Alex Lawson / Social Security Works & Paul Hogarth / Daily Kos & Hon. Bernie Sanders / US Senate – 2015-04-15 22:46:57
http://signforgood.com/estatetax
A $269 Billion Tax Cut for the top 0.2% and a $3 Trillion Tax-giveaway to the Super-Rich
Alex Lawson / Social Security Works
(April 15, 2015) — Before Congress left on their holiday recess, they passed a budget that would cuts taxes for the wealthiest Americans while also slashing funding for earned benefits and critical programs such as food stamps and education. This week, Congress returns to Washington and further demonstrates their contempt for the middle class by spending Tax Day voting to cut taxes for the richest 0.2% of Americans.
As if the $3 trillion tax giveaway to the super-rich embedded in their budget wasn’t enough, they now want to deliver an additional $269 billion tax cut that would only impact two out of every 1,000 estates.
Tell House Speaker John Boehner that the super-rich should pay their fair share—they don’t need another tax cut. Don’t touch the federal estate tax!
The estate tax has been slashed twice already– In 2001 as part of the Bush tax cuts, and again in 2012. It has been reduced to the point where it now only effects estates worth more than $5.4 million for individuals or $10.9 million for couples. Instead of repealing it, Congress should restore the estate tax to its pre-Bush levels and could use that income to expand Social Security.
At a time when Congress is cutting the federal budget by $5 trillion and devastating our economic foundations, we should be looking for ways to support millions of families, not developing new ways to pad the bank accounts of the super-rich.
When millionaires and billionaires finally start paying their fair share, we can extend the lifespan of the Social Security trust fund and expand benefits for millions of Americans.
Halt Tax Breaks for Corporations And the Super-Rich
Paul Hogarth / Daily Kos
On Tax Day, April 15th, while you and I were paying our taxes, the GOP Congress was be voting on H.R. 1105 — a bill to repeal the estate tax for millionaires and billionaires. One House Democrat has co-sponsored the legislation, and other Democrats may vote for it too.
Only households with a net worth of $5.4 million — the top 0.2% — even pay the federal estate tax. If Congress passes H.R. 1105, no one will pay it at all. At a time of widening inequality between the super-rich and the rest of us, this tax break will cost us $270 billion over the next 10 years. It is absolutely the wrong thing to do.
President Obama says he will veto the bill if it passes Congress, but it’s important that as many House Democrats vote “no” to have his support.
Tell Corporations to Pay Their Fair Share
CREDO Action
(April 15, 2015) — Just in time for tax day, Senator Bernie Sanders has figured out how President Obama can close massive tax loopholes with a few strokes of a pen, and he needs our help.
In a recent letter to President Obama, Senator Sanders outlined six loopholes that massive corporations, hedge fund managers, and the worst of the 1% use to dodge taxes and avoid paying us back for providing roads, courts, and an educated workforce.1
Closing all six loopholes would raise more than $100 billion that could be invested in America — and best of all, the President can do it all without Congress.
April 15th is Tax Day. Each and every year, major profitable corporations avoid paying billions in taxes by exploiting complicated tax loopholes like inversions, valuation discounts and real estate investment trusts.
In 1952, the corporate income tax accounted for about 32 percent of all federal tax revenue. Today, despite record-breaking profits, corporate taxes bring in just 11 percent. But some members of Congress still don’t think that corporations should pay what they rightfully owe.
Although we have an $18 trillion national debt, some members of Congress refuse to raise revenue by asking these corporate giants to pay their fair share. Now, some of these same members of Congress are saying we need savage cuts to Social Security, Medicare, Medicaid and other programs that help the most vulnerable Americans in order to pay down the debt.
Let’s make sure these profitable corporations pay what they owe. The Obama Administration can use executive actions to close egregious loopholes and stop corporations from hiding profits in offshore tax havens like the Cayman Islands.
