Are We Finally Lifting the Secret IRS Veil on Un-Paid Taxes?

Posted on January 17, 2012 by Dr. David Edward Marcinko MBA MEd CMP™

The Tax Gap Increases to $450 Billion

By Children’s Home Society of Florida Foundation

By Dr. David Edward Marcinko MBA, CMP™

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Each year the IRS conducts a survey to determine the amount of unpaid taxes. The “tax gap” is defined as the amount of taxes that are owed by taxpayers but not paid on time.

2006 Results

For the year 2006, revised figures released this week showed that the tax gap increased.  The previous estimate of the 2006 tax gap was $345 billion but it increased to $450 billion. The “net tax gap” is a smaller number that reflects the ability of the IRS to collect some of the unpaid taxes.  When the additional $65 billion in taxes collected later is subtracted from the $450 billion, the net tax gap is $385 billion.  The net tax gap number increased from $290 billion in 2001 to the larger number by 2006.

Tax Compliance Level

The compliance level for taxpayers remains 83.7%.  This indicates that the majority of Americans are continuing to calculate and pay their taxes correctly.

Sen. Max Baucus (D-MT) is Chairman of the Senate Finance Committee.  He responded to the IRS survey by noting,

“This report shows that closing the tax gap needs to be a major focus of tax reform.  An improved tax code that’s simple and fair to all Americans will help close the tax gap, boost our economy and create jobs.”

Editor’s Note: 

Both Sen. Baucus and House Ways and Means Committee Chair Dave Camp (R-MI) have been conducting hearings that will lead to major tax reform in 2013.  For the vast majority of Americans who pay their fair share of taxes, it is beneficial if Baucus and Camp are able to simplify the tax system and reduce the tax gap.  More effective collection of revenue decreases the need to raise taxes on those who are currently paying their fair share.

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David Camp Proposes Corporate Tax Reform

Posted on November 1, 2011 by Dr. David Edward Marcinko MBA MEd CMP™

The House Ways and Means Committee Chairman Speaks

By Children’s Home Society of Florida Foundation

On October 26th 2011, House Ways and Means Committee Chairman Dave Camp (R-MI) proposed a comprehensive tax reform of corporate taxes. He stated that the present “outdated” tax system discourages employers from hiring in America and transfers jobs overseas.

Camp noted, “If we are serious about creating a climate for job creation, now is the time to adopt tax policies that empower American companies to become more competitive and make theUnited States a more attractive place to invest and create the jobs this country needs.”

The Specifics

The discussion proposal specified the changes that Camp would make in the corporate tax system:

1. Corporate Tax Rate – The top rate would be reduced from 35% to 25%. The rate reductions would be accomplished through major changes in corporate tax deductions for depreciation, depletion and other items.
2. Territorial Tax System – The “worldwide” system of taxation was created five decades ago and the U.S. should move to a territorial tax system similar to that used by most other industrial nations.
3. Repatriation – There would be a 95% exclusion for overseas earnings brought back to America. At present, many large American companies have billions of dollars in cash and investments that are held overseas to avoid U.S. corporate taxes.
4. Anti-Abuse Rules – There would be multiple rules and guidelines to preclude companies avoiding a payment of their fair share of tax.
5. Global Competition – An updated tax system for corporations would encourage American companies to hire U.S. citizens and make them more competitive on a global basis.

The prime concern that Camp expressed is that all of the industrial nations in Europe and Asia (except Japan) have reduced their corporate tax rates during the past decade. The comparatively higher U.S. corporate tax rates place our companies at a disadvantage and encourage movement of jobs overseas.

Assessment

One major concern with the reduction in rates is that manufacturing corporations will pay higher taxes because of the loss of their various deductions.

Ways and Means Committee ranking member Sander Levin (D-MI) noted, “Lowering the top corporate tax rate to 25% without adding to the deficit would require repealing key provisions that strengthen domestic manufacturing and encourage American innovation and investment.”

