We hear alot about them... but what are they? If they are so onerous... why do they exist? Who created them and why? What are the solutions or changes to be made?
I will start with... What are they? I am certainly no tax expert so I am learning on the fly... and hopefully from non partisan sources... though that seems pretty difficult as most articles are one sided and highly political in nature.
http://www.thefiscaltimes.com/Articles/2011/02/09/10-Big-Corporate-Tax-Breaks.aspx#page1
QuoteBy SARAH STODOLA, The Fiscal Times
February 9, 2011
U.S. corporations â€" like many Americans â€" exploit every available rule in the tax code to minimize the taxes they pay. The United States has one of the highest corporate tax rates in the world, at 35 percent (not including any state levies), yet the actual amount in corporate taxes that the government collects (“the effective tax rateâ€) is lower than those of Germany, Canada, Japan and China, among others. The reason is confusingly called “tax expenditures,†a doublespeak term designed to legitimize special interest tax breaks and loopholes.
Those ‘expenditures’ will cost the U.S. government $628.6 billion over the next five years, according to a 2010 report from the Tax Foundation. With advice from the Urban Institute’s Eric Toder, one of the country’s foremost authorities on corporate tax policy, we assembled the 10 most costly corporate tax loopholes and who benefits from them.
10) Graduated Corporate Income
This policy places the first $50,000 of a corporation’s profit at a 15 percent tax rate, with higher profit levels garnering higher tax rates, until it tops out at 35 percent for taxable corporate income exceeding $335,000. The result is that an owner of a small corporation pays only 15 percent in taxes on the first $50,000 of profit, leaving more left over potentially for reinvestment and growth.
5-yr Cost to Government (2011-2015): $16.4 billion
Who benefits: Individuals that own small corporations.
9) Inventory Property Sales
Foreign income of American companies is taxed in the country in which it is generated, and the U.S. gives a tax credit for that amount in order to avoid double taxation. Some companies have accumulated a glut of such tax credits (the “inventoryâ€), and in order to use them up, they artificially boost foreign income through a “title passage rule†that allows companies to allocate 50 percent of income from U.S. production sold in another country as income generated by that foreign country (the “property salesâ€).
5-yr Cost to Government: $16.7 billion
Who benefits: Multinationals with operations in high-tax foreign countries.
8 ) Research and Experimentation Tax Credit
Intended to spur research and development within companies, in its simplest form this break allows for a 20 percent tax credit for “qualified research expenses.†There are more complex applications, as well. Detractors complain that it is paying corporations to do research they would have done anyway.
5-yr Cost to Government: $29.8 billion
Who benefits: Pharmaceutical companies, high tech companies, engineers, agriculture conglomerates.
7) Deferred Taxes for Financial Firms on Certain Income Earned Overseas
Because most financial firms conduct their foreign operations as branches rather than as subsidiaries, as most companies in other industries do, they do not benefit from the tax breaks afforded to foreign subsidiaries. To compensate, this loophole enables financial firms to treat income from their foreign branches as if they were subsidiaries, along with all of the attendant tax benefits.
5-yr Cost to Government: $29.9 billion
Who benefits: Any financial firm with foreign operations.
6) Alcohol Fuel Credit
This is a tax credit for the production of alcohol-based fuel, most commonly ethanol, which is made from corn. The credit ranges from $0.39 to $0.60 per gallon. In theory, the credit is meant to encourage alternative forms of energy to imported oil. It is largely responsible for propping up the price of corn, and is extremely popular in corn-producing states like Iowa and Illinois.
5-yr Cost to Government: $32 billion
Who benefits: Food and agricultural conglomerates in the Midwest.
5) Credit for Low-Income Housing Investments
As you might expect, this one gives tax breaks to companies that develop low-income housing. It’s the rule that’s responsible for so many larger new developments setting aside 20 percent or 40 percent of their units for people whose income is well below the area’s median gross income.
5-yr Cost to Government: $34.5 billion
Who benefits: Real estate developers.
4) Accelerated Depreciation of Machinery and Equipment
This one allows companies to deduct for all of the depreciation of a piece of equipment at once (as opposed to over the, say, 20 years it actually takes the item to depreciate). This is the equivalent of the U.S. government giving the company an up-front, interest free loan. Congress recently made this expenditure temporarily even larger for 2011, to encourage investment in equipment.
5-yr Cost to Government: $51.7 billion
Who benefits: Airlines and manufacturers using large equipment that lasts many years.
3) Deduction for Domestic Manufacturing
This loophole enables a tax deduction for manufacturing activities conducted by American companies within the United States. It covers conventional manufacturers, but also extends to industries like software development and film production. The intent is to keep manufacturing from being outsourced.
5-yr Cost to Government: $58 billion
Who benefits: Any U.S. company that produces a product within U.S. borders.
2) Exclusion of Interest on State and Local Bonds
Companies (and individuals) do not pay federal income tax on interest from their investments in state and municipal bonds. What’s more, private companies can in some cases issue tax-free bonds of their own for projects that benefit the public, such as construction of an airport, stadium or hospital.
