The Senate on May 17 rejected, by a 52-to-48 margin, a measure that would repeal $21 billion in tax breaks for the five largest oil producers over the next 10 years (Sen 940). A 60-vote majority was required to take up the proposal.
Senate Republicans almost unanimously opposed the bill, claiming it would cause gas prices to rise. Senate Democrats countered that the GOP was defending big oil tax subsidies at the expense of taxpayers, as the saved revenue would be applied to reducing the federal deficit. Democrats from oil producing states, however, did not support the measure.
The sponsors of the bill vowed to attach it to either a bill raising the debt ceiling or deficit-reduction legislation, but Senate Minority Leader Mitch McConnell, R-Ky., said he would not allow the proposal to be part of those negotiations. "That's not the kind of thing we're going to be dealing with here in connection with the serious talks that are going on with the vice president's group," McConnell said earlier on CNN's "State of the Union." Vice President Biden and a bipartisan team of lawmakers are currently engaged in talks aimed at reducing the budget deficit.
The measure would roll back the Code Sec. 199 manufacturing deduction for the oil and gas industry, Code Sec. 613A depletion for oil and gas wells, the deduction for enhanced oil recovery methods, expenses for intangible drilling costs and modify foreign tax credit rules for dual capacity taxpayers.
During a May 12 Senate Finance Committee hearing on the questionable necessity of continuing tax subsidies for the oil industry, executives from the five largest oil producers claimed that raising taxes could threaten jobs and lower production (TAXDAY, 2011/05/13, C.1). Chairman Max Baucus, D-Mont., however, noted studies that found the elimination of oil and gas tax breaks for the entire oil and gas industry would cause domestic oil and gas production to fall by less than one half of one percent. Democrats also pointed to a 2007 analysis by the Joint Economic Committee, which concluded that repealing the oil and gas tax breaks would not raise energy prices for consumers.
By Jeff Carlson, CCH News Staff
Statement of Administration Policy on Sen 940, Close Big Oil Tax Loopholes Act
Showing posts with label Tax Breaks. Show all posts
Showing posts with label Tax Breaks. Show all posts
Thursday, May 19, 2011
Tax Break for Self-Employed Likely to Vanish
The Small Business Jobs Act nixed the tax that self-employed workers pay on health insurance for 2010. Small biz advocates doubt Congress will extend it.
By John Tozzi
Paula Fleming, a freelance copy editor in Minneapolis, spends $3,600 a year on bare-bones health insurance for herself and her husband. For the 2010 tax year, for the first time, she could deduct that amount from her income when she pays the self-employment tax, the 15 percent levy all freelancers are required to contribute to Social Security and Medicare, saving her $540. Fleming's not counting on the same break for the 2011 tax year, though, because Congress passed it solely for 2010 in last year's Small Business Jobs Act. "When the law no longer applies," she says, "that's more money out the door."
Despite politicians' calls for tax reform and oft-professed devotion to small business, prospects for passing two tax fixes that self-employed business owners like Fleming have sought for years are shrinking, small business advocates say. One bill would make the health insurance tax break permanent, bringing the self-employed in line with payroll workers, whose health insurance is fully deductible. The other would simplify the home office deduction, a proposal that has been around for at least a decade.
"I'm concerned that this is going to fall by the wayside," says Kristie Arslan, executive director of the National Association for the Self-Employed, who has championed both measures. "It's a perfect storm of politics right now. You have a divided house in Congress and you have a Presidential election coming up. The only expectation you can have is gridlock." Arslan plans to urge lawmakers to extend the health insurance deduction when she testifies before the Senate Small Business Committee on May 19. Twenty-two million Americans are self-employed business owners, and more than half work from home, she says.
$1.9 Billion in Tax Savings
The health insurance deduction for 2010 will mean $1.9 billion in tax savings for people who work for themselves, according to an estimate by the Joint Committee on Taxation. It also corrects a quirk in the tax code that leaves this segment—already on the hook for contributions to Social Security and Medicare that are normally split between worker and employer—as the only businesses whose health-care costs are not fully deductible.
Simplifying the home office deduction would give home-based business owners the option of a standard $1,500 write-off instead of the complicated calculations required to claim the deduction now. In an online survey of 300 members in April, the National Small Business Assn. found that only 47 percent who qualified took the home office deduction. The rest skipped it because they thought it would raise their chances of being audited or because it was too complex.
Both proposals have support from business lobbying groups and have had bipartisan sponsors in several Congresses. That doesn't mean they'll go anywhere. "I think they are likely not to move," says Todd McCracken, president of the NSBA, which supports both measures. He says their best chance to pass is as part of a broader overhaul of the tax code. "The prospects of a larger tax bill get dimmer and dimmer as we move into the summer."
Deficit Concerns
Representative Ron Kind (D-Wis.), who has co-sponsored both bills and introduced similar legislation in previous sessions, says success depends on the cooperation of Republicans in the House, who fought last year's jobs act that included the one-year health insurance deduction. "They may not be that opposed to just letting everything expire," Kind says. Getting the health insurance deduction extended is "a tremendous priority" for California Republican Representative Wally Herger, who introduced the bill in the current session, says spokesman Matt Lavoie.
Washington's heightened sensitivity to increasing the deficit means that lawmakers would have to pay for any bill to extend the deduction with spending cuts or other sources of revenue. "The one challenge that anything faces now is a revenue issue," says Bill Rys, tax counsel at the National Federation of Independent Business, which supports the deduction. He cites the effort to repeal 1099 reporting requirements—seen as a paperwork nightmare for small companies—that both parties and the President supported, which was still delayed for months by squabbles over how to offset the cost. Rys describes both the health insurance deduction and the home office simplification as "common-sense" fixes with bipartisan support. "It really achieves a goal that a lot of people are talking about here in Washington, which is simplifying the tax code."
