Republicans seek drama on Obamacare future
House Republicans sought to dramatize the Supreme Court’s ruling upholding President Barack Obama’s health law on Tuesday, when they warned that Congress could slap taxes on those failing to eat their vegetables and jail those who fail to comply.
At a packed room of the Republican-controlled House Ways and Means committee, witnesses called by the majority warned that the court’s opinion could bloat government power to a dangerous new level.
“We must again consider whether the federal government can require people to purchase broccoli,” said Carrie Severino, a lawyer at the Judicial Crisis Network, echoing two other Republican witnesses. “Allowing unrestricted taxes on inactivity will open the door to taxes the likes of which this country has never seen.”
The Court last month, in a surprise decision written by Republican-appointed Chief Justice John Roberts, upheld Obama’s Affordable Care Act, unleashing howls of protest from conservatives.
The 2010 healthcare law aims to add tens of millions of people to the insurance rolls by mandating those who do not hold insurance to pay a fee, or penalty.
The hearing started out relatively civil but evolved into a tense war of words among the parties about the law’s legitimacy. Democrats argued that the same Republicans opposing the law were opposed to the popular Social Security program and Republicans warned the government could force all citizens to buy hybrid vehicles.
The House is expected to vote to repeal what some call “Obamacare” on Wednesday, but the bill is seen languishing in the Democratic-controlled Senate.
Essential reading: Obama challenges Republicans to keep tax cuts for middle class, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Obama challenges Republicans to keep tax cuts for middle class. Jeff Mason and Alister Bull – Reuters. President Barack Obama called on Monday for a one-year extension of Bush-era tax cuts for families earning less than $250,000 a year, seeking to steer the election-year debate away from high unemployment and portray himself as a champion of ordinary Americans. The tax proposal is unlikely to sway Obama’s Republican opponents in Congress, who argue that the cuts should be maintained for everyone, including higher earners. Link
* Tax bill aims to encourage small business hiring. Corey Boles – The Wall Street Journal. Senate Democrats will try this week to pass a targeted tax relief package aimed primarily at encouraging small businesses to hire new workers. The $28 billion bill, the latest in a series of election-year tax maneuvers by the political parties, would provide a tax credit to all firms that hire new workers or increase pay for existing staff. Companies could earn a maximum credit of $500,000 against their 2012 income tax liability under the bill. Link
* Maine Governor LePage apologizes for “Gestapo” comment. Reuters. Maine Governor Paul LePage apologized on Monday for calling the U.S. Internal Revenue Service the “Gestapo” during criticism of President Barack Obama’s healthcare law. The Republican governor compared the tax agency to Nazi secret police during a weekend radio address on healthcare. Link
* The need to agree to agree. The New York Times editorial. Taxes are supposed to be complicated and contentious. Yet, speaking from the White House on Monday, it took President Obama less than 15 minutes to make a strong and sensible case for letting the high-end Bush-era tax cuts expire at the end of 2012. The strength of Mr. Obama’s argument is unlikely to sway Republicans. But he’s right on fairness and the facts, and will, we hope, prevail in this debate. Link
* Off the tax cliff he goes. The Wall Street Journal editorial. So the 2013 tax cliff is a big enough economic problem that President Obama now wants to postpone it for some taxpayers. But it isn’t so big that he’s willing to curb his desire to raise taxes on tens of thousands of job-creating businesses. Obama’s call for lower taxes on those making less than $250,000 is a political gambit designed to protect Democrats who are starting to feel queasy about opposing GOP plans to extend all of the Bush rates as the economy weakens again. The ploy could help Democrats if Republicans fall for it, but it won’t reduce the economic damage to the country. Link
* Pension accounting for dummies. The Wall Street Journal editorial. The Governmental Accounting Standards Board has issued new rules that aim to crystallize government pension liabilities. It failed on that count, but it did succeed, albeit inadvertently, in making the case for defined-contribution plans. GASB’s new rules allow governments to continue discounting their liabilities at their anticipated rate of return so long as they project enough future assets to cover their obligations. At the time they forecast they’ll run out of assets, they must begin discounting their liabilities with a high-grade municipal bond rate. The idea is that governments would have to issue bonds to pay retirees when their pension funds go broke. Link
Study: Companies of Republican CEOs pay more tax than Democrats’
Despite Democratic attempts to paint the Republicans as the party of the tax dodger, companies run by CEOs with Republican political leanings typically pay more in taxes than those run by Democrats, according to a new study.
