Steven Rattner | Kyrsten Sinema Has Made Sure the New Tax Bill Doesn’t Go Near the Wealthy – The New York Times

“. . . . While many of Mr. Manchin’s changes improved the bill — such as by turning it from deficit raising to deficit lowering — it was solely Ms. Sinema’s demands that drastically weakened the tax portion of the resulting legislation.

No increase in the egregiously low corporate income tax rate. No reversal in overly generous deductions for businesses. No rise in income tax or capital gains rates paid by the wealthy.

Wealthy individuals escaped essentially unaffected by the new legislation. Ms. Sinema even objected to closing the indefensible carried interest loophole, through which many private equity executives and some hedge fund managers pay only a 23.8 percent tax rate on gains achieved on their share of investors’ capital.

Here’s how muddled Ms. Sinema’s logic was: As a House member, Ms. Sinema voted against Donald Trump’s signature $1.9 trillion tax cut of 2017, whose benefits mostly larded up businesses and wealthy individuals. That did not dissuade her from insisting that the Inflation Reduction Act not reverse any of those changes.

Consequently, Mr. Schumer and other architects of the I.R.A. were forced to resort to adopting a new method of taxing the profits of large corporations — assessing them based on a company’s reported income under generally accepted accounting principles (known as GAAP) rather than based on computations dictated by the tax code.

In addition to added complexity, this change creates the potential for companies to manipulate their tax obligations by tinkering with accounting methodologies that the Internal Revenue Service would be unable to oversee.”

State Death Tax Hikes Loom: Where Not To Die In 2021

Ashlea Ebeling

Senior Contributor

Personal Finance

Follow

17 states and the District of Columbia impose estate or inheritance taxes separate from the federal … [+]

GETTY

Update: Iowa repeals its inheritance tax.

“As states address budget woes due to the pandemic, one place they may turn to for revenue as they have in past economic crises is death taxes. Already the District of Columbia has toughened its estate tax levy, effective January 1, 2021. In August, Mayor Muriel Bowser signed the “Estate Tax Adjustment Act” reducing the exemption from $5.67 million in 2020 to $4 million for individuals who die on or after January 1, 2021. A resident dying in 2021 with a taxable estate of $10 million would owe nearly $1 million in estate tax to D.C.

Seventeen states and D.C. impose their own estate or inheritance taxes separate from the federal estate tax levy, which hits far fewer people today. For 2021, the federal estate tax exemption is $11.7 million per person. It’s set to drop back to $5 million per person with inflation adjustments in 2026. But President-elect Joseph Biden has called for the federal estate tax to revert back to its 2009 level: $3.5 million per person. That change could come to help pay for fighting the pandemic and the infrastructure build out he’s promised. ”

Source: State Death Tax Hikes Loom: Where Not To Die In 2021

Paul Krugman | Should Only the Little People Pay Taxes? – The New York Times

By Paul Krugman

Opinion Columnist

“I yield to no one when it comes to cynicism about politicians who see tax cuts for the rich as the answer to every problem. Indeed, the claim that tax cuts can perform magic is a prime case of a zombie idea — an idea kept alive, despite overwhelming evidence against it, because its survival serves the interests of wealthy donors.

Yet even I was caught by surprise when Republicans negotiating over a possible infrastructure bill ruled out paying for it in part by giving the Internal Revenue Service more resources to go after tax evasion.

This is a big deal. The Treasury Department believes that there is a “tax gap,” taxes owed but not paid, of more than $500 billion every year; some estimates put the number much higher. And the Biden administration proposes giving the I.R.S. enough resources to reduce this gap as a way to help pay for investment in America’s future.

But if the administration goes this route, it will apparently do so with little, if any, Republican support.”

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

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

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

By Joe Gose

June 8, 2021

“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.”

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

By Paul Krugman

Opinion Columnist

April 8, 2021

• 760

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.”   . . .

Opinion | Who’s the Tax Cheat: The Lady in Jdonaldail or the Man in the White House? – By Nicholas Kristof – The New York Times

By Nicholas Kristof

Opinion Columnist

• Oct. 10, 2020
• • 1244

Tanya McDowell went to prison in part for misleading officials so her son could go to a better school.Credit…Douglas Healey for The New York Times

“While reading that President Trump had claimed $70,000 in highly dubious tax deductions for hair styling for his television show, I kept thinking about a homeless African-American woman named Tanya McDowell who was imprisoned for misleading officials to get her young son into a better school district.

McDowell was sentenced to five years in prison in 2012, in part for drug offenses and in part for “larceny” because she had claimed her babysitter’s address so her son could attend a better school in Connecticut.

In some sense both Trump and McDowell appear to have cheated on their taxes. McDowell sent her son to a school district without paying taxes there. And according to The Times’s extraordinary reporting, Trump may have illegitimately claimed a $72.9 million refund that the I.R.S. is now trying to recover.

In addition, my ace Times colleague James B. Stewart reported that hair styling is not a deductible expense and that, in any case, Trump’s hair expenses for his “Apprentice” TV shows should have been reimbursed by NBC — in which case Trump may have committed criminal tax fraud.