For Fleming and other self-employed workers, it's a matter of fairness. For one year, she was eligible for the same tax benefits for health insurance costs that other businesses got. It doesn't make sense for them to be rescinded, she says. "I'm an employer. Employers get to deduct the cost of health insurance for their employees."
Tozzi covers small business for Businessweek.com.
By John Tozzi
Paula Fleming, a freelance copy editor in Minneapolis, spends $3,600 a year on bare-bones health insurance for herself and her husband. For the 2010 tax year, for the first time, she could deduct that amount from her income when she pays the self-employment tax, the 15 percent levy all freelancers are required to contribute to Social Security and Medicare, saving her $540. Fleming's not counting on the same break for the 2011 tax year, though, because Congress passed it solely for 2010 in last year's Small Business Jobs Act. "When the law no longer applies," she says, "that's more money out the door."
Despite politicians' calls for tax reform and oft-professed devotion to small business, prospects for passing two tax fixes that self-employed business owners like Fleming have sought for years are shrinking, small business advocates say. One bill would make the health insurance tax break permanent, bringing the self-employed in line with payroll workers, whose health insurance is fully deductible. The other would simplify the home office deduction, a proposal that has been around for at least a decade.
"I'm concerned that this is going to fall by the wayside," says Kristie Arslan, executive director of the National Association for the Self-Employed, who has championed both measures. "It's a perfect storm of politics right now. You have a divided house in Congress and you have a Presidential election coming up. The only expectation you can have is gridlock." Arslan plans to urge lawmakers to extend the health insurance deduction when she testifies before the Senate Small Business Committee on May 19. Twenty-two million Americans are self-employed business owners, and more than half work from home, she says.
$1.9 Billion in Tax Savings
The health insurance deduction for 2010 will mean $1.9 billion in tax savings for people who work for themselves, according to an estimate by the Joint Committee on Taxation. It also corrects a quirk in the tax code that leaves this segment—already on the hook for contributions to Social Security and Medicare that are normally split between worker and employer—as the only businesses whose health-care costs are not fully deductible.
Simplifying the home office deduction would give home-based business owners the option of a standard $1,500 write-off instead of the complicated calculations required to claim the deduction now. In an online survey of 300 members in April, the National Small Business Assn. found that only 47 percent who qualified took the home office deduction. The rest skipped it because they thought it would raise their chances of being audited or because it was too complex.
Both proposals have support from business lobbying groups and have had bipartisan sponsors in several Congresses. That doesn't mean they'll go anywhere. "I think they are likely not to move," says Todd McCracken, president of the NSBA, which supports both measures. He says their best chance to pass is as part of a broader overhaul of the tax code. "The prospects of a larger tax bill get dimmer and dimmer as we move into the summer."
Deficit Concerns
Representative Ron Kind (D-Wis.), who has co-sponsored both bills and introduced similar legislation in previous sessions, says success depends on the cooperation of Republicans in the House, who fought last year's jobs act that included the one-year health insurance deduction. "They may not be that opposed to just letting everything expire," Kind says. Getting the health insurance deduction extended is "a tremendous priority" for California Republican Representative Wally Herger, who introduced the bill in the current session, says spokesman Matt Lavoie.
Washington's heightened sensitivity to increasing the deficit means that lawmakers would have to pay for any bill to extend the deduction with spending cuts or other sources of revenue. "The one challenge that anything faces now is a revenue issue," says Bill Rys, tax counsel at the National Federation of Independent Business, which supports the deduction. He cites the effort to repeal 1099 reporting requirements—seen as a paperwork nightmare for small companies—that both parties and the President supported, which was still delayed for months by squabbles over how to offset the cost. Rys describes both the health insurance deduction and the home office simplification as "common-sense" fixes with bipartisan support. "It really achieves a goal that a lot of people are talking about here in Washington, which is simplifying the tax code."
For Fleming and other self-employed workers, it's a matter of fairness. For one year, she was eligible for the same tax benefits for health insurance costs that other businesses got. It doesn't make sense for them to be rescinded, she says. "I'm an employer. Employers get to deduct the cost of health insurance for their employees."
Tozzi covers small business for Businessweek.com.
Wednesday, May 18, 2011
Fuming over gas prices? Don't count on a tax break
By MICHAEL GORMLEY, Associated Press
ALBANY, N.Y. – How would you like a 33-cent drop in the price of a gallon of gas?
"Hell, yes!" says Su Ramgoolam, a 34-year-old mechanic from Schenectady, N.Y.
Not so fast.
Whenever gas prices get near a rounder and more punishing number — $2, $3, $4 a gallon — there is talk of temporarily easing state gas taxes or lifting them altogether for a time, even if it might cost a state desperately needed tax revenue. Lawmakers in at least four states are bringing it up again as this year's summer travel season approaches.
Ramgoolam's all for it.
"For me, I'm not making that much," he said recently, standing under a blue Mobil sign offering gas at $4.07 a gallon. "You can feel it."
But there's no definitive body of evidence that a "gas tax holiday" helps or hurts either drivers or state coffers.
"It's a teeny drop at the pump," said Patrick DeHaan, senior petroleum analyst for GasBuddy.com, a watchdog and research site on gas prices. "There is a greater risk to the state than there would be a likelihood of prompting people to go on vacation."
