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Tax Fraud Blotter: Dependents Priced to Move! - Accounting Today

Google IRS Federal Income Tax - Sun, 2014-10-12 08:51

Montgomery Advertiser

Tax Fraud Blotter: Dependents Priced to Move!
Accounting Today
Cincinnati: Preparer Ruth Benton, 37, has been sentenced to 27 months in prison and three years of supervised release and been ordered to pay $748,843.80 in restitution to the IRS for conspiring to submit false claims for federal income tax refunds.
Federal tax code cries out for reformMontgomery Advertiser
Tax scams: Criminals seeking your moneyColumbia Daily Herald

all 13 news articles »
Categories: Tax news

Some tax relief begins now for local flooding victims - Detroit Free Press

Google IRS Federal Income Tax - Sat, 2014-10-11 22:13

Detroit Free Press

Some tax relief begins now for local flooding victims
Detroit Free Press
Joseph DeGennaro, tax director for Doeren Mayhew in Troy, points out that on Sept. 26 the Internal Revenue Service issued information on tax relief for victims of severe storms and flooding in Michigan. Part of the help includes postponing certain ...
Michigan to grant tax filing extensions for victims of August floodingSouthgate News Herald

all 2 news articles »
Categories: Tax news

Tax scams: Criminals seeking your money - Columbia Daily Herald

Google IRS Federal Income Tax - Sat, 2014-10-11 17:19

Tax scams: Criminals seeking your money
Columbia Daily Herald
Phone shakedowns — Each year, criminals call taxpayers and allege that they owe the IRS money, which must be paid quickly via wire transfer or a pre-loaded debit card. Visual and aural tricks can lend authenticity to the ruse: The caller ID may show ...

Categories: Tax news

For Now, No Deduction for Teaching Supplies - Wall Street Journal

Google IRS Federal Income Tax - Sat, 2014-10-11 17:05

For Now, No Deduction for Teaching Supplies
Wall Street Journal
That means eligible teachers and other educators could claim it on their federal income-tax return for 2013. But, as the Internal Revenue Service points out on its website: “Under current law, the deduction is not available for tax years after 2013 ...

Categories: Tax news

Trying To Reach IRS? Hold On Until Tuesday - Forbes

Google IRS Federal Income Tax - Sat, 2014-10-11 06:25

Trying To Reach IRS? Hold On Until Tuesday
Forbes
If you haven't yet filed your tax return, you'll want to be aware of those outages – especially if you are relying on your tax professional or a tax software provider to file your return electronically. Remember that individual federal income tax ...

and more »
Categories: Tax news

Taxpayers Freaking Out Over Hoax Claiming 2015 IRS Refunds Already Delayed - Forbes

Google IRS Federal Income Tax - Fri, 2014-10-10 14:34

Taxpayers Freaking Out Over Hoax Claiming 2015 IRS Refunds Already Delayed
Forbes
I glanced at the article on my phone and fired off a quick inquiry to the media department at Internal Revenue Service (IRS) questioning whether it was true. A few minutes later, I sent IRS an apologetic “Doh!” Once I had the chance to sit down at my ...

and more »
Categories: Tax news

Massena woman pleads to identity theft, mail fraud, defrauding IRS of over ... - North Country Now

Google IRS Federal Income Tax - Fri, 2014-10-10 14:33

Massena woman pleads to identity theft, mail fraud, defrauding IRS of over ...
North Country Now
SYRACUSE -- A Massena woman today pleaded guilty in U.S. District Court to mail fraud and aggravated identity theft in a case involving false federal income tax returns. Lacey Jane Hollinger, 27, admitted theft of over $200,000 from the Internal ...
Massena woman faces up to 20 years in prison for IRS fraudWatertownDailyTimes.com

all 3 news articles »
Categories: Tax news

It Matters How Tax Brackets are Adjusted

Tax Foundation - Fri, 2014-10-10 08:00

Every year, the IRS adjusts more than 40 tax provisions for inflation. This is done to prevent what is called “bracket creep.” This is the phenomenon by which people are pushed into higher income tax brackets or have reduced value from credits or deductions due to inflation instead of an actual increase in real income.

