Obama harden stance on taxes

Obama appears to harden his stance on taxes, signaling that major tax reform is off the table. In a speech last Monday, September 19, Obama threatened to "veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share [and] will not support any plan that puts all the burden for closing our deficit on ordinary Americans."

And perhaps the firmest stance and most controversial is Obama's "Buffet Rule," which could put the GOP in a bind, say Democrats, since polling shows support for increasing taxes on wealthy individuals as part of the reduction plan.

The last major tax reform was in 1896 and the entire process took three years. It is unlikely that the Gang of 12 could undertake a major reform of the tax code.

Many millionaires do enjoy lower tax rates, says Center for American Progress

Center for American Progress Director of Fiscal Reform Seth Hanlon confirms that "large numbers of super-rich individuals are indeed paying lower taxes than middle-class families." Seth writes:

• "1,470 households reported income of more than $1 million in 2009 but paid zero federal income tax on it.
• The average federal income tax rate of the richest 400 people in the country in 2008 was 18.11 percent. In 2007 it was 16.62 percent. That is only a little more than just the payroll tax on wages—normally 15.3 percent on a worker’s first $106,800 in wages, counting both the share that workers pay directly and the share their employers pay, which comes out of their wages—let alone the federal income tax on those wages. The tax rates paid by the “Fortunate 400” have plummeted since the mid-1990s, when their average effective rates were about 30 percent.
• According to the Congressional Budget Office, the richest 0.01 percent (those with incomes of $8.6 million and above) paid a combined 17.5 percent in individual income and payroll taxes in 2005, the last year for which such data are available. The group of households with incomes ranging from $45,200–$92,400 paid only a little less on average, at 15.7 percent. The group of households with incomes ranging from $30,500–$45,200 paid 12.5 percent. Of course, there are wide variations within those income ranges, meaning that many middle-class families paid much more than the 17.5 percent average paid by the very rich, while many in the top 0.01 percent paid less than that.
• Due to the so-called carried interest loophole, managers of hedge funds and private equity funds pay 15 percent capital gains rates, and no payroll taxes, on their profits from managing other people’s money. That’s less than what middle-class families pay just in payroll taxes on their wages—let alone what they pay in income taxes. An important part of President Obama’s deficit reduction plan unveiled yesterday is closing the carried interest loophole."

Gang of 12 agrees on reforming the antiquated tax code

Members of both parties of the Gang of 12 appears agree that reforming the tax code needs to be part of the deficit-reduction plan and open to the idea of lowering the corporate tax rate.

The corporate rates should be lowered “significantly,” said Senate Finance Committee Chairman Max Baucus (D-Mont.). But he added, “This is not an easy undertaking, corporate tax reform. It takes time.”

Panel members also disagreed over closing loopholes and tax breaks for corporate-jet owners, Thoroughbred horses and ethanol producers.

Mr. Tom Barthold noted that the individual income tax is the largest source of federal revenue, representing 47 percent of the pie. And he said between 1950 and 2010, corporate and excise taxes have declined as a percentage of overall revenue as employment taxes have increased.

Win America increases lobbying efforts to repatriate offshore profits

Win America, a coalition lobbying Congress to allow corporations to bring back over $1 trillion in overseas profits, appears to be losing traction in Washington. President Obama Rose Garden speech did not address the issue altogether. Treasury Secretary Timothy Geithner told CNBC last week:

“We’re not going to do that, repatriation outside of corporate tax reform, because for the simple reason that it costs a lot of money. It costs between $20 [billion] and $80 billion to do that over 10 years, and if you’re going to do that, you have to be able to pay for it, and how are you going to raise taxes on the 96 percent of companies across the country that don’t benefit from repatriation?”

But endorsements from prominent Democrats, including former Democratic National Committee Chairman Howard Dean, gives repatriation advocates renewed hope that a tax holiday can be happen  this year. The SEIU's former president, Andy Stern, has endorsed the idea.

Win America’s public relations campaign is run by SKDKnickerbocker, the PR firm that managed President Barack Obama’s election and is home to Anita Dunn, Obama’s former communications director. It has hired ex-Rep. Jim McCrery (R-La.), the former ranking member on the Ways and Means Committee, "to lobby House Republicans and Mark Isakowitz, the former director of federal governmental relations at the National Federation of Independent Businesses, to work centrist Republicans."