Politicians in New York, Indiana, New Hampshire and Illinois are talking about suspending part or all of the state and local taxes that can add 14 cents to nearly 50 cents to a gallon of gas, on top of the 18.4 cent federal tax.
It's been done before.
Florida in August 2004 nipped its share of the gas tax as prices lurked around $2 a gallon, up from about $1.50 in late 2003. Indiana lifted its state tax from July to October 2000, Illinois from July through December of that year. For a month in 2005, right after Hurricane Katrina scattered evacuees across the South, Georgia suspended its share of the gasoline tax.
New York's bill, proposed by Assemblyman James Tedisco and Sen. Greg Ball, both Republicans, would create a gas-tax holiday for 12 days around Memorial Day, Independence Day and Labor Day — some of the heaviest travel days of the year.
The sponsors and the National Federation of Independent Business said it would give taxpayers a break, encourage vacation spending and could even draw out-of-state dollars from tourists and those in nearby states seeking to fill up.
But in these days of tattered state budgets, it's harder even to propose the holiday as states try to protect already flat — or falling — tax revenues, and the fallout of another midyear deficit would force still more spending cuts that could trump any political payoff.
All states charge a fixed excise tax per gallon of gas that doesn't change the revenue regardless of the price of gasoline. Four states — Indiana, Michigan, California and Illinois — also charge a percentage sales tax on the total purchase of gasoline.
In Indiana, Democratic Gov. Frank O'Bannon suspended the gasoline sales tax in 2000 when prices reached about $1.80 per gallon, a painful bite at the time despite the nostalgia it stirs now.
It saved motorists $46 million but cost the state the same amount of lost revenue as the economy was slowing and Indiana's budget surplus was dwindling.
Gas tax holidays are easy pickings for politics: Supporters can tell voters they're looking out for the little guy while opponents, even at the highest level of government, can criticize it as a feel-good, do-nothing stunt.
This year, when House Minority Leader Patrick Bauer, D-South Bend, proposed suspending the sales tax and state excise tax on gasoline, Republicans quickly shot down the idea, saying it would cost the state too much.
Supporters acknowledged it could cost the state $200 million while the state's budget office and opponents said the cost would top $300 million.
"The real problem is not our tax," said Rep. Jeff Espich, R-Uniondale. "It wouldn't make much difference."
Nadine Brown, a 53-year-old phlebotomist at Memorial Hospital in South Bend, Ind., said she thinks lawmakers there should have suspended the tax when it came up this legislative session.
"God, we can barely afford to put it in the tank now," she said while gassing up her van at a cost of $4.14 a gallon. "They have so much money, they can put gas in their cars. But what about the little man on the totem pole?"
Amy Baker, coordinator of the Florida Legislature's Office of Economic and Demographic Research, said the one-month reduction in that state's gas tax in August 2004 "did achieve its purpose."
"There was some pressure on price" while prices in neighboring states increased, she said.
In 2008, with gas prices topping $4 a gallon , presidential candidates Hillary Rodham Clinton and John McCain supported a federal gas tax holiday. The eventual victor, Sen. Barack Obama, accused them of pandering to voters by supporting a "gimmick."
Reporters reminded Obama that he voted for a gas tax break in 2000 in the Illinois Legislature, when prices reached $2 a gallon.
New York's bill would take 33 cents off the price paid at the pump, but the cost in lost revenue is harder to figure. The legislation says a holiday would cost $19 million, but the administration of Democratic Gov. Andrew Cuomo suspects it would be much more.
In 2006, under public pressure and the specter of $5 gallons of gas, New York capped its share of the sales tax on gasoline.
"Not paying a gas tax is a nice idea," Cuomo said. "The question is how much does it cost and this is a state that is functionally bankrupt."
Some motorists, even those who say they could use the break, worry about the long-term cost.
Kenni Hayes, 35, of Troy, N.Y., has enough mistrust of government's handling of tax dollars to avoid jumping at a gas tax break. She agrees with Cuomo's concern about losing uncalculated millions in state revenues.
"People might think it's a good idea for now, to give us a tax break of a minute and enjoy our summer," she said, filling up her SUV with $4.07-a-gallon gasoline at a Hess station. "But it's only temporary."
Consumers, small businesses and the tourism industry would probably benefit in the short term, said James M. Sallee, an assistant professor in the Harris School of the University of Chicago who researches economics and taxation.
But any gains would be probably be offset by people who timed fill-ups for the holiday, leaving the state to lose out on revenue just before and after a holiday, he said.
In New Hampshire, where the gas tax is 18 cents, House Republicans proposed dropping it a nickel from May through the end of June , but the measure is held up in procedural jockeying. State transportation officials estimate the cut would cost $6.6 million.
Illinois, which charges 19 cents a gallon in taxes plus 6.25 percent in sales tax, had a measure introduced to lift the sales tax for six months, but there is little chance of success in the Legislature where lawmakers from both parties oppose it.
New York's gas tax is second only to California. Compared with its neighbors, it's 33 cents per gallon more than New Jersey, 24 cents per gallon more than Massachusetts, 22 cents more than Vermont, 15 cents more than Pennsylvania and 2 cents more than Connecticut, according to the national Tax Foundation watchdog group.
Ramgoolam understands the plight of government and the perils of cutting out state revenue, but he knows his own budget better.
"Maybe a compromise?" he said. "Maybe just 15 cents off?"
___
Contributing to this report were Associated Press reporters Christopher Wills in Springfield, Ill., Tom Coyne and Deanna Martin in Indianapolis, Adam Weintraub in Sacramento, Calif., Bill Kaczor in Tallahassee, Fla., and Bob Salsberg in Boston.