The IRS uses the Consumer Price Index (CPI) to adjust the value of the parameters. It does this by taking the tax parameter’s base value and multiplying it by the current year’s CPI and dividing it by the base year’s CPI. For example, the base value for the top of the 10 percent income tax bracket is $7,000 with a base year of 2002. This is multiplied by 2014’s CPI-U of 235.69 and divided by 2002’s value of 178.68. The result is $9,225 (after rounding).

The CPI-U is not the only way to adjust tax parameters. Tax brackets could be adjusted in a number of ways including average wage growth (as Social Security brackets are currently adjusted) or the Chained CPI-U, which is another measure of inflation.

The choice of adjustment, although an obscure public policy, is meaningful for taxpayers. It could mean higher or lower tax burdens over a long period of time.

The difference can be demonstrated comparing how the income tax brackets are calculated under the CPI-U versus how they would be under the Chained CPI-U.

The Difference Between the CPI-U and the Chained CPI-U

The difference between the CPI-U and Chained CPI-U is in how each accounts for immediate changes in the behavior of consumers when they face higher prices. The CPI-U assumes that increases in price do not lead to substantial substitution effects. In other words, an increase in the price of chicken would not lead many people switching to another product—consumers would just face the high price level. It is calculated by taking a set of consumer goods in a base year and tracking their price changes year-to-year.

The Chained CPI-U on the other hand better accounts for substitution effects. As a result, a price increase in chicken may not lead to an overall large increase in price levels because consumers may switch to lower-priced pork. Technically, this is done by varying the weights on specific goods each month to reflect shifts in consumer behavior.

Looking at the index numbers show how the Chained-CPI grows at a slower rate compared to the CPI-U. In FY2001 they are both set to 100. As time goes on and prices increase, both measures grow. However, the CPI-U grows faster. In 2007, CPI-U has grown by 16.5 percent while the Chained CPI-U has grown by 14.4 percent. By August 2014, the CPI-U is 34 percent higher than it was in 2001 and the Chained CPI-U is only 30 percent higher. The difference has grown from 2 percent in 2007 to about 4 percent in 2014. As time goes on, the gap between the two measures would widen even further.

How the Difference Affects Tax Bills

Using the Chained CPI-U vs. the CPI-U has a significant effect on the amount an individual pays in taxes over time.

Suppose an individual earns about $30,000 in 2003 and receives pay increases of $1,500 each year until 2015. At this point he earns $48,000. Also, each year the government adjusts the income tax parameters by the CPI-U (as it currently does).

As expected, his tax bill increases as his income increases. In 2003, his tax bill would be $2,980 and grow to $5,231 by 2015 (Table 1, column 3).

Table 1. Tax Bill under CPI-U and Chained CPI-U Adjustment

Year

Income

CPI-U Tax Bill

Chained CPI-U Tax Bill

Difference

2003

 $  30,000.00

 $ 2,980.00

 $ 2,980.00

 $  -  

2004

 $  31,500.00

 $ 3,175.00

 $ 3,183.75

 $ 8.75

2005

 $  33,000.00

 $ 3,370.00

 $ 3,378.75

 $ 8.75

2006

 $  34,500.00

 $ 3,545.00

 $ 3,556.25

 $ 11.25

2007

 $  36,000.00

 $ 3,703.75

 $ 3,722.50

 $ 18.75

2008

 $  37,500.00

 $ 3,896.25

 $ 3,917.50

 $ 21.25

2009

 $  39,000.00

 $ 4,045.00

 $ 4,073.75

 $ 28.75

2010

 $  40,500.00

 $ 4,261.25

 $ 4,298.75

 $ 37.50

2011

 $  42,000.00

 $ 4,457.50

 $ 4,496.25

 $ 38.75

2012

 $  43,500.00

 $ 4,642.50

 $ 4,681.25

 $ 38.75

2013

 $  45,000.00

 $ 4,818.75

 $ 4,858.75

 $ 40.00

2014

 $  46,500.00

 $ 5,006.25

 $ 5,118.75

 $ 112.50

2015

 $  48,000.00

 $ 5,231.25

 $ 5,400.00

 $ 168.75

Now suppose in an alternate universe, the government decided to adjust the tax brackets each year with the Chained CPI-U rather than the CPI-U. The taxpayer still earns the same amount of money each year. However, because the bracket adjustments are slightly smaller under the chained CPI-U, the taxpayer’s bill each year (after 2003) is slightly higher (Table 1, column 4).