Republican-led firms paid 2 percent more than their more liberal counterparts, the study’s authors will report to the annual meeting of the American Accounting Association next month.
Other studies have found that people who are politically conservative also are less daring in other aspects of their lives, fearing losses, valuing financial security, and running their businesses with more conservative financing and investing policies.
The authors of the analysis, a trio of academics from the University of Arizona and a fourth from the University of Georgia, posit that conservatism may be influencing corporate tax practices:
“If they set a tone of being conservative, due to their risk-averse nature and desire to avoid uncertainty, that can potentially translate into encouraging the firm’s inside and outside tax advisers to be more conservative in their tax strategies. For example, this can lead the firm to pass on using strategies that either may not be upheld by the IRS or that could expose the firm to significant non-tax costs if detected (i.e., fines and penalties, negative publicity, stock price declines, etc.)”
Top executives lean to the Republican party by a ratio of about two to one, according to the study, and were the majority in all 48 industries surveyed, except for one: entertainment.
The Democrats in the study were more likely to work for growth-oriented companies which spent more on research and development and enjoy a higher tax benefit from stock-option exercises than the Republican-led firms, the authors found.
Essential reading: Obama to seek one-year extension for some of Bush tax cuts, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Obama to seek one-year extension for some of Bush tax cuts. Alister Bull – Reuters. President Barack Obama will call on Monday for a one-year extension of Bush-era tax cuts for families earning less than $250,000 a year, according to a White House official, seeking to spare the economy the impact of taxes going up on Jan. 1. Obama, a Democrat, will make the request in a statement at the White House, said the official, who spoke on condition of anonymity. Republicans in Congress, however, are unlikely to be swayed, as they have consistently argued that the Bush tax cuts should be extended for everyone. Link
* Democrats put pressure on Romney’s taxes. Stephanie Kirchgaessner – The Financial Times. Supporters of President Barack Obama raised the temperature surrounding Mitt Romney’s finances on Sunday, reiterating claims that the presumptive Republican nominee used shell corporations in offshore havens to avoid paying U.S. taxes. Robert Gibbs, the president’s former press secretary, went so far as to suggest that Romney may have skirted the law. Kevin Madden, a senior Romney adviser, said Mr Romney “hasn’t paid a penny less in taxes” even though some of his funds were domiciled in Switzerland and Bermuda. Link
* Can IRS police both taxes and healthcare law? The Associated Press. Can the Internal Revenue Service police President Barack Obama’s healthcare mandate while simultaneously collecting all the taxes for running the federal government? The question is being renewed in the wake of the Supreme Court’s decision upholding most of the 2010 Affordable Care Act as a tax issue rather than one of interstate commerce. Nearly 2 1/2 years before taxpayers will have to start providing proof on their tax returns that they have health insurance, key Republicans suspect the agency already is diverting resources from collecting taxes to gear up for becoming the government’s healthcare cop. Link
* Tax-exempt groups shield political gifts of businesses. Mike McIntyre and Nicholas Confessore – The New York Times. Corporations, including Prudential Financial, Dow Chemical and the drugmaker Merck, have poured millions of dollars more into the U.S. Chamber of Commerce, a tax-exempt trade group that has pledged to spend at least $50 million on political advertising this election cycle. there is growing evidence that large corporations are trying to influence campaigns by donating money to tax-exempt organizations that can spend millions of dollars without being subject to the disclosure requirements that apply to candidates, parties and PACs. Link
* Wind power faces taxing headwind. Mark Peters and Keith Johnson – The Wall Street Journal. The debate over renewing the wind energy tax credit is dividing Republicans, with conservative lawmakers from wind states joining Democrats to push for an extension even as the presumptive GOP presidential nominee, Mitt Romney, has made attacks on government support for clean energy, including wind, a centerpiece of his fight against President Barack Obama. But U.S. wind companies are banking on foreign orders to keep the plants going next year, while hoping the credit will be extended. Link
ABA members argue legality of audit firm rotation proposal
The watchdog for U.S. auditors has been debating some of the toughest reforms in many auditors’ memories this year. Now some legal experts are questioning whether it has the authority to impose its most controversial idea – making companies switch, or rotate, audit firms after a set number of years.
