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New From the GAO

April 21, 2014 Comments off

New GAO Reports
Source: Government Accountability Office

1. Department of Health and Human Services: Solicitations of Support for Enroll America. GAO-14-305R, March 21.
http://www.gao.gov/products/GAO-14-305R

2. Private Pensions: Pension Tax Incentives Update. GAO-14-334R, March 20.
http://www.gao.gov/products/GAO-14-334R

3. Internal Revenue Service: Absorbing Budget Cuts Has Resulted in Significant Staffing Declines and Uneven Performance. GAO-14-534R, April 21.
http://www.gao.gov/products/GAO-14-534R

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State Higher Education Finance Report

April 21, 2014 Comments off

State Higher Education Finance Report
Source: State Higher Education Executive Officers Association

The State Higher Education Finance (SHEF) report is produced annually by the State Higher Education Executive Officers (SHEEO) to broaden understanding of the context and consequences of multiple decisions made every year in each of these areas. No single report can provide definitive answers to such broad and fundamental questions of public policy, but the SHEF report provides information to help inform such decisions. The report includes:

• An Overview and Highlights of national trends and the current status of state funding for higher education;
• An explanation of the Measures, Methods, and Analytical Tools used in the report;
• A description of the Revenue Sources and Uses for higher education, including state tax and non-tax revenue, local tax support, tuition revenue, and the proportion of this funding available for general educational support;
• An analysis of National Trends in Enrollment and Revenue, in particular, changes over time in the public resources available for general operating support;
• Interstate Comparisons—Making Sense of Many Variables, using tables, charts, and graphs to compare data amongstates and over time; and
• Indicators of Relative State Wealth, Tax Effort, and Allocations for Higher Education, along with ways to take these factors into account in making interstate comparisons.

The SHEF report provides the earliest possible review of state and local support, tuition revenue, and enrollment trends for the most recent fiscal year.

Major Surgery Needed: A Call for Structural Reform of the US Corporate Income Tax

April 21, 2014 Comments off

Major Surgery Needed: A Call for Structural Reform of the US Corporate Income Tax
Source: Urban Institute

A corporate income tax can play a useful role by preventing shareholders from deferring tax on retained corporate profits. The current U.S. corporate income tax is deeply flawed, however, because it relies on definitions of corporate residence and income sourcing that corporations can easily manipulate, causing economic distortions and erosion of the corporate tax base. Two structural reform options to address these problems are securing international agreement on better ways to allocate the corporate tax base among countries and replacing the corporate income tax with full taxation of American shareholders’ dividends and accrued capital gains on stock in publicly traded companies.

Taxation — Interim Results of the 2014 Filing Season

April 21, 2014 Comments off

Interim Results of the 2014 Filing Season
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
The filing season, defined as the period from January 1 through mid-April, is critical for the IRS because it is during this time that most individuals file their income tax returns and contact the IRS if they have questions about specific laws or filing procedures.

WHY TIGTA DID THE AUDIT
The closure of Government operations between October 1 and October 16, 2013, reduced the time the IRS had to implement tax law changes and bring tax return processing systems online. The objective of this review was to provide selected information related to the IRS’s 2014 Filing Season. TIGTA plans to issue the final results of our analysis of the 2014 Filing Season in September 2014.

WHAT TIGTA FOUND
As a result of the Government closure, the IRS delayed the start of the filing season from January 21, 2014, to January 31, 2014. As of March 7, 2014, the IRS had received more than 67.1 million tax returns—more than 62.2 million (92.6 percent) were filed electronically and nearly five million (7.4 percent) were filed on paper. The IRS has issued more than 55.4 million refunds totaling more than $164 billion.

The IRS continues to expand identity theft filters to identify fraudulent tax returns. As of February 28, 2014, the IRS reports that it identified and confirmed 28,076 fraudulent tax returns involving identity theft. In addition, the IRS identified 57,316 tax returns with $385 million claimed in fraudulent refunds and prevented the issuance of $336 million (87.3 percent) of the fraudulent refunds it identified. The IRS also identified 36,801 prisoner tax returns for screening.