He also expressed concern that lowering the corporate rates could cause a shift in the tax burden to individuals.

Editor’s Note: It is a very long path to major tax reform. The main debate between the parties is whether or not tax reform should be revenue-neutral or produce higher revenue. Comprehensive tax reform will await a resolution of this debate in Congress.

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On Rising Unemployment

Posted on June 5, 2011 by Dr. David Edward Marcinko MBA MEd CMP™

Will Tax Reform Create Jobs?

By Children’s Home Society of Florida Foundation

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With a jobs report showing 54,000 new jobs last month, unemployment moved back up to 9.1%. Both parties are in agreement that the current economy is not producing a sufficient number of new jobs to reduce the unemployment rate.

House Ways and Means Committee

The House Ways and Means Committee continued to conduct hearings on tax reform that may increase employment. Chairman Dave Camp (R-MI) opened the June 2 meeting with a statement that it is time for “a systematic review of the tax code for a very simple reason – the tax code is preventing, not promoting, job creation.”

Chairman Camp notes that it is important to reform the tax code by lowering rates. He suggests that lowering marginal tax rates on business income will facilitate job creation.

Camp stated that the “combined federal-state corporate tax rate of 39.1%” is one of the highest in the world. In addition, there are over 200 federal tax provisions that are expected to expire in the next few years. Without a stable tax system and low rates, it is difficult for companies to grow and create new jobs. Chairman Camp has proposed a reduction in corporate and individual tax rates to 25%. The purpose of the hearings is to discuss how to reduce corporate and personal deductions so that overall tax rates can be lowered.

Ranking Minority Member Sander Levin (D-MI) commented, “I think most of us agree that a lower corporate rate is desirable. But the trade-offs involved in getting there truly matter.”

Assessment

At a subsequent meeting the next day with a group in Washington, Levin noted that it is one thing to propose a reduction in rates to 25%. However, reducing the personal rate would require a substantial change in the rules for mortgage interest and health insurance deductions. Similarly, reducing corporate rates would require a substantial change in the manufacturing deduction and the research credit.

While both individuals and corporations like the concept of lower rates, the changes in those deductions will affect many Americans. Rep. Levin suggests that it will be important to have an extensive discussion of those changes before there is legislation.

Editor’s Note: Tax reform for 2011 is still quite uncertain. However, as the unemployment numbers continue to hold near 9%, both parties are clearly concerned about the 14 million unemployed Americans. The high level of unemployment may be a motivator to consider substantial tax change this year.

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On Oil and Gas Tax Breaks

Posted on May 9, 2011 by Dr. David Edward Marcinko MBA MEd CMP™

Reducing Tax Incentives?

By Children’s Home Society of Florida Foundation

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In his address to the nation last week, President Obama indicated that he favors a reduction in the tax incentives for oil and gas companies. He noted that gas in some communities is now over $4.00 a gallon and oil companies had $25 billion in profits during the early months of 2011.

While he does not have “a problem with any company or industry being rewarded for their success,” the President suggests that it would be appropriate to reduce tax incentives for the oil and gas industry.

The Response

House Ways and Means Committee Democrats responded with a letter to Chairman Dave Camp (R-MI). They noted that a specific Sec. 199 Domestic Manufacturing Deduction saved the oil companies approximately $1 billion last year in taxes. Democratic Members of the House Ways and Means Committee recommend that this benefit be eliminated for the oil companies.

Assessment

The energy industry responded to the proposals. American Petroleum Institute (API) President Jack Gerard suggested, “We need to stay focused on energy policy, not demonizing industries.” The energy industry notes that there are 9.2 million Americans who are engaged in the domestic oil and gas industry. Oil and gas represents 7.7% of GDP. If the incentives were reduced, there could be lower employment and higher costs due to greater imports of foreign oil.

