Essential tax and accounting reading: Californians support tax hikes, dividend taxes, $1 trillion of tax breaks, inheritance tax, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Strong majority back Jerry Brown’s tax-hike initiative-poll. Anthony York – The Los Angeles Times. California voters strongly support Gov. Jerry Brown’s new proposal to increase the sales tax and raise levies on upper incomes to help raise money for schools and balance the state’s budget, according to a new USC Dornsife/Los Angeles Times poll. Sixty-four percent of those surveyed said they supported the governor’s measure, which he hopes to place on the November ballot. It would hike the state sales tax by a quarter-cent per dollar for the next four years and create a graduated surcharge on incomes of more than $250,000 that would last seven years. Link
* Will a dividend-tax hike spoil the party. Jack Hough – The Wall Street Journal. Apple’s dividend announcement this past week is good news for income investors, but bad news might be lurking around the corner. Unless Congress takes action, the top tax rate for the highest earners on most dividends, currently 15 percent, is set to jump to a whopping 43.4 percent next year. That is a maximum income-tax rate of 39.6 percent —since dividends will once again be taxed as regular income — plus a 3.8 percent tax on investment income as part of the health-care overhaul passed in 2009. Link
* Tax breaks exceed $1 trillion: Report. John McKinnon – The Wall Street Journal. A congressional report detailing the value of major tax breaks shows they amount to more than $1 trillion a year — roughly the size of the annual federal budget deficit — and benefit wide swaths of the population. The new report, by the nonpartisan Congressional Research Service, underscores how far-reaching many of the tax breaks are. They include the exclusion from taxable income for employer-provided health insurance, the biggest break, at $164.2 billion a year in 2014; the exclusion for employer-provided pensions, the second-biggest, at $162.7 billion; and the exclusions for Medicare and Social Security benefits. Link
* The rich get even richer. Steven Rattner – The New York Times opinion. New statistics show an ever-more-startling divergence between the fortunes of the wealthy and everybody else — and the desperate need to address this wrenching problem. Even in a country that sometimes seems inured to income inequality, these takeaways are truly stunning. In 2010, as the nation continued to recover from the recession, a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers, those with at least $352,000 in income. That delivered an average single-year pay increase of 11.6 percent to each of these households. Link
* Death tax defying – The Wall Street Journal editorial. While Washington continues to debate what to do with the federal death tax — the top rate is now 35 percent and is scheduled to rise to 55 percent next year — states are starting to recognize that their high estate taxes are a good way to chase away wealth producers. Last year Ohio abolished its estate tax, joining the 28 other states that do not impose such a tax at death. The left has long been flummoxed by polls showing that roughly two of three Americans want this tax abolished. Americans instinctively understand that the tax is unfair. It punishes a lifetime of thrift and investment solely due to the accident of death. And it does so in a way that imposes another tax on income that in most cases has already been taxed once, or sometimes twice. Link
* Judge a tax plan by its loopholes. James Stewart – The New York Times opinion. Representative Paul Ryan wants two simple tax rates: 25 percent for higher incomes and 10 percent for lower incomes. He wants the results to be revenue-neutral. But there’s no getting around the fact that a 25 percent rate on the top earners would nearly double Mitt Romney’s effective rate and more than double it for the 101 of the top 400 taxpayers who pay less than 10 percent, assuming the loopholes are indeed closed. A top rate of 25 percent may sound like a cut from current higher rates, but so few wealthy taxpayers pay the top rate that it would be a significant increase for many of them. Link
Essential tax and accounting reading: Californians support tax hikes, dividend taxes, $1 trillion of tax breaks, inheritance tax, and more Join DiscussionEssential reading: Chinese airlines, Swiss banks and more
Welcome to a roundup of the top tax and accounting headlines from Reuters and other sources.
* China bars airlines from EU tax plan. Simon Rabinovitch – The Financial Times. The Chinese government has barred the country’s airlines from complying with a European Union charge on carbon emissions, escalating a dispute that officials have warned could turn into a trade war. Chinese airlines had previously said they would not pay the EU carbon tax, but the formal prohibition by the State Council, or cabinet, puts Beijing in direct opposition to Brussels. China has notified all Chinese airlines that, without government approval, they cannot join the EU emissions trading scheme or charge customers extra because of it, state-agency Xinhua said. The impact on Chinese airlines with routes to Europe was unclear. Although the EU’s carbon scheme went into effect for airlines on January 1, Brussels has not started charging them yet. Link to The Financial Times.
*Julius Baer expects to deliver client data in U.S. probe. Katherina Bart – Reuters. Swiss private bank Julius Baer said on Monday it expects to have to hand over client data as part of a U.S. tax investigation into wealthy Americans who stashed their money in Swiss banks to avoid paying taxes. “We expect to have to deliver client information within the regulatory framework that will be agreed between the two governments,” Chief Executive Boris Collardi told analysts and media on Monday following 2011 earnings. Link to Reuters.
