrast, under the version of the Obama-Republican deal introduced late Thursday by Senate Majority leader Harry Reid, D-Nev., the exemptions from the gift tax, estate tax and generation skipping transfer tax (the tax imposed on gifts to grandkids if their parents are still alive) are “unified”–meaning they’ll all rise  in tandem in 2011 to $5 million, from the $1 million or so they would have been next year after the Bush tax cuts expired.

“This is better than 2010, because you can avoid estate taxes and you don’t have to die to do it,’’ observes Columbia Law School Professor Michael Graetz, who was Deputy Assistant Treasury Secretary for Tax Policy during George H. W. Bush’s administration and is the author of books on both estate and income tax.

Moreover, rich folks with good estate planners will be able to transfer a lot more than $5 million per person, or $10 million per couple [through techniques like the GRAT]. ... With a $5 million gift and generation skipping tax exemption and no new restrictions on planning  techniques, “an unbelievable amount of wealth can be shifted,’’ says Stephan R. Leimberg , a noted estate and trust lawyer who publishes a collection of  e-mailed newsletters widely read by estate and tax planning pros. “You have just witnessed a great bank robbery,’’ Leimberg adds. “The doors of the Treasury have been thrown open. The Republicans have robbed the bank and the estate and gift tax (change) is the jewel of the robbery.”  ...

December 13, 2010 in News, Tax | Permalink | Comments (13) | TrackBack (0)

Ikea Gives Free Bikes to its 12,400 U.S. Workers; IRS to Get its Share April 15

Ikea Ikea gave new bicycles as holiday gifts to all 12,400 of its U.S. employees (press release; New York Daily News; Philadelphia Inquirer; San Francisco Chronicle). Mary O'Keeffe (Union College) blogs the tax consequences in "There's No Such Thing as a Free Bike":

Those "gift" bikes could turn out to be very expensive, because the IRS does not treat it as a "gift" but as a "taxable fringe benefit." ... Bottom line: some (many?) Ikea employees may wind up paying more in tax than this bike is worth to them.

This also gives me an excuse to blog Ikea's award-winning advertising campaign, You Will Always Find Me in the Kitchen at Parties:

December 13, 2010 in Celebrity Tax Lore, News, Tax | Permalink | Comments (0) | TrackBack (0)

Friday, December 10, 2010

Obama Mulls Major Tax Reform Push in 2011

John du Pont Dies, Wins Estate Tax Lottery

Du Pont John Eleuthère du Pont, an heir to the du Pont chemical fortune, is the latest plutocrat to hit the estate tax lottery by dying yesterday at the age of 72 (in prison where he was serving his sentence imposed for his conviction of third degree murder in the 1996 shooting death of Olympic wrestler Dave Schultz). His estate thus will avoid the tax (55% after a $1 million exemption as currently scheduled, or 35% after a $5 million exemption under the Obama tax compromise) that would have been incurred had he lived another 22 days.

December 10, 2010 in Celebrity Tax Lore, News, Tax | Permalink | Comments (3) | TrackBack (0)

Thursday, December 9, 2010

House Democrats Vote to Block Consideration of Obama Tax Compromise

NY Times: Obama Got 87% of What Democrats Wanted in Tax Bill

New York Times, In Tax Plan, a Boost for Jobs, by David Leonhardt:

Of its estimated $900 billion-plus cost over two years, roughly $120 billion covers the high-end tax cuts and the estate tax cut, $450 billion covers Mr. Obama’s wish list and $360 billion covers the tax cut extensions both parties favored.

(Hat Tip: Greg Mankiw.)

December 9, 2010 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 8, 2010

Obama-Republican Bill Gives Choice to Heirs of Decedents Dying in 2010

Wall Street Journal, Deal Would Give Heirs Choice on Estate Tax, by Martin Vaughan:

Legislation taking shape in the U.S. Senate to extend expiring tax cuts would give heirs of wealthy people who died this year a choice of which estate-tax policy to apply, according to an aide close to the discussions.

Estate executors could choose to apply the rules in place this year, in which there is no federal estate tax, or the rules that would take effect next year imposing a 35% tax rate on estate wealth over $5 million.

The ability to elect either 2010 or 2011 rules would help certain heirs of those who died this year. Even though there is no estate tax, some assets inherited in 2010 face capital gains or other taxes because of a change in the way the value of those assets is calculated. ...

The legislation will also include rules starting in 2011 to make it easier for someone to transfer the full $5 million exemption to a surviving spouse, the aide said. That would allow married couples to shelter a full $10 million from the estate tax.