In a letter to the Public Company Accounting Oversight Board, members of the American Bar Association joined a long line of critics of rotation. The lawyers cited the 2002 Sarbanes-Oxley act, which created the PCAOB, and questioned where it gave the board any authority to mandate rotation.
The letter was signed by the chairs of ABA’s federal regulation of securities committee and its law and accounting committee.
If they are correct, it would be a blow to investor advocates, who fought for years to have an independent standard-setter with broad powers over audit firms.
Before Sarbanes-Oxley, the audit profession set its own standards, which were often criticized for being laced with qualifications that helped auditors avoid legal liability.
“I don’t doubt for a moment that the auditing standards the PCAOB has control over would include standards for auditor independence, and would obviously include rotation,” James Cox, a law professor at Duke University, said in an interview.
Any challenge to the PCAOB’s standard-setting authority might be difficult, thanks to a little-noticed provision in the 2010 Dodd-Frank financial reform act. It amended Sarbanes-Oxley and gave the PCAOB broader powers to set independence standards that are in the public interest or necessary to protect investors.
Calendar
Some important tax and accounting events in the week ahead:
Monday, July 9 • U.S. Internal Revenue Service hearing on proposed regulations for government retirement plans. 10 a.m. EDT, IRS auditorium. Washington.
Monday, July 9 – Thursday, July 12 • Steven Miller, IRS deputy commissioner of services and enforcement, is among the speakers at the National Association of Tax Professionals conference. Baltimore.
Tuesday, July 10 • U.S. House Ways and Means Committee hearing on the implication of the Supreme Court ruling on the individual mandate and Congress’s authority to lay and collect new taxes. 10:30 a.m. EDT Longworth House Office Building. Washington. • U.S. Senate Finance Committee hearing on tax reform. 2 p.m. EDT, Dirksen Senate Office Building. Washington. • Beverly Katz, special counsel to the IRS Office of Associate Chief Counsel, speaks at the D.C. Bar Taxation Section Pass-Throughs and Real Estate Committee luncheon program. 12 noon EDT. Washington.
Tuesday, July 10 – Thursday, July 12 • IRS tax forum on a wide variety of tax topics. Atlanta.
Thursday, July 12 • American Bar Association Joint Committee on Employee Benefits teleconference on the Supreme Court’s decision on the Patient Protection and Affordable Care Act, and the impact on other laws and challenges to healthcare legislation.
