ataxingmatter

Tax Foundation--up to its usual nonsense

The Tax Foundation claims to be a nonpartisan institute interested merely in researching and informing people about taxes.  That's far from the truth, however.  Its work is aimed at one purpose--convincing Americans that they pay too much in taxes and that government is too big. 

One of its most useful distortions is its self-proclaimed "tax freedom day."  It adds up all the state and local and federal income, excise, social security, property, and other taxes on individuals and businesses,including corporations, and then considers how many days of work, at a consistent amount per day, are required to raise that amount of taxes.   See Tax Freedom Day 2012, Tax Foundation.

But of course the entire enterprise of tax freedom day is baloney.  Nothing in that formula actually relates to what an individual earns or what an individual pays in taxes.  But because the date is announced as the day that Americans quit working to pay government and start working for themselves, many media outlets and readers interpret the "tax freedom day" as meaning that they themselves must work that long to pay off their share of taxes. There is no such thing as an average American, and it isn't clear at all that many of the excise, corporate and other businesses taxes are borne by ordinary Americans.  Moreover, thinking about this on an individual level means averaging in the super-rich like Warren Buffet with ordinary Joes like "Joe the Plumber" and poor folk like those barely scraping by on teacher or janitor salaires results in sheer nonsense.  There is no such thing as an "average" amount of taxes paid or a day in the year when each and every American can say--this is the last day I have to work to pay taxes. 

The Tax Foundation often goes through some rigamarole to insist that it doesn't ever imply that the "tax freedom day" is anything other than a cute figure of speech that captures a meaningless statistic.  But look at what it says in its announcement of the 2012 date:

Tax Freedom Day® 2012 arrives on April 17 this year, four days  later than last year, due to higher federal income and corporate tax collections. That means Americans will work 107 days into the year, from January 1 to April 17, to earn enough money to  pay this year’s combined 29.2% federal, state, and local tax bill.

Now, a typical person reading those two sentences would conclude that this is a straightforward statement that that particular American will work 107 days to pay off his own personal taxes.  Nothing could be further from the truth.  Some would have to work only a few days to pay off their share of taxes, while others don't work at all--those living on capital gains from inherited wealth--and still others may work considerably longer.  The statistic is meaningless and by confusing ordinary Americans into thinking that it can be applied to their own particular situation it becomes detrimental to understanding of the US tax system or government costs.

Further down, the Tax Foundation makes this statement.

 Tax Freedom Day is a vivid, calendar-based illustration of the cost of government, giving Americans an easy way to gauge the overall tax take.

And there one sees the anti-government bias of the Tax Foundation.  By using a formula that pretends to show Americans how hard they must each work to fund government, and providing no counterbalance (such as showing how many people are benefitted by various government programs, or how much harder each American would have to work without the various subsidies for home ownership, financial institution soundness, health research, and old age health care and retirement benefits), the Tax Foundation succeeds in convincing many Americans that government is indeed a wasteful exercise that demands too much of their own sweat. 

Just about as bad is the more recent Fiscal Fact:  Americans paying more in taxes than for food, clothing and shelter, Tax Foundation (May 3, 2012).  This look at government tax collections (using the same data used for the tax freedom day calculation, so including all taxes paid by individuals or businesses, whether income, property, excise or other and whether paid to local, state or federal government) and compares that to government figures for expenditures on essentials. 

This is again misleading, as the Tax Foundation itself acknowledges, since it counts taxes that are used for social programs that pay for those same essentials.  Redistribution programs that use the collective wealth to support those who cannot support themselves (vulnerable elderly and children, unemployed, mentally incapacitated, prisoners) serve a vital government function. Similarly, it again deals with national statistics that ordinary people are likely to interpret as applying to their own situations, even though the statistics cannot be applied in that way.  Consider the wealthy billionaire with a private island and seven multimillion dollar homes in the US--taxes collected on those properties will be much more than what ordinary folk pay on their single residence.  Likewise, taxes collected from billionaire CEOs will be much more than those collected from ordinary workers, even though the CEOs may also have considerable investment income that is taxed at ridiculously low preferential rates.  So no conclusions can be drawn from aggregate numbers of housing, food and clothing expenditures to individual taxpayers, just as no meaningful analysis can be drawn from aggregate federal, state, and local expenditures to benefits received (or costs borne) by individual taxpayers.

So why does the Tax Foundation produce such deceptively simple statistical studies that are cast in terms that are bound to mislead ordinary Americans about the role of taxes and government and even the amount of taxes they pay?  It seems likely that the primary purpose is to mislead ordinary Americans about the role of taxes and the amount of taxes they pay.  The Tax Foundation gets my maximum "boo" for its shameless exploitation of statitstics to mislead Americans about both their own tax burdens and the role of government in our lives.

 

Why we don't need corporate tax "overhaul": GOP poormouthing on behalf of rich corporate allies(Part I in a series)

These days, one hears a great deal from politicians on the right about how a corporate tax "overhaul" is needed because our taxes are "too complex" and/or "too anti-competitive" or because our tax rates are "too high".  The same GOP politicians who whine and whimper about how huge the deficit is, and accuse President Obama of driving our country to ruin with the deficit are willing to lower the tax burden paid by highly profitable corporations considerably (thus increasing the deficit and adding to regressivity of the tax system)--so long as they are appeasing their multinational constituency, the huge corporations who are the new providers of campaign funds and the new decisionmakers in elections--even though the corporate entities have no vote.  Claims of revenue neutrality are generally little more than PR cover for corporate giveaways.