"On the Democratic side, they’ve pulled in Jeff Forbes, former chief of staff to Sen. Max Baucus (D-Mont.), the chairman of the Senate Finance Committee and a member of the Joint Committee on Deficit Reduction.

"The campaign has also been working with Let Freedom Ring, a tea party group that helped drive the Republican Study Committee’s Cut, Cap and Balance mantra.

Rep. Kevin Brady, a Texas Republican on the Ways and Means Committee, introduced legislation in May that would call for an immediate tax holiday allowing companies to repatriate overseas profits at a 5.25 percent rate. And Sen. Kay Hagan (D-N.C.) is considering whether to introduce a similar bill.

The team of lobbyists see three potential ways to get the job done: Get the super committee to take it up; include it with a series of expiring tax provisions; or attach it to the president’s jobs bill."

A 2009 Congressional Research Service study found “no evidence of a corresponding increase in domestic investment or employment” from the 843 corporations that brought back a collective $312 billion in 2004.

RATE call for lowering tax rate and National Retail Federation lobbies for online retailers to collect taxes

On Tuesday, September 20, a coalition made up of 13 corporations sent a letter calling the White House and the Gang of 12 to work towards lowering the corporate tax rate. RATE (Reducing America’s Taxes Equitably) Coalition argues that reducing the tax rate will boost investment in the U.S., create more American jobs, and increase economic growth. It contends that U.S. corporate tax rate is the second highest among other OECD countries, which together have an average corporate tax rate of 25 percent.

Coalition members include Altria Client Services, Association of American Railroads, AT&T, Boeing, FedEx, Lockheed Martin, National Retail Federation, Nike, Raytheon, Time Warner Cable, UPS, Verizon and Walt Disney.

Dr. Elaine Kamarck, former advisor to President Clinton and Vice President Gore, and James P. Pinkerton, former advisor to Presidents Reagan and George H.W. Bush, will serve as RATE co-chairs.

The Coalition appears to be flexible about the details of how to lower rate and did not take a stance on whether the U.S. should switch to a tax system that only taxes American multinationals on profits made in the U.S. Currently, the U.S. taxes American corporations on profits made globally.

The Coalition underscore a rift within the corporate community over a corporate tax holiday that would allow multinationals to temporarily bring offshore profits to the U.S. at a lower rate than 35 percent. Among the supporters of a tax holiday include GE, Apple, Google, and the U.S Chamber of Commerce.

But AT&T has been among the corporate giants that have said they believe a holiday push could distract from the broader goal of reform. “This is not the tax shelter coalition. This is not the tax break coalition,” Pinkerton said.

The makeup of RATE Coalition membership also appears to highlight the divide within the corporate community on tax reforms as members are mostly companies that have a big domestic focus. Those companies tend to pay higher effective tax rates than many of their multinational counterparts, due in part to the ability of multinational to shift profits offshore. “There’s potential for high-stakes conflict between domestic and multinational firms, if some of those breaks for foreign operations are targeted to offset the cost of lowering the corporate rate.”

Also, the National Retail Federation is lobbying to push legislation that would require online retailers like Amazon.com and Overstock.com to collect sales tax like their store-front counterparts. Senator Dick Durbin (D-Illinois), author of the sale tax sale tax legislation introduced in July, said that requiring online retailers to collect sales tax will generate as much as $250 million for state governments.

Go Big or Go Back: Challenge Rises as the Gang of 12 Looks To Old Deficit Reduction Proposals

If finding $1.5 trillion in deficit reduction was a tough task, the job for the Gang of 12 just got much tougher. President Obama’s request last week for the panel to find offsets for his $450 billion job initiative – setting a new bar at nearly $2 trillion in net savings – dwarfs in comparison to the $4 trillion the co-chairs of Obama’s 2010 Bowles-Simpson deficit commission is asking the Gang of 12 in a letter to come up with.

The letter called for the Gang of 12 to “Go Big” was signed on by 60 other business experts. The 2010 Bowles-Simpson deficit committee’s proposed plan to reduce the federal budget by $4 trillion in 10 years failed to obtain the supermajority votes needed to pass it.

Finding $4 trillion in deficit reduction is also supported by a bipartisan group of more than 30 Senators. The group, led by Sens. Mark Warner (D-Va.) and Saxby Chambliss (R-Ga.), also wants the Gang of 12 to draw from other plans that have been put forward, including from the Gang of Six, of which Warner and Chambliss were members.