5-yr Cost to Government: $59.8 billion
Who benefits: High-income investors and corporations.
1) Deferral of Income from Controlled Foreign Corporations
Multinational companies can defer paying U.S. income taxes until they transfer overseas profits back to the United States, under this law. In practice, many companies leave much of their profits overseas indefinitely, thus paying only the tax in the relevant foreign country, which is likely far lower than the U.S. rate, and avoiding U.S. taxes permanently. The list of corporations enlisting this loophole is seemingly endless.
5-yr Cost to Government: $172.1 billion
Who benefits: Every multinational company.
You can add to that the benefits of filing jointly, the benefits from having kids, and the mortgage interest tax deduction. Everything's a kickback until you're the one receiving it.
FAIR TAX!
There appear to be many good reasons for tax loopholes and some of our presumptions may be wrong... for example... I found this pretty intersting...
The average total tax rate for the 500 companies over the last five years â€" again, including federal, state, local and foreign corporate taxes â€" was 32.8 percent. Among those paying more than the average were Exxon Mobil, FedEx, Goldman Sachs, JPMorgan Chase, Starbucks, Wal-Mart and Walt Disney. http://www.nytimes.com/2011/02/02/business/economy/02leonhardt.html?_r=2&src=me&ref=business
QuoteThe Paradox of Corporate TaxesBy DAVID LEONHARDT
Published: February 1, 2011
The Carnival Corporation wouldn’t have much of a business without help from various branches of the government. The United States Coast Guard keeps the seas safe for Carnival’s cruise ships. Customs officers make it possible for Carnival cruises to travel to other countries. State and local governments have built roads and bridges leading up to the ports where Carnival’s ships dock.
But Carnival’s biggest government benefit of all may be the price it pays for many of those services. Over the last five years, the company has paid total corporate taxes â€" federal, state, local and foreign â€" equal to only 1.1 percent of its cumulative $11.3 billion in profits. Thanks to an obscure loophole in the tax code, Carnival can legally avoid most taxes.
It is an extreme case, but it’s hardly the only company that pays far less than the much-quoted federal corporate tax rate of 35 percent. Of the 500 big companies in the well-known Standard & Poor’s stock index, 115 paid a total corporate tax rate â€" both federal and otherwise â€" of less than 20 percent over the last five years, according to an analysis of company reports done for The New York Times by Capital IQ, a research firm. Thirty-nine of those companies paid a rate less than 10 percent.
Arguably, the United States now has a corporate tax code that’s the worst of all worlds. The official rate is higher than in almost any other country, which forces companies to devote enormous time and effort to finding loopholes. Yet the government raises less money in corporate taxes than it once did, because of all the loopholes that have been added in recent decades.
“A dirty little secret,†Richard Clarida, a Columbia University economist and former official in the Treasury Department under President George W. Bush, has said, “is that the corporate income tax used to raise a fair amount of revenue.â€
Over the last five years, on the other hand, Boeing paid a total tax rate of just 4.5 percent, according to Capital IQ. Southwest Airlines paid 6.3 percent. And the list goes on: Yahoo paid 7 percent; Prudential Financial, 7.6 percent; General Electric, 14.3 percent.
Economists have long pleaded for an overhaul of the corporate tax code, and both President Obama and Republicans now say they favor one, too. But it won’t be easy. Companies that use loopholes to avoid taxes don’t mind the current system, of course, and they have more than a few lobbyists at their disposal.
The official position of the Business Roundtable, one of the most important corporate lobbying groups, is telling. The Roundtable says it supports corporate tax reform. But it actually favors only a reduction in the tax rate. The group refuses to say whether it also favors a reduction of loopholes. In effect, the Roundtable wants a tax cut for its members regardless of how much the tax code is simplified â€" or whether the budget deficit grows.
The tax filings of companies, like those of individuals, are confidential. In their public reports to investors, however, companies are required to list something called “cash taxes paid†â€" the total amount of corporate income tax they paid that year, be it to foreign governments, the United States government or state and local governments.
This number varies significantly from year to year, depending on how many loopholes a company qualifies for. So looking at a single year’s number is often misleading. But in a 2008 academic paper, three accounting professors â€" Scott Dyreng of Duke, Michelle Hanlon of M.I.T. and Edward Maydew of the University of North Carolina â€" suggested a new method for analyzing corporate tax avoidance.
It compares cash taxes paid over several years â€" like five, as in the analysis for The Times â€" to pretax earnings over that same period. The accounting experts I interviewed called it the best available method for looking at corporate taxes.
Some obvious patterns emerge. Companies that lost large amounts of money in previous years can subtract these subsequent losses from their initial profits and avoid taxes until they’re turning a consistent profit. Yahoo falls into this category. Of all the reasons to have a low tax rate, this one may be the most defensible, economists say.
Other companies are able to avoid taxes by spending large sums on new equipment or buildings. Such spending can often be deducted. Southwest Airlines, for instance, has bought a lot of planes in the last five years. Several energy companies with tax rates below 2 percent, like NextEra, Xcel and Range Resources, have likewise been expanding.
