Binyamin Appelbaum | Good Riddance, TurboTax. Americans Need a Real ‘Free File’ Program. – The New York Times

Mr. Appelbaum is a member of the editorial board.

“Intuit, the tax preparation giant, performed a public service last week by announcing its exit from a federal program that let some Americans use a free version of its TurboTax software.

With this move, the company is making clear what has always been true. Intuit and the rest of the tax prep industry want Americans to pay to file their taxes.

By abandoning the pretense of good citizenship, Intuit is clearing the way for the federal government to do what it should have done long ago: create a public website where most Americans can prepare and file income tax returns at no cost.

In countries including Japan, the Netherlands and Britain, most taxpayers don’t file tax returns. The government withholds taxes from wage income and handles the paperwork. People with more complicated finances still need to fill out forms and submit them, but everyone else can simply check the government’s math and move on with their lives.” . . .

Gabriel Zucman and Gus Wezerek | This Is Tax Evasion, Plain and Simple – The New York Times

By Gabriel Zucman and Gus Wezerek

Gabriel Zucman is an economist at the University of California, Berkeley, and one of the authors of “The Triumph of Injustice.” Gus Wezerek is a writer and graphics editor for Opinion.

“In the decades after World War II, close to 50 percent of American companies’ earnings went to state and federal taxes. Economically, it was a golden period. Middle-class incomes grew at roughly the same rate as those of the richest Americans.

But as globalization gave companies the ability to choose where they recorded profits, Congress scrambled to keep their business by lowering corporate taxes. In 2018, American companies were taxed at an average effective rate of less than 14 percent, by our calculations.

Corporate tax breaks have helped business owners amass inconceivable amounts of money over the past few decades. Meanwhile, middle-class Americans have footed the bill, as Congress has propped up the budget by raising taxes on wages.”

Opinion | Five Former Treasury Secretaries: Fund the IRS – The New York Times

Timothy F. Geithner, Jacob J. Lew, Henry M. Paulson Jr., Robert E. Rubin and 

The authors are former U.S. Treasury secretaries. Mr. Geithner and Mr. Lew served under President Barack Obama, Mr. Paulson under President George W. Bush, and Mr. Rubin and Mr. Summers under President Bill Clinton.

“Six hundred billion dollars per year, and growing: That is two-thirds of total nondefense discretionary spending by the federal government, about what is spent on defense operations, military personnel and procurement, and more than mandatory federal expenditures on Medicaid. It’s also approximately how much unpaid taxes cost the U.S. government. This must change, and it can.

The five of us served as Treasury secretary under three presidents, both Republican and Democrat, representing 17 years of experience at the helm of the department. While we are not in agreement on many areas of tax policy, we believe in the importance of strengthening the tax system to do more to collect legally owed but uncollected taxes — which, left unaddressed, could total $7 trillion over the next decade. We are convinced by the strength of our experiences that more can be done to pursue evasion in the ways outlined by President Biden’s recent proposal to increase the resources and information available to the I.R.S.”

David Lindsay: Bonjour. Viva la tennis a la Internationaux de France de Tennis, aka the French Open. It is more scandalous than the shortages at Starbucks. Naomi Osaka has withdrawn, since she felt depressed and hounded by the new boss Gilles Moretton. He apparently was heavy handed, and deserves a big reprimand. However, he should be allowed to keep his job, since Naomi was wrong not to return his phone calls. Helping the IRS raise more taxes, is a much simpler subject, so here is your lift for the day. Tax cheats must pay! See the article above.

Investors Fret as Biden Takes Aim at a 100-Year-Old Tax Loophole – The New York Times

“As a real estate investor, Michael Clarke has learned how to roll earnings from the sale of one property into the purchase of another to save on his tax bill.

Last year, Mr. Clarke sold a residential rental property that he had owned for decades in suburban Washington for $700,000 and used the proceeds to buy a $1.2 million Dollar General building in rural Virginia. Recently, he sold another long-owned rental home for $580,000 and rolled those proceeds into the purchase of a rental worth roughly $800,000.

Thanks to a 100-year-old provision in the tax code, Mr. Clarke did not have to pay taxes on the gains from the properties he sold.