CREDO Action”>Sign the petition by Daily Kos & a wide coalition to President Obama and Treasury Secretary Lew to take action and eliminate corporate tax loopholes that are robbing American taxpayers.
American Family Voices
Americans for Tax Fairness
Campaign For America’s Future
Courage Campaign
Daily Kos
Friends of Bernie Sanders
Left Action
National Priorities Project
Rep. Barbara Lee
Rep. Keith Ellison
RH Reality Check
The Nation
The Other 98%
Watchdog.net / Demand Progress
(c) 2015 Daily Kos.
Tell President Obama: End tax giveaways to the 1%
ACTION ALERT: Petition to President Barack Obama:
“Use your executive authority to direct the Treasury Department and the Internal Revenue Service to end tax giveaways to large corporations, multimillionaire hedge fund managers, and the worst of the 1% that will cost America more than $100 billion over the next decade, including the ‘check-the-box,’ ‘earnings stripping,’ ‘valuation discount,’ ‘carried interest,’ ‘Hewlett-Packard,’ and ‘Real Estate Investment Trust’ tax loopholes.”
Just in time for tax day, Senator Bernie Sanders has figured out how President Obama can close massive tax loopholes with a few strokes of a pen, and he needs our help.
In a recent letter to President Obama, Senator Sanders outlined six loopholes that massive corporations, hedge fund managers, and the worst of the 1% use to dodge taxes and avoid paying us back for providing roads, courts, and an educated workforce.1
Closing all six loopholes would raise more than $100 billion that could be invested in America — and best of all, the president can do it all without Congress.
The list of loopholes that the worst of the 1% use to avoid taxes reads like a how-to guide for multimillionaire hedge fund managers and multinational corporations trying to rip off a nation:
The “check-the-box” loophole. Simply by checking one box, companies can claim that an entity it owns should be ignored by the IRS for tax purposes. By giving different stories to different governments, they can transfer profits between subsidiaries tax free. Closing this loophole would raise up to $78 billion over the next decade.
The “Hewlett-Packard” loophole. Companies are supposed to pay taxes when they bring offshore profits back to America. But if their offshore subsidiaries only provide a short-term “loan” to the onshore parent company, they can dodge the law. At one point, Hewlett-Packard was found to be “borrowing” billions, tax-free.
The “Real Estate Investment Trust” loophole. Real estate investment trusts are like mutual funds for real estate, and they don’t pay corporate income tax. But all sorts of companies, from private prisons to casinos, now claim to be real estate investment trusts in order to dodge taxes.
The “carried interest” loophole. Wealthy investors pay hedge fund managers billions to manage their money. But this loophole allows those fund managers to pretend that their income is actually a capital gain from selling investments — and capital gains are taxed at a far lower rate. Closing this loophole would raise up to $18 billion.
The “earnings stripping” loophole. CREDO members have fiercely fought corporate inversions, where big US companies merge with a smaller foreign company to avoid paying taxes. The Treasury Department has already cracked down on one tax dodge related to inversions, and closing the other, the “earnings stripping” loophole, could raise up to $13 billion over the next decade.
The “valuation discount” loophole. If wealthy parents put a restriction on selling a company before transferring it to their children, it is considered less valuable and so they pay less in taxes — even if that restriction is then removed or ignored. The IRS could overlook these meaningless restrictions and raise up to $18 billion over the next decade.
The Internal Revenue Service created the first three loopholes by accident, with administrative rulings that had unintended consequences — and President Obama could easily order the IRS to fix its mistake. The other three could be closed if the Treasury Department used its existing authority to call hedge fund managers “service providers” and issued new rules under the tax code.8
The Obama administration has likely held off on making these changes in order to meet Republican demands that any new investments be “paid for” by closing a loophole. But with a new, rightwing Congress adamantly opposed to any new spending or tax increases, the time for bargaining chips is over. President Obama needs to know that if he takes a bold stand in favor of tax fairness, Americans will stand with him.
ACTION: Tell President Obama: End tax giveaways to the 1%.