* Its chief’s big tax bill may benefit Facebook. David Kocieniewski – The New York Times. Few billionaires are willing to reveal much about their taxes. But the Facebook co-founder Mark Zuckerberg has indirectly done so in the documents for his company’s public stock offering later this year. Zuckerberg, 27, one of the world’s youngest billionaires, plans to exercise stock options with an estimated value of $5 billion ahead of the offering. That could create a stunning tax bill of $2 billion. Although Internal Revenue Service officials declined to discuss where it might rank, Mr. Zuckerberg’s bill would most likely be among the highest ever for an individual. The 400 wealthiest filers paid an average of $48 million in federal income taxes in 2009, according to government data. Link to The New York Times.
* Tax break increases deficit, but may have silver lining. Binyamin Appelbaum – The New York Times. A corporate tax break for buyers of computers, engines and other equipment is proving surprisingly popular, depriving the federal government of tens of billions of dollars in expected revenue and increasing the amount it will need to borrow this year. But there may be a silver lining. The tax break aims to stimulate investment, and it seems to be working. Corporate spending on equipment has grown faster than any other category of economic activity over the last two years, raising the pace of overall growth. And the government projects it will eventually recoup about 80 percent of the money because companies that benefit now often face higher taxes later. The surprising results highlight the difficulty that policy makers face in predicting both the costs and the benefits of government policies. Efforts to stimulate the economy have been particularly contentious, with critics arguing that the government has little power to influence businesses, and that the costs would be greater than expected. In this case, it appears that those critics were only half right. Link to The New York Times.
* As fiscal clouds lifts, mayor offers a budget free of tax increases or broad layoffs. David Chen – The New York Times. Mayor Michael R. Bloomberg, seeking to stabilize New York City’s finances after years of budget crunches and economic woes, proposed on Thursday a spending plan that was as routine and as free of drama as any in recent memory, with no tax increases or layoffs of teachers, police officers or firefighters. The mayor’s budget relies on a $29 million increase in revenue from fees and fines. He would increase fees for street activity permits, generating nearly $1 million, he said. And he would establish a new fee for building inspections from the Fire Department, generating an expected $8.4 million. Bloomberg also projected that the Finance Department would increase tax revenue by $25 million through more aggressive auditing of high-end tax returns. Link to The New York Times.
* What to do with leftovers in 529 plans. Georgette Jasen – The Wall Street Journal. Most parents worry about not having enough money in their 529 savings plans to pay for their kids’ college expenses. But sometimes you can end up with more cash in these accounts than you need—if, say, a child doesn’t go to college or attends a state school rather than a private university. Say there is money left over in a 529 account because your child got a big scholarship that reduced his or her college costs. In that case, money withdrawn would be subject to tax on the earnings but the 10 percent penalty would be waived, as long as the withdrawal doesn’t exceed the amount of the scholarship. The penalty on withdrawals also would be waived if the beneficiary dies or becomes disabled. Unless you need the money in a 529 account for something else, there is no rush to make a decision. In most plans, you can leave funds in the account to grow tax-free indefinitely. Link to The Wall Street Journal.
A roundup of the top tax and accounting headlines from Reuters and other sources. Join DiscussionThe alternative minimum tax and one man’s 74 percent tax rate
In his Saturday column in the New York Times, Pulitzer-prize winning reporter James B. Stewart tallied up his tax rate and found it to be a shocking 74 percent of taxable income. Is he possibly the most taxed man in America, he wonders?
Tax rates have been much discussed of late, with Mitt Romney’s tax returns disclosing his 13.9 percent tax rate, and the appearance of Debbie Bosanek, Warren Buffett’s secretary, at the State of the Union address last week to boost President Obama’s push for more tax equity. Bosanek is reported to pay a 35.8 percent tax rate, while her famous boss says his rate is 17.4 percent of his taxable income.
How could Stewart’s rate be so stratospheric? After some research, he determined that his personal situation is “a near-perfect storm of punitive tax policies.” He lives in one of the highest tax districts in the country (New York City), earns his income (rather than getting it from capital gains or carried interest, a la Romney), doesn’t have a significant mortgage deduction and pays an unincorporated business tax on some of his income, like book royalties.
Even his very generous donation of 25 percent of his income to charity did only limited good (for his taxes, at least).
The high local and state income taxes he pays in New York help to make Stewart’s deductions (which include those taxes) high relative to his income and that activates the alternative minimum tax (AMT), a painful burden to those who bear it. Also, a burden that more of us will be bearing if changes aren’t made this year in Washington.
Originally designed as a way to make sure the wealthy pay their fair share (sound familiar?), over time the AMT has slipped down to cover many who more rightly would be considered middle class.
Stewart writes:
In his Saturday column in the New York Times, Pulitzer-prize winning reporter James B. Stewart tallied up his tax rate and found it to be a shocking 74 percent of taxable income. Is he possibly the most taxed man in America, he wonders? Join DiscussionWait a minute! His tax rate is 74%, he had charatibles of 25%.
So to keep the math easy for every $1 he donated .25 leaving him with .75 of taxable money. Of that .75 he paid in effective taxes of .555 cents on every dollar leaving him with .195 cents on each dollar earned. Not buying it.
Dude if this is true, your an idiot for living in NY!
