Elizabeth Warren’s War on Accounting

Link:https://www.wsj.com/articles/elizabeth-warren-accounting-standards-corporate-minimum-tax-fasb-reconciliation-taxation-11636921275

Excerpt:

The Democrats’ proposed 15% levy on the world-wide financial-accounting earnings of large, highly profitable companies may sound familiar. It was originally proposed by Sen. Elizabeth Warren during her bid for president. Democrats are pushing this tax again now, hoping it will encourage passage of a $1.85 billion reconciliation bill to fund President Biden’s Build Back Better plan.

Any plan to tax financial-accounting earnings is ill-conceived, as I argued on these pages in May 2019. Blurring the lines between taxable income and financial-accounting profit would inevitably lead to political meddling in financial-accounting rules and damage the usefulness of financial accounting for investors.

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Politicians and the FASB have vastly different objectives. Financial-accounting rules are created by the apolitical FASB to provide information useful to investors. In contrast, tax-accounting rules are largely determined by Congress to achieve such objectives as raising revenue, encouraging or discouraging certain behavior, and redistributing wealth. Two accounting systems are necessary, one for pursuing social objectives through the tax system, the other for giving investors comparable, reliable and timely information. The U.S. is not unique in this regard. Every developed country has a tax-accounting system that is separate from its financial-accounting system.

Because the objectives of the two systems are different, the income they compute is different. 

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If Congress wants to raise more revenue and prevent companies from reporting low tax rates, it should change the tax code. 

Author(s): Scott Dyreng

Publication Date: 14 Nov 2021

Publication Site: Wall Street Journal

Yellen, IRS Push Democrats to Require Banks to Report Taxpayers’ Annual Account Flows

Link: https://www.wsj.com/articles/yellen-irs-push-democrats-to-require-banks-to-report-annual-account-flows-11631727020

Excerpt:

Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig pressed lawmakers Wednesday to give the Internal Revenue Service more information about taxpayers’ bank accounts, as the Biden administration tries to salvage its tax-compliance proposal.

In letters to lawmakers, the administration officials again asked Congress to require banks to report annual inflows and outflows from bank accounts with at least $600 or at least $600 worth of transactions, a proposal aimed at letting the IRS target its audits more effectively. It would generate about $460 billion over a decade to cover the costs of Democrats’ planned expansion of the social safety net and climate-change policies, according to the administration.

But after a flurry of opposition from banks and credit unions, House Democrats omitted the proposal from their list of tax-policy changes this week. That was a sign that it lacked the support in the party to advance, though a scaled-back version raising about half as much money could still emerge from ongoing talks between administration officials and Congress.

Author(s): Richard Rubin and Orla McCaffrey

Publication Date: 15 Sept 2021

Publication Site: Wall Street Journal

Wage Stagnation and Its Discontents: Rethinking the Safety Net to Encourage a More Dynamic Economy

Link: https://www.manhattan-institute.org/schrager-wage-stagnation-rethinking-safety-net

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Excerpt:

Guaranteed jobs or UBI are poorly targeted and do not match the needs of new workers and may even hold them back by offering the sort of guarantees that perpetuate wage stagnation. Instead, the new safety net should offer various programs to smooth out dips in income and offer benefits that are not tied to a single employer, including:

Wage insurance—benefits that account for a drop in income, not just a loss of employment

Income averaging—tax rates based on income over three or five years, not just a single year, which will make income more stable for workers in variable work arrangements

Providing contingent workers the opportunity to receive benefits, such as health care and sick leave, that are not tied to traditional employment

To protect themselves against income risk, Americans have resorted to stagnation. We can provide downside protection in alternate ways—so that Americans can feel more free to switch jobs, try alternative forms of work, or start new companies. The above-mentioned programs are a more cost-effective and efficient way to address the needs of the new labor force than the guarantee-oriented policies that receive more attention. These programs provide options that would provide more robust insurance that can help spur a more dynamic economy. The options are merely a starting point to think more creatively about how to support a changing economy and break the cycle of stagnation.

Author(s): Allison Schrager

Publication Date: 9 September 2021

Publication Site: Manhattan Institute

How States Are Letting Small Businesses Avoid The SALT Cap On Their Tax Returns

Link: https://www.forbes.com/sites/lizfarmer/2021/07/01/how-states-are-letting-small-businesses-avoid-the-salt-cap-on-their-tax-returns/?sh=7ef5a29127c5

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Excerpt:

Colorado recently became the 14th state to enact the new workaround, which allows (or in Connecticut’s case, requires) pass-through businesses to pay state income taxes at the entity level rather than on their personal income tax returns. For small businesses like partnerships, declaring that income as a business instead of passing it through to their individual tax returns means the state taxes paid on that business income don’t count toward their SALT cap.

The new mechanism is called a pass-through entity (PTE) tax, which is exempt from the $10,000 cap on the state and local tax (SALT) deduction that was part of President Trump’s 2017 tax reform. For business owners in high property tax states like New Jersey and Connecticut, it’s a critical change because it allows those taxpayers to deduct more of their local taxes from their other personal income.

