ataxingmatter

Kooky Tax Protestors!

Anybody who has read much of my blog probably has realized that I don't think much of "tax protestor" movements like the one Wesley Snipe got involved with.  There are websites and books and information available in all kinds of places about these "tax protestor" arguments.  They claim that there is no law that imposes an income tax liability or a duty to file a tax return.  (They continue to make these absurd claims even after having the various provisions of the Code, regs and other authorities pointed out to them.)  The arguments are often based on taking a Code provision out of context (e.g., provisions that cover the sourcing of income for non-U.S. residents who only pay tax on their U.S.-sourced income) or amalgamating historical antecedents with current day law and regulations to claim that there is a loophole they can walk through to find their goal of "no duty to pay taxes."  The arguments are facially frivolous and not founded in any reasonable basis.  Moreover, no American who has paid attention to anything other than his navel could reasonably argue that he "genuinely believes" that there is no such duty. 

But today I received a letter.  It is printed on expensive rag content paper, with an attorney's name prominently displayed at the top (from Shreveport, Louisiana) and it is addressed to me regarding my availability to be engaged as an expert witness on behalf of tax protestors who want to use the "Cheek" defense to criminal tax evasion charges.  The "Cheek" defense derives from a Supreme Court case, Cheek v. United States, 498 U.S. 192 (1991).  It provides that a genuinely held belief negates the willfulness requirement of criminal statutes. 

Here, the claim that the defendants' attorneys are hoping to make is that tax protestors can have a genuinely held belief that failure to file returns/pay taxes does not violate any known legal duty.  The attorney claims in the letter that these defendants "have formed their beliefs after a thorough and careful reading of the Internal Revenue Code, regulations, Supreme Court holdings and historical authorities, including all of the past regulations and all tax acts enacted since 1916." 

Wow.  Even the most careful tax professor who spends a good deal of his or her "spare" time (the time not devoted to committees, or faculty meetings, or teaching, or preparation for teaching, or conferences, or article writing) reading tax authorities--PLRs, regs, notices, cases, statutory amendments, proposed amendments, etc.  probably would have trouble claiming to have read "all" past regulations and "all tax acts enacted since 1916" .  These defendants are essentially claiming that they are as well-versed in what the tax Code says as any tax practitioner would claim to be--and yet they still make the patently frivolous claim that they arrived at a "genuinely held belief" that failing to file tax returns doesn't violate any legal duty?  You gotta be kidding me.

Start with section 1 of the Code, in which a tax is imposed.  Continue on and eventually the reader will arrive at section 6012, requiring the filing of tax returns by any person who has gross income for the year in excess of the exemption amount (with certain exceptions).    And of course there's section 6013 (joint returns) and section 6072 (stating the time for filing of returns under various provisions) and section 6151 (stating the time and place for making payment of taxes determined to be due under returns). 

The Shreveport attorney included a disk, put out by what he terms to be six highly respected and credentialed tax practitioners, including one former IRS collection agent, with the arguments in support of the so-called "Tax Honesty Movement" (which of course should be called the "tax dishonesty--or how to rip off your country and your neighbors by not paying your share of the tax burden--movement"). 

So just how many tax professors will respond that they think they could serve as expert witnesses on behalf of such defendants?  I hope the answer is none.

Obama's State of the Union vs Romney's Tax Returns

Obama took the high ground in his state of the union address, where he pointedly noted the importance of applying fair tax rules to ensure that millionaires pay taxes at rates more similar to those paid by secretaries and firefighters.  He wants a 30% rate on those with incomes of a million or more. 

We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by,” Obama said in his address to a joint session of Congress. “Or we can restore an economy where everyone gets a fair shot, everyone does their fair share and everyone plays by the same set of rules.” STeven Sloan, Obama Says High-Earners Should Pay at least 30% of Income as Tax, Bloomberg.com, Jan 24, 2011.