December 8, 2010 in News, Tax | Permalink | Comments (3) | TrackBack (1)

Ventry: Barack Obama's Tax Myopia

L.A. Times op-ed, Tax Cut? What Tax Cut?, by Dennis J. Ventry (UC-Davis):

Over the first 18 months of his presidency, Barack Obama cut taxes — 25 different taxes, in fact — for 95% of taxpayers. Yet when queried by pollsters on whether the president had "increased taxes for most Americans, decreased taxes for most Americans, or … kept taxes the same," 44% of respondents said taxes went up, while 46% said taxes did not change. Now the president is making the same mistake again: cutting taxes in a way almost no one will notice and some may remember as a tax increase.

The one-year payroll tax holiday announced Monday will put very little money into people's paychecks, so the perception will be: "Tax cut? What tax cut?" ...

White House myopia on tax politics is truly stunning. It's true that some polls have found that a majority of Americans favor Obama's idea of letting the Bush tax cuts "sunset" for the very rich, but there remains a strong reflexive reaction against the idea of tax increases for anyone.

By choosing to engage in class warfare and drawing a $250,000-a-year line in the sand separating the rich from everyone else, the president fueled a simmering debate over what it means to be wealthy in a society in which everyone dreams of climbing the social and economic ladder. Those dreams help explain overwhelming opposition to "death" taxes that affect less than 0.6% of all estates. ... Obama should have packaged the deficit-reducing pay freeze with early agreement on preserving the Bush tax cuts for all taxpayers, while turning the $120-billion payroll tax cut into a check from the government.

December 8, 2010 in News, Tax | Permalink | Comments (3) | TrackBack (0)

More on the Obama-Republican Tax Cut Deal

December 8, 2010 in News, Tax | Permalink | Comments (1) | TrackBack (0)

GOP Excludes Build America Bonds From Tax Plan to Force States Into Bankruptcy to Crush Public Employee Unions

Reuters, Secret GOP Plan: Push States to Declare Bankruptcy and Smash Unions, by James Pethokoukis:

Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.

That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program.  BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31.  And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”

In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year. ...

Some Republicans hope the shock of the newly revealed debt totals will grease the way towards explicitly permitting states to declare bankruptcy. Indeed, legislation  amending federal bankruptcy law is currently being prepared by congressional Republicans. Local municipalities do declare bankruptcy from time to time, most famously California’s Orange County in 1994. But states can’t. Allowing them the same ability to renegotiate obligations could enable them to slash public employees’ lavish benefits, a big factor in their financial woes.

December 8, 2010 in News, Tax | Permalink | Comments (4) | TrackBack (0)

Monday, December 6, 2010

WSJ: The Walking Death Tax

Wall Street Journal editorial, The Walking Death Tax:

Overlooked in the brawl over expiring Bush-era tax rates is what will happen to the death tax. Without action in the lame duck Congress, the estate tax will rise from the dead on January 1 with a vengeance, the rate climbing back to 55% from zero this year. The exemption amount will revert to a miserly $1 million, unindexed for inflation, so more middle class taxpayers will get hit year after year.

President Obama and Congressional Democrats don't think this is a high priority, but voters do. A November Gallup Poll found that Americans think that keeping the estate tax "from increasingly significantly" is "very important" by 56% to 17% "not too important." That's more than think it is a priority to extend current tax rates (50%), extend jobless benefits (48%), ratify the Start treaty (40%) or let openly gay men and women serve in the military (32%).

Liberals are content to let the rate revert to 55%, with some moderate Democrats arguing for a 45% rate. Republican Jon Kyl of Arizona and Democrat Blanche Lincoln of Arkansas are pushing a compromise that would lower the top rate to 35% with a $5 million deduction. That rate is still 35 percentage points too high for our liking, but we'll take it as an alternative to the greedy political confiscation of more than half of the wealth built by someone who has saved over a lifetime. An estate of $5 million isn't all that much for a successful and thrifty business person with some real estate to accumulate over 50 or 60 years. ...

At least 10 Senate Democrats have campaigned at one time or another for death tax repeal or relief. The next few days will determine whether they were telling the truth. The result will tell us if Congress is turning to a tax agenda rooted in growth and fairness, or sticking with the policy of government greed and envy that has defined the last four years.

December 6, 2010 in News, Tax | Permalink | Comments (7) | TrackBack (0)

Cut Corporate Tax Rate to Spur 'Insourcing' -- U.S. Job Creation by Multinationals

Wall Street Journal op-ed, Insourcing: The Secret to Job Growth, by Robert M. Kimmitt (Chair, Deloitte Center on Cross-Border Investment) & Matthew J. Slaughter (Associate Dean, Dartmouth College, Tuck School of Business):

Want to put Americans back to work? Help multinationals grow their U.S. operations.

