STUMP » Articles » Taxing Tuesday: THE RETURN! » 3 December 2019, 03:03

Where Stu & MP spout off about everything.

Taxing Tuesday: THE RETURN!  

by

3 December 2019, 03:03

Wooooo.

Man, those tax stories just piled off while I was “gone”, didn’t they?

Let’s get to it.

HOW MUCH MORE COULD BE COLLECTED IF AUDITS WERE INCREASED?

There’s a report out claiming that if only the IRS hopped to it, way more money could be had by the federal government.

Let’s check that claim.

Here’s How to Boost Tax Collection, Says Larry Summers

Want to narrow the yawning federal deficit? Be tougher on tax collection, says former Treasury Secretary Lawrence Summers, in a research paper.

The government could collect $535 billion more over the next 10 years if the Internal Revenue Service stepped up its audits. Summers, now a Harvard economics professor, suggests restoring it to the frequency last seen in 2011 and before. Back then, a period encompassing his tenure as Treasury secretary under Bill Clinton and as economic advisor to Barack Obama, collections were higher, Summers argued.

Audit rates were higher in the past and the focus was more on millionaires and billionaires, according to his academic paper, written with a University of Pennsylvania law professor, Natasha Sarin.

Reviewing the returns of the wealthy is time-consuming but delivers the goods, Summers and Sarin contended. “Under-reporting is more than five times as high for individuals who earn $10 million or more annual than it is for those who make under $200,000 a year,” the paper said. Uncollected taxes will cost federal coffers around $630 billion in 2020, their research found.

Wait a second.

I highlighted two items:

- Uncollected taxes of $630 billion in 2020 [aka one year]
- Improvement of collections of $535 billion over TEN YEARS

So… he’s saying that audits are ineffective?

Or wait, are those uncollected taxes because the taxpayers can’t pay their taxes? Hmmm?

Or, jeez, that the audits would cost so much, over 90% of the collected taxes would be wasted on paying IRS employees.

The article gives some useful numbers for comparison at the end:

Corporate tax revenues totaled $230 billion, up 12%, because of a bounce back in the second half of the year. Meanwhile, individual tax revenues rose 2% to $1.7 trillion. Receipts totaled $3.4 trillion, up 4% through September, but while federal outlays rose 8%, to $4.4 trillion.

If we cut down the $535 billion over 10 years to $54 billion in one year [I’m being nice], that’s 3% of total personal income tax. Well, 3% is not too shabby, but again, I’m assuming that $54B is net of what it costs to pay for IRS folks.

Let’s pull the paper: Shrinking the Tax Gap: Approaches and Revenue Potential … at NBER. I don’t have a login for that.

So if anybody has a copy of the paper, feel free to send it to me at marypat.campbell@gmail.com.

In the interim, here’s the abstract:

Between 2020 and 2029, the IRS will fail to collect nearly $7.5 trillion of taxes it is due. It is not possible to calculate with precision how much of this “tax gap” could be collected. This paper offers a naïve approach. The analysis suggests that with feasible changes in policy, the IRS could aspire to shrink the tax gap by around 15 percent in the next decade—generating over $1 trillion in additional revenue by performing more audits (especially of high-income earners), increasing information reporting requirements, and investing in information technology. These investments will increase efficiency and are likely to be very progressive.

That reminds me — we have the claim of $630 billion shortfall of taxes due in 2020. Let’s pretend total receipts are the same as fiscal year 2019: $3.4 trillion.

That’s a shortfall of 18.5%. That’s quite large.

I don’t know if that’s how big the “gap” really is. Shrinking that gap to 15% seems okay, but that still seems large to me. Are they bitching that they’re not getting their take from illegal drug transactions?

FEDEX DISPUTES THAT IT DOESN’T PAY TAXES

The NYT ran a story claiming FedEx paid no federal income taxes for 2018 (or something). I don’t feel like linking the NYT — you can find the story on your own.

An op-ed rebuttal from Frederick W. Smith, chairman and CEO of FedEx: FedEx Delivers Billions to the Taxman

During the Obama administration, and more recently the Trump administration, we worked consistently to change U.S. corporate tax policies. As one country after another lowered corporate tax rates, the U.S. stood by and allowed wide swaths of this country to be deindustrialized due in large measure to its globally uncompetitive business tax rates.

