Category: Taxes

Tax law Lobbying: A Powerful Look at the Details

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Brody Mullins:

On Monday, Accenture lobbyists Richard Grafmeyer and John Talisman met top tax counsels for Rep. Charlie Rangel of New York, the ranking Democrat on the House Ways and Means Committee, and Republican Sen. Charles Grassley of Iowa, chairman of the Senate Finance Committee. Accenture lobbyists spoke yesterday with Montana Sen. Max Baucus, the top Democrat on the Finance panel. The two have also met with aides to Ways and Means Chairman Bill Thomas, Republican of California.

Mr. Grafmeyer, who once worked as a top Republican tax counsel on Capitol Hill, and Mr. Talisman, a former senior Democratic tax advisor at the Treasury, have met success: All but Mr. Rangel have agreed to include new language for Accenture in the technical-corrections bill that could be introduced by week’s end. “Clearly, this is not considered fair…in a time of war for people to be looking to avoid taxes,” Mr. Rangel said. Mr. Rangel and his staff have refused to participate in discussions on the provision.

Once introduced, the technical-corrections bill is expected to sail through Congress. That would represent a victory for a company that was portrayed as a corporate bad-boy on Capitol Hill as recently as last year.

I wonder who, if anyone speaks for the taxpayers in these closed door meetings! Mullins did an excellent job digging up the details on this.

Recent US System Tax Articles

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The ongoing mess that is our tax code (the third link is fascinating from a taxpayer perspective):

  • Lynnley Browning:

    In late 1999, the Keeters put $188 million into an account at Deutsche Bank. The money, used in tandem with a $500 million loan from the bank, would be used to trade derivatives and options. The Keeters say they thought that they would make an unspecified return on their investment, pay back the loan, as well as generate $188 million in tax savings that could then be legitimately used to offset other gains.
    But family members said that they discovered their shelter was not legal only when the I.R.S. began auditing some of their federal tax returns – prepared by KPMG, with the Blips deductions written in – for 2000 and 2001.

  • Tanina Rostain:

    From the late 1990s into the next decade, KPMG devoted significant resources to developing and mass marketing hundreds of abusive tax shelters. These products were designed to enable their purchasers – typically high wealth individuals and Fortune 500 companies – to avoid paying taxes on the huge financial gains they enjoyed during the stock market boom. 135K PDF

  • Louise Story:

    “The tax court is seen as a place that a taxpayer ought to be able to go and get a fair shake, and the secrecy here, and the outcome in these cases, does raise the question as to whether they’re getting a fair shake,” said Alan B. Morrison, a senior lecturer at Stanford Law School, who wrote a supporting brief for the three taxpayers in the Supreme Court case.

    The court’s secrecy, “confirmed now by a major change in a decision, is a big deal, and it’s not right,” he said.

    One of Mr. Kanter’s lawyers, Richard H. Pildes, a professor at NYU School of Law, said the case reminded him of Jarndyce and Jarndyce, the never-ending lawsuit in Charles Dickens’s novel “Bleak House.”

Konkel Deconstructs the City Budget

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Very useful reading:

So, lets take a look at the $44 million police department budget. (Hey – I’ve already burned this bridge, I might as well just go with it.) At this point your eyes have probably glazed over, but don’t worry, it’s all of three pages long with lots of white space. Clicking on the link is an illuminating experience. You will find that for 2005 we have two programs in the police department. Field Operations which are $39,373,690 and Support Operations which are $4,718,020. There is a one paragraph description of these services. Additionally, in this case there are 6 “budget highlights” to further inform you about changes from last year’s budget. Then, on page 3 there is the break down into the 9 budget line items. Are you hungry for more information? Permanent Salary Detail will show you each of the positions in the department along with Workers Comp, Premium Pay and Vacation/Comp time accrued. This accounts for $26 million of the budget. You can also look at Minor Objects to find out that purchased services is $1.4 million, supplies are $750,000, there is $2.6 million in inter-departmental charges and $6,000 for debt/other financing. On the bottom you can see that they charge $1.1 million to grants and other departments. Finally, you can see that they are spending $18,000 in Capital Objects. If you were following along only a little, you now realize that the detail doesn’t add up to $44 million. Where’d the rest of the money go? The “details” only add up to about $31 million.