Essential reading: Romney campaign’s missteps have some Republicans grumbling, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Romney campaign’s missteps have some Republicans grumbling. Steve Holland – Reuters. Conservatives were particularly disappointed in Mitt Romney’s policy dance this week over whether requiring Americans to buy health insurance under Obama’s healthcare plan should be considered a tax, as the Supreme Court ruled last week, or a penalty. His position put the presumed party nominee squarely in opposition to the view held by Republican leaders of Congress and many Republican voters. Some Republicans said that by continuing to discuss the healthcare ruling, Romney’s team was reminding voters of his role in creating the Massachusetts plan – and diverting the campaign from its focus on jobs and the economy, which most Republicans see as Obama’s biggest weakness. Link
* In defending his healthcare plan, Romney often called its mandate a tax. Michael Shear and Ashley Parker – The New York Times. Four months before Mitt Romney signed his healthcare plan into law in Massachusetts in 2006, he told a conservative group that the state’s tax code would be the hammer that would make the plan work. As the Massachusetts governor and then as a presidential candidate, Romney spent the next six years describing in a variety of different ways the possible punishments for ignoring the Massachusetts mandate: as “free-rider surcharges,” “tax penalties,” “tax incentives” and sometimes just as “penalties.” Link
* Tax vote splits snarled Atlanta. Cameron McWhirther – The Wall Street Journal. Voters here will decide this month whether to increase their sales taxes by a penny to raise billions of dollars for improved roads and mass transit in a city notorious for its grinding congestion and dysfunctional train and bus service. Political and business leaders conceived the referendum— for a tax of one cent on the dollar, in addition to any other taxes in a given county — several years ago and got the proposal through the state legislature in 2010. They estimate that the tax would raise $8.5 billion within the next decade for projects they say are desperately needed to help Atlanta heal its battered economy and improve its quality of life. Link
* VW finds 1 share saves $1.1 billion in tax with loophole. Aaron Krichfeld and Dorothee Tschampa – Bloomberg Businessweek. For Volkswagen AG (VOW), what a difference a share makes. By paying the purchase price of 4.46 billion euros ($5.58 billion) plus 1 VW share for the 50.1 percent stake in Porsche SE (PAH3)’s automotive business it doesn’t already own, the Wolfsburg, Germany-based carmaker is avoiding an additional tax bill of more than 900 million euros. The share payment allowed VW to classify the deal as a restructuring rather than a takeover, a tax-saving plan approved by German tax authorities. Link
* New York City apartment owners will get tax break renewed. Reuters. New York City residents who own cooperative and condominium apartments will get the benefit of a property tax break replacing one that had expired under an accord between the state legislature and the governor. In May, New York City’s Independent Budget Office estimated that the city would collect an extra $445 million of revenue from 365,000 apartment owners if the tax break was allowed to expire. Link
* Rihanna sues ex-accountants, says she lost millions. Christine Kearney – Reuters. Pop star Rihanna has sued her former accountants for mismanaging the singer’s finances, including claiming they earned huge commissions from concert tours that resulted in her losing millions of dollars. In a lawsuit filed in Manhattan federal court that surfaced on Thursday, the 24-year-old singer and her tour company, Tourihanna, is seeking an unspecified amount of compensatory damages and loss of earnings from accountancy firm Berdon LLP and former employees Michael Mitnick and Peter Gounis. Link
Essential reading: Romney now says health mandate by Obama is a tax, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Romney now says health mandate by Obama is a tax. Jeremy Peters – The New York Times. Mitt Romney declared on Wednesday that President Barack Obama’s healthcare mandate was in fact a tax, shifting his campaign’s characterization of the law and aligning himself with the conservative voices in his party. Two days earlier, his chief spokesman and senior strategist had said that Romney did not believe the mandate should be called a tax. Link
* Christie makes new appeal for a 10 percent income tax cut. Kate Zernike – The New York Times. New Jersey Gov. Chris Christie called a special session of the Legislature on Monday to argue his case again for a 10 percent income tax cut, saying “the New Jersey comeback” depends on it. But as with most things the governor does, Democrats viewed his half-hour speech less in terms of what he actually said and more for what it said about his national ambitions, and what some believe are his hopes to be the Republican vice-presidential nominee. Link
* France set to raise taxes on firms, rich. William Horobin and Gabriele Parussini – The Wall Street Journal. The government of Socialist President François Hollande announced plans to hit companies and the rich with higher taxes this year, as the country battles against weak economic growth to stay on track with deficit-reduction goals. The government said it would seek Parliament approval for 7.2 billion euros ($9.08 billion) in extra taxes this year. The plan, which had been outlined by cabinet members in recent days, calls for higher taxes on dividends and oil companies, while 2.3 billion euros of the tax increases would come from wealth taxes, the government said. Link
