Taxation

2009

2009-05-05-NYT-offshore-tax-havens

Obama Calls for Curbs on Offshore Tax Havens
By JACKIE CALMES and EDMUND L. ANDREWS
New York Times, 2009-05-05

WASHINGTON — President Obama on Monday called for curbing offshore tax havens and corporate tax breaks to collect billions of dollars more from multinational companies and wealthy individuals.

The move would appeal to growing populist anger among taxpayers but is likely to open an epic battle with some major powers in American commerce.

With the proposals he outlined at the White House, the president sought to make good on his campaign promise to end tax breaks “for companies that ship jobs overseas.”

He estimated the changes would raise $210 billion over the next decade and help offset tax cuts for middle-income taxpayers as well as a permanent tax credit for companies’ research and development costs.

The changes, if enacted, would take effect in 2011, when administration officials presume the economy will have recovered from the recession. But business groups were quick to condemn the White House for proposing tax increases amid a global downturn.

“This plan will reduce the ability of U.S. companies to compete in foreign markets, which will not only reduce jobs, but will also cripple economic growth here in the United States. It couldn’t come at a worse time,” said John J. Castellani, president of the Business Roundtable, a trade association of major businesses.

The proposals would especially hit pharmaceutical, technology, financial and consumer goods companies — among them Goldman Sachs, Microsoft, Pfizer and Procter & Gamble — that have major overseas operations or subsidiaries in tax havens like the Cayman Islands.

They have some of the mightiest lobbying armies in Washington, as well as influential patrons in Congress. That combination will test Mr. Obama’s ability to stand up to powerful interests and marshal support among lawmakers at the same time that he is trying to win passage of major health and energy measures.

At issue are tax laws that were originally intended to prevent multinational corporations from being double-taxed, by the United States and by foreign countries, by allowing companies to defer reporting their foreign income to the Internal Revenue Service and to get tax credits in the United States for foreign taxes paid.

Economists are divided over whether higher taxes would give corporations incentives to move jobs overseas or impair economic growth at home. In the coming debate, both Mr. Obama and the business lobby will claim that their way will save jobs.

The top corporate tax rate is 35 percent, but the Treasury Department estimated that in 2004, the most recent year for which data is available, American multinationals paid $16 billion in taxes on $700 billion in foreign income — an effective rate of 2.3 percent.

...

2009-05-05-NYT-transfer-pricing

Obama Plan Leaves One Path to Lower Taxes Wide Open
By LYNNLEY BROWNING
New York Times, 2009-05-05

The Obama administration’s plan to restrict or shut down several widely used tax loopholes takes away many — but not all — of the sophisticated tax moves commonly used in corporate America.

The most widely used tactic not covered by the plan is known as transfer pricing, which multinational corporations employ routinely to reduce the taxes they owe to the United States by keeping their profits offshore in low-tax or no-tax havens.

The highly complex tactic has become a cause of growing concern within the Internal Revenue Service in recent years because it deprives the Treasury of billions of dollars a year, according to private-sector estimates. One senior government official briefed on the matter, who spoke on the condition of anonymity because he said he was not authorized to comment publicly, said on Monday that transfer pricing abuses were the single largest source of tax avoidance in corporate America.

Rosanne Altshuler, an economics professor at Rutgers, called transfer pricing “the elephant in the room” that was not addressed under the Obama plan.

Corporate America “will still have the ability to do and use transfer pricing — it’s still there,” said Robert Willens, an independent tax and accounting expert in New York.

...

2009-05-11-Samuelson

Tax Dodge Myths
By Robert J. Samuelson
Washington Post Op-Ed, 2009-05-11

The U.S. tax code is “full of corporate loopholes
that makes it perfectly legal for
companies to avoid paying their fair share.”

—President Obama, May 4

2009-05-27-WP-US-sales-tax

Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look
By Lori Montgomery
Washington Post, 2009-05-27

[Note especially the table of predicted federal deficits, 2008-19:]



With budget deficits soaring
and President Obama pushing a trillion-dollar-plus expansion of health coverage,
some Washington policymakers are taking a fresh look
at a money-making idea long considered politically taboo:
a national sales tax.

Common around the world, including in Europe, such a tax --
called a value-added tax, or VAT --
has not been seriously considered in the United States.
But advocates say
few other options can generate the kind of money the nation will need
to avert fiscal calamity.

...

The VAT has advantages:
Because producers, wholesalers and retailers
are each required to record their transactions
and pay a portion of the VAT,
the tax is hard to dodge.
It punishes spending rather than savings,
which the administration hopes to encourage.

2009-10-13-WP-Aaron-Sawhill-VAT

Bend the Revenue Curve
By Henry J. Aaron and Isabel V. Sawhill
Washington Post, 2009-10-13

Both this column and one by Patrick Buchanan
recommend that the U.S. adapt a value-added tax,
but there is (at least) one crucial difference:
The one Buchanan recommends would specifically be aimed at
improving America’s trade balance.
As such, it would be adjusted as international trade conditions warranted.
Thus it could not be relied upon
as a steady source of income for, say, health care.