In 2004 (in this alternate universe), the taxpayer ends up paying $8.75 more. This does not seem like too much, but as time goes on, the difference in the tax bills increase. By 2015, the taxpayer ends up paying $168.75 more under tax brackets adjusted for the Chained CPI-U than under the CPI-U.

Over the entire period, he pays an additional $533.75 over what he would have paid under CPI-U adjustments.

(Data tables below show each year’s tax parameters)

This Obscure Policy Matters

Over a long period of time, different methods of adjustment can mean higher or lower tax bills without having to adjust tax rates at all. Using the Chained CPI-U, specifically, allows taxpayers’ income to move into higher brackets faster, leading to higher income tax bills over long periods of time.

It isn’t rare that policymakers look to change how brackets are adjusted. Last year, Maine proposed using the Chained CPI-U rather than the typical CPI. This would have caused no immediate tax increase in Maine, but it would have meant higher income taxes in the long term.

This also affects spending policies as well. Many benefits are adjusted each year for inflation to make sure they don’t lose their purchasing power. The choice between either CPI-U or Chained CPI-U (or other methods of adjustment) can affect how fast these spending policies grow. The President recently proposed moving to the Chained CPI-U for adjusting Social Security benefits.

While the choice of bracket adjustment is a somewhat obscure policy, it does have a real effect on most taxpayers.

Data Tables:

Tax Parameter and Tax Bill (CPI-U Adjustment)

Year

Income

Tax Parameters

Tax Bill

 

 

Standard Deduction

Personal Exemption

10% Bracket

15% Bracket

25% Bracket

 

2003

 $ 30,000.00

 $ 4,750.00

 $  3,050.00

 $  7,000.00

 $  28,400.00

 $  68,800.00

 $  2,980.00

2004

 $ 31,500.00

 $ 4,850.00

 $  3,100.00

 $  7,150.00

 $  29,000.00

 $  70,350.00

 $  3,175.00

2005

 $ 33,000.00

 $ 4,950.00

 $  3,150.00

 $  7,300.00

 $  29,700.00

 $  71,950.00

 $  3,370.00

2006

 $ 34,500.00

 $ 5,100.00

 $  3,250.00

 $  7,550.00

 $  30,600.00

 $  74,200.00

 $  3,545.00

2007

 $ 36,000.00

 $ 5,300.00

 $  3,400.00

 $  7,825.00

 $  31,800.00

 $  77,100.00

 $  3,703.75

2008

 $ 37,500.00

 $ 5,400.00

 $  3,450.00

 $  8,025.00

 $  32,550.00

 $  78,850.00

 $  3,896.25

2009

 $ 39,000.00

 $ 5,650.00

 $  3,600.00

 $  8,350.00

 $  33,950.00

 $  82,250.00

 $  4,045.00

2010

 $ 40,500.00

 $ 5,650.00

 $  3,650.00

 $  8,375.00

 $  34,000.00

 $  82,400.00

 $  4,261.25

2011

 $ 42,000.00

 $ 5,750.00

 $  3,700.00

 $  8,500.00

 $  34,500.00

 $  83,600.00

 $  4,457.50

2012

 $ 43,500.00

 $ 5,900.00

 $  3,750.00

 $  8,700.00

 $  35,350.00

 $  85,600.00

 $  4,642.50

2013

 $ 45,000.00

 $ 6,050.00

 $  3,850.00

 $  8,925.00

 $  36,250.00

 $  87,850.00

 $  4,818.75

2014

 $ 46,500.00

 $ 6,150.00

 $  3,950.00

 $  9,075.00

 $  36,850.00

 $  89,300.00

 $  5,006.25

2015

 $ 48,000.00

 $ 6,250.00

 $  4,000.00

 $  9,225.00

 $  37,450.00

 $  90,750.00

 $  5,231.25

 

Tax Parameter and Tax Bill (Chained CPI-U Adjustment)

Year

Income

Tax Parameters

Tax Bill

 

 

Standard Deduction

Personal Exemption

10% Bracket

15% Bracket

25% Bracket

 