Editor’s Note: Sen. Max Baucus has indicated that he will introduce legislation to reduce the oil and gas tax incentives within the next two weeks. He plans to spend the revenue gained through changes in oil and gas tax rules on new incentives for clean energy.

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Budget Committee Proposes 25% Tax Rate

Posted on April 12, 2011 by Dr. David Edward Marcinko MBA MEd CMP™

The Ryan Plan for FY 2012

By Children’s Home Society of Florida Foundation

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On April 5th House Budget Committee Chair Paul Ryan (R-WI) presented his budget proposal for Fiscal Year 2012. The comprehensive proposal included over $4 trillion in reduced spending during the next decade and a plan to reduce both the personal and corporate top tax rates to 25%.

House Ways and Means Committee

The tax reform provisions will be handled by the House Ways and Means Committee. Chairman Dave Camp (R-MI) noted that, “with nearly 4,500 changes in the last decade alone, the code is too complex. And with Americans spending over 6 billion hours and over $160 billion annually to comply with the code, it is too costly and too burdensome. Clearly, the time for comprehensive reform has come.”

Many Loopholes

Both parties have raised the possibility of tax reform this year. At a meeting in Pennsylvania, President Obama was asked about the potential for reforming corporate taxes. He noted that the U.S. has “one of the highest tax codes for corporations in the world.”

However, due to “many loopholes” a number of U.S. corporations pay little or no taxes. Moreover, President Obama suggests that it would be good “to reform our tax code, simplify it, lower the rate for corporations, but eliminate a bunch of the loopholes.”

Assessment

Treasury Secretary Timothy Geithner also indicated to the Senate Committee on Appropriations that he is developing a “comprehensive corporate tax reform plan” and it will be released quite soon. Sec. Geithner indicated his plan would include, “a very strong pro-investment, pro-growth, pro-competitiveness proposal.”

Conclusion

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New Agreement on IRA Charitable Rollovers

Posted on May 24, 2010 by Dr. David Edward Marcinko MBA MEd CMP™

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Includes Tax Extenders
By Robert Giese
bob.giese@chsfl.org

After months of negotiation, Senate Finance Committee Chair Max Baucus (D-MT) and House Ways and Means Committee Chair Sander Levin (D-MI) have announced an agreement.

Passed House and Senate

The House and Senate both previously passed bills that would extend over 40 tax provisions, including the IRA Charitable Rollover. Because there were different tax offsets in the House and Senate bills, extended negotiations were required to find tax increases acceptable to both.

The House bill paid for the tax extenders by increasing the tax rate on hedge fund managers. Currently, the “carried interest” or income of hedge fund managers is taxed at capital gain rates. The House proposed to tax this income at the higher ordinary income rates.

American Jobs and Closing Tax Loopholes Act of 2010

Under the compromise published in the American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213), the “carried interest” amounts will be subject to increased tax. For hedge fund managers, 75% of income is taxed at ordinary rates and 25% is taxed as long-term capital gain.

Vote this Week

The House plans to vote on the bill the week of May 24. Former Chair of the House Ways and Means Committee Charles Rangel (D-NY) stated, “For a lot of members, it’s a very difficult vote and they don’t want to take a vote unless they have assurance that the Senate is going to pass it.”

Assessment

Sen. Max Baucus indicated that he expected to find the 60 votes required for passage in the Senate. As is true in the House, a number of Senators who represent regions with financial service firms are concerned about the change in the tax on hedge fund managers. However, Sen. Baucus indicates that the votes are likely to be sufficient to pass the bill.

Editor’s Note: Because the tax extenders portion of the bill includes the educational deduction for teachers, a research and development credit for business and many other popular provisions, similar bills normally pass by large margins. Even with the tax offsets, it is probable that the bill will pass in the next few weeks. Charities should begin planning their fall IRA Charitable Rollover marketing campaigns. Because most individuals with larger IRAs take their required minimum distributions in the fall, there is still time to have a successful IRA Rollover Campaign in 2010.

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Conclusion

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