Just a couple of examples from a recent Bloomberg piece:

• Republican Senator Robert Portman says he will unveil a new proposal soon that will cut taxes for multinational companies' repatriated offshore profits--i.e., a permanent tax holiday for multinationalsm as a first step towards a very MNE favorable move to a territorial tax system--that will remedy "an inefficient and complex maze of tax preferences".   See, e.g., Kathleen Hunter, Portman Corporate Tax Plan to Include Low Repatriation Rate, Bloomberg.com (Feb. 1, 2012).   Portman claims this huge tax cut for the high and mighty MNEs (and their managers/owners) is needed because they "pay[] a very steep tax bill if and when they choose to bring their money home."  Ludicrous.  There is a very generous foreign tax credit provision that allows many MNEs to reduce their taxes to near zero anyway.  Further, the deferral they are allowed on active business income gives them the time value of money benefit.  Most of what foreign corporations want to do is allow their taxes on non-US income to reduce their taxes on US income--which is a kind of subsidy for offshoring that costs US jobs.  And of course, as I've noted in earlier posts on tax holidays and proposals for a territorial system to replace a worldwide system, corporations hold more money overseas when they think there is a good chance that their buddies (or "bought pols"?) will give them the tax break they have been lobbying for--so these proposals encourage corporations to engage in the activity that these proposals say they are addressing, thus giving them more ammunition to get the change they want.  Portman, of course, says he wants to "streamline" the corporate tax and lower the rate to 25%.  We have a statutory rate of 35% now and most corporations that pay taxes (which are not by any means all of the corporations that make significant profits) pay less than 25%.  If we lower the statutory rate to 25%, it is quite likely that most corporations that actually end up paying taxes will be a smaller number than with the 35% rate and at a much lower rate--probably around 10-15% instead of 20-25%.  Of course, what the result will be--as it was in the 1986 tax reform that lowered rates for ordinary income and ended a number of problematic tax preferences such as the capital gains preferential rate--is that the lower rates will stay, and all of the loopy tax preferences (and more) will be reenacted within a couple of years under heavy lobbying for the same by the corporations that benefit from this round.
• Dave Camp, Michigan Republicans and Chair of the House Ways and Means Committee, wants to exempt 95% of overseas profits. 

Is there merit in this drumbeat of (lobbyist-induced) calls for "corporate tax overhaul legislation"?  The simple answer is no.

On Complexity:

Most complexity in the code is there for one of two reasons.

The most likely reason for complexity is the creation of tax preferences heavily lobbied for by corporate lobbyists.  One example is the so-called "domestic production activity deduction" that lowers the tax rate by 9% for most industries (even ones that don't really produce anything) and 6% for natural resource extractive industries.  There are tax breaks on top of tax breaks for the resource industries, of course, that get numerous special benefits throughout the Code, while joining in various coalitions that lobby AGAINST even extraordinarily modest support for green industries (such as reasonably low cost loans for solar power). 

The second main source of complexity is the clear need for specific anti-abuse provisions to undo the harm done when corporations use what can most charitably be called aggressive and inventive interpretations of Code provisions--often ones that are hyper-literal in nature (the kind of analysis that allowed the Bush Treasury to redefine what "exchange" means in the reorganization provisions in order to allow taxpayers to manipulate the allocation of consideration to create a hitherto unrecognizable tax loss in the reorg transaction) or turn the Code's clear textual provision on its head (look at the briefs for the defendant--or for that matter the lousy statutory interpretation in the district court opinions-- in the Black & Decker contingent liability shelter case, where Black & Decker argued for application of a provision in section 357(c) (which says explicitly that it applies only where paragraph one of that provision applies) in a context where paragraph one did not apply).  As a result of the contingent liability shelters, Congress added various Code provisions, including section 358(h) (having to do with the basis for corporate assets in transactions with significant liabilities) and section 357(d) (having to do with calculating the amount of liability assumed).

Complexity, in other words, is not an evil in itself.  Sophisticated taxpayers aren't harmed by complexity, and in fact complexity is needed to provide sufficient detail to prevent sophisticated taxpayers (with the help of their tax advisers) from cheating.  There is generally less complexity in provisions that are relevant for unsophisticated taxpayers, though it is more clearly an obstacle to good tax compliance behavior there.

On Competitiveness:

Competitiveness is used so frequently that it seems doubtful that anybody really knows what they mean by it.  If one company destroys a union and is able to pay their workers lower wages as a result, then a company that produces a similar product will claim that "competitiveness" requires that they be allowed to do the same.  Of course, another approach would be for the company that retains an active union, and continues to provide pension and health care benefits could lobby Congress to enact stronger laws protecting worker rights to pension and health care benefits.  In other words, competitiveness is consistently used as an argunent, when it comes to corporations, for taking away benefits to workers, communities, states and the nation for the benefit of the corporations.  Competitiveness could just as easily be used to argue for maintaining programs, procedures and benefits for workers, communities, states and the nation by considering what would be necessary to buttress the system that supports those benefit levels.  And in fact that view of competition--that we are competing globally to create both profitable companies AND a secure and well-paid workforce that can support a healthy economy that can in turn support a quality of life in all dimensions--would lead to different decisions not only about taxation but also about anti-trust, excise taxes, trade treaties, environmental protection, and many regulatory projects.

Furthermore, competitiveness is often used as an argument in the abstract when the main competitors are both US based companies.  There, the argument for reducing taxes to enhance competitiveness is at its weakest, but few competitiveness arguments reveal just how the competititon is playing out even on a globalized playing field.

On Rate Structures:

The 1986 tax reform act is a frequent reference these days when people talk about amending the Code generally and specifically about amending the corporate tax provisions.  But the context for that act's passage was quite different.  Individuals were taxed at rates that were reasonably progressive--with a top rate at 70% (though the brackets could probably have been better defined to differentiate among top income recipients).  Further, the 1954 Code had built up a plethora of tax preferences (especially useful to the rich) and the Congress had realized that the preferential capital gains rate was wreaking havoc on sensible provisions because of the arbitrage opportunities it created.  Thus, there was room for "base broadening"  (removing ill-advised preferences spread throughout the 1954 Code) as a means of paying for "rate lowering" (lowering the fairly high rates about half, without costing the fisc because of the higher amount of income on which those rates would be charged).