2003

 $  30,000.00

 $  4,750.00

 $  3,050.00

 $  7,000.00

 $  28,400.00

 $  68,800.00

 $  2,980.00

2004

 $  31,500.00

 $  4,800.00

 $  3,100.00

 $  7,125.00

 $  28,950.00

 $  70,150.00

 $  3,183.75

2005

 $  33,000.00

 $  4,900.00

 $  3,150.00

 $  7,275.00

 $  29,550.00

 $  71,650.00

 $  3,378.75

2006

 $  34,500.00

 $  5,050.00

 $  3,250.00

 $  7,475.00

 $  30,400.00

 $  73,650.00

 $  3,556.25

2007

 $  36,000.00

 $  5,250.00

 $  3,350.00

 $  7,750.00

 $  31,450.00

 $  76,150.00

 $  3,722.50

2008

 $  37,500.00

 $  5,350.00

 $  3,400.00

 $  7,900.00

 $  32,050.00

 $  77,700.00

 $  3,917.50

2009

 $  39,000.00

 $  5,550.00

 $  3,550.00

 $  8,225.00

 $  33,350.00

 $  80,800.00

 $  4,073.75

2010

 $  40,500.00

 $  5,550.00

 $  3,550.00

 $  8,225.00

 $  33,400.00

 $  81,000.00

 $  4,298.75

2011

 $  42,000.00

 $  5,650.00

 $  3,600.00

 $  8,325.00

 $  33,850.00

 $  82,000.00

 $  4,496.25

2012

 $  43,500.00

 $  5,750.00

 $  3,700.00

 $  8,525.00

 $  34,600.00

 $  83,850.00

 $  4,681.25

2013

 $  45,000.00

 $  5,900.00

 $  3,800.00

 $  8,725.00

 $  35,450.00

 $  85,950.00

 $  4,858.75

2014

 $  46,500.00

 $  6,000.00

 $  3,850.00

 $  8,875.00

 $  36,000.00

 $  87,200.00

 $  5,118.75

2015

 $  48,000.00

 $  6,100.00

 $  3,900.00

 $  9,000.00

 $  36,500.00

 $  88,450.00

 $  5,400.00

Note: These parameters are only representative. In reality, base years for these parameters vary. For more information see: http://taxfoundation.org/article/2015-tax-brackets

 

Categories: Tax news

IRS denies treaty benefits despite lack of treaty shopping - Lexology (registration)

Google IRS Federal Income Tax - Fri, 2014-10-10 03:17

IRS denies treaty benefits despite lack of treaty shopping
Lexology (registration)
When AIG paid dividends on its common shares, AIG withheld and paid U.S. federal income tax to the IRS from the dividends paid to SICO. In 2004, SICO moved its headquarters to Ireland. During the time that SICO was a tax resident of Ireland, SICO was ...

Categories: Tax news

EPI Perpetuates Myth of Low Corporate Taxes

Tax Foundation - Thu, 2014-10-09 13:45

Much as Senator Bernie Sanders did a few weeks ago, Thomas Hungerford of EPI is misusing government statistics to claim corporate taxes are low relative to profits. Here is Hungerford’s chart:

The problem is the corporate profits data to which he refers includes millions of businesses that are not subject to the corporate tax, namely S corporations that are taxed under the individual tax code instead.

See the BEA definition of corporate profits here. This is not a minor mistake. S corporation profits are almost as large as C corporation profits, but, again, only C corporations are subject to the corporate tax. See the chart below. It just makes no sense to compare C corporation taxes with C plus S corporation profits.

The second chart reveals the real reason why corporate tax revenue has fallen as a share of GDP over the last few decades: corporate profits have fallen, i.e. profits of C corporations to which the corporate tax applies. The U.S. corporate tax regime itself has remained essentially the same since 1986, but C corporations have fled the tax code at the rate of about 50,000 a year. Some of them reformed as S corporations, or other pass-through businesses taxed under the individual code. Some of them inverted to lower tax countries. Others simply went out of business and never came back, and the new entrepreneurs steered clear of America’s overly burdensome corporate sector.

America’s extremely uncompetitive corporate tax hobbles American corporations, and corporations perform economic functions that cannot be done by smaller businesses, such as build airplanes. That means jobs are lost and wage growth stagnates. Obscuring these facts is unfair to American workers.