A third group of companies simply seems to have become expert at avoiding taxes. When the three accounting professors analyzed more than 2,000 companies, they found big variations in tax rates within almost every subset of companies. Companies in the same industry often paid very different rates, even when they were similar in size.
G.E. is so good at avoiding taxes that some people consider its tax department to be the best in the world, even better than any law firm’s. One common strategy is maximizing the amount of profit that is officially earned in countries with low tax rates.
Carnival pays so little tax partly because of a provision that lets some shipping companies legally incorporated overseas (Panama, in Carnival’s case) avoid taxes. The fact that Carnival’s executives sit in Miami and or that many passengers board in Baltimore, Los Angeles, Miami, New York and Seattle doesn’t matter. Nor does the fact that Carnival isn’t paying much tax in Panama.
Companies that pay relatively high rates tend to be those that are not expanding rapidly and that are not as ingenious as G.E., at least on taxes. The average total tax rate for the 500 companies over the last five years â€" again, including federal, state, local and foreign corporate taxes â€" was 32.8 percent. Among those paying more than the average were Exxon Mobil, FedEx, Goldman Sachs, JPMorgan Chase, Starbucks, Wal-Mart and Walt Disney.
The problem with the current system is that it distorts incentives. Decisions that would otherwise be inefficient for a company â€" and that are indeed inefficient for the larger economy â€" can make sense when they bring a big tax break. “Companies should be making investments based on their commercial potential,†as Aswath Damodaran, a finance professor at New York University, says, “not for tax reasons.â€
Instead, airlines sometimes buy more planes than they really need. Energy companies drill more holes. Drug companies conduct research with only marginal prospects of success.
Inefficiencies like these slow economic growth, and they are the reason that both conservatives and liberals criticize the corporate tax code so harshly. Mitch McConnell, the Republican Senate leader, says it hurts job creation. Mr. Obama, in his State of the Union address, said that the system “makes no sense, and it has to change.â€
A lot of economists agree. Then again, any system that creates as many winners as this one won’t be changed easily.
Quote from: JFman00 on April 16, 2012, 01:16:18 PM
You can add to that the benefits of filing jointly, the benefits from having kids, and the mortgage interest tax deduction. Everything's a kickback until you're the one receiving it.
My bad... I meant Corporate tax loopholes...
This is the conclusion of a very long article. Lots of good info here...
http://taxfoundation.org/publications/show/27081.html
QuoteAn objective review of the budgetary cost of corporate tax expenditures reveals that the rhetoric surrounding corporate "loopholes" seems greatly exaggerated. The roughly $660 billion in total tax provisions benefiting corporations may seem large, but it is less than the $1 trillion value of the benefits individuals receive from the tax exclusion for employer-provided health care, and is comparable to the value of tax expenditures benefiting state and local governments.
Contrary to popular opinion, only about 8 percent of corporate tax expenditure benefits are targeted to specific industries such as renewable energy, insurance, oil and gas, and coal. Indeed, the benefits received by state and local governments are nearly twice the amount targeted to specific industries. The vast majority of tax expenditures are largely available to all corporations and industries.
With the mounting federal deficits, corporate tax expenditures have come under increased scrutiny as a potential source of new tax revenues. However, considering the fact the U.S. has one of the highest corporate tax rates in the world, lawmakers would be far wiser to consider reducing or eliminating them within the broader context of corporate tax reform and lowering the federal corporate tax rate.
http://www.youtube.com/v/KH3we8gD5mg
Quote from: BridgeTroll on April 16, 2012, 01:23:22 PM
Quote from: JFman00 on April 16, 2012, 01:16:18 PM
You can add to that the benefits of filing jointly, the benefits from having kids, and the mortgage interest tax deduction. Everything's a kickback until you're the one receiving it.
My bad... I meant Corporate tax loopholes...
In both cases (personal and corporate tax advantages/loopholes), government is furthering what it judges to be a societal good. In your post you even point out who benefits. I bring this up because the argument in both cases is to eliminate the loopholes while lowering tax rates. In addition to avoiding preferential treatment under the current system of exemptions/deductions/credits, eliminating loopholes saves individuals and corporations money as they don't have to spend so much time and money to calculate what they owe.
Some proposals for revamping the tax code for individuals would require people to calculate tax three or more times (current system, alternative minimum tax and various versions of the fair tax). Corporations face a similar issue (paying an accounting/legal department to locate the various benefits they might be eligible for). In both cases, there are huge incentives to game the system to reduce tax burden.
To the comment above, "The vast majority of tax expenditures are largely available to all corporations and industries" the question I have is, then why have those tax expenditures at all? Just lower the rate while getting rid of the expenditure, instead of rewarding companies who hunt for every benefit they can and penalizing companies that don't.