The use of the split refund option to direct deposit a refund into multiple bank accounts continues to grow. Through March 6, 2014, a total of 585,331 individuals chose to split refunds totaling more than $2.6 billion into multiple accounts. However, TIGTA continues to identify that some taxpayers and return preparers misuse this option to direct a portion of a tax refund to a preparer for payment of services.

TIGTA also found that some paid tax return preparers continue to be noncompliant with Earned Income Tax Credit due diligence requirements, but the number has decreased substantially when compared to the same period last filing season.

Finally, the IRS plans to assist 5.6 million taxpayers through face-to-face contact at the Taxpayer Assistance Centers during Fiscal Year 2014, which is one million fewer taxpayers than were assisted during Fiscal Year 2013. As of March 8, 2014, approximately 46.3 million taxpayers had contacted the IRS by calling one of the various toll-free Customer Account Services lines. The IRS continues to offer more self-assistance options that taxpayers can access 24 hours a day, seven days a week, including its IRS2Go app; YouTube channels; interactive self-help tools on IRS.gov; and Twitter, Tumblr, and Facebook accounts. However, the IRS did not always ensure that the self-help tools were updated with the most current tax information before the start of the filing season.

WHAT TIGTA RECOMMENDED
This report was prepared to provide interim information only. Therefore, no recommendations were made in the report.

Offshore Tax Havens Cost Average Taxpayer $1,259 a Year, Small Businesses $3,923

April 18, 2014 Comments off

Offshore Tax Havens Cost Average Taxpayer $1,259 a Year, Small Businesses $3,923
Source: U.S. Public Interest Research Group

As hardworking Americans file their taxes today, it’s a good time to be reminded that ordinary taxpayers pick up the tab for special interest loopholes in our tax laws. A new U.S. PIRG report released today revealed that the average American taxpayer in 2013 would have to shoulder an extra $1,259 in state and federal taxes to make up for the revenue lost due to the use of offshore tax havens by corporations and wealthy individuals.

Every year, corporations and wealthy individuals avoid paying an estimated $184 billion in state and federal income taxes by using complicated accounting tricks to shift their profits to offshore tax havens. Of that $184 billion, $110 billion is avoided specifically by corporations.

New From the GAO

April 18, 2014 Comments off

New GAO Reports
Source: Government Accountability Office

1. Nuclear Weapons: Technology Development Efforts for the Uranium Processing Facility. GAO-14-295, April 18.
http://www.gao.gov/products/GAO-14-295
Highlights – http://www.gao.gov/assets/670/662665.pdf

2. Maritime Infrastructure: Key Issues Related to Commercial Activity in the U.S. Arctic over the Next Decade. GAO-14-299, March 19.
http://www.gao.gov/products/GAO-14-299
Highlights – http://www.gao.gov/assets/670/661762.pdf

3. Medicare Imaging Accreditation: Effect on Access to Advanced Diagnostic Imaging Is Unclear amid Other Policy Changes. GAO-14-378, April 18.
http://www.gao.gov/products/GAO-14-378
Highlights – http://www.gao.gov/assets/670/662659.pdf

4. Large Partnerships: Characteristics of Population and IRS Audits. GAO-14-379R, March 19.
http://www.gao.gov/products/GAO-14-379R

Standard Deductions: U.S. Corporate Tax Policy

April 18, 2014 Comments off

Standard Deductions: U.S. Corporate Tax Policy
Source: Council on Foreign Relations

The U.S. system for taxing corporate profits is outdated, ineffective at raising revenue, and creates perverse incentives for companies to shelter profits overseas. It is also, for most U.S. companies most of the time, a pretty good deal, which is one of the big reasons why any serious overhaul will be so difficult to achieve.

This is the fourth progress report and scorecard from CFR’s Renewing America initiative. Previous progress reports and scorecards have evaluated transportation infrastructure, federal education policy, and trade.

CRS — Bonus Depreciation: Economic and Budgetary Issues

April 17, 2014 Comments off

Bonus Depreciation: Economic and Budgetary Issues (PDF)
Source: Congressional Research Service (via National Agricultural Law Center)

The Tax Extenders Act of 2013 (S. 1859), which would extend expiring tax provisions for a year, includes bonus depreciation. The temporary provisions enacted in the past for only a year or two and extended multiple times are generally referred to collectively as the “extenders.” One reason advanced for these temporary provisions is that time is needed to evaluate them. Most of these provisions, however, have been extended multiple times, and some suggest that these provisions are actually permanent but are extended a year or two at a time because permanent provisions would significantly increase the costs in the budget horizon. Historically, bonus depreciation has not been a traditional “extender.”