We are not in the same situation today.  We have very high deficits because of an economic crisis caused by two interwoven problems--(i) the lax regulatory oversight of 40 years of Reaganism, which permitted the financialization of the economy and led to excessive incomes for people at the top (managers and owners, hedge fund and equity fund managers, and speculators generally) and excessive debt for banks and especially people not at the top (because of their stagnant or reduced incomes in the face of growing costs, caused in part by the relaxation of regulations and anti-trust activity coupled with the anti-union attitudees and activity); and (ii) the success of a radical right-wing fringe in characterizing government and business as having adverse interests and progressive programs supporting social well being (from Social Security to Medicare to Medicaid to (modest) heatlh care reforms intended to reign in the cost of medical care to unemployment benefits to efforts to reign in contracts of adhesion in the consumer credit markets) as "unmerited" "entitlements or costly and anti-competitive regulation of businesses that counters the "free market" that will ensure "growth and jobs".  The result of the rhetoric is a citizenry that is ignorant of the actual income distribution, tax burdens, and impact of government spending on jobs and the health of the economy.  The result of the 40-year "reaganomics" effort from the right to cut regulations, cut taxes, privatize and militarize is that this is no context for rate reduction but in fact a context in which those who can afford to do so--for sure those individuals and households in the top two quintiles of the income distribution that comprise the upper middle class and the upper class and all profit-making corporations--should be paying taxes at HIGHER rates, not lower rates.

It should be noted that President Obama--who is at best a middle of the roader on tax issues--also is said to plan to propose an "overhaul of the U.S. corporate tax system" in connection with his budget plan for FY 2013 that involves lowering rates and base broadening.  See Steven Sloan, Obama said to propose corporate tax overhaul next month, Businessweek.com (Feb. 2, 2012).   Again--lowering the rate is a bad idea.  Lowering the rate without base broadening is a stupid idea.  But the kind of base broadening that is included, if such a proposal eventually passes, matters an awful lot.  The problem is that if Obama proposes such a reform, the GOP won't support it unless the "base broadening" is essentially inconsequential and can be undone easily later or affects only little guys and not the big-monied lobbyists.  Thus this looks like another of those initiatives from the White House that play into the right's agenda and do little to advance any progressive idea.

GOP's payroll tax cut bill (with a lot of other stuff) up for vote on Tuesday

[edited 2 pm 12/13 to provide additional links to news coverage of some of the changes]

Congress has been playing politics as usual over the few policies that are on the table that have a real chance of assisting, to some degree, the plight of ordinary Americans and perhaps even the slow recovery that is still trying to gain steam--extension of the reduction in payroll taxes (from 6.2% to 4.2%) and extension of unemployment compensation.

The Republicans have refused to pay for these common sense tax reductions for ordinary Americans with a similarly common sense tax increase on the wealthiest Americans who have continued to capture all the productivity gains in the economyt.  Republicans in the House think that these kinds of provisions should be offset by more goodies for the "uberclass"--at least as evidenced by the H.R. 3630, the bill introduced by Dave Camp (R-MI) and to be voted on today at about 4:30 pm. 

• It would restructure unemployment compensation in ways that add hurdles and make it less likely that unemployed Americans will qualify--providing more state flexibility and experimentation (including paying employers to cover part of cost of wages exceeding the recipient's prior benefit level), permitting demeaning drug testing of all unemployment compensation recipients (section 2127), and requiring a high school diploma or participation in state "reemployment services" for which recipients may be charged up to $5 weekly out of their unemployment compensation.  It would severely curtail the total number of weeks for which federal unemployment assistance is available--moving to a 59-week limit from a 99-week limit.  Methinks I see Scrooge here.....
• It will interfere with the Environmental Protection Agency's ability to regulate, letting corporations continue to harm the environment at the expense of ordinary Americans.   See Subtitle B.  Section 1102(b) lists rules that are "stayed" by the legislation and provides that no new rules can have an effective date earlier than 5 years out and requires consideration of various factors in determining that date.  Further, it requires adoption of the laxer 2000 definitions for certain key terms and the imposition of the "least burdensome" among potential regulatory alternatives.  This is a key cave-in to corporate polluters. 
• It will expedite the KeystoneXL pipeline by requiring a permit to be issued within 60 days unless within that time the President determines that the pipeline will not serve the national interest (in which case within 15 days the President must provide various committees and members of Congress a report justifying that conclusion from various perspectives).  It indicates that the environmental impact statement from August will be treated as satisfactory for environmental and historical preservation purposes and shall not have to be supplemented if there are modifications to the plan  and no further federal environmental review shall be allowed.  This is a clearly ideologically driven provision, failing to give due regard to the potential longterm environmental impact on drinking water aquifers or historical preservation impact. 
• It would provide yet another tax reduction for US corporations that have paid less and less taxes over the last decade, with a renewal of the ill-advised 100% expensing provision in section 168(k)(5) (along with the alternative of accelerating AMT credits)
• it makes further changes to medicare such as applying a cap to hospital outpatient therapy services and reversing part of the Health Reform Act passed earlier, by permitting new doctor-owned hospitals and permitting existing ones to expand, even though it has been shown that such hospitals spend more on testing and procedures (and profit more from them).  See, e.g., Pear, G.O.P. Bill Would Benefit Doctor Owned Hospitals, New York Times at A24, Dec. 13, 2011.
• it would continue funding for the "healthy marriage and responsible fatherhood" initiative, see 42 U.S.C. section 603(a)(2)  (the cynic in me suspects that these funds primarily go to programs supported by religious institutions and that they proselytize more than they teach reasonable relationship skills)
• it includes an extensive section remaking flood insurance provisions, including, in section 3005, lifting the cap for premium increases for flood insurance from 10% to 20% (an apparent boon to insurers), and another section prohibiting the administration from "disregarding" any levee or floodwall, even if it is not accredited.  The goal, made clear in section 3009, is privatization of the national flood insurance program.
• It includes extensive broadband spectrum auction provisions in Title IV, Subtitle A, reallocating spectrum from federal to nonfederal use.  These provisions, among many detailed ones, e.g., permit private administrators of state public safety networks to use the public spectrum for private purposes as well as the public safety  purpose and prevent states from denying requests for modifications of existing wireless towers that do not substantially change the physical dimensions thereof.
• It increases the guarantee fees charged by Fannie Mae and Freddie Mac.
• It requires a social security number for the refundable child credit
• It provides in section 5895 a 100% tax on "excess unemployment benefits" that go to millionaires (unemployment compensation is reduced proportionately as the adjusted gross income increases from $750,000 to $1 million)--The Times today has an article on the bill and notes that the number of millionaires receiving unemployment compensation is very small, but that their participation is predicated on the fact that the unemployment compensation program is a type of insurance into which payments are made to cover payouts.  Means testing such insurance programs is in sync with the right-wing goal of means-testing as a prelude to privatizing and/or eliminating all federally administered social welfare insurance programs, such as medicare and Social Security (and, see above, national flood insurance).
• It increases pension contributions from longterm federal workers by .5% a year for 2012-2014 and for those "secure annuity employees" with less than five years of service, by more than 10% a year and using 5 year average pay rather than 3 year average pay, sets annuity amounts, and ends the annuity supplement for post-2012 retirees.
• it extends the general freeze on federal pay for another year
• It increases the premiums for Medicare Part B and Part D for those making $80,000 or more (for those making $200,000 or more, the applicable percentage is 90%)--this again appears to move these national social welfare insurance programs towards more means-testing that will facilitate privatization or eventual elimination. 
• It sets up a number of procedural hurdles in the Senate, which is already hogtied by the ease with which a minority of its members can filibuster and thus stop legislation that is supported by a solid majority of its members.  For examples,
  • it requires a 2/3 vote in the Senate to amend the dates for section 601(c) of the 2010 Tax Relief Act--that's the temporary employee payroll tax cut;
  • it provides that a point of order by any Senator against an emergency designation in a bill eliminates that designation and makes it impossible to bring the designation through a floor amendment unless there is a supermajority 3/5 vote in favor of doing so (limiting debate to 1 hour)--thus one right-wing Senator intent on obstructionism can make it very unlikely that an important provision can pass by preventing even reasonable debate about the importance of the provision!