I agree with what you are saying... especially... "Everything's a kickback until you're the one receiving it." I only meant to clarify the topic as these things tend to... um... er... expand... :)
Quote from: BridgeTroll on April 16, 2012, 02:01:46 PM
I agree with what you are saying... especially... "Everything's a kickback until you're the one receiving it." I only meant to clarify the topic as these things tend to... um... er... expand... :)
Roger :-P
8 Ridiculous Tax Loopholes: How Companies Are Avoiding the Tax Man
From an overseas haven to a TARP gift to Nascar, companies are skirting the IRS. Here’s the most egregious ways corporations have worked the system to shortchange Uncle Sam.
by Josh Dzieza | February 25, 2012 4:45 AM EST
On paper, the U.S. has one of the highest corporate tax rates in the world. But in practice, corporations pay far less. The Government Accountability Office (PDF) estimated the average tax burden at 25.2 percent, and some of the largest corporations, such as General Electric and Wells Fargo, pay no taxes at all. This is possible because the tax code is riddled with exceptions and loopholes, created at the behest of lobbyists and exploited by teams of tax experts, many of whom used to work for the IRS and the Treasury. With the help of Citizens for Tax Justice, The Daily Beast rounded up some of the most egregious corporate tax loopholes.
Deferral of Overseas Income
Multinational companies don’t have to pay U.S. income taxes on overseas profits until they transfer them back home. But in reality, companies just leave their profits in overseas tax havens, deferring taxes indefinitely. Not only that, an accounting scheme known as “transfer pricing†allows companies to move profits from the U.S. to offshore havens so they’re counted as overseas earnings. For example a pharmaceutical company could sell a drug patent to a subsidiary in the Cayman Islands for a nominal fee, then have the subsidiary charge the parent company huge licensing fees. The company can then deduct the licensing fees from its taxable income in the U.S. and send the profits to its foreign subsidiary, where taxes can be indefinitely deferred. Some 83 percent of top 100 publicly traded companies had tax-haven units in 2009, according to the GAO. General Electric, Google, Pfizer, and many other companies use this technique. The federal government loses an estimated (PDF) $100 billion a year through offshore tax abuses.
Deductions for Shipping Jobs Overseas
At first glance it doesn’t seem particularly egregious that corporations can deduct moving expenses, but that changes when the break is applied to companies moving operations overseas. President Obama proposed ending this exemption for companies moving overseas while giving a credit to companies moving back to the U.S.
The Domestic Production Deduction
This deduction was meant to encourage companies to keep manufacturing operations in the U.S. by allowing them to deduct profits from “qualified production activities.†But by the time the law was enacted, those activities had expanded to include not just manufacturing but everything from oil drilling to filmmaking to real estate. (Obama proposed barring oil and gas companies from using the deduction.) The Center on Budget and Policy Priorities estimated that the deduction cost states $500 million in 2011, and the Congressional Budget Office (PDF) estimates it will cost the federal government $163 billion over the next decade.
tax-loopholes-tease
Last-In, First-Out Accounting
Normally when you buy something for $30 and sell it for $50, you have to pay taxes on a $20 profit. But corporationsâ€"especially oil companiesâ€"manage their accounts differently. They might buy oil for $30 a barrel, and then buy some more for $45 a barrel later in the year. Then when they sell a barrel of oil for $50, they get to assume that they sold the last barrel they bought, the one that cost $45, allowing them to report a profit of $5 instead of $20. Citizens for Tax Justice estimates that the loophole is worth $97 billion over the next 10 years.
Punitive Damages Deduction
When corporations are hit with punitive damages, they’re able to write them off as an “ordinary and necessary†business expense (PDF). Consequently, Exxon’s $1.1 billion Alaska oil spill settlement actually cost the company $524 million after taxes. Obama’s budget proposes to eliminate the deductibility.
Accelerated Depreciation Deduction
This allows companies to deduct for the depreciation of a piece of equipment at a faster rate than it actually takes the equipment to depreciate. Because interest expenses are also deductible, a company can borrow money to buy equipment, deduct both the interest on the debt and the “accelerated†depreciation of the equipment, and claim deductions greater than the profits generated by the investment. It’s one of the loopholes that allow corporations to pay no taxes during profitable years.
Corporate Jet Deduction
The corporate jet deduction became a hot-button issue during the debt-ceiling debate when President Obama used it as leverage against the Republicans. Under the current law, corporations can claim deductions for the depreciation of their jets at a faster rate than commercial airlines can. Closing the loophole wouldn’t save much moneyâ€"about $4 billion over 10 yearsâ€"but as a political symbol, it’s invaluable. (For what it’s worth, yacht owners get an accelerated depreciation deduction plus a few more.)
NASCAR
The 71,000-page tax code is full of accelerated-depreciation loopholes for various industries. Along with corporate jets, NASCAR racetrack owners get a special exemption. They can deduct for the depreciation of their tracks over a seven-year period instead of the 39 years the government estimates (PDF) it actually takes them to depreciate. The break was put in place in 2004 but was renewed in the 2008 financial-system bailout known as TARP. It costs the government $40 million a year.
©2011 The Newsweek/Daily Beast Company LLC
http://vtdigger.org/2011/08/15/keelan-so-what-is-a-tax-loophole/
QuoteOne of the many contentious points raised during the debt-ceiling debate was the closing of tax loopholes. So what exactly is a tax loophole? An Internet site defines a tax loophole as:
“ …Loopholes are special exceptions in the tax code which allow those who qualify, virtually always corporations and special categories of rich people, to escape paying part of their taxes…â€
Not exactly!
