Lets talk about Corporate tax loopholes

[BridgeTroll]

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

Obama 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.”

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.”

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.”

[Non-RedNeck Westsider]

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.

[BridgeTroll]

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...

[BridgeTroll]

http://www.youtube.com/v/CGjWwYacy-U

[JFman00]

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.

[BridgeTroll]

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.... 

[finehoe]

[BridgeTroll]

GE must be using this technique...

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.

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?

[finehoe]

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.”

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.”

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.”



http://www.washingtonpost.com/business/economy/lawmakers-consider-changing-tax-breaks-on-retirement-savings/2012/04/17/gIQARfV7OT_story.html?hpid=z9

[finehoe]