Author: patoglesby

Taxation without Hesitation was the name of a softball team made up of IRS workers in DC in the late 20th century.  With our fiscal situation, I sometimes think that’s what America needs.  But the aim here is to think about taxes analytically.

“In reality tax is the only truly funny subject taught in law school. It is human greed four mornings each week.” The late Marty Ginsburg, http://taxprof.typepad.com/files/135tn0177.pdf.

“British Prime Minister David Cameron will propose . . . that British retailers charge a minimum of 40 pence (63 cents) per unit of alcohol. A unit is the equivalent of 10 milliliters of pure alcohol.”

American taxes on alcohol depend on the form it comes in:  alcohol in beer is taxed less than alcohol in liquor, with wine in between.  Cameron’s policy of treating all alcohol alike has a lot of theoretical appeal.  Why doesn’t he propose taxing it?  Do pro-business leanings explain his desire to see the money to people in the alcohol business?

Quote is from Paul Sonne and Jeanne Whalen, Cameron Wants Brits to Pay More for Alcohol in Bid to Curb Drinking, WSJ, March 23, 2012, http://online.wsj.com/article/SB10001424052702304724404577297814271968518.html?KEYWORDS=alcohol+unit

When Senator Roth introduced a bill for an individual retirement account with no upfront deduction, part of the superficial appeal was that the revenue damage to the budget came outside the budget window.  He called it the IRA Plus.  My boss at the time (1988 or 1989 or 1990), Senate Finance Chair Lloyd Bentsen, said that PLUS  stood for “Pay Later, Uncle Sam.”  That retort became Tax Notes’ quote of the week.  The name IRA Plus disappeared, and Senator Roth’s name got attached to what became the Roth IRA.

UPDATE: It was 1989, according to https://en.wikipedia.org/wiki/Roth_IRA.

The New Orleans Saints NFL team supposedly paid cash bounties to defensive players who injured opponents.  http://www.nytimes.com/2012/03/03/sports/football/nfl-says-saints-had-bounty-program-to-injure-opponents.html?hp.  I doubt that those payments were reported as income by the recipients, or reported to the IRS by the payors.  If the justice system can’t convict the batterers, the tax system may be able to go after them.  Like Al Capone.

Wanting to drown Uncle Sam (denying revenue to the Federal government so it’s small enough to drown in a bathtub, in the words of Grover Norquist) is as naive as Karl Marx’s formulation of the same idea:  the withering of the state.  The extremes meet.

We need a term to describe changes in tax laws that leave the government bringing in the same amount of revenue (as in earlier periods) given changes in the economy.  Revenue neutrality means something else:  changes in tax laws will result in the government bringing in the same amount of revenue if economic circumstances DON’T change.  Budget neutrality and deficit neutrality mean pretty much the same thing as revenue neutrality.

A government may need a certain amount of revenue to do what it does, that is, it may need static receipts — even when the economy grows or shrinks.  In a shrinking economy, tighter tax rules or higher rates are needed to produce static receipts.  (Now that may be oversimple:  government may need higher receipts in bad times for unemployment benefits and the like.  But I’m disregarding that need for now.)

So what’s the term for tax law changes that produce static receipts in a changing economy?  Funding neutrality?  Receipts neutrality?  Steady revenues?

Struggling to balance its budget, Greece is reducing spending by cutting tax collection efforts:

“As a result of the austerity measures putting some tax officers on reduced pay, we have 5,500 fewer tax office jobs,” said tax officers’ union head Charalambos Nikolakopoulos.

http://www.cnbc.com/id/45814079

Reduced pay is not the same as fewer jobs, but still. . .  “Greek tax officials walked off the job Thursday at the start of a 48-hour strike to protest salary cuts and other austerity measures, as the government struggles to meet revenue targets demanded by the crisis-struck country’s international creditors.”  How do they think they’ll get paid?

I’m for higher taxes, but I understand the need for spending cuts.  Public employee unions can overplay their hands.

“Tax Repatriation Holiday”:  Choosing Words Strategically

[A more legible .pdf  version of this posting is downloadable at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1963951.]

“The real goal . . . is to determine what ‘story’ a client wishes to tell about his product and then find a word that evokes it—and spurs the impulse to buy.”[1]

+++++++++++++++++++

Tax policy turns on terms.  Witness the deliberate and effective popularization of the term “Death Tax.”[2]

Now, the “product” being offered in H.R. 1834[3] is a temporary, targeted 85-percent dividends received deduction:  an ultra-low tax rate on foreign earnings that U.S. multinationals have trapped in offshore subsidiaries, most often in tax havens.[4]  Its common name is “Repatriation Holiday.”[5]

Continue reading ““Repatriation Tax Holiday”: Choosing Words Strategically”

Whatever merit there is to granting corporations the Constitutional right of free speech, as the Citizens United case does, there is no merit to granting that right to foreign corporations.  Or to U.S. subsidiaries of foreign corporations.  Or to U.S. corporations owned by foreigners or — for goodness’ sake — by foreign governments.