Allow me to describe a few of the so-called tax loopholes and why they got created in the first place.
With the help of a 3/3/11 Wall Street Journal piece on tax reform, let’s look at the Whirlpool Corp. â€" the appliance manufacturer. Congress (and the environmental lobby) wanted to have energy efficient appliances…so, Congress passed a tax credit law. Build an energy-efficient refrigerator, washer/dryer and dishwasher and the manufacturer will receive $200, $225 and $75 in tax credits for each one produced.
In 2010, Whirlpool had $18 billion in sales, $619 million in earnings and paid 0 in taxes; the corporation had built up over $500 million in tax credits. Note that tax credits are a dollar for dollar offset against taxes due.
Now let us pay a visit to the oil and gas companies. A long time ago, in the 1920s, Congress wanted investors to take huge risks and develop oil and gas wells in order to feed the insatiable appetite for oil required by the emerging auto industry. The cause gave rise to what is known as “percentage depletion.†What it means is that for every $1 in oil revenue, 27 percent was eliminated for tax purposes (now 22 percent). No wonder oil companies have a low effective tax rate â€" when almost a quarter of their revenue is excluded from income.
And many of us drive by or walk by another tax-loophole benefit each and every day â€" they are residing in those historic downtown buildings that got rehabilitated over the past 40 years. Once again, Congress was lobbied, this time by preservation groups, wishing to preserve the downtowns (inner-cities) and historic structures. Congress abided and authorized that for every $1 invested, one would receive a tax credit of 20 cents against income taxes.
Another favorite tax loophole is tax-exempt bonds. Take two taxpayers: one has salary income from his/her business of $100,000, the second has a similar income from state of Vermont bonds. The former pays approximately $30,000 in taxes while the latter pays 0 in taxes. Now make the tax-exempt income not $100,000 but $10 million â€" get the picture?
However, my all-time favorite loophole event has to do with Warren Buffett, the Berkshire-Hathaway billionaire. He will often cite the fact that his secretary pays more in taxes than he does â€" and here’s why. In order to assist non-profits, a long time ago Congress passed a tax loophole which under certain circumstances donations to nonprofits can be deducted. Mr. Buffett took full advantage of this and donated over $30 billion to The Bill and Melinda Gates Foundation. The gift was so large (there are annual limitations on how much one can deduct each year) that for the foreseeable future, Mr. Buffett can offset his millions in yearly earnings with the carry-over (unused) deduction made to the Gates Foundation.
The point in noting all of the above (and there are many more) is simple â€" as long as we have lobbyists advocating their cause in Washington for business, education, health care, nonprofit, pharmaceutical, defense and environmental organizations and companies, we will have “loopholes.â€
If we really want to do something about taxes and “loopholes†here are a few suggestions:
1.Phase in over five (it may take 10) years the “sunsetting†of the 1986 U.S. Tax Code.
2.Phase in over a similar period a flat tax system whereby all income, regardless of source, is taxed at a flat tax rate.
3.Phase in over the same period the elimination of all deductions, exemptions and tax credits.
The original Tax Code of 1913 was meant to raise revenue for the federal government â€" not to be the reservoir for every conceivable social, economic, environmental and energy program.
And as recently as last week, President Barack Obama proposed a tax credit to companies who hire veterans â€" using the tax system to execute a social/economic goal.
Quote from: finehoe on April 16, 2012, 02:21:11 PM
8 Ridiculous Tax Loopholes: How Companies Are Avoiding the Tax Man
From an overseas haven to a TARP gift to Nascar, companies are skirting the IRS. Here’s the most egregious ways corporations have worked the system to shortchange Uncle Sam.
by Josh Dzieza | February 25, 2012 4:45 AM EST
On paper, the U.S. has one of the highest corporate tax rates in the world. But in practice, corporations pay far less. The Government Accountability Office (PDF) estimated the average tax burden at 25.2 percent, and some of the largest corporations, such as General Electric and Wells Fargo, pay no taxes at all. This is possible because the tax code is riddled with exceptions and loopholes, created at the behest of lobbyists and exploited by teams of tax experts, many of whom used to work for the IRS and the Treasury. With the help of Citizens for Tax Justice, The Daily Beast rounded up some of the most egregious corporate tax loopholes.
Deferral of Overseas Income
Multinational companies don’t have to pay U.S. income taxes on overseas profits until they transfer them back home. But in reality, companies just leave their profits in overseas tax havens, deferring taxes indefinitely. Not only that, an accounting scheme known as “transfer pricing” allows companies to move profits from the U.S. to offshore havens so they’re counted as overseas earnings. For example a pharmaceutical company could sell a drug patent to a subsidiary in the Cayman Islands for a nominal fee, then have the subsidiary charge the parent company huge licensing fees. The company can then deduct the licensing fees from its taxable income in the U.S. and send the profits to its foreign subsidiary, where taxes can be indefinitely deferred. Some 83 percent of top 100 publicly traded companies had tax-haven units in 2009, according to the GAO. General Electric, Google, Pfizer, and many other companies use this technique. The federal government loses an estimated (PDF) $100 billion a year through offshore tax abuses.
