Tag Archives: Tax

What’s Elizabeth Warren’s wealth tax worth?

By Isabel V. Sawhill and Christopher Pulliam – On both sides of the Atlantic, economic inequality has rocketed up the political agenda and inspired a new wave of populism. Wealth inequality is high and rising in the UK and staggeringly so in the US. The top 1% of American households now have more wealth than the bottom 90%. In the UK, the top 10% holds over half the wealth. The richest 400 individuals in the US average a net worth of $7.2 billion.

How did we get to this point? As Thomas Piketty, in his book Capital, famously argued, a capitalist economy left to its own devices will tend to produce not just inequality but ever-rising inequality of wealth – and the income derived from wealth. The main reason is because the returns earned on assets such as stocks and bonds normally exceed the growth of wages.

Imagine an economy with one capitalist and one wage earner. If the annual rate of return to financial assets is, say, 3%, but wages are only growing by 2%, more and more income ends up in the hands of the capitalist. Wealth then begets more wealth as the capitalist, not needing to spend all of his added income, adds to his existing wealth and reaps ever-growing income from that wealth. Unless a war or other shock destroys his wealth (think depression or the devastation in Europe after the Second World War), or government decides to tax it away, we end up with the rise in wealth inequality that we are now seeing in many rich countries – the US in particular.

There is something deeply disturbing about Piketty’s work. If one takes his thesis seriously, it means that the inequality of wealth and its corollary, income inequality, along with their continued growth, is the new normal. They are baked into a capitalist economy.

Of course, some financial capital gets invested in productive assets that help the economy grow. But productive investment and growth have slowed in recent decades, making it hard to argue that the rise in wealth at the top has benefited everyone. In the meantime, the accumulation of wealth in high-income households is one reason that income inequality is rising so sharply at the very top. While the richest 20% of US households, which benefit from a lot of human capital but not a lot of wealth, saw their market incomes rise by 96% between 1979 and 2016, the top 1% – which receives far more of their income from wealth – saw their incomes rise by a staggering 219%.

In short, growing wealth inequality spawns growing income inequality, so if we care about the latter, we cannot focus only on redistributing income. We need to tackle the accumulation of wealth as well.

What to do? Senator Elizabeth Warren, a serious contender for the US presidency, has proposed a wealth tax. more>

Updates from Chicago Booth

Want to pay less tax? Improve your firm’s internal reporting
By Marty Daks – When companies engage in the great American pastime known as tax avoidance, many parse the Internal Revenue Code for loopholes to reduce their effective tax rate. But research suggests they should also scrutinize the quality of their internal reporting.

Internal information quality (IIQ), a term coined by Chicago Booth’s John Gallemore and University of North Carolina’s Eva Labro, encompasses computer reporting systems and any other resources that a company devotes to ensuring the quality and ease of access of information within a firm. The elements that constitute IIQ have been largely overlooked in tax-avoidance literature—perhaps because they are usually not observable, and are difficult for academics to measure.

Gallemore and Labro argue companies should pay more attention to these issues, which they define in terms of the accessibility, usefulness, reliability, accuracy, quantity, and signal-to-noise ratio of the data and knowledge within an organization. Their findings suggest that firms with high IIQ tend to enjoy lower effective tax rates and, all else being equal, a smaller tax bite.

Gallemore and Labro employed four publicly available variables, using data from 1994 to 2010, to rate firms’ IIQ: the speed at which management released an earnings announcement after its fiscal year closed, the accuracy of management’s earnings forecasts, the absence of material weaknesses in internal controls, and the lack of restatements due to errors.

The researchers used these measures to identify companies that released earnings more rapidly and forecasted them more accurately, and had fewer Section 404 citations and restatements due to errors. They assigned these firms higher IIQ ratings.

High-IIQ firms, they find, tend to exhibit some positive traits, including centralized and standardized business transaction processing, more-efficient reporting practices, and the ability to share data across business units and geographical locations. more>

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6 Questions Everyone Should Ask The IRS

By Robert W. Wood – The lackluster IRS testimony so far suggests we may never know what happened, who did what, who knew, when they knew and worse. Confusion and Staff Troubles Rife at I.R.S. Office in Ohio.