Larry King in 2004 examined Donald Trump’s $70,000 tax deduction.Credit…Rose M. Prouser/CNN, via Reuters

The bottom line: We imprisoned the homeless tax cheat for trying to get her son a decent education, and we elevated the self-entitled rich guy with an army of lawyers and accountants so that he could monetize the White House as well. (Sure enough, Trump properties then charged the Secret Service enormous sums for hotel rooms and other fees while agents were protecting Trump.)

The larger point is not that Trump is a con artist, although he is, but that the entire tax system is a con. The proper reaction to the revelations about Trump’s taxes is not to fume at the president — although that’s merited — but to demand far-reaching changes in the tax code.

We interrupt this column for a quiz question: What county in the United States has the highest rate of tax audits?

The answer is Humphreys County in rural Mississippi, where three-quarters of the population is Black and more than one-third lives below the poverty line, according to ProPublica and Tax Notes. Tax collectors go after Humphreys County, where the median annual household income is $28,500, because the government targets audits on poor families using the earned-income tax credit, an antipoverty program, rather than on real estate tycoons who pay their daughters (that’s you, Ivanka!) questionable consulting fees to reduce taxes.

The five counties with the highest audit rates in the United States, according to Tax Notes, are all predominately African-American counties in the South.

Meanwhile, zillionaires claim enormous tax deductions for donating expensive art to their own private “museums” located on their own property. That’s the kind of scam that works if you’re a billionaire, but not so well if you’re my old friend Mike, who is homeless and once gave his food stamp card to a friend to buy groceries for him. The government responded by suspending Mike’s food stamps.

Tax cheats thrive because Congress has slashed the I.R.S. budget, so that the risk of audits for people earning more than $1 million per year plunged by 81 percent from 2011 to 2019. The I.R.S. has opened audits on only 0.03 percent of returns reporting income of more than $10 million in 2018 (that percentage probably will rise), according to the Center for American Progress.

Need more evidence of systemic unfairness? Trump is still holding on to the almost $73 million that he appears to have bilked out of the I.R.S. a decade ago, even though the I.R.S. is contesting his maneuvers. For wealthy people like Trump, taxes become something like a long negotiation.

An undocumented immigrant housekeeper who had worked for the Trump Organization posted tax statements on Twitter showing that she had paid more federal income taxes than Trump himself had in many years. And by one estimate, the failure of wealthy Americans to pay their fair share forces everyone else to pay an extra 15 percent in taxes.

At the same time, almost one-fifth of American families with children report that they can’t afford to give their kids enough food.

A starting point for a fairer system would be auditing the wealthy as aggressively as impoverished Black workers in rural Mississippi. The economists Natasha Sarin and Lawrence Summers estimate that 70 percent of tax underpayment is by the top 1 percent and conclude that tougher enforcement by the I.R.S. could raise $1 trillion over a decade.

Investing in the I.R.S. to go after rich tax cheats not only promotes fairness but also pays for itself: Each additional dollar spent on enforcement brings in about $24.

Remember Leona Helmsley, the wealthy hotel owner who was prosecuted for cheating on her taxes? She sadly had a point when she reportedly scoffed: “We don’t pay taxes. Only the little people pay taxes.”

On the bright side, Helmsley ended up in prison. I generally believe that in America we over-incarcerate, but I’m appalled that we treat a man with a gilded life and $70,000 in hair styling deductions more gently than a mom who cheats to try to give her son a better future.”   -30-

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

By Natasha Sarin

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

• Oct. 2, 2020

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.”

Part 2: Tax Records Reveal How Fame Gave Trump a $427 Million Lifeline – By Mike McIntire, Russ Buettner and Susanne Craig – The New York Times

Tax records show that “The Apprentice” rescued Donald J. Trump, bringing him new sources of cash and a myth that would propel him to the White House.

By Mike McIntire, Russ Buettner and Susanne Craig

Sept. 28, 2020

• 2128

“From the back seat of a stretch limousine heading to meet the first contestants for his new TV show “The Apprentice,” Donald J. Trump bragged that he was a billionaire who had overcome financial hardship.

“I used my brain, I used my negotiating skills and I worked it all out,” he told viewers. “Now, my company is bigger than it ever was and stronger than it ever was.”

It was all a hoax.

Months after that inaugural episode in January 2004, Mr. Trump filed his individual tax return reporting $89.9 million in net losses from his core businesses for the prior year. The red ink spilled from everywhere, even as American television audiences saw him as a savvy business mogul with the Midas touch.

Twelve years later, that image of the self-made, self-saved mogul, beamed into the national consciousness, would help fuel Mr. Trump’s improbable election to the White House.

But while the story of “The Apprentice” is by now well known, the president’s tax returns reveal another grand twist that has never been truly told — how the popularity of that fictional alter ego rescued him, providing a financial lifeline to reinvent himself yet again. And then how, in an echo of the boom-and-bust cycle that has defined his business career, he led himself toward the financial shoals he must navigate today.

Mr. Trump’s genius, it turned out, wasn’t running a company. It was making himself famous — Trump-scale famous — and monetizing that fame.

By analyzing the tax records, The New York Times was able to place a value on Mr. Trump’s celebrity. While the returns show that he earned some $197 million directly from “The Apprentice” over 16 years — roughly in line with what he has claimed — they also reveal that an additional $230 million flowed from the fame associated with it.”