Deductions for Shipping Jobs Overseas
At first glance it doesn’t seem particularly egregious that corporations can deduct moving expenses, but that changes when the break is applied to companies moving operations overseas. President Obama proposed ending this exemption for companies moving overseas while giving a credit to companies moving back to the U.S.
The Domestic Production Deduction
This deduction was meant to encourage companies to keep manufacturing operations in the U.S. by allowing them to deduct profits from “qualified production activities.” But by the time the law was enacted, those activities had expanded to include not just manufacturing but everything from oil drilling to filmmaking to real estate. (Obama proposed barring oil and gas companies from using the deduction.) The Center on Budget and Policy Priorities estimated that the deduction cost states $500 million in 2011, and the Congressional Budget Office (PDF) estimates it will cost the federal government $163 billion over the next decade.
tax-loopholes-tease
Last-In, First-Out Accounting
Normally when you buy something for $30 and sell it for $50, you have to pay taxes on a $20 profit. But corporations—especially oil companies—manage their accounts differently. They might buy oil for $30 a barrel, and then buy some more for $45 a barrel later in the year. Then when they sell a barrel of oil for $50, they get to assume that they sold the last barrel they bought, the one that cost $45, allowing them to report a profit of $5 instead of $20. Citizens for Tax Justice estimates that the loophole is worth $97 billion over the next 10 years.
Punitive Damages Deduction
When corporations are hit with punitive damages, they’re able to write them off as an “ordinary and necessary” business expense (PDF). Consequently, Exxon’s $1.1 billion Alaska oil spill settlement actually cost the company $524 million after taxes. Obama’s budget proposes to eliminate the deductibility.
Accelerated Depreciation Deduction
This allows companies to deduct for the depreciation of a piece of equipment at a faster rate than it actually takes the equipment to depreciate. Because interest expenses are also deductible, a company can borrow money to buy equipment, deduct both the interest on the debt and the “accelerated” depreciation of the equipment, and claim deductions greater than the profits generated by the investment. It’s one of the loopholes that allow corporations to pay no taxes during profitable years.
Corporate Jet Deduction
The corporate jet deduction became a hot-button issue during the debt-ceiling debate when President Obama used it as leverage against the Republicans. Under the current law, corporations can claim deductions for the depreciation of their jets at a faster rate than commercial airlines can. Closing the loophole wouldn’t save much money—about $4 billion over 10 years—but as a political symbol, it’s invaluable. (For what it’s worth, yacht owners get an accelerated depreciation deduction plus a few more.)
NASCAR
The 71,000-page tax code is full of accelerated-depreciation loopholes for various industries. Along with corporate jets, NASCAR racetrack owners get a special exemption. They can deduct for the depreciation of their tracks over a seven-year period instead of the 39 years the government estimates (PDF) it actually takes them to depreciate. The break was put in place in 2004 but was renewed in the 2008 financial-system bailout known as TARP. It costs the government $40 million a year.
©2011 The Newsweek/Daily Beast Company LLC
From what I can see... all of these are examples of... "be careful what you ask for... you just might get it. I bet most of these loopholes were designed to fix some percieved unfairness or give incentive. Rather than simply list these as ridiculous... I would like to see why they exist... what they are designed to do... why are they missing the mark.
It's like earmarks, everyone is going to use them until they can't, and no one wants to be *that guy*.
I thought this one looked fishy...
QuoteCorporate Jet Deduction
The corporate jet deduction became a hot-button issue during the debt-ceiling debate when President Obama used it as leverage against the Republicans. Under the current law, corporations can claim deductions for the depreciation of their jets at a faster rate than commercial airlines can. Closing the loophole wouldn’t save much moneyâ€"about $4 billion over 10 yearsâ€"but as a political symbol, it’s invaluable. (For what it’s worth, yacht owners get an accelerated depreciation deduction plus a few more.)
If I remember correctly... The deduction was passed in order to make buying jets more attractive. The figuring was that this would give a boost to the corporate jet makers who are mainly domestic. Seems to me congress (democrats?) created the loophole to protect American corporate jet manufaturers and the jobs associated with them.
Looks like some of those loopholes are Obama created... Not saying they are bad... just showing who and why.
http://www.nytimes.com/2010/09/07/us/politics/07tax.html
QuoteObama to Propose Tax Write-Off for Business
By JACKIE CALMES
Published: September 6, 2010
WASHINGTON â€" As part of his emerging program to jolt the economic recovery from its stall, President Obama will call this week for allowing businesses to deduct from their taxes through 2011 the full value of new equipment purchase, from computers to utility generators, to increase demand for goods and create jobs.
The upfront deduction would allow businesses of all sizes to keep more money now and would give large corporations, many of which are sitting on cash because of uncertainty about the economy, an incentive to spend and invest.
It would cost an estimated $200 billion in revenues, though the ultimate net loss would be $30 billion over 10 years, administration officials say, since businesses would eventually deduct the depreciated value of the equipment in any case.