I think Buchanan’s idea is the right one.
Correcting America’s trade balance is a far more important goal than
merely expanding the already grossly excessive amount American spends on health.
There is no reasonable alternative that I am aware of
for correcting that trade balance;
there are many ways to reform American health economy
(rationing is surely one of the most necessary).

2009-11-27-Krugman-Tobin

Taxing the Speculators
By PAUL KRUGMAN
New York Times, 2009-11-27

[1]
Should we use taxes to deter financial speculation?
Yes, say top British officials,
who oversee the City of London, one of the world’s two great banking centers.
Other European governments agree — and they’re right.

[2]
Unfortunately, United States officials —
especially Timothy Geithner, the Treasury secretary —
are dead set against the proposal.
Let’s hope they reconsider:
a financial transactions tax is an idea whose time has come.

[3]
The dispute began back in August,
when Adair Turner, Britain’s top financial regulator,
called for
a tax on financial transactions as a way to discourage
“socially useless” activities.
Gordon Brown, the British prime minister, picked up on his proposal,
which he presented at the Group of 20 meeting of leading economies this month.

[4]
Why is this a good idea?
The Turner-Brown proposal is a modern version of
an idea originally floated in 1972
by the late James Tobin, the Nobel-winning Yale economist.
Tobin argued that

currency speculation —
money moving internationally to bet on fluctuations in exchange rates —
was having a disruptive effect on the world economy.

To reduce these disruptions,
he called for a small tax on every exchange of currencies.

[5]
Such a tax would be a trivial expense
for people engaged in foreign trade or long-term investment;
but it would be a major disincentive
for people trying to make a fast buck (or euro, or yen)
by outguessing the markets over the course of a few days or weeks.
It would, as Tobin said,
“throw some sand in the well-greased wheels” of speculation.

[6]
Tobin’s idea went nowhere at the time.
Later, much to his dismay,
it became a favorite hobbyhorse of the anti-globalization left.
But the Turner-Brown proposal,
which would apply a “Tobin tax” to all financial transactions —
not just those involving foreign currency —
is very much in Tobin’s spirit.
It would be a trivial expense for long-term investors,
but it would deter much of the churning that now takes place
in our hyperactive financial markets.

[7]
This would be a bad thing if financial hyperactivity were productive.
But after the debacle of the past two years, there’s broad agreement —
I’m tempted to say, agreement on the part of
almost everyone not on the financial industry’s payroll —
with Mr. Turner’s assertion that
a lot of what Wall Street and the City do is “socially useless.”
And a transactions tax could generate substantial revenue,
helping alleviate fears about government deficits.
What’s not to like?

---

[8]
The main argument made by opponents of a financial transactions tax is that
it would be unworkable, because traders would find ways to avoid it.
Some also argue that it wouldn’t do anything to deter
the socially damaging behavior that caused our current crisis.
But neither claim stands up to scrutiny.

[9]
On the claim that financial transactions can’t be taxed:
modern trading is a highly centralized affair.
Take, for example, Tobin’s original proposal to tax foreign exchange trades.
How can you do this, when currency traders are located all over the world?
The answer is, while traders are all over the place,
a majority of their transactions are settled — i.e., payment is made —
at a single London-based institution.
This centralization keeps the cost of transactions low,
which is what makes the huge volume of wheeling and dealing possible.
It also, however,
makes these transactions relatively easy to identify and tax.

[10]
What about the claim that
a financial transactions tax doesn’t address the real problem?
It’s true that a transactions tax
wouldn’t have stopped lenders from making bad loans,
or gullible investors from buying toxic waste backed by those loans.

[11]
But bad investments aren’t the whole story of the crisis.
What turned those bad investments into catastrophe was
the financial system’s excessive reliance on short-term money.

[12]
As Gary Gorton and Andrew Metrick of Yale have shown,
by 2007 the United States banking system had become crucially dependent on
“repo” transactions,
in which financial institutions sell assets to investors
while promising to buy them back after a short period — often a single day.
Losses in subprime and other assets triggered a banking crisis
because they undermined this system — there was a “run on repo.”

[13]
And a financial transactions tax,
by discouraging reliance on ultra-short-run financing,
would have made such a run much less likely.
So contrary to what the skeptics say,
such a tax would have helped prevent the current crisis —
and could help us avoid a future replay.

[14]
Would a Tobin tax solve all our problems? Of course not.
But it could be part of the process of shrinking our bloated financial sector.
On this, as on other issues,
the Obama administration needs to free its mind from Wall Street’s thrall.

2010

2010-02-20-WP-carried-interest-tax-stalls-in-Senate

Plan to boost tax on 'carried interest' stalls in Senate
By Dina ElBoghdady
Washington Post, 2010-02-20

Even as populist anger at Wall Street has reached a crescendo this winter, the Obama administration’s drive to eliminate what critics call a lucrative tax break for wealthy financiers has stalled in Congress.

As part of his budget, President Obama offered a proposal last month to significantly increase the levy paid by managers of private-equity firms and other investment partnerships. And Treasury Secretary Timothy F. Geithner told a Senate panel this month that the administration is committed to this tax policy change, which could more than double the tax rate on income known as “carried interest” or “carry.”