Click HERE to sign the petition:
Murshed Zaheed is the Deputy Political Director for CREDO Action from Working Assets
Sanders Asks Obama to Close
Six Egregious Corporate Tax Loopholes
Hon. Bernie Sanders / US Senate
WASHINGTON, DC (March 2, 2015) — Sen. Bernie Sanders (I-Vt.), the ranking member of the Senate Budget Committee, said President Obama could act on his own to raise over $100 billion over a decade by closing the worst corporate tax loopholes.
Sanders identified several actions that the White House could take to prevent corporations from using offshore tax havens and other tax dodges and to prevent wealthy individuals from avoiding income and estate taxes.
“Since the Republican-led Congress has refused to raise revenue by asking the most profitable corporations to pay their fair share, I would hope that the president could take executive action to remedy some of the most egregious loopholes,” Sanders said. “We have got to demand that companies like Apple, Hewlett-Packard, and General Electric stop engaging in legalized tax fraud that limits our ability to invest in the future.”
“At a time when this country has a $18 trillion national debt and a huge amount of infrastructure and social needs it is absurd that major profitable corporations pay nothing in federal taxes,” added Sanders, who last week issued a new detailed report on the extent of offshore tax havens by major American companies that have been most engaged in lobbying for new tax breaks and cuts to important programs for middle class families, such as Social Security, Medicare and Medicaid.
The six tax breaks that Sanders wants Obama and Treasury Secretary Jack Lew to eliminate are:
The check-the-box loophole allows multinational companies to characterize their offshore subsidiaries in different ways to different governments so that their profits are untaxed.
The Hewlett-Packard loophole allows American corporations to use short-term loans from their subsidiaries circumvent the requirement that they pay US taxes on their offshore profits when those profits are brought to the US
The corporate inversions loophole allows an American corporation to merge with a (usually much smaller) foreign corporation and then reincorporate as a foreign company to avoid US taxes even as it continues to operate and be managed in the US
The carried interest loophole allows hedge fund managers to characterize their compensation (which they earn for managing other people’s money) as capital gains, which is subject to lower personal income tax rates than other types of income. Tax experts have pointed out that the Treasury Department has the authority under existing law to determine how this income is taxed.
Valuation discounts are restrictions placed on small business property given to family members (to keep the business in the family, for example) which are often meaningless but are claimed to dramatically reduce their value for estate and gift tax purposes.
The real estate investment trust (REIT) loophole allows private prisons, billboard companies, casinos and other companies claim that they are making money from rents to avoid paying the corporate income tax.
More details about all of these tax breaks can be found on our website here.
Potential Executive Actions to Close Tax Loopholes
United States Senate
Several problems with our tax code could be addressed through executive action to start the process of tax reform. Current tax laws authorize the Administration to issue regulations that would likely address several of the most egregious loopholes.
I. Summary
Check-the-Box Loophole
Ten-year revenue impact: Up to $78 billion
This loophole allows multinational companies to characterize their offshore subsidiaries in different ways to different governments so that their profits are ultimately taxed by no government at all. Senators Carl Levin and John McCain issued a hearing report explaining that Apple used this loophole and recommending that Congress close it.
Carried Interest Loophole
Ten-year revenue impact: $18 billion
The carried interest loophole allows Wall Street hedge fund managers to characterize their compensation (which they earn for managing other people’s money) as capital gains, which is taxed at a lower rates than other types of income.
Corporate Inversions
Ten-year revenue impact: Up to $13 billion
A corporate inversion takes place when a corporation merges with a (usually much smaller) foreign company and then reincorporates as a foreign company to avoid US taxes even as it continues to operate and be managed in the US.
Valuation Discounts that Reduce Estate and Gift Taxes
Ten-year revenue impact: $18 billion
Gifts and bequests of ownership rights in family businesses sometimes includes formal restrictions on what the recipient can do (for example, preventing a business from being sold outside the family) that are actually meaningless but which are claimed to dramatically reduce the value for estate tax or gift tax purposes.