The proposal for 100 percent expensing through 2011 will be part of a package that Mr. Obama will outline on Wednesday in Cleveland in a speech on the economy.
The stimulus initiative will also include proposals for an additional $50 billion for infrastructure investments and a new infrastructure bank for projects over the long term, which Mr. Obama described at a Labor Day event in Wisconsin on Monday.
And it will have a provision to expand and make permanent a tax credit for corporations’ research and development expenses; for three decades, the credit has been enacted temporarily, given its revenue cost, and then always extended, but with frequent lapses that frustrate businesses.
Those ideas and others that Mr. Obama may propose on Wednesday have been under consideration at the White House for some time. But August’s mix of disappointing economic data and deteriorating poll numbers for Democrats heading into the midterm elections prompted the president, with evident impatience, to publicly press his economic team to quickly produce options that could help the economy without excessively increasing the debt.
Though liberal and labor groups have been agitating for public works spending, Mr. Obama and his advisers are emphasizing business tax cuts in hopes of drawing Republican support â€" or, failing that, to show that Republicans are so determined to thwart Mr. Obama that they will oppose even ideas that they and most business groups, like the U.S. Chamber of Commerce, advocate.
A draft paper on the proposal permitting businesses to write off the full costs of capital spending in 2010 and 2011 said it “would be the largest temporary investment incentive in American history.â€
Stimulus measures enacted at the end of the Bush administration and continued in 2009 allowed businesses to depreciate 50 percent of qualified investments. A separate administration proposal to benefit small businesses with tax cuts and loans, which has been pending in Congress much of the year and remains blocked by Republicans in the Senate, would extend this smaller tax break through 2010.
Mr. Obama would expand this to 100 percent through 2011 and make it effective retroactive to this Wednesday, regardless of when Congress might approve the proposal.
According to the draft description from the administration, the proposal “would put nearly $200 billion in the hands of businesses over the next two years â€" helping companies that make new investments in the United States at a time they need it most.â€
But, it added: “Most of this relief would be recouped by the Treasury as businesses regain their strength. Specifically, businesses would get the upfront deduction for their investment â€" now when they most need it â€" but would give up their future annual depreciation allowances in future years when the economy is stronger.â€
Quote from: BridgeTroll on April 16, 2012, 02:36:43 PM
From what I can see... all of these are examples of... "be careful what you ask for... you just might get it. I bet most of these loopholes were designed to fix some percieved unfairness or give incentive. Rather than simply list these as ridiculous... I would like to see why they exist... what they are designed to do... why are they missing the mark.
The Laws of Unintended Consequences never cease to amaze.
But isn't this why they're now considered loopholes instead of deductions?
Unfortunately, our members of [Insert Law Making Group of Choice] are always in a rush to push something through perceived as good for the country (read: good for my re-election) and are so slow in reacting when people smarter than they start to exploit it.
I mean, it's nothing new, is it? It's been around since the beginning of time.
Exactly... same with personal income tax "loopholes". This is the perfect reason why a flat corporate tax with NO loopholes sounds like a good thing on its face. Of course the problem is there are many companies this will hurt. Will corporate jet sales plummet when the advantage is removed? Who will be unemployed? Which foriegn manufacturer will step in to fill the void.
So when I hear someone railing about corporate tax breaks and loopholes I immediately figure they are trying to make some kind of political statement to make themselves look good and someone else look bad. I dont hold out much hope for tax reform without throwing out the half truth rhetoric that accompanies such efforts...
http://www.youtube.com/v/CGjWwYacy-U
When it comes to loopholes and earmarks, pretty much everyone except Ron Paul is guilty. Republicans are reluctant (if not unwilling) to accept tax code reform as the companies that would pay more taxes would experience a tax "hike". Democrats are reluctant to accept tax code reform as it currently allows them to create social policy without the appearance of big government.
Be careful JFman... you may soon be splattered with something called the blood of jesus for that remark... Applying equal guilt is frowned upon by a few posters here...
3.... 2.... 1.... ;)
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Quote from: finehoe on April 16, 2012, 04:34:56 PM
(http://0.tqn.com/d/politicalhumor/1/7/S/0/4/GE-Tax-Loopholes.jpg)
GE must be using this technique...
QuoteDeferral of Overseas Income
Multinational companies don’t have to pay U.S. income taxes on overseas profits until they transfer them back home. But in reality, companies just leave their profits in overseas tax havens, deferring taxes indefinitely. Not only that, an accounting scheme known as “transfer pricing†allows companies to move profits from the U.S. to offshore havens so they’re counted as overseas earnings. For example a pharmaceutical company could sell a drug patent to a subsidiary in the Cayman Islands for a nominal fee, then have the subsidiary charge the parent company huge licensing fees. The company can then deduct the licensing fees from its taxable income in the U.S. and send the profits to its foreign subsidiary, where taxes can be indefinitely deferred. Some 83 percent of top 100 publicly traded companies had tax-haven units in 2009, according to the GAO. General Electric, Google, Pfizer, and many other companies use this technique. The federal government loses an estimated (PDF) $100 billion a year through offshore tax abuses.