The Labor Department reported on Friday that the U.S. unemployment rate is now 9.8%, as the economy added only 39,000 jobs in November. Since the start of the Great Recession, America has lost nearly 7.3 million private-sector jobs. Today's 108 million private-sector jobs are the same number America had in April 1999. And unemployment, Federal Reserve officials predicted last week, will likely remain at 9% through 2011. ...

Last month a Survey of Current Business report by the U.S. Bureau of Economic Analysis ... documented a dynamic group of companies that create high-paying American jobs based on significant capital investment and export prowess—precisely the kinds of jobs America desperately needs to build a sustainable recovery. ...

So which companies are these? Ones that "insource"—that is, the U.S. operations of multinational firms based abroad. Insourcing companies now employ more than twice the number of Americans they employed in 1987. ...

To boost the hiring prospects of insourcing companies (and of many others as well), policy makers should focus on three issues quite distinct from macroeconomic tools like quantitative easing and federal stimulus spending.

First, taxes. Insourcing CFOs reported to the Organization for International Investment that taxation is the single most important policy area that shapes their companies' investment decisions. In turn, their top concern is the U.S. corporate tax rate, which, at 35%, is one of the world's highest. America's high corporate tax rate inhibits hiring and investment in all U.S. firms, big and small alike. All the recent proposals by prominent deficit-reduction panels have recommended cutting the statutory rate and simplifying the corporate tax code. Policy makers should act on these proposals as quickly as possible to reduce the uncertainty that is inhibiting businesses' hiring and investment.

December 6, 2010 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Balkin: President Obama Should Declare a Payroll Tax Holiday

Jack Balkin (Yale), Declaring a Payroll Tax Holiday (Balkinization):

My advice to Barack Obama:

1. Let the Bush tax cuts expire.

2. Declare a payroll tax holiday for Tax Years 2011 and 2012, featuring cuts in the amount of payroll tax the federal government will correct.

Instruct the Treasury Department to collect less than the current amount of the payroll tax and/or give everyone who pays the payroll tax a tax refund.

Instruct the Treasury Department to issue new regulations justifying the payroll tax holiday.

Instruct the IRS not to prosecute employers who deduct only the amount required under the terms of the payroll tax holiday.

3. Tell the Congress that the payroll tax holiday will continue until Congress passes a tax reform bill to the President's liking.

4. Tell the Republicans that he is sick and tired of their misusing the political process to benefit rich people and that the best way out of the current economic mess is to put money in the hands of hard working Americans who need tax relief and are most likely to spend it. Note that the payroll tax holiday is as necessary to the country's economic recovery as FDR's bank holiday was during the Great Depression.

5. Insist that it is the President's duty to take bold action in times of economic emergency and berate the Republicans for playing games with the lives of ordinary citizens.

6. When members of Congress sue to declare the tax holiday unconstitutional:

(a) argue that they lack standing.
(b) argue that the holiday is justified by the new Treasury Department regulations.
(c) argue that the interpretation of the tax laws in the new regulations is committed to the President under Chevron.
(d) argue that the President, as chief executive officer, has the discretion to refuse to prosecute individuals in the interests of public policy. To interfere with the President's (non)prosecution power violates the Unitary Executive.
(e) Drag out the litigation until 2012, when it will be clear that the payroll tax holiday has helped improve the economy.

6. Rinse and Repeat.

The danger of Obama declaring a tax holiday (akin to FDR's bank holiday) is that some future Republican President will declare a tax holiday for corporations. Make no mistake: giving the President the power unilaterally to lower particular people's taxes gives the Chief Executive possibilities for all sorts of mischief.

(Hat Tip: Rick Hasen.)

December 6, 2010 in News, Tax | Permalink | Comments (4) | TrackBack (0)

Saturday, December 4, 2010

Reactions to the Budget Commission's Tax Recommendations

Press and blogosphere commentary on the tax recommendations made by the National Commission on Fiscal Responsibility and Reform in its report approved 11-7, The Moment of Truth:

The Moment of Truth The Moment of Truth:

Rather than tinker around the edges of the existing tax code, the Commission proposes fundamental and comprehensive tax reform that achieves these basic goals:

  • Lower rates, broaden the base, and cut spending in the tax code
  • Reduce the deficit
  • Maintain or increase progressivity of the tax code
  • Make America the best place to start a business and create jobs

RECOMMENDATION 2.1: ENACT FUNDAMENTAL TAX REFORM BY 2012 TO LOWER RATES, REDUCE DEFICITS, AND SIMPLIFY THE CODE. Eliminate all income tax expenditures, dedicate a portion of the additional revenue to deficit reduction, and use the remaining revenue to lower rates and add back necessary expenditures and credits.