Bonus depreciation allows half of equipment investment to be deducted immediately rather than depreciated over a period of time. Bonus depreciation was enacted for a specific, short-term purpose: to provide an economic stimulus during the recession. Most stimulus provisions have expired. Bonus depreciation has been in place six years (2008-2013), contrasted with an earlier use of bonus depreciation in place for three years. Is bonus depreciation temporary or permanent? The analysis of bonus depreciation differs for a temporary stimulus provision, compared to a permanent provision that can affect the size and allocation of the capital stock.

Who Pays Taxes in America in 2014?

April 16, 2014 Comments off

Who Pays Taxes in America in 2014?
Source: Citizens for Tax Justice

All Americans pay taxes. Everyone who works pays federal payroll taxes. Everyone who buys gasoline pays federal and state gas taxes. Everyone who owns or rents a home directly or indirectly pays property taxes. Anyone who shops pays sales taxes in most states.

The nation’s tax system is barely progressive. Those who argue that the wealthy are overtaxed focus solely on the federal personal income tax, while ignoring the other taxes that Americans pay. But, as the table to the right illustrates, the total share of taxes (federal, state, and local) that will be paid by Americans across the economic spectrum in 2014 is roughly equal to their total share of income.

Many taxes are regressive, meaning they take a larger share of income from poor and middle-income families than they do from the rich. To offset the regressive impact of payroll taxes, sales taxes and even some state and local income taxes, we need federal income tax policies that are more progressive.

SOI Tax Stats – Corporation Source Book: U.S. Total and Sectors Listing

April 16, 2014 Comments off

SOI Tax Stats – Corporation Source Book: U.S. Total and Sectors Listing
Source: Internal Revenue Service

The 2011 Corporation Source Book is now available on the IRS Tax Stats Webpages. This publication presents balance sheet, income statement, tax, and other selected items, by size of total assets for all returns with and without net income, and returns with net income only. Data tables are available by industrial groupings based upon the North American Industry Classification System (NAICS). Separate data tables are available for S corporations at the highest level of industry groupings. The Source Book contains over 700 Excel tables in separately grouped zip files.

Encouraging Low- and Moderate-Income Tax Filers to Save

April 16, 2014 Comments off

Encouraging Low- and Moderate-Income Tax Filers to Save
Source: MDRC

SaveUSA, a voluntary program launched in 2011 in four cities (New York City, Tulsa, San Antonio, and Newark), encourages low- and moderate-income individuals to set aside money from their tax refund for savings. Tax filers at participating Volunteer Income Tax Assistance (VITA) sites can directly deposit all or a portion of their tax refund into a special savings account, set up by a bank or credit union, and pledge to save between $200 and $1,000 of their deposit for about a year. Money can be withdrawn from SaveUSA accounts at any time and for any purpose, but only those who maintain their initially pledged savings amount throughout a full year receive a 50 percent match on that amount. Account holders, irrespective of match receipt, can deposit tax refund dollars in subsequent years and become eligible to receive additional savings matches on their new tax refund deposits.

This report presents findings on SaveUSA’s implementation in all four cities and its early effects on savings and other financial outcomes in two cities: New York City and Tulsa. In these latter cities, a randomly selected half of the tax filers who were interested in SaveUSA in 2011 could open accounts (the “SaveUSA group”), but the other half could not (the control group). The report compares the savings and other financial behaviors of the two groups over time to estimate SaveUSA’s effects. The findings thus suggest the effects that savings policies structured similarly to SaveUSA might have.

Taxation — Facts & Figures 2014: How Does Your State Compare?

April 16, 2014 Comments off

Facts & Figures 2014: How Does Your State Compare?
Source: Tax Foundation

This morning, the Tax Foundation released the 2014 edition of Facts & Figures: How Does Your State Compare? Just in time for tax season, the latest edition of this popular pocket-sized handbook contains the rates and rankings of all 50 states on 39 different measures of tax and fiscal policy.