Fixing this anomaly would take a Constitutional amendment at this point.  The Supreme Court is unlikely to reverse its 5-4 decision:  the Justices most likely to leave are dissenters.

I’m not saying States and the Federal Government should be obligated to restrict speech of foreign-influenced entities.   But governments should be able to say those corporations can’t contribute to campaigns or spend money to influence American elections.

Tax law provides plenty of precedent for denying or granting rights to corporations based on ownership. For instance, a controlled foreign corporation is one in which U.S. shareholders own more than 50 percent, by vote or value.  Code section 957(a). Continue reading “Tax Law’s Look-through Rules Can Address Citizens United”

North Carolina’s inheritance tax applies only to folks who meet their Maker while worth over $5 million. Just in time for Halloween, the tax-exempt Civitas Institute said it’s a gruesome tax that turns Revenue Department officials into grave robbers (Oct. 30 Under the Dome).   That kind of rhetoric aims to frighten us and stop us from thinking. Boo!

Continue reading “Gruesome tax”

The WSJ reports:

” . . . the disturbance followed aggressive collection of new charges for the use of machines used to make children’s wear, the town’s mainstay product. The tax was targeted at small, independent workshops that often aren’t licensed and are manned mostly by migrant laborers who earn money per piece produced.

“They said workshop managers were being charged between 300 yuan (about $48) and 600 yuan for each machine used, in what Chinese discussing the matter online called the ‘sewing-machine tax.’ It amounts to about twice as much as was collected in the past.”

http://online.wsj.com/article/SB10001424052970204505304577003503223216724.html?KEYWORDS=china+tax

It’s a lot easier for taxers to count sewing machines once than either (1) to measure production by counting each and every item that leaves the facility or (2) to measure piecework, maybe daily, payments to workers.   Was the sewing machine tax in lieu of a tax on production?  Maybe so, since the operators were reportedly unlicensed.  In any event, it was too effective.  And it targeted a narrow group that could identify its members.

Right out of college in 1969, my first job was teaching French at maybe the best public high school in North Carolina.  I was making $6,300 a year, which seemed like a lot, since all-in costs at Davidson College had been around $2,000.  So I could afford to go to France in the summers.  The epiphany was when I found out I could deduct all my living expenses (I took some classes, did an internship or “stage,” and traveled).

Deductions for travel were later called a loophole:  “Congressional discussion of the 1986 revisions makes clear that a French professor who tours France to brush up on his language skills is not entitled to a tax deduction.”  http://chronicle.com/article/Tax-PlanningSabbatical/126293/.  They got me.  I was on the Joint Committee staff then, and don’t remember the change.  I don’t think I was involved.

I remember, as I was putting my documentation together to claim my deduction, my father telling me, “If you claim $12 a day, they’ll never question it.”  I was living low to the ground back then.

“Under the [September 19 Obama Administration] proposal, if a U.S parent transfers an intangible to a controlled foreign corporation (CFC) in circumstances that demonstrate excessive income shifting from the United States, then an amount equal to the excessive return would be treated as subpart F income.  This would reduce the deficit by $19 billion over 10 years.”  http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/jointcommitteereport.pdf

Great.  But what is “excessive”?  How much income-shifting is OK?  This looks as vague as our old “commensurate with income” standard.  (I was always irritated when that standard was labeled “super-royalty.”  A salary commensurate with income is not a super-salary.)  Strike “excessive” and you’re getting somewhere.

Or “if a U.S parent shifts income from the United States by transferring an intangible to a controlled foreign corporation (CFC), then an amount equal to the income [from that intangible?] would be treated as subpart F income.”

Spinning the term of debate, advocates of this repatriation scheme are free to use the pleasant term “holiday.” Opponents might prefer “caper.”  More neutrally, it’s amnesty.

And instead of the vaguely patriotic “repatriation,” how about “de-havening”?

Advocates of a territorial system for international tax — where the USA would not tax any foreign income of U.S. corporations — say we should adopt it because the other major industrialized countries have it.

When it comes to a Value Added Tax, the fact that every other major industrialized country has one DOES NOT MATTER to those folks.

They are as consistent in their antipathy to taxation as I am in my sympathy for it.

This argument says “No one does.”:

“While the sales tax rate in North Carolina is 5.75 percent (plus another 2 percent in most localities), movies and other entertainment, alcoholic beverages, tobacco products, hotel rooms, and rental cars are all taxed at higher rates.

“In a free society the purpose of a tax system is simply to raise money for the operations of government. It should not be used to punish activities that are disfavored by politicians or to reward activities that politicians consider virtuous. Indeed, principles of both justice and economic efficiency would suggest that the tax system should be neutral with respect to people’s freely made choices.”

http://www.carolinajournal.com/articles/display_story.html?id=5982

That hard right view is as purely materialistic, in its own way, as Marxism.  Some of the folks on the hard right are believing Christians.  Are they buying this view?

Meanwhile, equating the government with “politicians” may be accurate in a way, but the tone of this argument shows little faith in our republican form of government.