The GOP, of course, touts its bill as creating jobs.   While the Keystone pipeline may create some short-term jobs (the New YorkTimes reports estimates from Transcanada itself  and the State Department of only about 6500 temporary construction jobs  and maybe 50 permanent new jobs--see Keystone Claptrap, Editorial, New York Times at A34, Dec. 13, 2011), the potential negative impact on aquifers could be life-threatening.  Most of the other provisions are Scrooge-like additions of hurdles and caps on social welfare provisions or attempts to roll back the social welfare insurance provisions into means-tested ones that will be even more susceptible to the derogatory and inflamatory class-action warfare that the right has increasingly unleashed on anything that doesn't give a break to the wealthy and corporate clients of the all-powerful Washington lobbies. 

On lobbies, just read the New York Times article about the wealth that online educators are getting from state and federal taxpayer dollars for delivering no or sub-standard education, and the amount of taxpayer money being spent on lobbying to ensure the continuous flow of that wealth.  See Saul, Profits and Problems at Online Charter Schools, New York Times, Dec. 12, 2011.  It's obvious that the corporatist agenda sees no problem with siphoning off taxpayer dollars for private benefit with little public good created, but complains mightily about any siphoning off of exorbitant corporate profits--that tend to go to wasteful excess managerial compensation or portfolio enhancement--for taxes intended for public benefit.

The inclusion of the Keystone and other right-wing-rhetoric-driven items in a bill to provide the payroll tax cut and a limited unemployment extension (with hurdles) demonstrates the absurd level of ideological partisanship engaged in by the House Republicans.  Senate Majority Leader Reid characterized the bill as loaded with "ideological candy" that the Senate would reject.  Sloan & Rubin, House to Vote on Payroll Bill as senate Eyes Tax Sweeteners, Bloomberg.com (Dec. 13, 2011).    Of course, most of the sweeteners that Reid proposes adding are components of the right-wing corporate-friendly agenda--like the R&D credit that rewards what companies do anyway; the active financing exception for big banks, insurers and other financial institutions that lets them defer taxation on their financing income earned overseas; and accelerated depreciation for restaurants and motorsports tracks that provide special tax subsidies to particular industries!

PEW report on "The Great Debt Shift"

The PEW Foundation's report on the reasons the U.S. debt is at its current level is now available:  The Great Debt Shift.  This report lies behind Montgomery's Washington Post article reviewed in the prior post.

This discussion of deficits and debts appears to be backwards.  If our congressional representatives truly had the well-being of Americans and the long-term status of the country in mind, I suspect we would have a very different national conversation.

First, we would have a real dialogue--hopefully with minimal misleading and false talking points based on distortions of facts --centered first around what it makes sense for governments, and the federal government in particular, to be spending money on.  I have in mind the development of a consensus about expenditures essential to the well-being of the citizenry. 

 I'd include at the least items such as:

• a  national defense network (thinner than the current Homeland Security/Military apparatus, so that it does not become too powerful);
• an open, transparent and fundamentally conservative financial system that provides credibility to the US so that it can conduct its affairs and that provides a sound system of credit for commerce and individual interests;
• basic and decent health care for everyone;
• public infrastructure such as transportation, communication and energy networks;
• decent public education from child care/pre-kindergarten through college;
• seed money to support innovation (such as direct funding for basic research and short-lived tax incentives to innovative technologies that have some track record of improvement over current technologies);
• appropriate regulation of markets to avoid  (i) externalities like pollution, fishing stock depletion, endangered species extinction and (ii) generally problematic dominance of markets by a few large players;
• legal regimes that provide means of holding corporate entities and individual actors responsible in both civil and criminal actions as appropriate; and
• appropriate safety nets to ensure that vulnerable citizens are cared for in difficult times. 