Topics include information on tax measures (such as revenue per capita, federal aid to states, and State Business Tax Climate Index rankings), individual income taxes, corporate income taxes, general sales taxes, excise taxes, property taxes, state debt, and population data. For a full list of all measures included in this year’s edition, click here.

Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets

April 15, 2014 Comments off

Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets
Source: Journal of Finance, forthcoming (via SSRN)

We empirically investigate one form of illegal investor-level tax evasion and its effect on foreign portfolio investment. In particular, we examine a form of round-tripping tax evasion in which U.S. individuals hide funds in entities located in offshore tax havens and then invest those funds in U.S. securities markets. Employing Becker’s (1968) economic theory of crime, we identify the tax evasion component in foreign portfolio investment data by examining how foreign portfolio investment varies with changes in the incentives to evade and the risks of detection. To our knowledge, this is the first empirical evidence of investor-level tax evasion affecting cross-border investment in equity and debt markets.

Maps: Tax Indicators in Your County

April 11, 2014 Comments off

Maps: Tax Indicators in Your County
Source: Brookings Institution

Tax season is winding down, and many of us are scrambling to submit our returns to the IRS this week. But do you know how your tax return compares to others from around the country?

Earlier this year, Brookings released a series of interactive tax maps that break down major taxes and credits by individual U.S. county.

Tax Freedom Day® Arrives on April 21, 2014

April 10, 2014 Comments off

Tax Freedom Day® Arrives on April 21, 2014
Source: Tax Foundation

Tax Freedom Day, the day on which American’s have collectively earned enough income to pay off the total federal, state, and local tax bill, will arrive 111 days into the year on April 21, according to the annual report released this morning by the nonpartisan Tax Foundation.

While the national date arrives 6 days after the deadline for filing taxes, each state’s total federal, state, and local tax burden varies greatly. Louisiana’s Tax Freedom Day is the earliest and arrives on March 30, and is followed by Mississippi (Apr 2) and South Dakota (Apr 4). New Jersey and Connecticut are tied with the latest date on May 9 and they are preceded by New York (May 4).

The study’s key findings include:

  • Tax Freedom Day is three days later than last year due mainly to the continuing economic recovery, which will boost federal tax revenue collected through the corporate, payroll, and individual income tax.
  • Americans will spend more on taxes in 2014 than they will on food, clothing, and housing combined.
  • Americans will spend 42 days working to pay off income taxes, 15 days for excise taxes, and 11 days for property taxes. Click here for a full breakdown.
  • Americans will pay $3 trillion in federal taxes and $1.5 trillion in state and local taxes, for a total bill of more than $4.5 trillion, or 30.2 percent of the nation’s income.
  • If you include annual federal borrowing, which represents future taxes owed, Tax Freedom Day would occur on May 6, 15 days later.

See also: Tax Foundation Figures Do Not Represent Typical Households’ Tax Burdens (Center on Budget and Policy Priorities)

Millions of Dollars in Potentially Improper Claims for the Qualified Retirement Savings Contributions Credit Are Not Pursued

April 10, 2014 Comments off

Millions of Dollars in Potentially Improper Claims for the Qualified Retirement Savings Contributions Credit Are Not Pursued (PDF)
Source: Treasury Inspector General for Tax Administration

For Tax Year 2011, TIGTA determined that taxpayers potentially made approximately $53 million in improper claims for contributions made to a qualifying retirement account. Based on a comparison with third party data, these claims appear to be potentially either false or overstated. In the future, if the IRS identifies and addresses taxpayers who are potentially ineligible to receive the saver’s credit, it could recover approximately $264 million over five years.

CBO — Presentation on Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget

April 9, 2014 Comments off

Presentation on Raising the Excise Tax on Cigarettes: Effects on Health and the Federal Budget
Source: Congressional Budget Office

Presentation by James Baumgardner, CBO’s Deputy Assistant Director for Health, Retirement, and Long-Term Analysis, to the 30th International Congress of Actuaries

State Government Tax Revenue Rises for Third Year in a Row, Census Bureau Reports

April 9, 2014 Comments off

State Government Tax Revenue Rises for Third Year in a Row, Census Bureau Reports
Source: U.S. Census Bureau

State government tax revenue increased by 6.1 percent from fiscal year 2012 to a record $846.2 billion in 2013, the U.S. Census Bureau reported today. The increase shows an upward trend in state government tax revenue for the third year in a row. From fiscal year 2010 to 2011, state government tax revenue increased by 7.3 percent; from fiscal year 2011 to 2012, the increase was 4.7 percent.