ALBANY, N.Y. – How would you like a 33-cent drop in the price of a gallon of gas?
"Hell, yes!" says Su Ramgoolam, a 34-year-old mechanic from Schenectady, N.Y.
Not so fast.
Whenever gas prices get near a rounder and more punishing number — $2, $3, $4 a gallon — there is talk of temporarily easing state gas taxes or lifting them altogether for a time, even if it might cost a state desperately needed tax revenue. Lawmakers in at least four states are bringing it up again as this year's summer travel season approaches.
Ramgoolam's all for it.
"For me, I'm not making that much," he said recently, standing under a blue Mobil sign offering gas at $4.07 a gallon. "You can feel it."
But there's no definitive body of evidence that a "gas tax holiday" helps or hurts either drivers or state coffers.
"It's a teeny drop at the pump," said Patrick DeHaan, senior petroleum analyst for GasBuddy.com, a watchdog and research site on gas prices. "There is a greater risk to the state than there would be a likelihood of prompting people to go on vacation."
Politicians in New York, Indiana, New Hampshire and Illinois are talking about suspending part or all of the state and local taxes that can add 14 cents to nearly 50 cents to a gallon of gas, on top of the 18.4 cent federal tax.
It's been done before.
Florida in August 2004 nipped its share of the gas tax as prices lurked around $2 a gallon, up from about $1.50 in late 2003. Indiana lifted its state tax from July to October 2000, Illinois from July through December of that year. For a month in 2005, right after Hurricane Katrina scattered evacuees across the South, Georgia suspended its share of the gasoline tax.
New York's bill, proposed by Assemblyman James Tedisco and Sen. Greg Ball, both Republicans, would create a gas-tax holiday for 12 days around Memorial Day, Independence Day and Labor Day — some of the heaviest travel days of the year.
The sponsors and the National Federation of Independent Business said it would give taxpayers a break, encourage vacation spending and could even draw out-of-state dollars from tourists and those in nearby states seeking to fill up.
But in these days of tattered state budgets, it's harder even to propose the holiday as states try to protect already flat — or falling — tax revenues, and the fallout of another midyear deficit would force still more spending cuts that could trump any political payoff.
All states charge a fixed excise tax per gallon of gas that doesn't change the revenue regardless of the price of gasoline. Four states — Indiana, Michigan, California and Illinois — also charge a percentage sales tax on the total purchase of gasoline.
In Indiana, Democratic Gov. Frank O'Bannon suspended the gasoline sales tax in 2000 when prices reached about $1.80 per gallon, a painful bite at the time despite the nostalgia it stirs now.
It saved motorists $46 million but cost the state the same amount of lost revenue as the economy was slowing and Indiana's budget surplus was dwindling.
Gas tax holidays are easy pickings for politics: Supporters can tell voters they're looking out for the little guy while opponents, even at the highest level of government, can criticize it as a feel-good, do-nothing stunt.
This year, when House Minority Leader Patrick Bauer, D-South Bend, proposed suspending the sales tax and state excise tax on gasoline, Republicans quickly shot down the idea, saying it would cost the state too much.
Supporters acknowledged it could cost the state $200 million while the state's budget office and opponents said the cost would top $300 million.
"The real problem is not our tax," said Rep. Jeff Espich, R-Uniondale. "It wouldn't make much difference."
Nadine Brown, a 53-year-old phlebotomist at Memorial Hospital in South Bend, Ind., said she thinks lawmakers there should have suspended the tax when it came up this legislative session.
"God, we can barely afford to put it in the tank now," she said while gassing up her van at a cost of $4.14 a gallon. "They have so much money, they can put gas in their cars. But what about the little man on the totem pole?"
Amy Baker, coordinator of the Florida Legislature's Office of Economic and Demographic Research, said the one-month reduction in that state's gas tax in August 2004 "did achieve its purpose."
"There was some pressure on price" while prices in neighboring states increased, she said.
In 2008, with gas prices topping $4 a gallon , presidential candidates Hillary Rodham Clinton and John McCain supported a federal gas tax holiday. The eventual victor, Sen. Barack Obama, accused them of pandering to voters by supporting a "gimmick."
Reporters reminded Obama that he voted for a gas tax break in 2000 in the Illinois Legislature, when prices reached $2 a gallon.
New York's bill would take 33 cents off the price paid at the pump, but the cost in lost revenue is harder to figure. The legislation says a holiday would cost $19 million, but the administration of Democratic Gov. Andrew Cuomo suspects it would be much more.
In 2006, under public pressure and the specter of $5 gallons of gas, New York capped its share of the sales tax on gasoline.
"Not paying a gas tax is a nice idea," Cuomo said. "The question is how much does it cost and this is a state that is functionally bankrupt."
Some motorists, even those who say they could use the break, worry about the long-term cost.
Kenni Hayes, 35, of Troy, N.Y., has enough mistrust of government's handling of tax dollars to avoid jumping at a gas tax break. She agrees with Cuomo's concern about losing uncalculated millions in state revenues.
"People might think it's a good idea for now, to give us a tax break of a minute and enjoy our summer," she said, filling up her SUV with $4.07-a-gallon gasoline at a Hess station. "But it's only temporary."
Consumers, small businesses and the tourism industry would probably benefit in the short term, said James M. Sallee, an assistant professor in the Harris School of the University of Chicago who researches economics and taxation.
But any gains would be probably be offset by people who timed fill-ups for the holiday, leaving the state to lose out on revenue just before and after a holiday, he said.
In New Hampshire, where the gas tax is 18 cents, House Republicans proposed dropping it a nickel from May through the end of June , but the measure is held up in procedural jockeying. State transportation officials estimate the cut would cost $6.6 million.