After having developed some consensus around the kinds of expenditures that promote personal freedom and the general welfare of our citizenry and our society,  I'd want us to have a conversation about  the means of achieving those important expenditures.  There is no need (or justification) for arbitrary caps, such as "government expenditure should not exceed 19% of GDP" or a priori conclusions about whether or not we can "afford" such things as decent universal health care or decent old age insurance.  We should, of course, consider whether current taxation, fees, and other revenues can provide sufficient funding for the items that we have prioritized.  If not, we should consider what additional revenues might be reasonably generated to fund those priorities.  Only if the result of funding those priorities through the best means we can determine is more damage to the citizenry and societal structure than not making those expenditures at all should we consider pulling back from our determined agenda.

As I said, the US is currently doing this backwards.  We are operating with an intentionally defective tax revenue system ginned up by the "starve the beast" crowd to protect its own interests.  We had a reasonable tax system in place in 2001, a system that a majority of people considered satisfactory, even at the time that the Bush Administration was amping up the PR to push through its huge 1.35 trillion tax cut predominantly of benefit to the wealthy.  (That is not to say, of course, that there was no room for improvements, such as by removing ambiguities, deleting the chaff hanging on from decades or more that no longer had a good rationale, such as the huge agribusiness subsidies, and others.)  An ideological whirlwind, based on neoliberal views that support the primacy of property rights and hence the primacy of the propertied classes, swept that away and substituted growing deficits, growing debts and expanding military commitments.  Remember that Bush II actually increased spending while pushing through and supporting what amounts to one of the biggest tax cut packages in our history, when you take all of the various cuts from 2001-2008 into account.  And, of course, it was the GOP that pushed for using more tax cuts (particularly for Big Business) rather than direct public infrastructure investment as a huge part of the economic stimulus package that was finally passed.  Now, those resulting deficits and debts are being combined with a priori arbitrary numerical targets to purport to justify the "necessity" of eliminating important safety net programs that enhanced personal freedoms by freeing the unemployed, the poor and the elderly from some of the worst ravages of economic insecurity. 

Americans may be beginning to wake up.  Witness the fury at some of the Town Hall meetings of the House members who supported Ryan's budget proposal that combined new tax cuts for the wealthy with more reductions of aid for the poor.  But the Paul Ryans, Donald Trumps, Sarah Palins, Michele Bachmanns, Grover Norquists, Glenn Becks and all the others participating in false facts echo chambers are trying hard to prevent that from happening.  Hopefully, more and more members of both the Democratic and Republican parties will step forward to pull us back from the brink of ridiculous gamesmanship over birth certificates, college transcripts, Harvard Law Review articles, the debt ceiling (get rid of it altogether) and ideologically driven spending targets so that we can have the national discussion we need to have.

Argentine Crackdown on grain/bean exporting companies, including Cargill and Bunge

According to BNA's David Haskel in the May 1, 2011 Daily Tax Report, Argentina has sent 1200 tax agents out to raid the offices of major grain and bean companies, including two US agribusiness MNEs, Cargill and Bunge.    The agents carried out raids across the country on Friday and Saturday, targeting 200 companies and individuals (including notaries and accountants) suspected of being involved in the scams.  The documents seized will be studied as the tax administration determines its next moves.

Companies are thought to be using various tax evasion techniques, including setting up shame companies attributable to deceased people, money laundering, and claiming abandoned silos as place of origin for grains.  Cargill is accused of billing its sales to a Uruguayan subsidiary, that would then bill companies set up in tax havens.  In addition, the Uruguayan subsidiary claimed it was making sales at below purchase price, generating losses that allowed it to reduce taxes.  Bunge is suspected of the biggest tax-dodge, based on raids of its offices and seizure of files.  It may have used the scams to avoid $300 million in taxes.  The Argentine tax office indicated that other American companies, including Archer Daniels Midland, DuPont and Louis Dreyfus, are also under investigation.

Tax Filing Deadline Approaches For Most

For all of us ordinary wageearners who file our income tax returns on a calendar-year basis in April, it's that time of year again.  Of course, it is also that BUSY time of year for tax return preparers, but they don't usually complain (much) since it is also a quite profitable time for them.

The IRS reminded everybody in IR-2011-35 that the deadline this year is just two weeks away, on April 18.   (It's April 18 rather than the 15th because of a District of Columbia holiday.)  And about 70% of taxpayers (those with $58,000 or less) can use the "IRS Free File" service to file the return or an extension. Go to the release and linke above for more on the free file process for 2011.

How are returns going so far?  According to the release:

As of March 25, the IRS has received more than 82 million individual income tax returns, which is 58 percent of the 141 million returns expected this year. The IRS has received about the same number of returns so far this year as it did at this time last year, while processing of returns is up 3 percent from the same time last year.

***

Usually, 20 to 25 percent of all taxpayers file in the final two weeks of the tax season. And, usually, about 7 percent of taxpayers seek a six-month extension to file.

Many taxpayers will get a refund.  One last tidbit of information on the filing season so far--the average refund is $2,952.

More on the White House "deal" on tax cuts

Dan Shaviro, a colleague at NYU, ends up being hopeful about the Obama-GOP deal.  See "The deal on extending the tax cuts", Start Making Sense, Dec. 6, 2010 and "The tax cut deal: too soon to tell who really won?", Dec. 7, 2010.  I think that is because Dan tends to credit Economics 101 with considerably more wisdom than I do (and place "efficiency", as defined by the free marketers, higher on the wish list for tax policy than I), so he thinks Social Security isn't on a sound footing and that benefits will need to be cut; thinks expensing for corporations is a reasonable way to spur growth; thinks there is some possibility that the 2012 replay of "Bush tax cuts, take 2" might play out in favor of Obama if he is "very clear that he planned to veto any extensions and let all the tax cuts expire UNLESS the Republicans made the deal he requires".  I'll intersperse my comments with Dan's below.

1) extending all the expiring individual rate cuts for 2 years:

Dan says "we knew this was going to happen" so the only problem is that it comes up again in 2012 when Obama will "might face extra credibility problems".