Corporate Offshore Tax Avoidance Using Short Term Loans
Ten-year revenue impact: unknown
American corporations are supposed to pay US taxes on their offshore profits when those profits are brought to the US, but companies like Hewlett-Packard have avoided this by having offshore profits circulated to the US by a continuous series of short term “loans” from subsidiaries in tax havens like the Cayman Islands.
Real Estate Investment Trust Loophole
Ten-year revenue impact: unknown
IRS administrative rulings have created a loophole allowing private prisons, billboard companies, casinos and other businesses to claim that they are making money from rents and structure themselves as real estate investment trusts (REITs) which do not pay the corporate income tax.
II. Details
Corporate Offshore Tax Avoidance Using Check-the-Box Rules
Ten-year revenue impact: unknown, possibly up to $78 billion
The “check-the-box” rules were adopted through regulations in 1997 and allow a company to decide (by literally checking a box on a form) whether or not to characterize an entity it owns as a separate corporation.
The Clinton Administration quickly realized that this created a significant problem in the international context because multinational companies can characterize their offshore subsidiaries in different ways to different governments (such subsidiaries are often called “hybrid entities”) so that their profits are ultimately taxed by no government at all.
In 2013, Senator Carl Levin held a hearing of the Homeland Security and Government Affairs Permanent Subcommittee on Investigations on Apple’s use of offshore tax havens. Senator Levin and the subcommittee’s ranking member John McCain issued a report explaining that Apple used this loophole and recommended that Congress close it.
Businesses are generally allowed to deduct expenses like interest paid on debt from their gross income when calculating taxable income. Without rules to prevent abuse, some corporations would arrange financial transactions in which they make large interest payments to their offshore subsidiaries and use the deductions to wipe out their income for US tax purposes.
Our tax rules generally try to prevent this by taxing interest (and certain other types of income) when it is earned by of offshore subsidiaries of American corporations.
But corporations can circumvent these anti-abuse provisions by using check-the-box rules. For example, a subsidiary of an American company in Germany could make an interest payment to another subsidiary in a tax haven country, and tell the German government it is entitled to a deduction because it made an interest payment to another corporation.
But then it tells the American government that the tax haven company is just a branch of the German company so the payment was an internal company payment, meaning there is no profit to tax. In reality, that payment is a profit that is not taxed anywhere.
The Clinton Administration proposed rules to address the problem — which were withdrawn after Congress threatened to legislatively lock the check-the-box rules in place.
This problem demands particular attention because the OECD, through its Base Erosion and Profit Shifting (BEPS) project which the US has been heavily involved in, has called on countries to end the tax avoidance associated with hybrid entities created through check-the-box. If Congress refuses to act, the Administration arguably must act alone to implement the OECD’s recommendations and cooperate with the BEPS project.
President Obama proposed in his fiscal year 2010 budget to address the international tax avoidance associated with check-the-box through legislation. JCT estimated that the President’s proposal, which included several complex exceptions, would raise $31 billion over a decade.
A simpler version of this proposal from Senator Levin was said to raise $78 billion over a decade. This presumably means that $78 billion is the outer limit on the possible revenue savings from addressing this problem through executive action.
Carried Interest Loophole
Ten-year revenue impact: $18 billion
The carried interest loophole allows wealthy buyout fund managers to characterize their compensation (which they earn for managing other people’s money) as capital gains, which is taxed at a lower rates than other types of income. The top personal income tax rate for capital gains is just 20 percent, about half the top rate of 39.6 percent that applies to other types of income.
The general idea behind the lower rate for capital gains is that people who invest money should pay a lower rate on the return from that investment. This idea has never made much sense, but it is even worse when a loophole like this one is used to obtain the lower tax rate for income that is not a return on investment but is actually compensation paid for work (for the services provided by fund managers).