Illinois, which charges 19 cents a gallon in taxes plus 6.25 percent in sales tax, had a measure introduced to lift the sales tax for six months, but there is little chance of success in the Legislature where lawmakers from both parties oppose it.
New York's gas tax is second only to California. Compared with its neighbors, it's 33 cents per gallon more than New Jersey, 24 cents per gallon more than Massachusetts, 22 cents more than Vermont, 15 cents more than Pennsylvania and 2 cents more than Connecticut, according to the national Tax Foundation watchdog group.
Ramgoolam understands the plight of government and the perils of cutting out state revenue, but he knows his own budget better.
"Maybe a compromise?" he said. "Maybe just 15 cents off?"
___
Contributing to this report were Associated Press reporters Christopher Wills in Springfield, Ill., Tom Coyne and Deanna Martin in Indianapolis, Adam Weintraub in Sacramento, Calif., Bill Kaczor in Tallahassee, Fla., and Bob Salsberg in Boston.
Senate blocks bill repealing $2B in oil tax breaks
by John Nolen
The Senate has blocked a bill to repeal about $2 billion a year in tax breaks for the five biggest oil companies, a Democratic measure meant to respond to huge industry profits and $4-a-gallon gas prices.
The bill was defeated Tuesday on a procedural vote, but Democrats hope to revive the measure later this year when lawmakers and the Obama administration negotiate a deficit-reduction package.
Democrats say the savings, which amount to about $2 billion a year, would help lower the deficit.
"We have to do something about the exorbitant gas prices, and the best way to start with that is to do something about the five big oil companies getting subsidies they don't need," said Senate Majority Leader Harry Reid. "The other thing we have to be concerned about are the huge deficits that we've had, and we can accomplish both of those to some degree today by doing something this evening when we vote on taking away those huge subsidies the oil companies no longer need."
The Democratic measure, the "Close Big Oil Tax Loopholes Act," is sponsored by Senators Robert Menendez, D-NJ, Claire McCaskill, D-MO, and Sherrod Brown, D-OH. It is not expected to get the 60 votes necessary to advance the bill in the Senate.
Republicans oppose the bill because they say it does nothing to lower gas prices and is not a serious effort to address the problem.
"Symbolic votes like this that aim to do nothing but pit people against each other will only frustrate the public even more," Senate Majority Leader Mitch McConnell said.
"Americans really aren't interested in scapegoats," he continued. "They just want to pay less to fill up their cars. That's why this Democratic bill to tax American energy is an affront to the American people."
It's not only Republicans who oppose the bill. Democratic senators representing oil producing states, like Mary Landrieu of Louisiana and Mark Begich of Alaska, have been vocal opponents of the bill.
Landrieu says it's a waste to spend so much time on a bill that no one expects to pass and that won't address prices at the pump.
She urged Congress to work on what she cast as real solutions to the energy prices.
"It might make us feel better to beat up on big oil. It might present a scapegoat in some quarters, but it will not lower prices at the pump and that's what we need to be about," Landrieu said. "This economy, our economic recovery that we're in, slow and spotty in places, but underway, can be stalled out by prices as high as $4.37-a -gallon."
Landrieu asked her colleagues why they want to hurt an industry that employs millions of Americans.
"Why are we doing it? Why are we harming an industry, five large oil and gas companies that work internationally, that employ 9.2 million people in the United States directly, that are good hard working Americans, working in and for these companies?" she asked.
Begich called the legislation a gimmick.
"Let's stop the headline grabbing and get serious about the energy security," he said. "There is a lot of talk right now but ending tax incentives for oil and gas industry, but the high profits right now of these companies are easy targets. One thing Alaskans know, just because you have an easy target doesn't mean it is the right thing to shoot. It won't decrease prices at the pump for our families and small businesses."
In addition to Senators Landrieu and Begich, there are a few other Senate Democrats that could oppose the bill. Senator Ben Nelson, D-NE, office says he is still studying the bill and hasn't yet decided how he will vote.
There are 53 senators who caucus with Democrats. Without the support of 60 senators the bill will die on a procedural vote.
The Senate has blocked a bill to repeal about $2 billion a year in tax breaks for the five biggest oil companies, a Democratic measure meant to respond to huge industry profits and $4-a-gallon gas prices.
The bill was defeated Tuesday on a procedural vote, but Democrats hope to revive the measure later this year when lawmakers and the Obama administration negotiate a deficit-reduction package.
Democrats say the savings, which amount to about $2 billion a year, would help lower the deficit.
"We have to do something about the exorbitant gas prices, and the best way to start with that is to do something about the five big oil companies getting subsidies they don't need," said Senate Majority Leader Harry Reid. "The other thing we have to be concerned about are the huge deficits that we've had, and we can accomplish both of those to some degree today by doing something this evening when we vote on taking away those huge subsidies the oil companies no longer need."
The Democratic measure, the "Close Big Oil Tax Loopholes Act," is sponsored by Senators Robert Menendez, D-NJ, Claire McCaskill, D-MO, and Sherrod Brown, D-OH. It is not expected to get the 60 votes necessary to advance the bill in the Senate.
Republicans oppose the bill because they say it does nothing to lower gas prices and is not a serious effort to address the problem.
"Symbolic votes like this that aim to do nothing but pit people against each other will only frustrate the public even more," Senate Majority Leader Mitch McConnell said.
"Americans really aren't interested in scapegoats," he continued. "They just want to pay less to fill up their cars. That's why this Democratic bill to tax American energy is an affront to the American people."