The 2013 Annual Survey of State Government Tax Collections, which has been collected annually since 1951, contains statistics on the tax collections of all 50 state governments, including receipts from compulsory fees.

New From the GAO

April 8, 2014 Comments off

New GAO Reports and Testimonies
Source: Government Accountability Office

Reports

1. Medicare: Second Year Update for CMS’s Durable Medical Equipment Competitive Bidding Program Round 1 Rebid. GAO-14-156, March 7.
http://www.gao.gov/products/GAO-14-156
Highlights - http://www.gao.gov/assets/670/661475.pdf

2. 2014 Annual Report: Additional Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits. GAO-14-343SP, April 8.
http://www.gao.gov/products/GAO-14-343SP
Podcast - http://www.gao.gov/multimedia/podcasts/662283

3. Aviation Safety: FAA Should Improve Usability of its Online Application System and Clarity of the Pilot’s Medical Form. GAO-14-330, April 8.
http://www.gao.gov/products/GAO-14-330
Highlights - http://www.gao.gov/assets/670/662388.pdf

4. Military Capabilities: Navy Should Reevaluate Its Plan to Decommission the USS Port Royal. GAO-14-336, April 8.
http://www.gao.gov/products/GAO-14-336
Highlights - http://www.gao.gov/assets/670/662377.pdf

5. Information Security: IRS Needs to Address Control Weaknesses That Place Financial and Taxpayer Data at Risk. GAO-14-405, April 8
http://www.gao.gov/products/GAO-14-405
Highlights - http://www.gao.gov/assets/670/662372.pdf
Podcast - http://www.gao.gov/multimedia/podcasts/662350

Testimonies

1. Paid Tax Return Preparers: In a Limited Study, Preparers Made Significant Errors, by James R. McTigue Jr., director, strategic issues, before the Senate Committee on Finance. GAO-14-467T, April 8.
http://www.gao.gov/products/GAO-14-467T
Highlights - http://www.gao.gov/assets/670/662357.pdf

2. Tobacco Products: FDA Spending and New Product Review Time Frames, by Marcia Crosse, director, health care, before the Subcommittee on Health, House Committee on Energy and Commerce. GAO-14-508T, April 8.
http://www.gao.gov/products/GAO-14-508T
Highlights - http://www.gao.gov/assets/670/662361.pdf

3. Government Efficiency and Effectiveness: Opportunities to Reduce Fragmentation, Overlap, and Duplication and Achieve Other Financial Benefits, by Gene L. Dodaro, Comptroller General of the United States, before the House Committee on Oversight and Government Reform. GAO-14-478T, April 8.
http://www.gao.gov/products/GAO-14-478T
Highlights - http://www.gao.gov/assets/670/662367.pdf

Can US Coordination Failure Explain Why Americans Work So Much More than Europeans?

April 4, 2014 Comments off

Can US Coordination Failure Explain Why Americans Work So Much More than Europeans? (PDF)
Source: Institute for the Study of Labor

Prescott (2004) argues that Europeans work much less than Americans because of higher taxes and that they would gain significantly by charging US taxes and working as much as Americans. I argue that the opposite may be true and that Americans work more than Europeans due to a coordination failure. Studies show that utility falls with other people’s income, a negative externality that is internalized in Europe through laws on the minimum amount of vacation time (and maximum hours of work), something unthinkable in the US. Thus, Americans may be stuck in an “overworking trap” and would gain by working less. A simple model and data on work time are used to obtain an estimate of the US welfare gain from reducing its work time to Europe’s level. On the other hand, if neither EU nor US work time is optimal, then the sign of the EU-to-US welfare difference is positive (ambiguous) if EU work time is greater (smaller) than the optimum, while simulations show that even in the latter case, EU welfare is greater than US welfare if, relative to the optimum, the EU work ‘shortage’ is smaller than the US work ‘surplus’.

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