Income in the form of carried interest can run into the hundreds of millions (or even in excess of a billion dollars) a year for individual fund managers, raising the question of why this particular group needs a special tax break.
Victor Fleischer, a tax law professor at the University of San Diego who first drew Washington’s attention to the carried interest loophole, has written that the Administration has the authority under existing law to close this loophole.
He points out that section 707(a)(2)(A) of the tax code authorizes the Treasury Department to issue regulations addressing the extent to which partners in a business are paid for compensation or paid returns on investments they have made — and Treasury has not done so in the 30 years this has been on the books. Treasury can simply define fund managers as service providers so that carried interest is taxed as earned income.
Corporate Inversions
Ten-year revenue impact: Up to $13 billion
A corporate inversion takes place when a corporation merges with a (usually much smaller) foreign company and then reincorporates as a foreign company to avoid US taxes even as it continues to operate and be managed in the US.
Congress needs to close the loophole allowing these corporations to claim that they are foreign companies for tax purposes. Until Congress acts, regulatory action can help by tightening the rules and blocking some of the tax dodges that are available to inverted companies. This would eliminate much of the motivation for corporate inversions.
In July of 2014, former Treasury official and Harvard Law scholar Stephen Shay published an article arguing that the Administration could act to block the two main tax dodges that become available to corporations after they invert.
The first involves “hopscotch” loans, which inverted corporations could use to effectively shift offshore profits back into the US without paying taxes on them.
The second major tax dodge available to inverted corporations is “earnings stripping.” In September of last year, the Treasury department issued a notice effectively addressing the first tax dodge (hopscotch loans) but only hinted that it would eventually address the second tax dodge (earnings stripping).
Corporations claiming to be based abroad (and corporations that really are based abroad) are able to use earnings stripping techniques to make profits earned in the US appear to be earned in countries where they will be taxed more lightly or not at all.
Earnings are stripped out of the US when a foreign-owned US corporation (which an inverted company technically is) borrows money from its foreign parent corporation, to which it makes large interest payments that wipe out US income for tax purposes.
The loan is really an accounting gimmick, since all the related corporations involved are really one company that is simply shifting money from one part to the other. The interest payments made by the American corporation in effect shift the profits that are really earned in the US to the foreign country for tax purposes.
Shay’s article explained that the Treasury Department could issue regulations under section 385 of the tax code that would limit earnings stripping for inverted corporations. That section of the law essentially allows Treasury to issue regulations to determine whether an interest in a corporation is treated as debt or equity (stock).
Regulations could, Shay explains, reclassify excessive debt taken on by an inverted American company from its (ostensible) foreign parent company as equity.
This would mean that any interest payments made by the inverted American corporation would be reclassified as dividends paid on stock, which, unlike interest payments made on debt, are not deductible. Shay proposes specific calculations for Treasury to use, but there probably are several ways that it could define excess indebtedness that would be reclassified as equity.
Valuation Discounts that Reduce Estate and Gift Taxes
Ten-year revenue impact: $18 billion
Wealthy people sometimes transfer to their children a small part of a family-owned business with restrictions on the children’s ability to sell or control that business.
Even though these “restrictions” are often ignored or removed later, families claim that they reduce the value of the gift for purposes of calculating the gift or estate tax.
In his first four budget plans, President Obama included a proposal that would essentially have the IRS ignore some of the meaningless “restrictions” in these transfers, which will result in a higher value for gift and estate tax purposes. The Treasury Department has estimated that these proposals would raise $18 billion over a decade.
In its analysis of the President’s proposals in 2009, JCT commented that it seemed that Treasury was about to issue regulations addressing this issue and suggested that legislation was not even necessary.
“Some also may argue that, even in the absence of the proposal, the Secretary has broad authority under section 2704(b)(4) to issue new regulations establishing restrictions that must be disregarded in valuing transfers of an interest in a family-controlled entity….