That would mean that Romney wouldn't enjoy the exceptionally low rate of tax he had in 2010 after Congress enacted Obama's suggested reforms.  Romney released his tax returns on Tuesday.  See this handy link on the New York Times at which the 2010 and 2011 returns and accompanying documents are available, including links showing where Romney earned his $528,871 in speaking fees, etc..  Romney paid only 13.9% on $21.6 million of income, benefitting enormously from the low preferential capital gains rate of 15% that he paid on his returns from his investment of capital.  Romney benefitted, too, from  investments in the Cayman Islands, a well-known tax haven.  And he is still earning "carried interest" from Bain Capital to the tune of multiple millions a year--that's a share of the profits of a partnership he managed, treated as though it were a return on an investment of capital though it is paid for services.  Romney is most definitely one of the 1%--actually in an even more rarefied class cluster of the top 0.006% of multimillionaires with lots of very low taxed income.  See Kevin McCoy, Romney tax returns show he's no average multipmillionaire, USA Today (Jan. 24, 2011) (noting that only 8274 returns out of 140 million filed had income of $10 million or more in 2009); Lori Montgomery et al, Mitt Romney's Tax Returns shed some light on his investment wealth, Washington Post (Jan. 24, 2012); Nicholas Confessore, Romney's Tax Returns Show $21.6 Million Income in '10, New York Times (Jan. 24, 2012).

As the Times story puts it:

What Mr. Romney’s returns illustrated, instead, was the array of perfectly ordinary ways in which the United States tax code confers advantages on the rich, allowing Mr. Romney to amass wealth under rules very different from those faced by most Americans who take home a paycheck.

obama's proposals sounds reasonable.  But I'd extend the basic concepts to the corporate tax.  Every corporation that is making book profits of more than some amount ($5 million? $10 million) ought to be held to a similar minimum tax rate on those book profits. 

Funny, that is what the original Alternative Minimum Tax (for individuals, and one for corporations) was supposed to achieve--to ensure that everybody paid at least a reasonable rate on their income, even if they could cumulate lots of preferences like mortgage interest deductions, state income taxes, property taxes, and similar deductions.  Over time, the AMT has eroded--too many exceptions made, too many taxpayer friendly amendments, and then the Bush tax cut bills that lowered rates so that the AMT rates aren't really working well as a "broader base but lower rate" tax that ensures that even high-flying income recipients pay a more reasonable tax rate on their income. 

Gingrich's 2010 Tax Return: what it does (and doesn't) tell us

In last Thursday's debate, Newt Gingrich released his 2010 Gingrich Foundation tax return  and the Gingrich Joint Tax return.  See Kim Dixon & Marcus Stern, Gingrich tax return out, but much remains unseen, Reuters (Jan. 20, 2012); Paul West, Gingrich tax return details sources of income, alimony payment, L.A. Times (Jan. 19, 2012); Jon Ward, Newt Gingrich Releases His Tax Returns, Huffington Post (Jan. 19, 2012; updated Jan. 20, 2012) (the Gingrich press release, with links to both returns, is also accessible from a link at bottom of this brief article).

The private foundation's return lists Callista Gingrich (presumably in her role as President) as having custody of the books at the Foundation's address in Washington.  It lists Newt Gingrich as the only manager who contributed more than 2% of the contributions received during the year, and another form (Schedule B) lists Gingrich Holdings as the contributor of $152,609.  Callista Gingrich is listed as the president (with zero compensation) and Newt Gingrich as a board member (with no compensation).  A treasurer is listed with $1800 of compensation, a secretary with no compensation, and two other uncompensated board memberes.  The Foundation supported the following organizations with a total of $120,000: Mount Vernon Association, Basilica of the National Shrine, Shiloh Point Elementary in Cumming GA, Amerivan Museum of Natural History in New York, The Washington Opera, The Atlanta Ballet, A Learning Foundation inAtlanta, the Arthritis Foundation, Mount Paran Christian School in Kennesaw GA, the Walker School in Marietta GA, Luther College in Decorah IA, Susan Chambers Dance in Sugar Hill GA, Breast Cancer Research in New York, and Alzheimer's Association in Washington.

The joint tax return shows income in 2010 of more than $3 million, with about $450,000 in  compensation income and about $2.5 million of Schedule E  income through his S corporations Gingrich Holdings inc  and Lubbers Agency Inc. and partnerships Draper Fisher Jurvetson Fund VIII and FLC XXXII Partnership LP.  (He apparently restructured these businesses before entering into the Republican nomination contest, perhaps foreseeing better than Mitt Romney did that voters might react to the very idea of a giant holding company through which one receives one wealth.)   The Salaries and Wages report shows that $450,000 in compensation income arising as follows:  252,500 in wages to Newt from Gingrich Holdings, Inc., and to Callista 5918 from National Shrine and 191,827 from Gingrich Productions, Inc.   According to the Reuters story, Gingrich's earlier disclosure said the Gingrich Holding income was mostly a distributive share (the tax term for a pass-through payment from an entity taxed as a partnership) from Gingrich Productions.  His Schedule SE shows only 847 of self-employment taxes in connection with the various schedule C, K-1 etc. income, while Callista's shows 268.