Known as Section 1031, which covers a transaction that is commonly referred to as a like-kind exchange, the law provides real estate investors a tax deferral on the financial gain of a sale if they roll the proceeds directly into a similar investment property within 180 days. The rationale for the benefit is that it promotes economic activity and that, by replacing one property with another, investors are forgoing pocketing their underlying sales gains.”

During the war, the top “marginal rate” was 94% -Teachinghistory.org

” . . . .  The “exceedingly high” part of this question most likely refers to the federal income tax’s “confiscatory” top rates coming out of World War II, which the Eisenhower Administration left in place into the 1960s. During the war, the top “marginal rate” was 94%, but 94% of what? Then as now, income tax rates moved up at distinct break points. In this made-up example, consider a 15% rate up to $25,000, 21% from $25,000 to $50,000, and 25% over $50,000. Those making $50,001 or more won’t pay a quarter of their total income, but rather 15% of the first $25,000, 21% of the next $25,000, and 25% of everything above $50K. That’s why the system is called progressive – the percentage rate progresses upward with income, but the higher percentage applies only to new (marginal) income above each break point. In 1944-45, “the most progressive tax years in U.S. history,” the 94% rate applied to any income above $200,000 ($2.4 million in 2009 dollars, given inflation).  . . . ”

Source: Teachinghistory.org

Paul Krugman | Biden, Yellen and the War on Leprechauns – The New York Times

Opinion Columnist

Credit…Illustration by The New York Times; photograph by Thinkstock, via Getty Images

“In the summer of 2016, Ireland’s Central Statistical Office reported something astonishing: The small nation’s gross domestic product had risen 26 percent in the previous year (a number that would later be revised upward). It would have been an amazing achievement if the growth had actually happened.

But it hadn’t, as government officials acknowledged from the beginning. It was, instead, an illusion created by corporate tax games. At the time, I dubbed it “leprechaun economics,” a coinage that has stuck; luckily, the Irish have a sense of humor about themselves.

What really happened? Ireland is a tax haven, with a very low tax rate on corporate profits. This gives multinational corporations an incentive to create Irish subsidiaries, then use creative accounting to ensure that a large share of their reported global profits accrue to those subsidiaries.

In 2015 a few big companies appear to have gotten even more aggressive about their profit-shifting, which led to a surge in the value of production they reported doing in Ireland — a surge that didn’t correspond to anything real.

To understand the big corporate tax reform proposed by the Biden administration, what you need to know is that it’s all about the leprechauns.

One way to think about the huge corporate tax cut Republicans rammed through in 2017 is that its underlying premise was that the leprechauns were real. That is, the tax cut’s architects insisted that corporations had been moving operations abroad to avoid U.S. taxes, and that slashing those taxes would bring millions of jobs back home.

It didn’t happen. In fact, the tax cut had no visible effect on business investment, probably because it was addressing a fake problem. U.S. corporations hadn’t been moving jobs overseas to avoid taxes; they had just been avoiding taxes.

The true impact — or actually lack of impact — of profit taxes on business decisions becomes obvious if you look at where corporations report big overseas earnings.

If they were truly responding to taxes by making large foreign investments that eliminated American jobs, we’d expect to see a lot of their profits coming from major production centers like Germany or China. Instead, more than half of the profits U.S. corporations report from overseas investments come from tiny tax havens, including places like Bermuda and the Cayman Islands where they have no real business at all.

By the way, this isn’t just an American problem. The International Monetary Fund estimates that about 40 percent of the world’s foreign direct investment — basically corporate cross-border investment, as opposed to “portfolio” purchases of stocks and bonds — is “phantom” investment, accounting fictions set up to avoid taxes. That’s why on paper Luxembourg, with just 600,000 people, hosts more foreign investment than the United States does.

So the real problem with U.S. corporate tax policy isn’t loss of jobs, it’s loss of revenue — and the Trump tax cut made that problem worse.

For the most part the Biden administration’s Made in America Tax Plan is an effort to reclaim the revenue lost both as a result of profit-shifting and as a result of the Trump tax cut, in order to help pay for large-scale public investment.”   . . .