“Furthermore, the IRS and Treasury business plan for 2008-2009 describes a plan to issue guidance under § 2704 regarding restrictions on the liquidation of an interest in a corporation or partnership. The Treasury Department’s explicit plan to issue new guidance under section 2704(b) arguably raises questions about whether a legislative modification of this section is premature or even necessary.”
It is quite possible that when Treasury was considering addressing the issue through regulations, the Administration changed course and proposed the measure as a legislative change that could be used as a revenue-raising provision to offset the cost of other measures.
But given that that the majority in the House and Senate now support outright repeal of the estate tax, it is highly unlikely that this Congress would act to close loopholes in the estate tax.
Corporate Offshore Tax Avoidance Using Short Term Loans
Ten-year revenue impact: unknown
American corporations are supposed to pay US income taxes on their offshore profits when those profits are brought to the US In 2012, Senator Carl Levin held a hearing of the Homeland Security and Government Affairs Permanent Subcommittee on Investigations revealing that Hewlett-Packard had found a way around this rule.
HP had its offshore subsidiaries provide a continuous series of short term loans that effectively transferred offshore profits into the US without triggering US income tax that would normally apply when offshore corporate profits are repatriated.
Section 956 of the tax code is designed to prevent this. Section 956 treats such loans from offshore subsidiaries to their American parent corporations as a “deemed repatriation” that would be subject to US taxes. The problem is that Treasury regulations created exceptions to these rules that greatly weaken them.
Those regulations essentially say that section 956 does not apply if loans from offshore subsidiaries are outstanding for less than 30 days each and the total loans for the year are outstanding for less than 60 days.
The Permanent Subcommittee on Investigations explained that Treasury then turned this exception into a bigger loophole by declaring that it would not count any loan that was not outstanding at the end of a quarter and that these limits apply separately to each subsidiary of a corporation.
As a result, HP was “borrowing” billions from several offshore subsidiaries, mainly one in the Cayman Islands and another in Belgium, using this money to fund its US operations while officially holding less than a billion in the US.
Stephen Shay, the same international tax law scholar whose article on corporate inversions prompted the Treasury Department to act on that issue, testified before the subcommittee that Treasury has additional powers under existing law, under both section 956 and section 7701(l) to prevent this type of tax avoidance.
This seems straightforward. Section 956(e) says the “Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including regulations to prevent the avoidance of the provisions of this section through reorganizations or otherwise.”
Section 7701(l) provides that “The Secretary may prescribe regulations recharacterizing any multiple- party financing transaction as a transaction directly among any 2 or more of such parties where the Secretary determines that such recharacterization is appropriate to prevent avoidance of any tax imposed by this title.”
Real Estate Investment Trust Loophole
Ten-year revenue impact: unknown
IRS administrative rulings have created a loophole allowing private prisons, billboard companies, casinos and other businesses to claim that they are making money from rents and thus structure themselves as real estate investment trusts (REITs), which do not pay the corporate income tax.
REITs were created in 1960 to allow a way to invest in a diverse portfolio of real estate similar to investment in other types of business through mutual funds. The profits, most of which must be paid out to investors, are subject to personal income taxes but not corporate income taxes.
The problem is that companies engaging in all types of activities claim to earn profits from their real estate in order to conduct the business through REITs and avoid the corporate income tax.
The New York Times has reported that these companies now include “Corrections Corporation of America, which owns and operates 44 prisons and detention centers across the nation,” and “Penn National Gaming, which operates 22 casinos, including the M Resort Spa Casino in Las Vegas.” They also include “Lamar Advertising, an outdoor advertising firm, and Equinix, a data center operator.”
IRS administrative rulings basically allow these businesses to claim that their income is generated by the land and buildings that they are using and therefore qualify as REITs. Under this standard, it is not clear what would stop a fast food restaurant chain, a major chain retailer or any company with real estate assets from claiming that it can convert to a REIT in the same way and avoid the corporate income tax. The Treasury Department should issue regulations that undo the effect of these administrative rulings.
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