Follow William McBride on Twitter 

Categories: Tax news

The Tax Code Isn’t Good at Fighting Inequality

Tax Foundation - Thu, 2014-10-09 13:15

A recent article on Vox, How Sweden Fights Inequality—Without Soaking the Rich, notes that countries with the most success in fighting inequality do not have highly progressive tax systems, such as the United States’ tax code. Instead, these countries, such as Sweden and Denmark, rely on much flatter taxes and use spending programs to address inequality.

The authors say there is a reason why not using the tax code makes the most sense:

“The lesson for the United States is that relying on the wealthiest citizens and corporations to fund the public sector will not create the revenue necessary for large-scale initiatives to reduce inequality. Emphasizing redistribution as the central principle for tax policy is needlessly divisive, leads to smaller government revenues overall, and thus misses the positive benefits that having more revenues can offer if invested wisely in promoting success for all.”

We have seen this divisiveness in recent years as calls for the wealthy to pay their fair share and requirements of maintaining the progressivity of the tax code have inhibited efforts on tax reform.

Beyond the reasons to move away from high taxes on individuals and corporations as stated in the article, research shows that highly progressive tax systems come with additional costs: they damage economic growth.

In fact, the OECD finds moving away from corporate taxes and progressive income taxes is good for growth. Developed countries around the world have paid attention to this finding and continue to shift away from highly distortive tax policy, such as progressive income taxes and the corporate tax, and toward flat individual or consumption taxes.

Again, countries such as Sweden and Denmark provide a good example. Both countries have cut their corporate tax rates significantly in the last 30 years while relying, instead, on relatively flat tax codes that tax large amounts of the population. Sweden, for example, taxes individual taxpayers at a rate of 56 percent on income over $84,365, which is 1.5 times the average income.

This is a far cry from the tax system In the United States. Our highly progressive tax system leaves high income individuals with a disproportional amount of the tax burden, with the top tax rate of 46.3 percent (national and subnational) beginning at 8.5 times the average income level.

As a result, in the U.S. individuals with incomes over $200,000 earn 32.3 percent of the nation’s income, but pay 46.7 percent of total federal taxes and 70 percent of federal income taxes.

Additionally, we levy the third highest corporate tax rate in the entire world—behind only Chad and the United Arab Emirates—and tax investment two, and sometimes three, times in the form of capital gains and dividend taxes and the estate tax.

These types of taxes are inefficient, as many European countries might tell us. They raise limited revenue and impose a significant level of economic harm.

Instead, the U.S. should move away from highly progressive taxes on income and investment and toward flatter consumption taxes. If policymakers are set on addressing inequality, this would limit the economic damage done by the current tax code and allow them to rely on spending programs for redistribution instead. 

Categories: Tax news

IRS: Tax refunds could be delayed next year - The Hill

Google IRS Federal Income Tax - Thu, 2014-10-09 12:01

Roll Call

IRS: Tax refunds could be delayed next year
The Hill
“As the economy begins to show signs of strength, uncertainty from the federal tax code is the last thing American businesses and families need as they look to grow and invest,” Wyden said in a statement. This is far from the first time the IRS has ...
IRS Chief: Tax Refunds Could Be Delayed in 2015Newsmax.com
IRS Warns of Tax-Filing Season Delays If Congress StallsBloomberg
Fall tax tips from the IRSGilmer Mirror

all 28 news articles »
Categories: Tax news

Will the New European Commission Seek a Minimum Corporate Tax Rate?

Tax Foundation - Thu, 2014-10-09 08:45

The nominee for the new European Commissioner for Economics and Financial Affairs, Taxation and Customs Union, Pierre Moscovici, has announced that he will not be pursuing a minimum corporate tax rate as part of the Common Consolidation Corporate Tax Base (CCCTB) proposal.

In Moscovici’s response to the question of whether he will “… work to ensure that a sufficiently large minimum tax rate is agreed upon,” he replied:

"Differences amongst Member States result from political decisions, differences in approaches for the provision of public goods and service and national financing systems. I accept these differences. Not that some companies pay zero tax or no tax on taxable gains."