Paul Krugman | Bidenomics Is as American as Apple Pie – The New York Times

“. . . The Biden administration infrastructure fact sheet alludes to part of that history, declaring that the plan “will invest in America in a way we have not invested since we built the interstate highways and won the space race.” Indeed, one way to think about the Biden program is that it’s an attempt to bring back the Dwight stuff — that is, in fiscal terms it would represent a partial return to the Eisenhower era, when we had much higher government investment as a share of gross domestic product than we do now, and also much higher tax rates on both high-income individuals and corporations.

The era of big government investment and high taxes on the rich coincided, not incidentally, with the U.S. economy’s greatest generation — the postwar decades of rapidly rising living standards.

But the story of public investment and progressive taxation in America goes back much further than the ’50s.

We’ve relied on government infrastructure investment to jump-start economic growth ever since the construction of the Erie Canal between 1818 and 1825. Unlike the privately owned canals that had proliferated in 18th-century Britain, the Erie Canal was built by the government of New York State, at a cost of $7 million. This may not sound like a lot, but the economy was vastly smaller then, and prices much lower too. As a share of state G.D.P., the canal was probably the equivalent of a $1 trillion national project today.

And a big public role in infrastructure continued down the generations. Land grants were used to promote railway construction and higher education. Teddy Roosevelt built the Panama Canal. F.D.R. brought electricity to rural areas. Eisenhower built the highway network.

So when Republicans denounce the American Jobs Plan as an “out-of-control socialist spending spree,” remember, large-scale public investment is the American way.

We can say much the same thing about Biden’s tax proposals.

Actually, given extremely low borrowing costs it’s not obvious that we would even need a tax hike if infrastructure spending were the end of the story. But we will need more revenue to pay for the whole Biden program, which everyone expects will eventually include another round of spending targeted on families. So it makes sense to tie tax hikes to the jobs plan; polling suggests that paying for public investment with taxes on corporations and the rich increases support for an infrastructure plan, and that something along the lines of the Biden proposals will command very high public approval.

Republicans will no doubt denounce the idea of taxing the rich as un-American class warfare. In reality, however, such taxation is another long tradition in this country. As Thomas Piketty, the inequality scholar, likes to put it, America basically invented progressive taxation.” . . .

What’s the Recovery Rebate Credit? | Kiplinger

“There’s a new tax credit showing up on the Form 1040 this year: The Recovery Rebate Credit. If you didn’t get a stimulus check – or you only got a partial check – then you certainly want to make sure you check out the credit before you file your 2020 tax return.

The recovery rebate tax credit and stimulus checks are joined at the hip. Both the first ($1,200) and second ($600) stimulus checks were simply advance payments of the credit. So, if the combined total of your two stimulus checks (i.e., advance payments) is less than the recovery rebate credit amount, you may be able to get the difference back on your 2020 tax return in the form of a larger tax refund or a lower tax bill. If your stimulus checks exceeded the amount of the credit, you don’t have to repay the difference. Either way, you win!”

Source: What’s the Recovery Rebate Credit? | Kiplinger

Opinion | How to Collect $1.4 Trillion in Unpaid Taxes – The New York Times

The editorial board is a group of opinion journalists whose views are informed by expertise, research, debate and certain longstanding values. It is separate from the newsroom.

“When the federal government started withholding income taxes from workers’ paychecks during World War II, the innovation was presented as a matter of fairness, a way to ensure that everyone paid. Irving Berlin wrote a song for the Treasury Department: “You see those bombers in the sky? Rockefeller helped to build them. So did I.”

The withholding system remains the cornerstone of income taxation, effectively preventing Americans from lying about wage income. Employers submit an annual W-2 report on the wages paid to each worker, making it hard to fudge the numbers.

But the burden of taxation is increasingly warped because the government has no comparable system for verifying income from businesses. The result is that most wage earners pay their fair share while many business owners engage in blatant fraud at public expense.

In a remarkable 2019 analysis, the Internal Revenue Service estimated that Americans report on their taxes less than half of all income that is not subject to some form of third-party verification like a W-2. Billions of dollars in business profits, rent and royalties are hidden from the government each year. By contrast, more than 95 percent of wage income is reported.