I think we only knew this was going to happen because Obama didn't fight on this at all.  Obama signalled at the beginning that he would cave, and he did not take to the bully pulpit at all.  He conferenced with Republicans and cut out the Democratic leadership in reaching his "deal"--which is a Republican policy in everything but name.

2) extending unemployment insurance through 2011:

Dan says it is an important stimulus and "wasn't going to happen otherwise." 

I agree on the stimulus.  But the Dems should have brought unemployment extension up on a daily basis and forced the Republicans to vote against it.  So the "wasn't going to happen otherwise" is part of the give-up before you start negotiating that got us into this mess. 

3) reduce the Social Security payroll tax by 2% for one year:

Dan says "good stimulus" though "targeting could have been a lot better" and admits my point (made when payroll holidays were first brought up) that the payroll holiday feeds into the drive to decimate Social Security by hitting the Trust Fund.  But Dan thinks the "concern" about long-term fiscal problems is real, and so is comfortable with addressing it "sooner" anyway.

I disagree. The concern about Social Security is being hyped in order to destroy Social Security as we know it.  It is in line with the enmity towards unions, towards single payer health care, towards re-regulation of the banks, towards breaking apart big banks, and towards any other policy that would restore a vibrant middle class.  By allowing a payroll holiday for everyone, the majority of the benefit goes to people who don't really need it, and too little benefit goes to those who do.  Targeting is better than a tax cut purely for the rich, but that isn't saying much.  Doing some stimulus in a means that pushes the GOP agenda to eviscerate Social Security forward is like tying one hand behind your back--a rather unwise way to enter a long-term battle for the economic future.  Will we have the brutal mix of casino and winner-take-all capitalism that has driven most of this country's policies from Reagan on or will we have a tempered capitalism that ensures a broad-based growth and creates an economic system that works for everyone?  The Republican's aims to let states go into bankruptcy and use that mechanism to destroy public employee unions says they are in this battle to destroy the New Deal if they can.  We need to fight just as hard on the side of the middle class.

4) Estate tax cut by increasing the exemption from the 2001 level to $5 million (basically 500% of the 2001 amount) and lowering the top rate to a mere 35%.

Dan thinks this might actually be preferable "in efficiency terms" to the current law, which would have restored 2001 rates in 2011, if done in a "distribution and revenue neutral framework".  And even though this isn't that, he doesn't think a more progressive estate tax "is long-term feasible anyway."  So this is not "a terrible outcome in a realistic overall sense."

Here we part ways 100%.  There is no such thing as a distribution and revenue neutral framework--that is a fiction of economics 101 that permits what we have seen, which is four decades of redistribution upwards.  Further, distribution neutral is not desirable in an economy where the winners already take all--if we don't reverse the direction of distribution in this economy, we will end up in oligarchy (if we aren't there already).  In that context, this was the single most viable opportunity for reinstating an appropriate estate tax, either by letting the Republican-passed law take hold (return to 2001 exemption and rates) or by passing a slightly modified but ideally more progressive version (higher exemption but progressively higher rates beginning at 45%).  This is indeed "a terrible outcome in a realistic overall sense."

5) extensions of the EITC, tuition tax credit and expensing (as well as the R&D credit, not mentioned by Dan 

Dan says that the EITC and tuition tax credit are okay because they may add progressivity and the expensing provision is okay as a short-term stimulus.

The EITC is okay.  Tuition tax credits just subsidize the things colleges spend money on that they don't want students to have to feel they are paying for--like too high administrative salaries (across-the board, at private and public universities).   We ought to fund higher education at public institutions, but with conditions, such as limiting the percentage of total budget spent on administration or on the revenue sports, etc.  As for expensing, it is unclear how it can be stimulative in this context, when the reason companies aren't expanding is because they don't see a demand for the business.  Most companies have the cash on hand and can borrow at a funding cost that is extraordinarily low.  That isn't what is holding back investment.  Odds are, the savings from expensing will just go to another round of higher manager salaries and big payouts to shareholders (who will also continue to benefit from an extraordinarily low dividend and capital gains rate under the deal).

Dan seems to think that Obama will be able to argue credibly that "this time I mean it" when it comes to the 2012 election and the Bush tax cuts are ready to expire once again.  Fat chance. There's nothing so far to convince anyone--Obama caved before fighting on the public option and on taxes for the rich and on the estate tax and on capital gains and on carried interest and on and on.  Obama in fact is now pushing his Democratic colleagues to support an agenda that will easily get 100% Republican support and maybe enough reluctant Democratic support to pass, rather than rallying them to fight so that he can veto, if need be, wrong-headed legislation.  So he has proven that the Dems lose in the minority and they don't bother to fight when they are in the majority.  No way his base will trust him to do it better next time around. 

Meanwhile, the GOP is already blaring that there is no way that they'll give an inch on anything.  They won't support the Build America Bond program, because they want states to declare bankruptcy as a means to destroy public employee unions.  And they don't seem to care that they are destroying the American social contract between the wealthy and the rest of us at the same time--we are what we are because we have recognized the importance of a strong middle class that acts as a check on oligarchy.  Yet the Republican party--and now too many Dems--are willing to throw it all away just to get elected one more time (maybe) in the future.

In my view, the American people are the losers here.  The AMT patch primarily helps those with high incomes.  Most of those who pay the AMT because of bracket creep are in the 250-500,000 income range--certainly not middle class.   Only a few are in the 75-100,000 range.  The extension of extremely favorable taxation of secondary market capital gains and dividend income is of benefit to the wealthy who own most of the financial assets.  The extension of the tax rate cuts even below 250,000 already aids the wealthy--adding the tax rate cut at the top means that most of the rate cut goes to the very well off.  This is a very good deal with corporate managers and owners, and rotten for ordinary Americans. It's the upside down world of George W. "the have-mores are my base" Bush.

Spending, Borrowing and Tax Cuts

As of course everyone is aware by now, many of the "Tea Party" candidates were elected to office last week, and many Republican officials have taken the resurgence of the party as an indication of support for what they view as the advocacy group's platform (shaped, in significant part, by funding from Dick Armey's group and the Koch brothers' agenda).