The Common Consolidation Corporate Tax Base (CCCTB) proposal was established in 2001 with a goal to harmonize corporate taxation in an increasingly integrated Europe. The ailing proposal has found new life in the shadow of the 2014 European Parliament elections, sparking debates over what should be included in the proposal.

CCCTB proposes to centralize the reporting of corporate revenue and costs in the hopes of reducing compliance costs for businesses operating in several European States. The central authority would use an apportionment system to distribute corporate profits to the Member States, to be taxed at the local corporate tax rate.

Some academics and politicians have argued that a minimum corporate tax rate should be implemented to prevent a “race to the bottom” since Member States can only compete on the corporate tax rate. Others have warned that stifling tax competition could reduce growth, a major concern for a Eurozone with 11.5% unemployment.

Although Moscovici has suggested that he will leave corporate rates to the Member States, there are other worrisome provisions in the CCCTB that compromise sensitive information and could increase compliance costs. How to protect a company’s private information is still a concern, and the factors in the apportionment formula are not well defined, which could lead to costly court battles.

In addition, the mechanism by which factor definitions change as the economy of Europe changes has not been considered. Without a clear mechanism, there could be considerable adaptive inefficiencies as new products and services are developed.

For example, if technology allows a surgeon in Germany to operate on a Spanish patient with a robot, it may not be obvious where the labor is located. The legal ambiguity created from the introduction of new technology can cause problems if the mechanism is not adaptable. The CCCTB commission has not directly addressed these issues.     

Given the political spotlight on corporate base erosion and profit shifting (BEPS) in the OECD, it understandable that politicians want to push through the CCCTB proposal. But it would behoove them to consider the details now rather than suffer the consequences later.

Categories: Tax news

IRS Denies Treaty Benefits Despite Lack of Treaty Shopping - JD Supra (press release)

Google IRS Federal Income Tax - Thu, 2014-10-09 06:57

JD Supra (press release)

IRS Denies Treaty Benefits Despite Lack of Treaty Shopping
JD Supra (press release)
When AIG paid dividends on its common shares, AIG withheld and paid U.S. federal income tax to the IRS from the dividends paid to SICO. In 2004, SICO moved its headquarters to Ireland. During the time that SICO was a tax resident of Ireland, SICO was ...

Categories: Tax news

5 Things to Know If You Still Haven't Finished Last Year's Taxes - TIME

Google IRS Federal Income Tax - Thu, 2014-10-09 03:35

TIME

5 Things to Know If You Still Haven't Finished Last Year's Taxes
TIME
“You could have three things adding up month by month if you do nothing by October 15,” says Mark Luscombe, principal federal tax analyst for Wolters Kluwer, CCH. Of course, if you're expecting a refund, there's no penalty for not filing—and also no ...

and more »
Categories: Tax news

5 Things to Know If You Still Haven't Finished Last Year's Taxes - TIME

Google IRS Federal Income Tax - Thu, 2014-10-09 03:35

TIME

5 Things to Know If You Still Haven't Finished Last Year's Taxes
TIME
Attention tax procrastinators: Time's nearly up if you filed for an extension last spring. ... As of the end of September, more than a quarter of the nearly 13 million taxpayers who had filed for an extension had yet to file, according to the IRS. If ...
Eight Key Financial Deadlines To Keep In Mind This FallForbes

all 13 news articles »
Categories: Tax news

Volunteers needed to learn more about federal taxes, help others - Daily Herald

Google IRS Federal Income Tax - Wed, 2014-10-08 23:55

Volunteers needed to learn more about federal taxes, help others
Daily Herald
SANPETE COUNTY-- Internal Revenue Service and Six County Volunteer Income Tax Assistance (VITA) Program is looking for volunteers to assist in preparing tax returns next year at various sponsored sites throughout the Six County Region which includes ...