Unreported income is the single largest reason that unpaid federal income taxes may amount to more than $600 billion this year, and more than $7.5 trillion over the next decade. It is a truly staggering sum — more than half of the projected federal deficit over the same period.

The government has a basic obligation to enforce the law and to crack down on this epidemic of tax fraud. The failure to do so means that the burden of paying for public services falls more heavily on wage earners than on business owners, exacerbating economic inequality. The reality of widespread cheating also undermines the legitimacy of a tax system that still relies to a considerable extent on Americans’ good-faith participation.

Proposals to close this “tax gap” often focus on reversing the long-term decline in funding for the I.R.S., allowing the agency to hire more workers and to audit more wealthy taxpayers. But Charles Rossotti, who led the I.R.S. from 1997 to 2002, makes a compelling argument that such an approach is inadequate. Mr. Rossotti says that Congress needs to change the rules, by creating a third-party verification system for business income, too.

The core of Mr. Rossotti’s clever proposal is to obtain that information from banks. Under his plan, the government would require banks to produce an annual account statement totaling inflows and outflows, like the 1099 tax forms that investment firms must provide to their clients.

Individuals would then have the opportunity to reconcile what Mr. Rossotti dubs their “1099New” forms with their reported income on their individual tax returns. One might, for example, assert that a particular deposit was a tax-exempt gift.”

David Lindsay:  I haven’t started my taxes yet, but there is still time. I will resist the temptation to cheat. But I’m no flying angel. Didn’t I just pay my plumber in cash. Cheating a little on taxes is a national pass time, which is about to slowly disappear because of technology. In China, the PRC, the government is getting rid of cash, because electronic payments are easily monitored. They are handing out cell phones to beggars, so that they can receive donations that are electronic.

Opinion | The I.R.S. Is Outgunned – By Natasha Sarin – The New York Times

By 

Dr. Sarin is an assistant professor at Penn Law and the Wharton School of Business.

Credit…Al Drago for The New York Times

“The president of the United States paid less in federal taxes than all but the poorest Americans the year he was elected. This is in large part because he lost more money than nearly anybody else in this country for years, a troubling fact given his promise to “run America like his business.”

But the responsibility for his meager $750 tax bill does not lie with President Trump alone, nor with his tax advisers. Instead, the newest revelations put a very famous face on a problem that has long existed: The wealthy aren’t paying what they owe, and our tax system allows it.

This is not a new problem, but it is one that has gotten worse in the last decade, the result of a partisan attack on the I.R.S. that has deprived it of the resources it needs to police evasion aggressively. In the last decade, the I.R.S.’s budget has fallen (in real terms) by nearly 15 percent. Its enforcement budget has fallen 25 percent over this period, and its work force has been slashed by 20 percent.

These grim numbers do not even take into account the growth in the economy and the increasing complexity of tax returns. In fact, as a share of gross tax collections, the I.R.S. budget is down nearly 50 percent from its peak in 1993.

As my work with the former Treasury Secretary Lawrence Summers shows, the result of this underinvestment is that the I.R.S. today cannot administer tax laws effectively. Based on current trends, in the next decade the I.R.S. will fail to collect an estimated $7.5 trillion in owed tax. That “tax gap” corresponds to nearly 3 percent of G.D.P. annually.

The beneficiaries of a gutted I.R.S. are the elite. Even if all taxpayers were equally likely to evade their liabilities, the benefits to the top 1 percent from underpaying would still be significant: 1 percent of this $7.5 trillion, or $75 billion. But the top 1 percent share of the tax gap is at least 30 times this amount, more than $2 trillion in the coming decade.

To understand this magnitude, consider this: If the I.R.S. were able to collect the unpaid taxes that the top 1 percent owe — absent any increases in top tax rates or new system of wealth taxation — enough revenue would be generated to wipe out student debt for most people in this country.

Why are the wealthy skirting the tax laws most aggressively? It’s a feature of our tax collection system. Compliance rates for ordinary wage and salary workers are 99 percent because their taxes are automatically withheld. In contrast, richer Americans are more likely to have items like capital gains, rental income and proprietorship income — and the I.R.S. estimates that up to 55 percent of the income from such sources can be unreported, and thus untaxed.”