While it may be too early to judge, it does appear that the Gang of 12 may not be willing to push the envelop with fresh ideas. “It wouldn’t make sense to try to reinvent the wheel,” California Rep. Xavier Becerra, a supercommittee member and the Democratic Caucus vice chairman, told POLITICO.

“We can take a lot of the good work that was done by any of these commissions and groups to give us a set of ideas which we can work off of,” he said. “If we do that, I think that can help us accelerate our time frame.”

According to Scott Wong of POLITICO, this means that there is a "familiar road map for the deficit panel: tax code reform, including closing loopholes for special interests and overhauling the big entitlement programs of Medicare, Medicaid and Social Security. Other cuts to domestic programs are also under discussion, though the Defense Department is fighting deep cuts to military programs.”

  

The Big Three: Medicare, Medicaid and Social Security

• Democrats on the House Ways and Means Committee last week recommended raising the eligibility age for Medicare to 67 from 65, an idea that has the backing of Obama and most Republicans. 
• The Gang of 12 could  borrow an idea from Obama’s Simpson-Bowles deficit committee: “Force drug companies to provide rebates to Medicare recipients, nearly a $50 billion savings.” 
• Obama also recommended hiking premiums for wealthier recipients. 
• President Obama’s recommendation for Gang of 12, however, will not include any changes to Social Security, which allows him to avoid a clash with his Democratic base over the popular retirement program at a time when he needs its support to push for his $447 billion jobs program and to buck up his lagging poll numbers. 

Tax reform

• According to a report by Scott Wong of POLITICO, Sen. Rob Portman (R-Ohio), a Gang of 12 member who served as President George W. Bush’s budget director, is "open to Democrats’ efforts to close tax loopholes — so long as the new revenue is used to lower overall tax rates. That’s an approach adopted by the Gang of Six and the Simpson-Bowles deficit commission."
• Baucus and Ways and Means Committee Chairman Dave Camp (R-Mich.) remains another launching pad for tax reform, according to Scott Wong. Earlier this year, "the two lawmakers launched a joint committee to identify ways to create jobs by simplifying the Tax Code, lowering rates and broadening the tax base."

How much sway do the Gang of Six and Simpson-Bowles have? 

That is yet to be seen. 

Former Congressional Budget Office Director Alice Rivlin, who served with Baucus, Becerra, Hensarling and Camp on the fiscal commission, isn’t discouraged by the fact that none of her former colleagues now on the Gang of 12 backed sending the Simpson-Bowles plan to Congress.

“It’s a new ballgame, and my hope is that they will [realize] this is a big opportunity to do a bipartisan deal because they have extraordinary powers,” Rivlin told POLITICO. “They could get it through the Congress with relative ease.”

The Gang of Six, however may have less influence. Despite having 30 Senate supporters, Congressional leaders have been "traditionally wary of freelancers who work outside the standing committee system [and] 'tend to like things to go in regular order,'" a Senate Democratic aide said in an article by Humberto Sanchez in Roll Call. 

Corporate Power Decried By Former Lawmaker

Former Rep. Paul Kanjorski (D-Pa.) spoke candidly about the relationship between large corporations and government, admitting, "Because [corporations] have become so international and global in nature, it's highly questionable whether governments can actually control corporations to a sufficient degree to prevent them from controlling governments."

One of the most worrying examples of the increasing ungovernability of corporations is the current push to allow corporations that have been stashing capital overseas to bring it back to the U.S. at a rate as low as 5 percent, argued Kanjorksi, who served for 26 years in the House of Representatives before being ousted last year. A coalition of tech firms, drug companies, energy conglomerates and lobbying front-groups are pushing Congress to pass a tax holiday bill.

"The reality is, why should we be bargaining with super-national corporations who are actually acting against our interest in avoidance of what our law is? We are impotent to get them to respond."

Kanjorski was speaking from experience. The district he represented has long been neglected by corporate America. Home to the small cities of Scranton and Wilkes-Barre, the 11th District of Pennsylvania was a significant manufacturing hub for much of the 20th century, but firms shipped most of those jobs elsewhere decades ago, leaving the region struggling economically well before the financial crash of 2008 devastated the national labor market.

Read Rep. Kanjorski's interview with the Huffington Post, 8/26/2011.

