Essential reading: Cuts debated on tax breaks for retirement savings, Simpson-Bowles vote, more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Lawmakers consider changing tax breaks on retirement savings. Lori Montgomery – The Washington Post. The painful trade-offs of tax reform came into sharper focus on Tuesday as lawmakers began considering reducing or otherwise changing specific tax breaks, starting with laws that allow millions of Americans to avoid taxes while saving for retirement through 401(k) plans, employer pensions, IRAs and other programs. Link
* White House says Obama would veto Republican tax cut. Alister Bull – Reuters. The White House said on Tuesday that President Barack Obama would veto a small business tax cut proposal by Republicans in the House of Representatives that his Democrats complain is biased toward helping the rich. Link
* Senate to take up Simpson-Bowles deficit plan. James Politi – The Financial Times. The centrist Democrat who chairs the Senate budget committee will present legislation on Wednesday to implement the recommendations of a 2010 bipartisan debt reduction panel, in a surprise move to force the upper chamber to consider the contentious plan. In a sign that the Simpson-Bowles plan is unlikely to garner much traction in the Senate, Republicans mocked the move. Link
* How to pay no taxes: 10 strategies used by the rich. Jesse Drucker – BloombergBusinessweek. If you have lots of money, Tuesday, April 17, was one of the best tax days since the early 1930s: Top tax rates on ordinary income, dividends, estates and gifts remain at or near historically low levels. Our era is rife with opportunities to avoid — or at least defer — tax bills, according to tax specialists and public records. Link
* IRS rule threatens bank capital flight: analysts. Kevin Drawbaugh – Reuters. Banks in Texas, Florida and other southern states could face a pull-out of non-U.S. depositors due to a new U.S. rule finalized on Tuesday. The rule, part of efforts to combat offshore tax evasion and issued by the Internal Revenue Service, will require U.S. banks, starting on Jan. 1, 2013, to report to the IRS payments of interest made to non-resident aliens. Link
* Sino-Forest says ex-CEO leaves firm, three fired. Reuters. Embattled Chinese forestry company Sino-Forest Corp said on Tuesday its former CEO had quit his final role at the company and three other executives were fired after securities regulators signaled they could press charges against them. Link
Essential tax and accounting reading: Cuts debated on tax breaks for retirement savings, Simpson-Bowles vote, more Join DiscussionPay into pension, get boost to earnings
Companies are going to have to contribute some serious money to shore up their lilting pension plans this year, but there’s a silver lining: higher earnings.
In a Dec. 7 analysis, UBS analysts spell out how contributing to the company plan could handsomely help the bottom line.
It has a lot to do with the peculiarities of pension accounting.
As UBS accounting expert Janet Pegg wrote in the report, companies that sponsor pension plans mostly don’t use current market results when determining how much their plans cost them in a certain year. Instead they use an “expected long-term rate of return” to calculate how their investments did.
Currently, that expected return is usually between 7.5 percent and 8.5 percent.
So if a company put $100 million into its plan in 2011, and it was expecting a 7.5 percent rate of return on investments, it automatically gets $7.5 million in net income added to the bottom line. That goes even for a year like last year when the S&P 500 returned almost zero, and many global markets far less. On the books, pension plans looked to be doing quite well.
In reality, pension plans have not been doing that well. According to UBS, pensions’ average annual return over the past decade was only about 5 percent, but they expect to do better, and thus their earnings rise.
Companies are going to have to contribute some serious money to shore up their lilting pension plans this year, but there's a silver lining: higher earnings. Join Discussion