The result is that there is more talk about how to strangle "big government" while at the same time providing tax cuts to as many as possible.  So Senator Elect Mike Lee of Utah, who won with Tea Party support, refuses to say what programs carried out by the federal government he thinks are bad, other than agreeing when PBS's Woodruff mentioned others' attacks on the federal Department of Education that we could get rid of that since (to paraphrase) education should be a matter for states and local governments.  See the video of Woodruff's interview with Sen. elect Lee at the PBS website: Tea Party Sen.-Elect Vows Vote Against More Debt

One suspects that the reason education is easy to attack is that the Republicans-- since the Department's creation --have been attacking it, never with much specifics but always insisting that the problem is that it takes control away from local school districts.   But what kinds of things does the Department do that are so bad?  Looking at its website today, one finds several interesting items.

• "Ready-to-learn" TV Grants--The department provided $27 million in three five-year grant awards to telecommunications entities-- Window to the World Communications, the Corporation for Public Broadcasting and the Hispanic Information and Telecommunications Network-- to support projects that "improve educational opportunities for young learners through innovative technology".  The grant recipients will develop outreach materials and resources for families, preschool and early elementary teachers intended to improve literacy and math skills in children from 2 to 8 years old.
• Education Statistics--the Institute for Education Sciences/National Center for Education Statistics collects and analyzes education data of interest across the nation, on both elementary and secondary schools, see, e.g., Characteristics of the100 Largest Public Elementary and Secondary School Districts in the United States: 2008-09 (Nov. 4, 2010), and on higher-education institutions, see, e.g., Employees in Postsecondary Institutions, Fall 2009, and Salaries of Full-Time Instructional Staff, 2009-10 (Nov. 3, 2010).  The statistics allow us to compare reading or math scores of eighth-graders across the country or teacher compensation in various states.  Is this information useful and perhaps even necessary for educators and school districts today?  Probably.  Would states provide this kind of statistical research if the federal government did not?  Possible some of it, but certainly not evenly across all the states and not as comprehensively.  That is one of the comparative advantages of a single federal rather than many state bureaucracies--the ability to collect and analyze comprehensive data of relevance to all of the states.
• Federal student aid--The Department provides information and tools to help students find grants, student loans and scholarships, and to assist student counselors in helping students navigate the aid network.  See, e.g., the portal for "Student Aid on the Web".  How many students are able to attend college because of federal student aid who otherwise would not be able to go?  In what way could states provide the same type of benefit, when students may well leave their own state to go elsewhere and states already are hard pressed to fund their own public universities (leaving most of them to scrounge for donor aid for 70% or more of their funding)?

Those are just a skim of the surface of the kinds of activities the Department undertakes.  Yet Sen. Elect Mike Lee of Utah thinks we could just eliminate it.  Wonder what real deliberation and investigation, if any, he is basing his opinion on.....

Lee also says that the government should make "across the board" cuts of up to 40% in order to prevent any further borrowing.  He would like to cut federal salaries by 10% and fire federal workers. And he has indicated his willingness to join the renegade band of Republicans that have indicated they will not vote to increase the debt ceiling.  These programs alone would likely launch us back into the Great Recession or in fact into a Great Depression.  When citizen spending has stopped, government spending is what keeps the economy rolling.  Especially beneficial is government spending that creates infrastructure that will support future job growth.  But the kinds of cutbacks--and immediate limitation on borrowing--proposed here would be nothing short of disastrous. 

 Especially with the simultaneous push by Republicans to extend all of the Bush tax cuts, even to those wealthiest individuals who mostly save them (and invest them abroad) so that failing to extend new cuts to them will make not a whit of difference to the economy. Senator Orrin Hatch (Lee's senior senator from Utah, also Republican) "warned Nov. 8 that any effort by Democrats to separate permanent tax cut extensions for the middle-class from permanent extensions of the top tax rates will fall flat in the Senate."  BNA Daily Tax REalTime (Nov. 8, 2010, 7:14pm).  It's the same old argument that failing to enact a new tax cut for the wealthiest Americans would press small businesses and hurt jobs, even though the "small businesses" affected are minuscule.  Hatch sticks to the party line that any failure to pass a new tax cut bill for the wealthy is "a tax increase plain and simple that would be used to fund more Washington spending, while discouraging private sector job growth."

If we'd had stellar private sector job growth as a result of the enactment of the original 10-year Bush tax cuts, one might think Hatch's argument held some water.  But job growth throughout the Bush regime was anemic--not really keeping up with population growth.  So the argument doesn't have a leg to stand on.

 How, pray tell, do people like Lee expect the government to service its current debt when they are against borrowing and against enacting a tax cut that fairly targets the middle class and poor for cuts while not cutting taxes for the rich, while simultaneously supporting drastic austerity measures like salary cutbacks and firings that will set the economy into a tailspin?  How would communities cope with the unemployment caused by the proposed massive firings of, and cutbacks in salaries to, federal and state employees, based on the bogus claims that public employees are overpaid compared to private workers?  When students need federal loans to continue at school, how will they get them with no employees to administer the program?  When there is a disease outbreak or potential epidemic, how will it be handled if the Center for Disease Control has cut back its staff by 40%?  The Republican answer seems to be --we'll see; no plan for now.

Now, we all recall the fact that the debt ceiling had to be increased numerous times during the Bush regime--in part because of the wars of choice in Afghanistan and Iraq and in part because of the more than one trillion-dollar ten year cost of the original 2001 Bush tax cuts.  When the discussion of the Bush tax cuts took place in Congress, the Republicans said they would pay for themselves.  They didn't and won't, as even staunchly partisan Republican economists admit.  The GOP limited the tax cuts to ten years (with the gimmick of the 2010 sunset), however, in order to avoid admitting the real cost of the cuts.  Now we are in 2010 and have to deal with it.  There are choices to be made.  It seems to me that following the Utah senators approach would cement the problematic economic pathway we adopted under Bush--benefits from stock market growth for the wealthiest, stagnation for the rest.