Also revealed on the tax return are the following: $41,625 in speaking and board of director fees (showed as business income on line 12), $6,853 in rental income, $26,655 in taxable interest, $11,892 in ordinary dividends (not eligible for the 15% net capital gain rate), $5,990 in qualified dividends (eligible for the 15% net capital gain rate), $4,184 in net short-term capital gains and $32,133 net long term capital losses and $33,124 of taxable refunds, credits or offsets for state and local income taxes  The couple claimed a total itemized deduction of $215,095.  They made $81,133 in contributions to various charities and  paid $122,844 in state and local income taxes, $11,656 in real property taxes, and $2,422 in personal property taxes, as well as 8505 in tax preparation fees. They also enjoyed $10,754 of tax-exempt interest (not part of their taxable income).  The Gingrich couple paid almost a million in taxes, giving them an effective tax rate on the 3.1 million of income of around 31%.  

• Re those net short term capital gains:  Gingrich bought and sold shares in Campbell Soup in 2010 (losing 74), bought shares in Celgene Corp in 2009 and sold them in 2010 (making 2591), sold in 2010 shares in American Funds Capital bought at various times, for a 346 gain, and similarly sold shares in Nuveen High Yield fo a 1225 gain.
• Re those net long term capital losses:  Gingrich sold shares bought at various times of Martek Bioscience, American Funds capital, Ishares Trust s&P smallcap 600 and Ishares Trust Russell 1000 Value, which combined with the long-term totals from Schedule D-1 of 1.023 million (from sales of various funds and closing out of $600,000 worth of CDs) yielded an aggregate of 1.257 million with a claimed loss of $35,636.  Using his capital gain distribution from Schedule D-1 of 1018, that left a net LTCL of 32,541.

There are several things worth noting about Gingrich's release of the couple's tax information.

1) this is only a single year's return--2010.  George Romney, Mitt's father, famously began the more transparent information sharing about presidential candidates by releasing 12 years' of his own tax returns.  Gingrich should follow that example, even if Mitt isn't sure he will.  Multi-year returns are necessary for tax experts to even begin to pierce the veil of tax secrecy by seeing trends and patterns in types of income.  One year of returns tells you very little.  Gingrich should release returns back to his volatile period in Congress and his scuffle with the ethics inquiry, and should release returns relating to the period when he earned what he calls "consulting" fees based on his being a "historian" for Freddie Mac (see item 3). 

2) we don't have tax returns for Gingrich Holdings or Gingrich Productions, or even the informative financial statements that publicly traded companies are required to provide.   Those privately held corporations are therefore able to function as "blockers" to maintain a good deal of secrecy about Gingrich's own income even with the release of his return.   Back before Nixon, corporate tax returns were public information and were not kept secret by the Service.  We should go back to that, because corporations, whether publicly traded or held privately, are benefitting from the public trust and the state's willingness to allow them to form.  There seems to be little justification for maintaining any business entity returns as confidential documents, with some redaction allowed to maintain trade secrets.  But until we do, we won't know anything more than what Gingrich tells us (or reporters can get "deep throat" sources to divulge).

3) Gingrich's return labels him a "consultant" but we know very little about his client list or his activities for his clients.  We know he worked for Freddie Mac: he claims he wasn't a lobbyist but that is a hard one to swallow whole. It is difficult to imagine Freddie Mac paying the consummate politician as though he were a mere historian doing historical research but it is very easy to imagine Freddie Mac paying a well-connected lobbyist, shoes that Gingrich's role as House Speaker ensures that he would have fit into easily.  We know that he worked as a "consultant" during the passage of the Medicare Part D prescription drug provision.  Again, that sounds more like lobbying than "consulting".    The problem is that Washington has written weasel rules for lawmakers who "consult" so that they can claim they are not "technically" a lobbyist, as Gingrich is doing.  But voters should want to see what kinds of reports he provided on the Medicare and Freddie Mac issues, as Romney is insisting.  Otherwise, he is just hiding behind the very thin curtain of the fuzzy line between obvious lobbying and "not required to register-wink/wink  lobbying".