Categories: Tax news

IRS warns of delays if US Congress fumbles tax 'extenders' - CNBC

Google IRS Federal Income Tax - Wed, 2014-10-08 14:41

CNBC

IRS warns of delays if US Congress fumbles tax 'extenders'
CNBC
Severe delays and inconvenience for millions of taxpayers could result in 2015 if the U.S. Congress fails to deal soon with a list of temporary tax laws that expired at the end of 2013, the Internal Revenue Service and a key senator warned on Tuesday.
IRS: Tax refunds could be delayed next yearThe Hill
IRS Chief: Tax Refunds Could Be Delayed in 2015Newsmax.com
IRS Warns of Tax-Filing Season Delays If Congress StallsBloomberg
Gilmer Mirror
all 28 news articles »
Categories: Tax news

How Does Your State Score on Property Tax Administration? Probably Not Very Well

Tax Foundation - Wed, 2014-10-08 12:00

Though the amount of taxes we pay is important, the manner in which we pay them is equally worth considering. Last month, the Council on State Taxation (COST) and the International Property Tax Institute (IPTI) released a scorecard grading countries (and the states, which I’m most interested in) on their property tax administration practices.

The piece has a great objective:  

Fair and efficient property tax administration is critically important to both individual and business taxpayers around the world…The purpose of this [report] is to provide an international scope for tax policymakers…, with best practices and a comparative measure of the fairness and efficiency of their property tax administrative practices. It is a common truth that taxpayers are more willing to comply with a property tax system that is perceived as fair and efficient. Accordingly, it is our hope that this Scorecard will drive changes to ensure property taxes around the world are administered more effectively, fairly, and without perceptions of bias or undue administrative burdens.

The scorecard ranks jurisdictions based on:

Transparency (“adequate explanation of the law and regulations on a jurisdiction’s website, adequate notice of a proposed valuation, and the ability to compare values place on other properties in the jurisdictions without disclosing confidential information”); Simplicity and Consistency (“tax forms, filing dates, assessment rates/ratios, and appraisal periods must be consistent, and centralized oversight of local assessors’ practices should be the norm”); and Procedural Fairness (“sufficient amount of time to file an appeal, a balanced and reasonable burden of proof, a…review to an independent arbiter of an assessor’s or a property tax board’s findings, …the ability to partially pay or escrow any disputed tax, [and] the interest rate paid on refunds of overpaid taxes is at the same interest rate levied on the underpayment of taxes”).

Each jurisdiction is then given an overall grade based on these three categories. Though the paper has an international focus, I’m going to zoom in on the state-level rankings. Below is a chart showing each state’s overall score.

Click to enlarge.

No states received an A level grade, but 10 states received B level grades (purple bars in chart). Oregon scores the best out of the 50 U.S. states, earning an overall grade of B+, followed by Indiana with a B. Most states received C level scores (green bars). On the other end of the spectrum, six states received D+ or D grades: Connecticut, Delaware, Hawaii, Nevada, Pennsylvania, and Rhode Island (blue bars).

Well administered taxes encourage voluntary compliance, and simple and transparent tax codes are something all states should strive for. Congrats to Oregon! Other states should follow its lead.

Follow Liz on Twitter @elizabeth_malm. More on property taxes here.

Note that these scores do not reflect property tax rates or property tax liabilities. Check out the original report here. For a more detailed explanation of each category, start on page 7 of the report. There is also a detailed scorecard for each state beginning on page 13.

Categories: Tax news

How Critics of Dynamic Scoring Harm the Workers they Purport to Represent

Tax Foundation - Wed, 2014-10-08 09:30

Responding to comments by Rep. Paul Ryan of the need for reality-based scoring of fiscal policy, the liberal blogosphere has launched a full-scale campaign to discredit Ryan for attempting to force the Congressional Budget Office (CBO) to use “special GOP math” to justify tax cuts. The campaign was capped by New York Times columnist Paul Krugman, who apocalyptically wrote that should Ryan succeed in pushing dynamic scoring, it “would destroy the credibility of a very important institution, one that has served the country well.”  

As so often happen with these orchestrated “viral” campaigns where everyone is working off the same talking points, the rhetoric tends to outrun the facts. Let’s start with the simple fact of which Congressional agency performs what function: The Joint Committee on Taxation (JCT) is in charge of modeling and scoring tax bills while the job of the CBO is to model and score spending bills. But the biggest oversight that Krugman et.al. make is ignoring the fact that the institutions they want to protect from Republican math have actually performed dynamic scoring over the past few years, and some of these liberal bloggers likely cheered the results.  