Amid all the noise, many Americans should ask simpler questions:

  • Why is the tax law so horribly complex?
  • Can I feel secure that I will be dealt with fairly by the IRS?
  • Doesn’t the IRS police its employees?
  • Why does it seem that there’s always someone getting away with something in the tax world?
  • Can I feel secure that my private taxpayer information will remain private?
  • Why is staying off the IRS radar so important?

more> http://tinyurl.com/bc4q3rc

Verizon eyes $100 billion bid for Vodafone’s Wireless stake

By Soyoung Kim and Kate Holton – The two sources said Verizon was considering a 50:50 cash and stock bid for the 45 percent stake it does not already own, an asset it has long coveted but that Vodafone will take some persuading to give up. It has not put a proposal to Vodafone yet but has hired both banking and legal advisers for a possible offer.

“The tax problem has always been the issue. If a way can be found around that, then it is highly likely that a deal will be done,” the top-15 investor said. more> http://tinyurl.com/bc9owmy

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10 Remarkable Facts About Online Sales Tax

By Robert W. Wood – With all the hype both pro and con about the online sales tax bill you might have a belly full. Still, these facts about sales and use taxes might surprise you.

  • In 1932, Mississippi was the first state to impose a general state sales tax. By 1940, 23 other states implemented a general sales tax
  • Lost tax revenue on Internet sales was an estimated $11.4 billion in 2012. California alone forecast a loss of $1.9 billion; Texas, $870.4 million; and New York, $865.5 million

more> http://tinyurl.com/a3sckjj

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With Key Vote Looming In Senate, Click And Pay Internet Sales Tax Is Here

By Robert W. Wood – Legislation giving states the power to compel retailers outside their borders to collect online sales tax is a touchy subject for Internet merchants and consumers alike. Tax applies now, but consumers are supposed to self-report. Most don’t despite the fact that sales and use tax applies in 45 states and DC.

A growing number of states extend sales tax to online retailers with in-state sales affiliates. Thus, Amazon  started collecting tax in Pennsylvania, Texas, California and Connecticut according to the Marketplace Fairness Act website. more> http://tinyurl.com/c7y48ye

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Populists, plutocrats and the GOP sales tax

By Charles Postel – February 1913 marked a turning point in U.S. history. One hundred years ago this month, the states ratified the 16th Amendment, clearing the way for adoption of a federal income tax.

In the decades before the income tax, the rich grew extremely rich while most Americans struggled on the edge of poverty. Mark Twain dubbed it the Gilded Age: Plutocrats built ever-bigger mansions; hard times pressed on everyone else. Yet by the 1950s, the income tax had played a crucial role in the mix of policies that narrowed the income gap and built a broad middle class.

Over the past 35 years, however, those policies have been under siege. more> http://tinyurl.com/arzd2ky

Carried interest thrust again into tax debate

By Kim Dixon – A big tax break that benefits U.S. private equity and venture capital executives is under threat again, and this time the chances of preserving it may have dimmed.

The tax break allows these financiers – many of whom are among the wealthiest people in the country – to treat such income as capital gains, making it subject to a tax rate of only 20 percent, instead of the nearly 40 percent top rate on ordinary income paid by the highest earners. more> http://tinyurl.com/ap86rfg

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Fixing ‘too-big-to-fail’

By Richard Stallman – The United States is plagued by large corporations with outsized political power. They are “too big to fail.” So if they are about to fail, they get rescued. Many are so big that they can block the laws needed to stop them from destroying the economy or the environment.

I propose another method ­- one that can be applied to all companies. It works through taxes. There will be no need to sue companies and split them up – because they will split themselves up.

The method is simple: a progressive tax on businesses. We tax a company’s gross income, with a tax rate that increases as the company gets bigger. Companies would be able to reduce their tax rates by splitting themselves up. more> http://tinyurl.com/a2t2uek

Europe finance tax to net tens of billions of euros: France

Reuters – France plans to implement a tax on financial transactions at the end of 2014 and believes the levy to be rolled out by 11 European countries will raise “tens of billions of euros” a year, its finance minister said.

The 27-member European Union gave the go-ahead on Tuesday to 11 countries pledging to impose a tax that was proposed 40 years ago by American economist James Tobin but never got off the ground internationally. more> http://tinyurl.com/ajb93tq