It's not only Republicans who oppose the bill. Democratic senators representing oil producing states, like Mary Landrieu of Louisiana and Mark Begich of Alaska, have been vocal opponents of the bill.
Landrieu says it's a waste to spend so much time on a bill that no one expects to pass and that won't address prices at the pump.
She urged Congress to work on what she cast as real solutions to the energy prices.
"It might make us feel better to beat up on big oil. It might present a scapegoat in some quarters, but it will not lower prices at the pump and that's what we need to be about," Landrieu said. "This economy, our economic recovery that we're in, slow and spotty in places, but underway, can be stalled out by prices as high as $4.37-a -gallon."
Landrieu asked her colleagues why they want to hurt an industry that employs millions of Americans.
"Why are we doing it? Why are we harming an industry, five large oil and gas companies that work internationally, that employ 9.2 million people in the United States directly, that are good hard working Americans, working in and for these companies?" she asked.
Begich called the legislation a gimmick.
"Let's stop the headline grabbing and get serious about the energy security," he said. "There is a lot of talk right now but ending tax incentives for oil and gas industry, but the high profits right now of these companies are easy targets. One thing Alaskans know, just because you have an easy target doesn't mean it is the right thing to shoot. It won't decrease prices at the pump for our families and small businesses."
In addition to Senators Landrieu and Begich, there are a few other Senate Democrats that could oppose the bill. Senator Ben Nelson, D-NE, office says he is still studying the bill and hasn't yet decided how he will vote.
There are 53 senators who caucus with Democrats. Without the support of 60 senators the bill will die on a procedural vote.
Friday, March 11, 2011
10 Fat-Chance Tax Deductions
Nice try, folks.
By Peter Blank
Over the years, taxpayers have concocted a lot of zany arguments to justify tax deductions. We’ve come up with what we think are the 10 most creative ones that the courts decided did not quite work. As secret agent Maxwell Smart would say, “Missed it by that much!”
Overdone Overdrafts A couple who owned two struggling dry-cleaning businesses couldn’t get a loan from their bank because they were judged to be a bad credit risk. But they worked out a deal to regularly overdraw their account and then satisfy the overdraft after the bank called them. This odd financing method caused them to incur more than $30,000 a year in overdraft charges, which they deducted as a business expense. This didn’t wash with the Tax Court, which nixed the write-off, saying the charges were unreasonably high. Not surprisingly, the pair wound up filing for bankruptcy.
Red Blood Cell Depletion Allowance A woman with a rare blood type made more than $7,000 in a year as a blood plasma donor. She sought to offset the income by claiming a depletion deduction for the loss of both her blood’s mineral content and her blood’s ability to regenerate. While depletion is a proper write-off for firms that remove natural deposits of minerals such as coal and iron ore from the ground, the Tax Court decided that individuals cannot claim depletion on their bodies.
Prostitutes and Porn A tax lawyer spent more than $65,000 in a year on prostitutes and pornographic materials. He deducted the total as a medical expense, making a novel argument that cited the positive health effects of sex therapy. However, the Tax Court red-lighted his write-off, saying that his conduct not only was illegal, but also wasn’t for the treatment of a medical condition.
Burning Down the House After a job transfer, a worker relocated his family to a new state. But his wife didn’t like living there and returned home with the kids. When he visited over a holiday weekend, he discovered another man had been living there with his wife. He and his wife quarreled, and she left the house. While she was out, he put some of her clothes on the stove and set them on fire. The conflagration spread and burned down the house. The husband claimed a casualty loss deduction, but the Tax Court said no, reasoning that allowing him to deduct a loss from a fire he set would violate public policy.
Hush Money A pro football player who was in the middle of negotiating a contract extension got into an altercation with a lady friend. She ended up contacting the cops and filing a criminal complaint against him. The team told him that if the matter became public, he would be cut or traded. He agreed to pay the woman $25,000 to keep things quiet, and he got a four-year contract extension. But he didn’t get a tax deduction for the payment, because the Tax Court said the claim arose out of a personal relationship that had nothing to do with pro football.
Vegas Gambling Junket In an effort to drum up business from banks, a repo firm sponsored a bus trip to Las Vegas. Although employees talked informally with their collection contacts on the ride to Vegas, no formal business meetings were scheduled, and everyone spent most of the weekend gambling. The trip was a rousing success because the repo firm got a lot more business from the attendees. The company was less successful in the Tax Court, which denied the deduction for the junket because the business discussions were an insubstantial part of the trip.
Meals with Colleagues A partner in a law firm met every day with his colleagues at lunch to discuss the firm’s business, such as case assignments and settlements. But the IRS balked when he asked Uncle Sam to pick up part of the tab. The Tax Court came down on IRS’ side, saying that the cost of the meals was a non-deductible personal expense, even though business was discussed. The moral of the story is that while the partner can have his cake and eat it for dessert, he can’t get a subsidy from other taxpayers for his meals.
Designer Clothes The manager of an Yves Saint Laurent boutique was required to purchase and wear the designer’s clothing as a condition of her job to project the image of an exclusive lifestyle. She deducted the cost of the clothes as an employee business expense because she only wore the outfits at work. In her view, the clothes were too dressy for her simple, everyday lifestyle. Nevertheless, a court denied her deduction because the clothes were suitable for wear outside of work, even though they were not her taste.
Wrecking a Rental Car An airline employee needed to get to New Orleans but was stranded by heavy fog. He worked out a great deal with a rental car company where he paid nothing for a car that the company needed driven to New Orleans. Unfortunately, he wrecked the auto in Mississippi and had to pay for the damages. He tried to deduct the payment as a casualty loss, but the Tax Court denied his write-off because he wasn’t the owner of the vehicle.