4) Congressmen pay themselves nice little pensions even while the GOP is making an ideology out of its desire to cut private pension benefits for unionized workers (in the name of 'saving' business but really in the name of passing along even higher profits to managers and owners) and its intention of "reforming" Social Security (meaning leaving beneficiaries who depend on this system that they've paid into all their lives with less money than they should be able to have).  Gingrich's return reports more than $76,000 in 2010 from his Congressional pension.

Greg Mankiw, right leaning economist, wants "simple" returns--for the wealthy

Greg Mankiw posted an op-ed in the New York Times on Saturday with his own personal prescription for reforming the federal tax system.  See Greg Mankiw, A Better Tax System (Assembly Instructions Included), New York Times (Business Section Jan 21, 2012).

Mankiw says he is providing four "principles" that will show the tax system was designed with a purpose.  The trouble with Mankiw's principles is that his "assembly instructions" construct just another variant on the right-wing plan to have the middle (and lower) classes pay all the tax while the rich get richer.  The purpose is to shift the tax burden down to the middle class and let the Romney's and their ilk off the hook.

Here's what he proposes:

1) broaden the base and lower the tax rates. 

Mankiw notes that Bush's deficit commission proposed this, as did Obama's copycat commission.  So what.  Both of those groups were dominated by economists who tend to think like the right, that "investors" at the top of the income distribution should get all of the tax breaks.

Of course, base broadening and rate reduction was the mantra for the 1986 reform of the tax code, as well.  But back then the top rates were twice what they are today, and there were even more loopholes (if that is imaginable).  So lowering rates to gain elimination of some of the worst of the subsidies and giveaways made sense.

Now, the top rates are too low for this to be a workable solution today---especially when we are in the midst of an economic recession requiring government stimulus, which can best be accomplished with either borrowing or more tax dollars from the rich spent to support projects that will be positive for the overall economy.   Not only that, lowering the top rates further would be quite simply unfair to the vast majority of taxpayers--it would relieve the wealthiest of the wealthy of much of their already insignificant tax burden, while shifting the resulting cuts (or increased taxes) onto those who can least afford it.  If anything, the mantra today should be to broaden the base and raise the rates--especially in the multimillion income area in order to make our tax structure genuinely progressive.  When the top rate starts at an amount that Mitt Romney can consider "just a little bit" (he was referring to his $370,000 in actually "work" earnings from speeches, in comparison to his millions from unearned income), it is obvious that we need more sensitive brackets that pay attention to the current stratospheric unearned income amounts of the truly wealthy. 

The only loophole that Mankiw talks about reducing is the one for mortgage interest.  Now, that deduction is especially beneficial to high income taxpayers at higher rates.  But changing it will have an additional impact on housing prices, since it has likely been built into the market price.  So the change that makes sense is to reinstate the income cap to many of these deductions, as Obama has suggested, so that they are limited to people who are in the middle or lower income distributions. 

2. Tax consumption rather than income

Mankiw obviously has no fresh ideas.  This is the proverbial GOP suggestion--the USA Tax, the "FAIR" tax, the 9-9-9 tax (which would ultimately have reverted to a national sales tax), etc.  Consumption taxes are not 'better' than income taxes.  In fact, they are much worse because they are regressive, with their impact being felt most strongly by those with the very least income.  This so-called reform would shift the tax burden off the wealthy rentiers with their unearned income and onto those who labor hard and long for their bread and butter.  Nothing reasonable about it.

Does the fact that Thomas Hobbes thought a consumption tax was a good idea carry much weight.  I don't see why it should.  Does the fact that "much modern economic theory" agrees? So what if acolytes of the Friedman school of economics who care a lot more about their purportedly scientific efficiency theories than they do about equity conclude in their nice little mathematical depictions of unreality that consumption taxes are better?  What do they really know about how taxes ought to work, or what is fair, or even what the impact on the economy will be?  Their assumptions about how people make decisions are so far removed from reality that one tends to ignore their policy prescriptions.