* The most sensible tax of all. Yoram Bauman and Shi-Ling Hsu – The New York Times opinion. On Sunday, the best climate policy in the world got even better: British Columbia’s carbon tax — a tax on the carbon content of all fossil fuels burned in the province — increased from $25 to $30 per metric ton of carbon dioxide, making it more expensive to pollute. This was good news not only for the environment but for nearly everyone who pays taxes in British Columbia, because the carbon tax is used to reduce taxes for individuals and businesses. Thanks to this tax swap, British Columbia has lowered its corporate income tax rate to 10 percent from 12 percent. Link
* Bullet train could shoot down Brown’s tax initiative. George Skelton – The Los Angeles Times opinion. The bullet train won’t be on the November ballot, but it will be on many Californians’ minds as they decide the fate of Gov. Jerry Brown’s tax proposal. That’s what I keep hearing from e-mailers such as Fred: “Many voters will not support Jerry’s tax plan so long as his budget includes monies for high speed rail.” Link
* Mitt Romney’s tax gamble on healthcare. Chris Cilizza and Aaron Blake – The Washington Post opinion. On July 4, former Massachusetts governor Mitt Romney tried to explain the (close to) unexplainable: How a penalty in Massachusetts is a tax nationally. Romney is trying to sell the idea that Obama’s healthcare bill contains a tax because the Supreme Court said it does. And the healthcare law that he signed in Massachusetts contains a penalty (or a fee) because that’s what he called it at the time and the court offered no ruling on those state-based laws. Link
Essential reading: Romney campaign and GOP at odds on healthcare tax, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Romney campaign and GOP at odds on healthcare tax. Michael Shear – The New York Times. Mitt Romney’s presidential campaign threw cold water on a central Republican attack line on Monday, saying that President Obama’s healthcare mandate should be thought of as a penalty and not a tax. That message, delivered first by a top aide to Mr. Romney on television and later by the campaign, contradicts top Republican Party officials and leaders in Congress, who have spent the last several days eagerly accusing the president of levying a new tax. Link
* IRS may botch complaints of tax-exempt abuse-watchdog. Patrick Temple-West – Reuters. The Internal Revenue Service is missing opportunities to catch possible abuse by tax-exempt groups, the agency’s watchdog said on Monday amid concern that some groups are spending heavily on the political campaign for the November 6 elections. Allegations of abuse may be mishandled or lost, said the report by the Treasury Inspector General for Tax Administration. Lax IRS enforcement may cost the government millions of dollars in uncollected taxes, the report said. Link
* Christie’s call for tax cut is unheeded. Heather Haddon – The Wall Street Journal. Gov. Chris Christie forced lawmakers back to the statehouse Monday and made another pitch for a tax cut, a significant piece of his agenda that Democrats took a firm stand against. Christie, a Republican, convened the special session of the Legislature just three days after signing a $32 billion budget and helping shepherd passage of a landmark overhaul of the teacher tenure system. Link
* For Philippines leader, it’s war on graft, tax evasion. Rosemarie Francisco and Stuart Grudgings – Reuters. A middle-class woman is headed to jail for tax evasion. That wouldn’t make headlines in many countries, but it’s big news in the Philippines. It was enough to send President Benigno Aquino reaching excitedly for his phone during an interview this week to retrieve a message about the case from his tax chief. Businesswoman Gloria Kintanar had just exhausted her appeals and would become the first tax evader in Philippine history to be jailed – once authorities deal with her claim of illness at the hospital where she is under arrest. Link
* Roll-your-own shops may have to close. Mike Esterl – The Wall Street Journal. Hundreds of small tobacco shops that let smokers roll their own cigarettes soon could be out of business under federal legislation classifying them as manufacturers, subjecting them to the same taxes and regulations as the broader industry. Such stores have spread rapidly over the past few years by capitalizing on technology and loopholes that let them offer cigarettes often at half the price of ready-made brands. Link
* A vast new taxing power. The Wall Street Journal editorial. The commentary on John Roberts’s solo walk into the Affordable Care Act wilderness is converging on a common theme: The chief justice is a genius. All of a sudden he is a chessmaster, a statesman, a Burkean minimalist, a battle-loser but war-winner, a Daniel Webster for our times. Now that we’ve had more time to take in Chief Justice Roberts’s reasoning, we have a better summary: politician. In fact, his 5-4 ruling validating the constitutional arguments against purchase mandates and 5-4 ruling endorsing them as taxes is far more dangerous, and far more political, even than it first appeared last week. Link
Essential reading: Jumping off the fiscal cliff, and more
Welcome to the top tax and accounting headlines from Reuters and other sources.