The question is... why does this exist? Why was it created? Is it doing more good than bad? If we repeal it what is the consequence?
Figures the first ones they go after are the ones that benefit the middle class:
Lawmakers consider changing tax breaks on retirement savings
By Lori Montgomery, Published: April 17
The painful trade-offs of tax reform came into sharper focus Tuesday as lawmakers for the first time began considering specific tax breaks to reduce or otherwise change, starting with laws that allow millions of Americans to avoid taxes while saving for retirement.
Tax incentives for employer pensions, 401(k) plans, individual retirement accounts and other savings programs rank among the largest breaks in the tax code, costing Washington more than $200 billion a year in lost revenue.
All told, the U.S. Treasury loses about $1.1 trillion annually to more than 200 credits, deductions and other tax breaks. Politicians in both parties â€" including President Obama and Mitt Romney, the Republican who is likely to challenge his reelection bid â€" have called for recapturing some of that cash and using it to finance lower tax rates or to reduce federal budget deficits.
Until recently, both sides have been reluctant to hint at which of the many popular perks might get the ax. That is starting to change, however, as lawmakers and policy analysts begin preparing for the prospect of overhauling the tax code as soon as next year.
On Tuesday, House Ways and Means Committee Chairman Dave Camp (R-Mich.) scheduled a hearing on “tax-favored retirement accounts†that he said was intended to begin “framing the debate†in preparation for tax reform. Aides said Camp also is planning a first-ever examination of about $30 billion worth of expired tax breaks for individuals and corporations that Congress routinely extends, an idea that is also gaining traction in the Senate.
Over the weekend, Romney dropped hints about tax reform at a private fundraiser in Florida, telling donors that he would save money by eliminating or limiting the mortgage-interest deduction for second homes for taxpayers with high incomes. He also suggested limits on deductions that millions of Americans claim for state income and property taxes.
Romney’s remarks, overheard by reporters for the Wall Street Journal and NBC News, quickly drew fire from the Obama campaign, which accused the former Massachusetts governor of harboring a secret plan to undermine the middle class.
Romney aides later said the candidate was merely throwing out ideas, not outlining a fully formed plan for tax savings.
During Tuesday’s hearing, Camp trod carefully, urging lawmakers to consider whether the complex web of retirement savings provisions could be streamlined to encourage more people to sock away money. He did not suggest trimming benefits, noting that an “overwhelming majority†of full-time workers â€" 66 percent â€" rely on the provisions.
“Today’s hearing isn’t about drawing conclusions,†Camp said, but about “making sure that as Congress approaches comprehensive tax reform that we do so well-armed with information.â€
Democrats nonetheless pounced, arguing that Camp’s goal of lowering the top tax rate to 25 percent from the current 35 percent without increasing budget deficits would require lawmakers to eliminate virtually every break in the tax code. If preferences for retirement savings were preserved, they said, then something else would have to go.
“Today’s testimony issues a warning for those who propose to eliminate all tax expenditures or equate them with special interest ‘loopholes,’ †said Rep. Sander M. Levin (Mich.), the senior Democrat on the panel. Provisions for retirement savings are “not a loophole,†Levin said, adding later: “This is a vivid example of why it’s reckless to say you’re going to get to a certain tax rate without saying how you’re going to get there.â€
Camp fired back at his Democratic critics, saying, “I don’t think anyone is proposing to eliminate†incentives for retirement savings. Later, he told reporters that the Republican tax plan would not require wiping out every break on the books.
“We do not have to eliminate all expenditures to get to 25 percent,†he said.
Still, a growing body of research suggests that many, if not most, tax breaks would have to undergo surgery for Republicans to meet their target for lower tax rates.
In a forthcoming report, researchers at the Brookings Institution’s Hamilton Project found that lawmakers would have to get rid of all but about $200 billion a year in tax breaks â€" roughly four-fifths of their value â€" to reduce the top rate to 25 percent.
And few of the largest preferences would be easy to eliminate, according to researchers at Hamilton and elsewhere, because they benefit huge numbers of taxpayers at all income levels. The single largest break, for example â€" the tax-free treatment of employer-provided health care â€" increases after-tax income by 2.5 percent to 3 percent for families earning $19,000 to $243,000 a year.
“One thing that’s pretty clear: Individual income tax expenditures hit a pretty broad swath of people in the middle of the income distribution,†said Adam Looney, policy director for the Hamilton Project.
Tax preferences for retirement savings tend to provide bigger benefits to wealthier taxpayers, who not only are able to save more but also receive a more valuable tax break because they pay higher rates. Still, about 70 percent of workers earning $30,000 to $50,000 a year also benefit from the provisions, Judy Miller, director of retirement policy at the American Society of Pension Professionals and Actuaries, said in testimony Tuesday.
At a time when many Americans are anxious about retirement, Randolf Hardock, testifying for the American Benefits Council, said that “reducing retirement incentives to pay for other initiatives would be counterproductive.â€
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http://www.washingtonpost.com/business/economy/lawmakers-consider-changing-tax-breaks-on-retirement-savings/2012/04/17/gIQARfV7OT_story.html?hpid=z9
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