So do those Tea Party candidates who are supporting indiscriminate across-the board cuts to the federal budget of a size to

Why taxes are important

The so-called tea party adherents and many libertarians, treat taxes as robbery, thinking that "it's mine and the government has no right to it."  That crazytalk, which most would realize if they ever had the opportunity to live in the brute-force world of no taxation.  It would be oligarch rule or the wild west without the civilizing influence of towns with governments and sheriffs to keep order.

With midterm election day just around the corner, maybe it's worth reminding everybody about the reason that all advanced countries have strong tax systems.  It's likely the case that none of us really enjoys paying taxes, and some of us complain about them all the time.  But most of us recognize that taxes are a necessary part of supporting a democratic government and a civil society.  Without a tax system, the rich and powerful would be able to do whatever they wanted.  There'd be no FBI or SEC to investigate their wrongdoing, no cops to arrest them, no courts to bring them to justice, no prisons to put them in.  Most of the rest of us would be subjected to conditions closely resembling slavery--or at least the conditions of the early twentieth century, when mineworkers could be bullied, beatup and even killed by "Pinkerton" thugs hired by mineowners, when union representatives might be murdered to keep them from inspiring workers to join together to fight the owners for reasonable wages and benefits, when old people had nothing but the charity of neighbors and families to live on, because companies didn't provide pensions and there was no Social Security organization in government.

As Oliver Wendell Holmes said, taxes are the price we pay for a civilized society.  Luckily, there is an increasing attention to this issue in the blog world, to counter the "taxes are evil" mantra of the neo-conservative and libertarian right.

See e.g. (in addition to the information here on ataxingmatter):

I Heart Taxes  (see, e.g., Baby, Taxes Drive Your Car, regarding federal funding for satellites making the GPS system possible)

Kay Bell, The Good Side of Taxes

The Tax Literacy Project

Taxes support democracy.  Taxes fund government services and goods, including court systems and national defense, which protect your life, your property, and your constitutional rights.

Taxes support economic growth.  Governments use taxes to encourage economic growth in numerous ways such as maintaining a stable currency, enacting and enforcing laws that protect both workers and employers (their life and property), and helping to build and maintain large and dependable energy, transportation and communication systems.

Taxes support your daily quality of life.  Taxes help you and your family buy a house, breathe clean air, have safe food and drugs, and travel safely and efficiently on highways, trains, and planes.  Taxes help pay for your health care (in the form of tax benefits or direct care) and they pay to educate you and your family.  Taxes help you at work (e.g. enforce contracts, provide safe workplace) and help you at play (e.g. national parks).

Tax Preparer --old abuses, new procedures

The days of just anyone becoming a tax return preparer and playing havoc with the rules, as some have, seem to be winding down.

The courts, for one, are now taking fairly strong action against tax return preparers who actively assist clients in tax evasion schemes.  See, e.g.,  US v. Sommerstedt et al, 106 AFTR2d 2010-5403 (DC NV 2010), available with other case materials on justia.com, here.  A tax return preparer who was permanently enjoyined from acting as a return preparer or promoting tax evasion schemes had been required to notify clients of the injunction against him and to file a certification that he had done so.  He filed for relief from notification and certification, claiming that it violated his Fifth Amendment rights.  The court rejected that claim, indicating that he was not being ordered to make a testimonial statement but merely inform clients of an injunction against him that was a matter of public record.  Until he files, he'll be fined $1000 a day for contempt of court.  That should mean that the preparer's days of profiting from promoting tax evasion are over.

Similarly, the IRS Is moving ahead with the oversight rules for requiring "preparer tax identification numbers" (PTINs) for all preparers on federal returns starting Jan. 1.  The rules cover anyone who is paid to prepare all or substantially all of a return or claim for refund.  125,000 notification letters are slated to go out weekly for the next eight weeks to remind preparers who already have PTINs that they will be required to sign up under the new system.   The new PTIN sign-up application, with a fee of $64.25 due, is  available through www.IRS.gov/taxpros.  See IR-2010-106  and the PTIN page  and Overview for more information.  (By the way, for taxpayers with concerns about how to choose a tax preparer, the IRS provides a "tipsheet" that may be of interest and also provides information on "complaints against tax professionals".)

There has been the typical clamor about burdensome new regulations connected with the new PTIN, testing and registration requirements.  See, e.g., AICPA VP testimony at IRS hearing on changes needed, Oct. 8, 2010 (comments on the proposed regulations, in particular objecting to registration and testing for nonsigning staff of CPA firms and student interns); VSCPA expressing concerns regarding IRS proposal to regulate paid income tax return preparers, Virginia Soc. of CPAs, July 10, 2010;  ; Members of Congress Ask Treasury to Modify Return Preparer Registration Plans, J. of Acc'tancy, Aug. 11, 2010 (indicating, surprisingly,  that some congressmen don't think the need for testing has been demonstrated).  Some of these concerns do call for practical remedies--testing and registration for student interns, for example, could well be difficult.  Some appear to reflect typical knee-jerk reactions to any new regulation that can be claimed to be burdensome--in particular, the congressional letter questioning the need for testing seems highly questionable, since there are demonstrable problems with lack of competency.  For some evidence of the type of errors committed, see "Top Errors for Taxpayers and Paid Preparers on Return Submissions" at the IRS website. 

The IRS has responded to various of these complaints in different ways.   Rev. Proc. 2010-41 provides some relief for foreign tax preparers and those without a Social Security number vecause of conscientious religious objections.  At an AICPA fall meeting, Commissioner Shulman announced that there would likely be "some relief for testing and continuing education requirements for people who do not sign a return and work in a professional firm under the supervision of an accountant, enrolled agent or lawyer."  Text of AICPA keynote address.   To address further concerns about the new requirements, Commissioner Shulman announced today the creation of an IRS Return Preparer Office to have "broad responsibility" over the initiative, with David R. Williams as head. Download Shulman ann. of Williams to head tax return preparer office.102610.