Author(s): Liz Farmer

Publication Date: 1 July 2021

Publication Site: Forbes

Not With a Bang, But a Whimper: Demographic Decline Undermines Public Finance

Link: https://marypatcampbell.substack.com/p/not-with-a-bang-but-a-whimper-demographic

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Excerpt:

The last time the Census Bureau did a population projection, the estimated population for even 2020 came in a little high. From March 2018: Demographic Turning Points for the United States: Population Projections for 2020 to 2060 — they estimated a total population of about 332.6 million, and the apportionment Census results were 331.1 million. To be sure, this is a less than 0.5% difference, so no big deal.

This is the growth rate they projected, even in 2018:
2020-2030: 7%
2030-2040: 5%
2040-2050: 4%
2050-2060: 4%

Those are full-decade growth rates. That’s before the pandemic has shaved our numbers down a little.

Would you like to know the growth rates from prior decades?
2010-2020: 7%
2000-2010: 10%
1990-2000: 13%
1980-1990: 10%

Author(s): Mary Pat Campbell

Publication Date: 28 May 2021

Publication Site: STUMP at substack

So, Can States Cut Taxes or Not?

Link: https://www.governing.com/finance/So-Can-States-Cut-Taxes-or-Not.html

Excerpt:

Most observers believe that the Treasury will interpret the law narrowly. Rather than seeking to claw back funds from any states passing tax cuts or credits, the feds are considered likely to challenge only those states that clearly use federal dollars to pay for them. “Nothing in the act prevents states from enacting a broad variety of tax cuts,” Treasury Secretary Janet Yellen wrote in a response to the AGs. “It simply provides that funding received under the act may not be used to offset a reduction in net tax revenue resulting from certain changes in state law.”

But the fact that the law blocks federal money from being used even indirectly to pay for tax cuts has state officials not just worried but angry. “Democrats in Washington and in the White House are not going to tell me, or the Georgia General Assembly, that we can’t cut taxes for hard-working Georgians,” Gov. Brian Kemp complained at a news conference last month.

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That prohibition lasts as long as the stimulus dollars are spent, which will be into 2024. And there are limits, Walczak notes, on where and how states can spend federal aid. They can use the money to address pandemic and health needs, for example. While those are clearly ongoing, much of the cost of vaccine supply and distribution has been underwritten by the feds. Other costs in these areas have already been addressed by last year’s federal CARES Act, which some states struggled to spend.

Author(s): Alan Greenblatt

Publication Date: 7 April 2021

Publication Site: Governing

How taxes turned margarine pink, made ships sink, and more strange results

Link: https://nypost.com/2021/04/03/how-taxes-made-margarine-pink-ships-sink-and-more-odd-results/

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Book listing: https://amzn.to/2PxVkFz

Excerpt:

Unmarried men in ancient Greece and Rome were taxed, as were British bachelors from 1695 to 1706. Some states in the US even had a similar policy into the 20th century. 

But what about those men who were unlucky in love? Were they to be “doubly cursed, embraced by the taxman but spurned by womankind?” the authors write. 

In some places, bachelors were made exempt from the tax if they could prove they had asked a woman to marry but were rejected. 

In Argentina around 1900, the tax gave rise to “professional lady rejectors” — women who, for a fee, would swear to authorities that a man had asked for their hand and that they had refused. 

Author(s): Reed Tucker

Publication Date: 3 April 2021

Publication Site: NY Post

New York business leaders push Biden, Schumer to ditch the cap on SALT deductions

Link: https://www.cnbc.com/2021/03/29/new-york-business-leaders-push-biden-schumer-to-remove-cap-on-salt-deductions.html

Excerpt:

Leaders of the finance industry and other businesses in New York are pushing President Joe Biden and Senate Majority Leader Chuck Schumer to bring back the full state and local tax deduction.

Schumer, who is up for reelection in 2022, has heard from business leaders across New York on multiple calls in recent weeks. Some of these people have also held talks with advisors to Biden.

The so-called SALT deduction was capped at $10,000 by former President Donald Trump’s tax reform bill, which became law in late 2017.

Author(s): Brian Schwartz

Publication Date: 29 March 2021

Publication Site: CNBC

Biden’s retirement idea getting the cold shoulder

Link: https://www.pionline.com/defined-contribution/bidens-retirement-idea-getting-cold-shoulder

Excerpt:

Equalized tax advantage proposal being met with skepticism by industry

Alicia Munnell doesn’t think the shift would help because workers typically don’t look at tax incentives.

Trade groups representing plan sponsors have snubbed a proposal floated by President Joe Biden to give individuals across all pay grades equal tax advantages for their retirement savings.

Author(s): MARGARIDA CORREIA

Publication Date: 22 February 2021

Publication Site: Pensions & Investments