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Fleecing Uncle Sam; A growing number of corporations spend more on executive compensation than federal income taxes

November 26, 2014 Comments off

Fleecing Uncle Sam; A growing number of corporations spend more on executive compensation than federal income taxes
Source: Institute for Policy Studies

This report reveals stark indicators of the extent to which large corporations are avoiding their fair share of taxes.

Of America’s 30 largest corporations, seven (23 percent) paid their CEOs more than they paid in federal income taxes last year.

  • All seven of these firms were highly profitable, collectively reporting more than $74 billion in U.S. pre-tax profits. However, they received a combined total of $1.9 billion in refunds from the IRS.
  • The seven CEOs leading these tax-dodging corporations were paid $17.3 million on average in 2013. Boeing and Ford Motors both paid their CEOs more than $23 million last year while receiving large tax refunds.

Of America’s 100 highest-paid CEOs, 29 received more in pay last year than their company paid in federal income taxes—up from 25 out of the top 100 in our 2010 and 2011 surveys.

  • These 29 CEOs made $32 million on average last year. Their corporations reported $24 billion in U.S. pre-tax profits and yet, as a group, claimed $238 million in tax refunds.
  • Combined, the 29 companies operate 237 subsidiaries in tax havens. The company with the most subsidiaries in tax havens was Abbott Laboratories, with 79. The pharmaceutical firm’s CEO paycheck was $4 million larger than its IRS bill in 2013.

For corporations to reward one individual, no matter how talented, more than they are contributing to the cost of all the public services needed for business success reflects the deep flaws in our corporate tax system. Rather than more tax breaks, Congress should focus on addressing these deep flaws by cracking down on the use of tax havens, eliminating wasteful corporate subsidies, and closing loopholes that encourage excessive executive compensation.

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The Internal Revenue Service Advisory Council (IRSAC) Releases 2014 Annual Report

November 25, 2014 Comments off

The Internal Revenue Service Advisory Council (IRSAC) Releases 2014 Annual Report
Source: Internal Revenue Service

The Internal Revenue Service Advisory Council held its annual public meeting today and released its annual report, which includes recommendations on a wide range of tax administration issues.

IRSAC is an advisory group to the entire agency. IRSAC’s primary purpose is to provide an organized public forum of relevant tax administration issues for the Commissioner, senior IRS executives and representatives of the public to discuss relevant tax issues.

IRSAC members convey the public’s perception of professional standards and best practices for tax professionals and IRS activities; offer constructive observations regarding current or proposed IRS policies, programs, and procedures; and suggest improvements to IRS operations.

Based on its findings and discussions, IRSAC made several recommendations on a broad range of issues and concerns including IRS funding, as well as topics identified by subgroups covering the Office of Professional Responsibility and Large Business and International, Small Business/Self-Employed and Wage and Investment operating divisions.

IRSAC is administered by the National Public Liaison Office. IRSAC draws its members from the tax professional community and members of academia.

Losing the Future: The Decline of U.S. Saving and Investment

November 21, 2014 Comments off

Losing the Future: The Decline of U.S. Saving and Investment
Source: Tax Foundation

Key Findings

  • Saving and investment are necessary for a society to adequately provide for its future.
  • Saving and investment have declined substantially as a percentage of GDP over the last 40 years, and have collapsed almost entirely since the financial crisis.
  • American private saving barely keeps pace with total government deficits. On the whole, the country saves very little.
  • American investment barely keeps pace with depreciation; U.S. private and public capital stock and infrastructure deteriorates almost as quickly as it can be repaired or replaced with new investment.
  • The U.S., overall, does not save enough money to fund all of the worthwhile domestic investments and relies substantially on foreign investors to make up the difference.
  • Tax reform could help the U.S. become a forward-looking economy that invests and saves at more prudent rates.

Wireless Taxation in the United States 2014

November 19, 2014 Comments off

Wireless Taxation in the United States 2014
Source: Tax Foundation

Key Findings

  • Americans pay an average of 17.05 percent in combined federal, state, and local tax and fees on wireless service. This is comprised of a 5.82 percent federal rate and an average 11.23 percent state-local tax rate.
  • The five states with the highest state-local rates are: Washington State (18.6 percent), Nebraska (18.48 percent), New York (17.74 percent), Florida (16.55 percent), and Illinois (15.81 percent).
  • The five states with the lowest state-local rates are: Oregon (1.76 percent), Nevada (1.86 percent), Idaho (2.62 percent), Montana (6.00 percent), and West Virginia (6.15 percent).
  • Four cities—Chicago, Baltimore, Omaha, and New York City—have effective tax rates in excess of 25 percent of the customer bill.
  • The average rates of taxes and fees on wireless telephone services are more than two times higher than the average sales tax rates that apply to most other taxable goods and services.
  • Excessive taxes on wireless consumers disproportionately impacts poorer families.

CBO — Federal Policies and Innovation

November 19, 2014 Comments off

Federal Policies and Innovation
Source: Congressional Budget Office

Innovation is a central driver of economic growth in the United States. Workers become more productive when they can make use of improved equipment and processes, and consumers benefit when new goods and services become available or when existing ones become better or cheaper—although the transition can be disruptive to established firms and workers as new products and processes supersede old ones. Looking ahead, innovation will continue to be important for economic growth, in part because the supply of workers to the economy is expected to increase at a much slower rate in the future.

Innovation produces some benefits for society from which individual innovators are not able to profit, and, as a result, those innovators tend to underinvest in such activity. Policymakers endeavor to promote innovation to compensate for that underinvestment. The federal government influences innovation through two broad channels: spending and tax policies, and the legal and regulatory systems. In this report, the Congressional Budget Office (CBO) examines the effects on innovation of existing policies and systems and the possible effects of a variety of proposals for changing those policies and systems.

Tax Reform in the UK Reversed the Tide of Corporate Tax Inversions

November 19, 2014 Comments off

Tax Reform in the UK Reversed the Tide of Corporate Tax Inversions
Source: Tax Foundation

Key Findings

  • The United States is not the only country to experience the phenomenon of corporate tax inversions.
  • Despite cutting the corporate tax rate from 52 percent in 1980 to 28 percent by 2008, the UK levied one of the higher corporate tax rates in Europe and operated under one of the few remaining worldwide tax systems.
  • As a result of the high rate and worldwide tax system, many British companies left or announced plans to “invert”; the UK faced an “exodus of British companies fleeing the tax system.”
  • In response, the UK government implemented both a territorial tax system and a series of corporate tax reforms that will lower the corporate tax rate from 28 percent in 2010 to 20 percent in 2015.
  • After these changes, UK corporate inversions reversed, and many American companies now aim to move to the UK. Further, the total number of UK corporations has grown to 1.1 million as of 2012, and it is on track to overtake the U.S. in number of corporations by 2017.
  • Lawmakers in the U.S. would do well to follow the British example on corporate inversions by lowering our corporate tax rate—the third-highest in the entire world—and replacing our worldwide tax system with a modern territorial system.

Federal Taxation of Marijuana Sellers, CRS Legal Sidebar (November 6, 2014)

November 18, 2014 Comments off

Federal Taxation of Marijuana Sellers, CRS Legal Sidebar (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

As several states have permitted the use of marijuana for medical and recreational uses, one question that arises is what are the federal income tax consequences for businesses that sell marijuana?

There is no question that income from selling marijuana is taxable to the seller, regardless of whether such sale is legal or not under federal or state law. The Internal Revenue Code (IRC) uses a very broad definition of income, and income is taxable whether it comes from legal or illegal activities. Further, it can be taxed even if the proceeds are forfeited to the government.

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