Shoddy Construction A couple paid a builder to construct their dream home. Not long after they moved in, they discovered a series of problems with the house, including the foundation, that made living there a nightmare. They claimed that the builder defrauded them and deducted a large theft loss on their tax return. But the Tax Court denied the deduction, saying that although they were victims of poor workmanship, they weren’t victims of fraud.
By Peter Blank
Over the years, taxpayers have concocted a lot of zany arguments to justify tax deductions. We’ve come up with what we think are the 10 most creative ones that the courts decided did not quite work. As secret agent Maxwell Smart would say, “Missed it by that much!”
Overdone Overdrafts A couple who owned two struggling dry-cleaning businesses couldn’t get a loan from their bank because they were judged to be a bad credit risk. But they worked out a deal to regularly overdraw their account and then satisfy the overdraft after the bank called them. This odd financing method caused them to incur more than $30,000 a year in overdraft charges, which they deducted as a business expense. This didn’t wash with the Tax Court, which nixed the write-off, saying the charges were unreasonably high. Not surprisingly, the pair wound up filing for bankruptcy.
Red Blood Cell Depletion Allowance A woman with a rare blood type made more than $7,000 in a year as a blood plasma donor. She sought to offset the income by claiming a depletion deduction for the loss of both her blood’s mineral content and her blood’s ability to regenerate. While depletion is a proper write-off for firms that remove natural deposits of minerals such as coal and iron ore from the ground, the Tax Court decided that individuals cannot claim depletion on their bodies.
Prostitutes and Porn A tax lawyer spent more than $65,000 in a year on prostitutes and pornographic materials. He deducted the total as a medical expense, making a novel argument that cited the positive health effects of sex therapy. However, the Tax Court red-lighted his write-off, saying that his conduct not only was illegal, but also wasn’t for the treatment of a medical condition.
Burning Down the House After a job transfer, a worker relocated his family to a new state. But his wife didn’t like living there and returned home with the kids. When he visited over a holiday weekend, he discovered another man had been living there with his wife. He and his wife quarreled, and she left the house. While she was out, he put some of her clothes on the stove and set them on fire. The conflagration spread and burned down the house. The husband claimed a casualty loss deduction, but the Tax Court said no, reasoning that allowing him to deduct a loss from a fire he set would violate public policy.
Hush Money A pro football player who was in the middle of negotiating a contract extension got into an altercation with a lady friend. She ended up contacting the cops and filing a criminal complaint against him. The team told him that if the matter became public, he would be cut or traded. He agreed to pay the woman $25,000 to keep things quiet, and he got a four-year contract extension. But he didn’t get a tax deduction for the payment, because the Tax Court said the claim arose out of a personal relationship that had nothing to do with pro football.
Vegas Gambling Junket In an effort to drum up business from banks, a repo firm sponsored a bus trip to Las Vegas. Although employees talked informally with their collection contacts on the ride to Vegas, no formal business meetings were scheduled, and everyone spent most of the weekend gambling. The trip was a rousing success because the repo firm got a lot more business from the attendees. The company was less successful in the Tax Court, which denied the deduction for the junket because the business discussions were an insubstantial part of the trip.
Meals with Colleagues A partner in a law firm met every day with his colleagues at lunch to discuss the firm’s business, such as case assignments and settlements. But the IRS balked when he asked Uncle Sam to pick up part of the tab. The Tax Court came down on IRS’ side, saying that the cost of the meals was a non-deductible personal expense, even though business was discussed. The moral of the story is that while the partner can have his cake and eat it for dessert, he can’t get a subsidy from other taxpayers for his meals.
Designer Clothes The manager of an Yves Saint Laurent boutique was required to purchase and wear the designer’s clothing as a condition of her job to project the image of an exclusive lifestyle. She deducted the cost of the clothes as an employee business expense because she only wore the outfits at work. In her view, the clothes were too dressy for her simple, everyday lifestyle. Nevertheless, a court denied her deduction because the clothes were suitable for wear outside of work, even though they were not her taste.
Wrecking a Rental Car An airline employee needed to get to New Orleans but was stranded by heavy fog. He worked out a great deal with a rental car company where he paid nothing for a car that the company needed driven to New Orleans. Unfortunately, he wrecked the auto in Mississippi and had to pay for the damages. He tried to deduct the payment as a casualty loss, but the Tax Court denied his write-off because he wasn’t the owner of the vehicle.
Shoddy Construction A couple paid a builder to construct their dream home. Not long after they moved in, they discovered a series of problems with the house, including the foundation, that made living there a nightmare. They claimed that the builder defrauded them and deducted a large theft loss on their tax return. But the Tax Court denied the deduction, saying that although they were victims of poor workmanship, they weren’t victims of fraud.
Friday, March 4, 2011
AMT, the Tax We Love to Hate
AMT tax patch spares millions, but big families and residents of high-tax states are still vulnerable to the stealth tax.
By Mary Beth Franklin, Senior Editor, Kiplinger's Personal Finance
More than 20 million middle-class tax payers have been spared—once again—from being subject to the alternative minimum tax. Created back in 1969, in an era when tax rates went as high as 91%, the AMT was designed to make sure that the very wealthy couldn’t use loopholes to escape all their tax obligations.
But because the AMT was never indexed for inflation, it gradually morphed from a “class tax” into a “mass tax,” claiming additional middle-class victims each year. In response, Congress pushes regularly pushes through AMT “patches” to increase the income level at which the stealth tax kicks in. As part of the major tax law approved in late December, Congress agreed to patch the AMT for both 2010 and 2011.