Does the idea that "legislators have come to appreciate the logic of taxing consumption" change my mind.  Not one whit.  Those legislators who have passed the Roth IRA provisions and other provisions that shift in part to a consumption tax (mostly for the benefit of those who are rich enough to set aside IRAs) haven't provided convincing studies of the impact of their provisions or their attention to the equity of consumption taxes.  They have tended to state ideological positions as though they were fact--such as the right's idea that earned income should be taxed and unearned income should not, purportedly based on the idea that the wealthy will then use their extra money as entrepreneurs to create new jobs. 

Further, Mankiw assumes that we would develop a "progressive" consumption tax to replace the income tax.  He fails to note that the rates on a progressive consumption tax would need to be staggeringly high in order to draw from the highest income a reasonable amount of the tax burden.  Can you see Conrgress passing a consumption tax with rates on the highest income of several hundred percent or even a thousand percent or more?  Yet that would be necessary, since the very high income consume only a small portion.

3.  Tax bads rather than goods

Here Mankiw is surely dealing tongue in cheek.  He takes the economic notion that taxes always distort decisionmaking and seems to conclude that taxing earned or unearned income is not a good idea.  Do we substitute sin taxes?  Seems to be the gist of it.  

But I'm going to assume he really means that when possible, it makes sense to tax things we don't think are good for people or the planet--cigarettes and climate-change-causing oil and gas burning.  Ok.  That one I'll go for, but that's just what reasonable legislators ought to be doing all the time, as we discover what's bad that people nonetheless really like to do.....

4. Keep it simple, stupid.

My response to that:  Simplicity is not the be-all and end-all of tax reform, stupid.  In fact, our tax system is already pretty simple for most middle income taxpayers.  It is complicated for the non-wealthy by three things--the alternative minimum tax (AMT), the preferential rate for capital gains, and the earned income tax credit (EITC).  The AMT is a problem with the Bush cuts in rates, since it claws back further into the middle class.  If we let the Bush tax cuts expire, then the AMT will operate more as it should as a backup to cut down on excessive preferences.  (See my earlier postings on possible changes to the AMT to make it fairer.)  Of course, the CG preference is an easy one--get rid of it.  It is a terrible provision today, because it exacerbates the inequality that is getting to the point of no return in the United States.  Tax policy should not make things worse when it doesn't need to.  And of course we should keep the EITC, since it performs an important societal function (and also helps to fight inequalities).

So we already have a relatively simple tax system for most taxpayers, to the extent that is possible.  Simplicity isn't a very important goal for those at the top of the income distribution or for corporations--they will inevitably hire sophisticated tax advisers anyway, and we have to write the rules with some detail as they apply to them, or they will just romp around them and through loopholes of their own interpretative imagination. 

 Fairness is a much more important goal than simplicity.  How come Mankiw doesn't even mention it?  Oh, I see.  He's an economic adviser to vulture fund manager Mitt Romney..... 

 

Romney to release tax returns Tuesday (finally)

Romney's bitter loss to Newt Gingrich in the Republican primary in South Carolina demonstrated that playing the patrician elite above the fray has its limits as a campaign strategy.  Romney's strategists had apparently thought that they could get away with not releasing tax returns--at least not any except his 2011 ones (maybe) when filed--but they hadn't counted on vicious attacks from the GOP right that questions his vulture capital millions and his top1% effective tax rate.  That's what happens when there is a campaigner who thinks that earning $370,000 from speeches given to meaningless conventions of some trade or another is "just a little money", while admitting that the money he still earns from the vulture fund where he oversaw takeovers of companies (and layoffs of employees and offshoring of work) manages to be taxed at a preferential rate of merely 15%.

So after the loss to Gingrich (an odd man to try to claim a populist mantle when he had a $500,000 line of credit at Tiffany's and disposes of old wives the way most people dispose of old socks), Romney has now announced that he will release returns plus an estimate of his 2011 taxes due.   See Michael Shear, Romney to Release Tax Returns on Tuesday, The Caucus, New York Times (Jan. 22, 2012).

One does wonder why it will be Tuesday when they are released.  Why not today?  or six months ago?  Will they be redacted? Will the accompanying schedules that show his income coming through tax haven "companies" located in the law offices that house 18,000 others in the Caymans be there?  Questions that we will have fun examining on Tuesday, anyway.