Gov. Brown to tighten corporate to raise $1B

Gov. Jerry Brown unveiled a plan Sept. 6, 2011 to "tighten a corporate tax formula in exchange for giving manufacturers a sales tax exemption and offering enhanced job tax credits." The proposal, part of his job-creation package, requires multistate companies "calculate their tax liability only on the proportion of sales they have in California relative to elsewhere in the nation, a method called single sales factor." The proposal would eliminate a bill passed in 2009 that allows companies choose a more generous of two tax formulas. CA is one of only two states to allow companies a choice on an annual basis. Eliminating the rule could raise $1 billion.  The success of the bill requires 2 GOP votes, which seems unlikely. Brown proposes the new savings would give credits for new hires and grant manufactures a sales tax break.

How does single sales factor work? See article
Take PA as example. Corporations pay a 9.99% tax on profits in PA, but only based on the percentage of their business in Pennsylvania (since they will be subject to the same tax in other states). The percentage of their business in PA is calculated based on sales, property, and payroll in the state. The current ratio is 70% sales, 15% property, 15% payroll. Here is how the formula works:

Percent of sales in PA x .70 + Percent of property in PA x .15 + Percent of payroll in PA x .15 = Percent of business in PA.

Moving to a single sales factor would mean corporations use only their percentage of sales to calculate tax liability.

Winners and losers:
-Businesses with a higher percentage of their operations, but a lower percentage of sales in PA would see a tax cut.
-Business with a higher percentage of sales in PA, but more of their operations in other states would see an increase.

There are a couple very good reasons to move to a single-sales factor
-It simplifies tax compliance
-It would stop punishing businesses that keep or move their base of operations to Pennsylvania.

Special Report: Massive CEO Rewards for Tax Dodging

Institute for Policy Studies report, Executive Excess 2011: The Massive CEO Rewards for Tax Dodging, found that 25 of 100 U.S. corporations paid their chief executive more than what the company paid in federal corporate income tax in 2010.

According to the report, "Corporate outlays for CEO compensation — despite the lingering Great Recession — are rising. Employment levels have barely rebounded from their recessionary lows. Top executive pay levels, by contrast, have rebounded nearly all the way back from their pre-recession levels.

"In 2009, major corporate CEOs took home 263 times the pay of America's average workers. Last year, this gap leaped to 325-to-1...Among the nation's top firms, the S&P 500, CEO pay last year averaged $10,762,304, up 27.8 percent over 2009. Average worker pay in 2010 [finished] at $33,121, up just 3.3 percent over the year before.

"The report finds no evidence that CEOs are fashioning...more effective and efficient enterprises. On the other hand, ample evidence suggests that CEOs and their corporations are expending considerably more energy on avoiding taxes than perhaps ever before — at a time when the federal government desperately needs more revenue to maintain basic services for the American people. This disinvestment also undermines the infrastructure and services that small and large businesses also depend upon.

"Investigative journalists and tax research organizations have been documenting how U.S.-based global companies are aggressively shearing — and even totally eliminating — their federal income tax obligations. This past March, for instance, The New York Times traced the steps General Electric has taken to avoid U.S. corporate taxes for the last five years. Citizens for Tax Justice, as part of a forthcoming study on tax avoidance among the Fortune 500, has identified 12 corporations that have paid an effective rate of negative 1.5 percent on $171 billion in profits."

Read The Nation's write-up of the Report.

Amazon sweetens deal to end collection of sales tax

Amazon hopes to squash a growing movement towards taxing online commerce by proposing on Tuesday, August 30, 2011 to open six distribution centers that would employ 7,000 Californians. In return, Amazon wants a reprieve from the new law passed in June 2011 until 2014. The new law forces  internet retailers to collect sales tax from California customers. According to Sacramento Bee reporters Dale Kasler and Torey Vann Oot, Amazon has used a similar tactic elsewhere with some success. In South Carolina earlier this year, Amazon threatened to scuttle a big new distribution center until the Legislature agreed to a five-year moratorium on sales tax collection. Amazon must create at least 2,000 jobs by late 2013 for the deal to remain in effect. In Tennessee, the state government agreed to allow Amazon won’t have to collect taxes on goods shipped from the three distribution centers Amazon is building. In Texas, however, Gov. Rick Perry signed an online sales tax bill this year despite Amazon's threat to close an existing distribution center. The tax was part of a wide-ranging budget bill. Amazon followed through on its threat to close the distribution center.

Amazon has spent $5 M to put a referendum on CA 2012 June’s ballot to overturn the sales tax law. The law is estimated to collect $200 million a year in new tax revenue.