Yet, the initiative has lost momentum in the Senate, much as it did nearly three years earlier when this tax break first riveted the attention of lawmakers because of the sudden and astounding rise in wealth of hedge funds and private-equity firms. Summing up the widespread outrage over this tax break, billionaire investor Warren E. Buffett said at the time that it was wrong for him to pay taxes at a lower rate than did his $60,000-a-year secretary

...

But the Senate has not taken up the issue. Senate Majority Leader Harry M. Reid (D-Nev.) opted last week not to include the carried interest language in a jobs creation bill expected to reach the Senate floor next week. Earlier, there had been discussion among lawmakers about whether to include this tax provision to help offset costs of other spending in a previous version of the legislation.

Senate Finance Committee Chairman Max Baucus (D-Mont.) prefers to deal with the issue in a broader tax-reform measure, his spokesman said.

“There is very little appetite for this tax in the Senate right now,” said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable. “It’s rarely a good idea to raise taxes, but especially not during these tough economic times.”

Lobbyists who track the issue say the proposal is now dormant.

...

But groups lobbying to retain the tax break say it is legally sound and getting rid of it would undermine the entrepreneurial spirit.

“For decades, Americans have formed investment partnerships that give ownership stakes to those who contribute capital and those who contribute their vision and expertise,” said Douglas Lowenstein, president of the Private Equity Council. “Private-equity partners contribute both. If the result is making a business more valuable, they are entitled to a capital gain.”

The most vocal opposition to the tax increase comes from real estate investment partnerships, which make up nearly half of the nation’s 3 million investment partnerships. NAIOP, an association that represents commercial real estate developers, urged its 16,500 members to lobby against the initiative.

The Institute of Real Estate Management, an association of 18,000 property managers, launched its own lobbying effort alongside the National Association of Realtors and one of its commercial real estate affiliates.

The real estate industry, because of its size and presence in almost every congressional district, wields considerable political clout.

These groups say that say raising the taxes that partners pay would discourage investment in real estate at a time when the economy needs it most.

“One of the incentives of investing in real estate is the capital-gains treatment,” said Chuck Achilles, vice president of legislation and research at IREM. “Without that incentive, the partners who put these real estate deals together may move on to areas of investment that can provide better returns for them or better tax advantages.”

2010-09-21-WP-Bush-tax-cuts-repeal-consequences

Fearing a soaring deficit,
many analysts favor letting Bush tax cuts expire
By Lori Montgomery
Washington Post, 2010-09-21

2010-11-29-WP-Feldstein

How to cut the deficit without raising taxes
By Martin Feldstein
Washington Post Op-Ed, 2010-11-29

[1]
There is a way to cut budget deficits without raising tax rates. “Tax expenditures” are the special features of U.S. income tax law that subsidize mortgage borrowing, health insurance, local government spending and more. Although these subsidies are a form of government spending, they are counted as reduced tax revenue rather than increased government outlays. Yet tax expenditures increase the deficit by hundreds of billions of dollars a year, more than the total cost of all non-defense programs other than Social Security and Medicare.

[2]
A critical feature of the proposal recently unveiled by Erskine Bowles and Alan Simpson, the co-chairmen of the president’s bipartisan fiscal commission, is to reduce tax expenditures rather than raise tax rates. That would increase revenue without reducing incentives to work, save or invest.

[3]
Their most extreme suggestion is to eliminate all tax expenditures, raising $1 trillion a year in additional tax revenue, and then use all but $80 billion of that to cut tax rates. I think that devotes too little money to deficit reduction at a time when fiscal deficits are dangerously large.

[4]
Because Bowles and Simpson recognize that eliminating all tax expenditures is politically impossible, they also proposed to eliminate or scale back some tax expenditures while cutting tax rates less to achieve the same $80 billion annual deficit reduction. This option will undoubtedly be opposed by some who find it unfair to limit measures from which they benefit while leaving unchanged tax rules that benefit other people.

[5]
Here is a practical alternative toward the same end: Congress should cap the total benefit taxpayers can receive from the combined effect of different tax expenditures. That cap could be set as a percentage of an individual’s adjusted gross income and perhaps subject to an absolute dollar amount.

...

2011

2011-09-17-WP-Montgomery-ever-increasing-tax-breaks-for-us-families-eclipse-benefits-for-special-interests

Ever-increasing tax breaks for U.S. families eclipse benefits for special interests
by Lori Mongomery
Washington Post, 2011-09-17

The graphic, from the article, seems quite useful.

2012

2012-03-24-WP-Montgomery-tax-breaks-would-be-tough-to-cut

Tax breaks would be tough to cut, congressional research says
by Lori Montgomery
Washington Post, 2012-03-23

The following graphic, from the article, seems especially informative:

2013

2013-05-30-WP-richest-20-percent-get-half-the-overall-savings-from-tax-breaks

Richest 20 percent get half the overall savings from U.S. tax breaks, CBO says
By Lori Montgomery
Washington Post, 2013-05-30

This article has an excellent graphic,
showing, for each of the top ten tax breaks,
how the break affects each quintile of the taxpayers.