Oh, and Mitch Daniels, current governor of Indiana and Bush assistant who helped preside over the real growth of the federal deficit as Bush pushed through huge tax cuts while increasing federal spending (especially on preemptive wars), will give the GOP response to the State of the Union message.  The Tea Party has picked Herman CAin--the author of the infamous 9-9-9 plan who wanted to shift the tax burden brutally onto the backs of the working poor.  The GOP seems to have tax cuts for the rich accompanied by increasing burdens for the poor in its blood, doesn't it.

Proposed and Temporary Regs under Section 871(m) on dividend equivalent payments

The government filed on Jan. 19  a notice of proposed rulemaking (REG-120282-10) and temporary regulations (TD 9572) under section 871(m).  The section treats any notional principal contract as a "specified notional principal contract" subject to these rules after September 14, 2012, unless the Secretary determines that the contract doesn't have the potential for tax avoidance.  The temporary rules provide guidance that the statutory definition of the term "specified notional principal contract" shall apply for March through December 2012.  The proposed regulations would apply in January 2013 and set out seven factors for determining whether an equity swap is subject to withholding--a swap that satisfies any one of the factors will be.  Examples include short-term swaps (90 days), swaps where the short party posts the underlying security as collateral, and equity swaps on stocks that are not regularly traded on an exchange.  The idea was to provide bright-line rules that would give participants certainty regarding the applicability of withholding. 

Section 871(m) was enacted as part of the HIRE act, and provided that dividend-equivalent payments to foreign persons would be treated as a dividend from sources within the U.S and subject to withholding.  (Dividend equivalent payments are a substitute for dividends made pursuant to a securities lending transaction or sale-repuchase transaction or determined by reference to a payment of a dividend on an underlying security in a notional principal contract or swap.)    The provision allows the Treasury Secretary to treat payments on other derivatives in the same manner, such as those on forward contracts on US stocks, if it is determined that those payments are substantially similar to dividend-equivalent payments.  The preamble notes that Treasury will monitor equity-linked transactions closely to see if other types of derivatives should be encompassed in these rules.

The archetypal notional principal contract is an interest rate swap, such as a fixed for float swap.  Corporations, for example, may swap a floating rate on debt issued in the public markets for a fixed rate, thereby hedging the risk of rate increases over the term of the swap.  But equity swaps, in which one party receives dividend-equivalent payments on referenced equity issues have surged in use since their development.  A typical swap may provide that a foreign corporation receives a payment equal to the appreciation on the referenced security as well as dividend-equivalent payments in respect of dividends issued during the term of the contract.  The bank that enters into the swap as a counterparty would receive payments based on depreciation and a payment based on LIBOR or another interest rate index.  

James Kwak: Department of Duh (as in...GOP tax plans ALL increase the deficit)

From Mark Thoma, a Kwak comment on the way each of the GOP candidates' tax proposals would add much bigger holes to the deficit than anything Obama proposes, while simultaneously contributing to the obscene inequality in this country by rewarding the rich with large tax cuts (and in most cases shifting the burden to those who can least bear it).  Class warfare on the campaign trail is most represented by these redistributionist proposals for making the rich richer and the poor poorer.

See Kwak, Department of Duh (Jan 19, 2012).  Here's Kwak's concluding statement:

Someone has to point out that the same people who are complaining about deficits are proposing to vastly increase those deficits. Especially when their fantastic claims are essentially going unchallenged on the campaign trail.

Restitution payments to human trafficking victims not taxable

Under   Notice 2012-12 (BNA) to be published Feb. 6, the IRS  announced that mandatory restitution payments to victims of human trafficking for various medical, housing, child care and other expenses--including the value of the victim's labor to the defendant--are excluded from income. 

 

Foreign Account Tax Compliance Act rules are likely to be issued by the end of January, just in time for discussion at the mid-February ABA Tax Section meeting.  BNA Daily Tax RealTime (Jan. 19, 2012). Jesse Egert says that the drafters are "working around the clock" to make it happen.

These regs will be carefully scrutinized, since they carry out the requirement in the HIRE Act, enacted in early 2010, for foreign financial institutions to report U.S. owned accounts to the IRS or face the the applicability of a 30% withholding tax because of failure to comply with the enhanced "know your client" rules--a tax (with interest and penalties) ostensibly charged against the accounts, but for which the financial institution itself will be liable.  Impacted institutions are not just traditional banks, but also investment banks, private equity funds, hedge funds and similar members of the "shadow banking" system.