CBO’s Dynamic Scoring of the Senate Immigration Bill

Notably, many liberal bloggers probably applauded when the CBO determined that the Senate immigration bill (S. 744) would be a net benefit to both the federal budget and the U.S. economy. CBO estimated the bill’s provisions would increase the number of workers in the U.S. by 10 million by 2023, which would not only boost tax revenues but it would place additional demand on government programs. However, the net effect, CBO determined, would be lower federal deficits because the new tax revenues would outpace the additional outlays.

For the broader economy, CBO determined that the increased labor force from higher immigration would produce an interesting sort of supply-side effect in boosting GDP. As CBO Director Doug Elmendorf described the effect in a March 2014 blog:

“That boost would be partly the direct result of more workers. In addition, the increase in the number of workers would make the existing stock of capital relatively scarce (compared with the number of workers) and thus encourage businesses to undertake more capital investment, which would raise GDP as well.”

JCT’s Dynamic Scoring of Tax Reform

Speaking of the economic consequences of capital investment, most liberal bloggers probably ignored the JCT’s dynamic analysis of the tax reform draft developed by Ways and Means Chairman Dave Camp. Although Tax Foundation economists expressed some concerns about the underlying assumptions of JCT’s models, the exercise was very instructive in illustrating the limitations of revenue neutral tax reform and showing why dynamic scoring is key to achieving tax reform that is pro-growth and lifts workers’ wages.

The worry many critics of dynamic scoring have is that it will be misused to justify tax cuts that are not “paid for” and, thus, “bust the budget.” While it is true that some advocates of dynamic scoring have made it sound as though all tax cuts pay for themselves, the value of dynamic scoring is that it helps us understand the different degrees to which different tax policies affect the economy. Some policies may have a marginal effect on the economy while others may have a substantial impact the economy—this goes for both tax cuts and tax increases.

But one of the real values of dynamic scoring, as the JCT study shows, is that it allows us to understand the impact of the tradeoffs that have to be made if lawmakers strictly adhere to the notion of revenue neutrality. In order to avoid “busting the budget,” Camp decided that his plan would be revenue neutral as scored on a conventional, or static, basis. This required him to offset the statically scored loss of revenues from cutting corporate and individual tax rates with the elimination of various tax preferences or new taxes on specific industries (such as a new bank tax).

Dynamic Analysis Explains Why Camp Draft Produced Little Growth

As a result of these choices, the Camp plan produced very little growth over ten years—between 0.1 percent and 1.6 percent additional economic growth according to the two different dynamic models JCT used to assess the plan. And while the individual rate cuts were found to induce many new workers to enter the workforce, which JCT determined would boost GDP, the various business offsets in particular raised the cost of capital and tempered the overall growth potential of the plan.

As John Buckley, Former Chief Tax Counsel, Committee on Ways and Means, and Former Chief of Staff of the JCT, wrote in his July 2014 testimony before Congress:

Because of the net increase in business taxes, the JCT concludes that the Camp proposal overall “is expected to increase the cost of capital for domestic firms, thus reducing the incentive for investment in domestic capital stock.”  The increased cost of capital will not be uniform for all businesses. Businesses, like many manufacturers, that are capital intensive or have large research costs would see the largest increase in the cost of capital.

On this point, the JCT report states:

The reduction in statutory tax rates on corporate and non-corporate business income increases the after-tax return to investment for some businesses that do not make use of many of the business deductions under present law. For those businesses that do make use of accelerated depreciation, expensing of research and experimentation expenses, or other business tax expenditures, the elimination of these provisions is expected to reduce the after-tax return on investment. Overall, the proposal is expected to increase the cost of capital for domestic firms, thus reducing the incentive for investment in domestic capital stock.

More People Working at Lower Wages

As the Tax Foundation’s dynamic analysis of the Camp draft found, the increased cost of capital means that people would be working longer but producing less total output with less capital. In turn, this would lead to more people working at lower wages.

The goal of tax reform should be to boost economic growth, but in a way that increases wages and living standards for American workers. Conventional scoring techniques not only can’t give lawmakers that kind of information, it actually leads them to make decisions that run counter to the interests of workers.

Those who seek to denigrate dynamic scoring are effectively impugning the one tool that can give lawmakers the information they need to make policies that make all Americans better off. There is something very wrong about that.

 

 

Categories: Tax news
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