But if you paid the AMT last year and your financial situation remains about the same, you’re likely to feel the sting again when you file your 2010 tax return. For 2010, the exemption amounts were increased to $47,250 for single taxpayers and heads of household, and $72,450 for married couples filing joint returns.
Double trouble
The AMT is a parallel tax system. Every taxpayer is responsible for paying the higher of the regular tax or the minimum tax. Essentially, it means you have to do your taxes twice. First, you have to figure your regular federal tax and then calculate the AMT, which disallows many common deductions and credits. If the minimum tax is higher, the difference between the two tax rates is added to your Form 1040 as an additional alternative minimum tax.
Although the AMT rates of 26% and 28% are lower than the upper income tax rates of 33% and 35%, you pay taxes on more of your income, raising your overall tax bill. Use IRS Form 6251 to calculate the difference between the two tax rates. If you use tax-preparation software, it will automatically calculate your AMT liability. A professional tax preparer should do the same. But if you’re still doing your taxes the old-fashioned way, get ready to tear your hair out if you have to tackle Form 6251 on your own. You can test drive the IRS’s AMT Assistant tool (www.irs.gov) to see whether you’re vulnerable, but even that is a lot of work.
Likely victims
No single item alone may trigger the AMT. However, you are more likely to be snagged by the AMT if you have income of $100,000 or more; you claim a lot of itemized deductions for expenses such as state and local taxes; or you have a larger number of personal exemptions for you, your spouse and your dependents. Consequently, taxpayers with large families or those who live in high-tax states, such as California and New York, are more likely to find themselves subject to the stealth tax.
Exercising incentive stock options is another common AMT trigger, requiring you to prepay the tax on your paper profits. If the stock later plunges in value before you can sell it, that’s just too bad. The AMT has to be paid, although you can recoup offsetting tax credits in future years.
Although you can still deduct medical expenses, home-mortgage interest and investment interest under the AMT, different rules apply. For example, under the AMT, you can deduct only those out-of-pocket medical expenses that exceed 10% of your adjusted gross income compared with a 7.5% threshold under regular tax rules. Although most Democrats and Republicans agree they would like to abolish the AMT, the reality is the stealth tax rakes in a lot of revenue—something that is in great demand during times of large federal budget deficits. Every time Congress approves a patch to raise the exemption level and protect the middle class, it costs a lot of money. Just extending the AMT patch for 2011 and 2011 is expected to cost the federal government $136 billion in lost revenue.
By Mary Beth Franklin, Senior Editor, Kiplinger's Personal Finance
More than 20 million middle-class tax payers have been spared—once again—from being subject to the alternative minimum tax. Created back in 1969, in an era when tax rates went as high as 91%, the AMT was designed to make sure that the very wealthy couldn’t use loopholes to escape all their tax obligations.
But because the AMT was never indexed for inflation, it gradually morphed from a “class tax” into a “mass tax,” claiming additional middle-class victims each year. In response, Congress pushes regularly pushes through AMT “patches” to increase the income level at which the stealth tax kicks in. As part of the major tax law approved in late December, Congress agreed to patch the AMT for both 2010 and 2011.
But if you paid the AMT last year and your financial situation remains about the same, you’re likely to feel the sting again when you file your 2010 tax return. For 2010, the exemption amounts were increased to $47,250 for single taxpayers and heads of household, and $72,450 for married couples filing joint returns.
Double trouble
The AMT is a parallel tax system. Every taxpayer is responsible for paying the higher of the regular tax or the minimum tax. Essentially, it means you have to do your taxes twice. First, you have to figure your regular federal tax and then calculate the AMT, which disallows many common deductions and credits. If the minimum tax is higher, the difference between the two tax rates is added to your Form 1040 as an additional alternative minimum tax.
Although the AMT rates of 26% and 28% are lower than the upper income tax rates of 33% and 35%, you pay taxes on more of your income, raising your overall tax bill. Use IRS Form 6251 to calculate the difference between the two tax rates. If you use tax-preparation software, it will automatically calculate your AMT liability. A professional tax preparer should do the same. But if you’re still doing your taxes the old-fashioned way, get ready to tear your hair out if you have to tackle Form 6251 on your own. You can test drive the IRS’s AMT Assistant tool (www.irs.gov) to see whether you’re vulnerable, but even that is a lot of work.
Likely victims
No single item alone may trigger the AMT. However, you are more likely to be snagged by the AMT if you have income of $100,000 or more; you claim a lot of itemized deductions for expenses such as state and local taxes; or you have a larger number of personal exemptions for you, your spouse and your dependents. Consequently, taxpayers with large families or those who live in high-tax states, such as California and New York, are more likely to find themselves subject to the stealth tax.
Exercising incentive stock options is another common AMT trigger, requiring you to prepay the tax on your paper profits. If the stock later plunges in value before you can sell it, that’s just too bad. The AMT has to be paid, although you can recoup offsetting tax credits in future years.
Although you can still deduct medical expenses, home-mortgage interest and investment interest under the AMT, different rules apply. For example, under the AMT, you can deduct only those out-of-pocket medical expenses that exceed 10% of your adjusted gross income compared with a 7.5% threshold under regular tax rules. Although most Democrats and Republicans agree they would like to abolish the AMT, the reality is the stealth tax rakes in a lot of revenue—something that is in great demand during times of large federal budget deficits. Every time Congress approves a patch to raise the exemption level and protect the middle class, it costs a lot of money. Just extending the AMT patch for 2011 and 2011 is expected to cost the federal government $136 billion in lost revenue.
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