* Analysis: Jumping off the fiscal cliff. Kim Dixon and Richard Cowan – Reuters. Members of Congress from both parties are increasingly mulling the unthinkable: going home in December without acting to avoid the $4 trillion in tax hikes and deep spending cuts known as the fiscal cliff. Neither Democrats nor Republicans claim this is their preferred option, as it could rattle global financial markets badly and anger their constituents. But as they circle each other in an ever-more partisan atmosphere they see little prospect for a settlement acceptable to both parties in the lame duck session of Congress after the Nov. 6 election. Link
* Get ready for the new investment tax. Laura Saunders – The Wall Street Journal. When the court affirmed the law on Thursday, investors — and tax advisers — started scrambling. The new tax, which Congress passed in 2010, affects the net investment income of most joint filers with adjusted gross income of more than $250,000 ($200,000 for single filers). Starting on Jan. 1, 2013, the tax rates on long-term capital gains and dividends for these earners will jump from their current historic low of 15 percent to 18.8 percent, assuming Congress extends the current law. Link
* GOP’s new health-law front. Louise Randofsky – The Wall Street Journal. Republicans are planning to use the main component of the Supreme Court decision upholding President Barack Obama’s healthcare law as a weapon to try to repeal it. Republicans are preparing a fresh assault on the law, including a move by the Republican-controlled House to vote to repeal the entire overhaul July 11. Link
* Japan’s leader is set back as party faction quits. Martin Fackler – The New York Times. The unpopular government of Prime Minister Yoshihiko Noda suffered another setback on Monday when the largest faction of his governing Democratic Party quit in protest over a proposed tax increase, leaving the party barely in control of Parliament’s lower house. While the prime minister said the increase was needed to defray the costs of Japan’s rapidly aging population, opponents called it a betrayal of the party’s campaign pledge not to raise taxes made when it swept to power in a historic election three years ago. Link
* Australian PM campaigns to sell unpopular carbon tax. James Grubel – Reuters. Australian Prime Minister Julia Gillard began an election-style campaign on Monday to promote a tax on carbon emissions, with her political survival hanging on a program highly unpopular with both industry and voters. Gillard’s poll rating remains near record lows and some 2,000 protesters denounced the tax when they marched through Sydney on Sunday, the day the tax came into force. Link
* New IRS rules for disclosure of foreign assets. Amy Feldman – Reuters. If you have foreign assets – whether or not you live abroad – the deadline to file with the Internal Revenue Service is June 30. But for those who have not filed the forms previously and are trying to come back into the system, some new rules from the IRS are going to help distinguish between true tax cheats and American citizens abroad who feared the massive penalties required by voluntary disclosure amid the recent IRS crackdown. The IRS announced that it would help U.S. citizens overseas who are considered low compliance risks – including dual citizens (many Canadians), and those with foreign retirement plans – square their tax obligations through the voluntary disclosure program without facing penalties or additional enforcement actions, starting September 1. Link