When I first began as an associate at a Wall Street firm in 1995, Treasury and the Service had just promulgated new withholding rules that were supposed to work better than the earlier requirements.  Banks of course lobbied hard for "know your client" rules that let transparency stop at their doors.  They'd not been providing the information that they were supposed to provide under the old rules, and these rules were supposed to make it better, because they would sign "qualified intermediary" agreements that would ensure their accountability.  The expectation was that tax compliance would improve:  banks would be more accountable, and US taxpayers would be more likely to satisfy their tax reporting obligations.  It obviously didn't work, as the Swiss bankers who visited the US just to sell their handy banking secrecy for offshoring assets and hiding them from revenue collectors made clear.  FATCA seems to be a reasonable response to that problem.

Earlier guidance is provided in Notices 2010-60 (generally explaining the provisions of the law and the way the IRS intends to issue regulations to address them), 2011-34  (supplementing Notice 2010-60) and 2011-53 (describing the timeline for phased implementation of the reporting requirements).  See also the IRS website on FATCA, which provides a summary of the key provisions and other important information.

For some of the commentary on the adoption of FATCA and its potential impact on banking and finance, see the following.   Just the few samples of the anti-FATCA screeds show that there is a substantial element of the investment banking industry that recognizes that tax evasion was very much a part of the allure of offshore banking.

FATCA: A shakeup in the world of finance and banking secrecy?, Asian Banking and Finance, June 1, 2011 (stating that "several international tax and banking experts have already declared that FATCA will lead to the end of banking secrecy as we know it.  This trend seems to have the support of most major nations behind it, all of whom have tax evasion problems similar to the U.S., and it may well evolve into a set of global FATCA-like standards").

Analysis and Commentary:  FATCA a real and present danger, TLP, Dec. 30, 2011 (a typical anti-FATCA commentary about potential impact on the investment industry)

An American Law that will hit investors here, Richard Hartung (Singapore), Dec. 13, 2011 (similar)

 

Romney reveals a little about his taxes

Source for this article:  Emily Friedman, Romney Reveals His Tax Rate Is 'Probably Closer to 15 Percent'", ABC News, Jan. 17, 2012.

At a press conference following the GOP debate last night, GOP presumed favored candidate Mitt Romney acknowledged for the first time that his effective tax rate is around 15%.  That's a lot lower rate than middle class taxpayers typically pay. 

Romney isn't releasing his full return--at least not yet.  He says maybe he'll release just the 2011 return in April.  But not any back returns. (That'd tell us more about his gains at Bain Capital than he probably wants us to know.)

What are his sources of income?  Romney acknowledges that during the last 10 years, his income comes "overwhelmingly" from some investments made in the past.  Other sources include a "little bit" from his book and "not very much" from speaker fees.  ("Not very much" is obviously a relative term.  Romney's financial disclosure report released in August indicated that he was paid more than $370,000 in speaker fees for that filing period.  That's considerably more than any middle class taxpayer makes---but doesn't amount to "very much" for Romney, who is worth somewhere around $250 million or so.)

So for 10 years, Romney admits, he hasn't labored much, but has nonetheless made considerable investment income that gets preferentially taxed.  That of course is a core problem with the preferential rate for capital income--it merely makes the festering wound of hugely unequal distribution of income (and wealth) worse.  The preferential rate is, essentially, a tax policy favoring redistribution upwards.  The rich get to pay a lower tax rate on their income than their secretaries, and their income is especially protected by other policies as well (like the weakening of unions from Reagan on, privatization of public activities from Reagan on, lax enforcement of anti-trust rules, lax enforcement of banking regulations, etc.).

At least Romney recognizes that the rich don't need (and the economy wouldn't benefit from) even more favorable tax breaks for rich people's favored kind of income.  He noted that "the speaker's plan to eliminate the capital gains tax for high income individuals--capital gains, interest and dividdnds--would not only be a very expensive provision in terms of having to fill an even larger budget hold but that would provide for people of very high income a possibility of no tax at all. ... I just don't think that's the right course."  (But he does want to lower corporate tax rates, which--under the theory that corporate taxes are borne by corporate owners--would be just another form of preferential taxation for rich people who own most of the corporate stock.)