Figure 6 
Figure 7 


Figure 9 

December 4, 2010 in News, Tax | Permalink | Comments (0) | TrackBack (0)

Brown: It's (Past) Time to Kill the Mortgage Interest Deduction

CNN op-ed, End the Unfair Tax Break for Homeowners, by Dorothy A. Brown (Emory):

The National Commission on Fiscal Responsibility and Reform did not go far enough when it proposed the repeal of certain provisions of the mortgage interest deduction. The deduction for mortgage interest should be repealed in its entirety. ...

Your decisions on what to wear to work or whether to pay cash or credit are your personal choices. You don't get a tax deduction. That's why rent is not deductible, even though roughly one-third of Americans are renters -- which includes the majority of blacks and Latinos. Where you live is considered to be the result of a personal choice. The deduction for mortgage interest is a huge exception to the general rule, because what could be more personal than the decision to buy a home?

In order to benefit from the mortgage interest deduction, homeowners must itemize deductions and not take the standard deduction. President Bush's Tax Reform Commission documented that only 54% of those with mortgages benefit from the mortgage interest deduction. That means 46% of homeowners have paid for the benefit of the mortgage interest deduction when they bought their house but do not receive any tax benefits. ... We all have housing costs. Why should only some get a tax break?

See also Shades of the American Dream, 87 Wash. U.L. Rev. 329 (2010).

December 4, 2010 in News, Tax | Permalink | Comments (5) | TrackBack (0)

Friday, December 3, 2010

Year-End Trust Distributions to Avoid 55% Generation-Skipping Tax

Forbes, Payday for Trust Babies, by Ashlea Ebeling:

How does saving up to $550,000 in taxes on a $1 million payout from your family trust sound? It’s a real opportunity that has corporate trustees and beneficiaries scrambling to review trusts and devise distribution plans by year-end.

“This is an opportunistic time to think about getting money down generations,” says R. Hugh Magill, chief fiduciary officer at Northern Trust in Chicago, who worked with one family and their advisors to set up year-end distributions of $1 million each to four grandchildren, with potential tax savings of $2.2 million. “It’s an opportunity not without risk, due to the possibility of retroactive tax legislation,” he warns.

Thanks to Congress’ inaction on reviving the lapsed estate tax for 2010, there is a one-time opportunity for beneficiaries of certain trusts to get payouts before year-end and avoid big tax bills. That’s because the generation-skipping transfer tax (the “GST” tax), an extra tax on gifts made to grandkids and other “skip” benficiaries, lapsed for 2010 along with the estate tax. On Jan. 1, 2011, the GST tax is set to return with a 55% rate that applies to trusts that are not sheltered from GST tax by a GST exemption. So a $1 million payout from a non-exempt GST trust on Dec. 31 versus Jan. 1 could mean a tax savings of up to $550,000.

December 3, 2010 in News, Tax | Permalink | Comments (0) | TrackBack (0)

WSJ: Tax Breaks for Bailout Recipients AIG, Citigroup & GM Draw Fire

Wall Street Journal, Tax Breaks for Bailout Recipients Stir Up Debate:

A series of tax relief measures is saving companies bailed out by the government billions of dollars at a time when concern over tax revenues has risen.

Although the Treasury Department first provided the tax guidance in the fall of 2008, the magnitude of the tax savings has become clearer in the past year. The tax relief drew new scrutiny last month after Wall Street bankers touted it to investors in the initial public offering of General Motors Corp.

The tax breaks, already known to apply at GM and Citigroup Inc., also are helping results at another company rescued by Uncle Sam, American International Group Inc., according to tax experts and people familiar with the companies.

The Treasury gave the same treatment to mortgage agencies Fannie Mae and Freddie Mac, but their ability to save taxes as a result is less certain, the same people said.

The tax treatment allows companies whose ownership changes to keep the right to use past losses and other deductions to offset future profits for as long as 20 years. Ordinarily, companies' ability to use such tax assets is curtailed when they are acquired, under a 1986 law aimed at curbing "trafficking" acquisitions arranged to capture tax shelters.

Some critics decry the actions at a time when the focus has turned from saving the economy to closing budget deficits. "The agencies are literally throwing gratuities at banks and other companies," said Christopher Whalen, a bank stock analyst at Institutional Risk Analytics.

Other tax experts, however, defend the government policy. George Yin, a tax law professor at University of Virginia Law school, said the actions are "perfectly defensible" because this doesn't represent the kind of trafficking in tax losses curtailed by the 1986 law. "The government isn't acquiring AIG because it wants to get some benefit from its losses," he noted.

December 3, 2010 in News, Tax | Permalink | Comments (2) | TrackBack (0)