The growing tax squeeze facing Madison residents (taxes growing at a faster rate than incomes) makes budget transparency a necessity. The current local spending increases, given sluggish economic growth are simply not sustainable. I applaud the folks at dane101 for getting this rolling.

Property Taxes Biggest Share of Income in Milwaukee and Madison Areas

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Wistax:

The other part of the state where the property tax burden was high was Dane county, according to WISTAX. The city and town of Madison led the area with property taxes at 8.8% and 8.2% of income, respectively. Five suburbs surrounding Madison also made the top-50 list: McFarland and Mt. Horeb (both 7.4%); Sun Prairie (7.3%); and DeForest and Stoughton (both 7.1%).
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In a separate part of the report, WISTAX notes that the property tax-to-income ratio is much like a political “heart monitor.” When property taxes relative to income climb above 4%, discontent begins to grow. The study cited several periods in the postwar era when property taxes were unusually high and led to a major change, either in politics or in policy-making. Most recently, this occurred in 1993-94, when property taxes completed a 14-year rise, hitting 4.8% of income. Then, a bipartisan majority in state government imposed school revenue limits and first committed the state to providing two-thirds of local schools’ revenues.

Wisconsin Property Tax Hikes Outpacing Wages

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Wistax:

Aids to local governments increased dramatically since 1955, according to the study. Local school aids rose 10.8% per year, while shared revenues to local governments increased 4.9% annually. However, WISTAX researchers point out that there are questions about the long-term effectiveness of local aids for reducing property taxes. Economic research in Wisconsin and elsewhere finds that state and federal aids to local governments only partially offset local property taxes, as a portion of that aid funds new spending.

The study finds that some limits on local governments have been effective at relieving property taxes and some have not. During the 1970’s, the state imposed cost controls on schools and levy limits on counties and municipalities. Due to an increasing number of “loopholes,” they were deemed ineffective and eliminated in 1983. Recent revenue limits on schools have been more effective, because they do not have similar loopholes. Counties and technical colleges have limits on the tax rates they can impose. However, large increases in property values have limited their effectiveness.

Tax Policy to Help Working People in Cities

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Paul Caron:

This paper (pdf) examines ways that federal tax policy could improve the economic prospects of low- and middle-income working families in cities. We show how existing federal tax rules affect these families, and that a variety of public policies are available to provide better economic opportunities and incentives for these households. In particular, policies that expand and modify the child care and dependent care tax credit, the saver’s credit, and subsidies for health insurance, or that alter the structure of homeownership subsidies away from deductions and toward capped credits for homeownership, have the potential to improve economic prospects for millions of working families who live in urban areas. The significant link between federal tax policies and the welfare of households in cities is an area of growing awareness and increasing importance and should receive the attention of both urban leaders and federal policy makers in the future.

Unauthorized Access to IRS Records

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This problem will likely get worse, particularly with the recently passed gift to data thieves – the national ID act (Both Wisconsin Senators, Kohl & Feingold supported the National ID Act!). Caroline Drees has more:

The Internal Revenue Service is investigating whether unauthorized people gained access to sensitive taxpayer and bank account information but has not yet exposed any privacy breaches, an official said on Friday.

The U.S. tax agency — whose databases include suspicious activity reports from banks about possible terrorist or criminal transactions — launched the probe after the Government Accountability Office said in April that the IRS “routinely permitted excessive access” to the computer files.

The GAO team was able to tap into the data without authorization, and gleaned information such as bank account holders’ names, social security numbers, transaction values, and any suspected terrorist activity. It said the data was at serious risk of disclosure, modification or destruction.

Our Tax System….

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Zelenak & Chirelstein on Tax Shelters:

This article describes the ongoing legislative and administrative efforts to curtail tax shelters. It concludes that these efforts, which rely largely on disclosure requirements and penalties, cannot succeed as long as taxpayers continue to win many of the litigated shelter cases.

Amazing… Yet, we continue to generate more tax law spaghetti.