…..
When President Trump took over along with a Republican Congress, we worked very hard through various open communication channels, coalitions, and meetings with members of Congress and the administration to effect passage of the Tax Cuts and Jobs Act.

While I met with Mr. Trump on a couple of occasions, I never discussed tax reform with him, although we did talk about other public-policy matters. We at FedEx were very pleased when he signed the Tax Cuts and Jobs Act into law on Dec. 22, 2017. In response, we increased capital expenditures. We placed a major order for 24 Boeing wide-body freighters, funded major facilities modernizations and expansions, put additional funds in our pension plan, and increased wages by more than $200 million.

Had the tax cuts not passed, we would have significantly lowered capital expenditures in 2018. Instead, the expensing provision of the legislation encouraged FedEx to buy new 777F and 767F aircraft. During the debate on tax reform, the chief executive of UPS, David Abney, and I jointly penned an op-ed in these pages urging passage of corporate tax reform.

I know the FedEx aircraft orders created thousands of incremental new jobs for Boeing, General Electric (the engine supplier on freighters), and a multitude of smaller suppliers. In fact, each order of a 777F injects about $540 million into the U.S. economy, supports 1,850 jobs, and generates roughly $45 million in federal, state and local taxes.

While major capital expenditures under the tax-cut legislation can be expensed, thereby initially deferring U.S. corporate tax receipts, these assets should produce significant revenues for the U.S. Treasury in the years to come while also providing great jobs for the thousands of people who will operate, maintain and provision FedEx and UPS aircraft.

There is little doubt the significant increase in U.S. employment and wages since the tax cuts were passed is due to the decrease of corporate tax rates from 35% (which we used to pay) to 21%, which is competitive with the rest of the industrialized world. Over the past five years, we have paid more than $10 billion in U.S. taxes. After the temporary effect of capital expensing wears off, I expect FedEx will pay billions more into the U.S. Treasury from the earnings produced by our investments.

So, I believe I’ve noted this before: state and federal governments get almost no revenue from corporate income taxes. Sure, they get some, but they get far more in personal income taxes on the people who work at those companies.

Wages and benefits (up to a certain amount) are expenses that reduce taxable income for companies. Because, for businesses, it is recognized that their income is not merely revenue. To generate that revenue, they have to pay for all sorts of things, including employees.

As for capital expenditures, what the CEO means is that they can spread the cost of the capital investments over multiple years (the expected lifetime of the items being bought). You generally don’t see this sort of “expensing” in personal income taxes, so you may not be used to the concept if you’ve not dealt with business accounting.

The reason you do this is to provide an incentive to make capital investments. Yes, they buy the airplanes all at once, but they also issue bonds to pay for these capital expenditures.

In any case, the employees — the executives — of these companies pay plenty of income taxes. As do the people working for the vendors for these companies. If you look only at the corporation itself, and not all the people and vendors it pays… you’re not doing good fiscal planning.

Does it matter if the tax bill says ABC corp on it or CEO of ABC corp on it?

Indeed, you would think that they’d be happy the execs are paying so much in income taxes.

TAX STORIES

Yeah, good luck with that.

Illinois is desperate for revenue to fill its yawning deficits.

There’s this:

One measure that could provide some property tax relief has already been passed. The General Assembly this fall approved a plan to consolidate hundreds of downstate and suburban police and fire pension funds into two statewide funds, a measure advocates say will result in better investment returns and cut down on administrative costs.

Oh, you sweet summer children. I can predict that the actual result will be all the people in the downstate systems having to put more money into the pension funds, just like IMRF. They will be forced to make full contributions, just wait.

(And many have been having “optimistic” valuations, which I bet will also go away.)

“Cost” savings won’t do much. It’s something, but it’s just shaving little bits.

TAX TWEETS


Oh Nanny Bloomberg. The only thing the NYers liked about you was that the streets were properly plowed and the cops did their jobs.

I M RICHHHHH!

Well, this is how governments behave. Maybe don’t give them too much power.

I have no idea what this IR35 is. I assume it’s Inland Revenue (the UK’s version of the IRS), but I don’t know/understand the details of what’s involved. I have seen quite a few tweets about it, though.

I would say golden oldie, but I think he did this recently.


I hear there’s an election going on…

I’m so sure you’re hearing this, bub.

See you next week!


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