It took two years of brutal bipartisan bickering to pass a new 2,000-page healthcare law, and that was when the Democrats were in control of the White House, the Senate and the House of Representatives.
So you can imagine how impossible it would be for our esteemed members of Congress to reform a 75,000-page tax code within a few short weeks to meet a budget deal deadline. News Flash: It ain't gonna happen!
The reason the tax code is so long and complicated is because, we've had decades of wrangling done by expensive tax attorneys, lobbyists and CEOs on behalf of the top 0.01% and major corporations. Half of all wage earners in the U.S. take home $27,519 a year or LESS a year; and most could probably manage filing their income taxes by using a 1-page 1040EZ form --- whereas, Mitt Romney's tax returns are 500-pages long. (nobody lobbies for low-wage earners).
But when it comes to the upcoming budget negotiations, you can forget-about-it --- there will be no tax reform --- and on that you can bet the farm bill. It's all a public charade for public consumption.
Firstly, the U.S. Constitution requires that all bills regarding taxation must originate in the House of Representatives --- and House "procedure" is that all bills regarding taxation must first go through the Ways and Means Committee. Then John Boehner would most likely use the unconstitutional Hester Rule to block any legislation from coming up for a vote in the House --- and finally, if all else fails, Harry Reid will again refuse to change the rule to keep the Republicans from filibustering in the Senate.
And that's just the beginning.
The budget conference is scheduled to meet soon and Senate Democrats
have outlined a dozen of the most “egregious” loopholes
(on a list further below) that are used by corporations and the wealthy that could be eliminated as part of the budget conference that's tasked with coming
up with a deal (aka "grand bargain" or "compromise") by December 13th.
Tax expenditures topping the list are incentives for American companies to send jobs offshore, and include deductions that corporations take when they move operations overseas --- the so-called “check-the-box” loophole that multinational corporations use to reduce U.S. tax liabilities by from foreign subsidiaries --- the tax provision allowing corporations to finance overseas operations through debt and deduct that interest before reporting their foreign taxable income to the IRS.
Senators Bill Nelson (D-Fla.) and Ron Wyden (D-Ore.) have both said they would like to tax corporations’ overseas earnings to find additional revenue to offset the across-the-board sequestration budget cuts. It's reported that corporations hold almost $2 trillion in offshore banks. (Also, read my post about the The Stop Tax Haven Abuse Act)
Also on the Democrat's list is the deductions individual taxpayers can take on loans for vacation homes and yachts; and the carried interest loophole, which allows private equity firms and other investment advisers (like Mitt Romney) to pay the lower capital gains tax rate on some of their income.
Senator John McCain (R-Ariz.) claimed he also agreed to eliminate a corporate tax deduction for CEO's stock options to offset the sequester --- and that would be huge --- but let's fact it folks, with our current members in Congress, realistically speaking, that is a pipe dream and would never happen.
According to Politico, a new survey by Public Citizen found that a 1990’s-era law meant to curb tax deductions for extravagant CEO pay is instead prompting corporations to deduct $235 million from their taxes by writing off stock-based compensation deals (They use stock buy-backs deals and other nefarious means to increase the value of the stock prices for short-term gains.)
Right now, as the Washington Post has pointed out, big corporations can skirt the limits on deductible executive compensation and claim massive tax breaks by paying their CEOs in stock options and bonuses instead of paychecks. Not only is this unfair, but it also encourages the sort of reckless, short-term focus on profits that contributed to the financial crisis. Closing this loophole would save as much as $50 billion over 10 years.
Reuters reports that another loophole, known as “check the box,” allows major multinational corporations to hide foreign subsidiaries and profits from the Internal Revenue Service simply by marking a box on their tax forms. The ability to easily create these “disregarded entities” was intended to help U.S. companies reduce their tax filing paperwork. But big U.S. companies put their foreign subsidiaries in this category as part of their efforts to shuttle profits to tax havens such as Bermuda. Closing this loophole would save as much as $80 billion over 10 years.
If we eliminated these two loopholes — totaling less than 1 percent of all federal tax expenditures — and paired that with an equal amount of responsible spending cuts (like for government conventions in Las Vegas), we could replace more than two full years of sequestration’s cuts to education, research, infrastructure, jobs and the military.
Corporate jets are also on the Democrat's list.
Americans for Tax Fairness released a national survey by Hart Research last February showing two-thirds of voters nationwide now say that the richest 2% (by 66% of voters) and large corporations (by 64% of voters) should pay more in taxes. And according to a Gallop poll last year, 60% of Americans would mandate a minimum 30% tax rate for Americans with a household income of $1 million or more per year.
Senate Budget Committee Chairman, Patty Murray (D-Wash.), the lead negotiator for Senate Democrats on a new budget
said, “I’m ready to make some tough concessions to get a deal. Compromise, however, runs both ways. While we scour programs to identify savings, Republicans have to work with us to scour the bloated tax code and close loopholes used by the wealthiest Americans and corporations to replace the other half of sequestration."
But many fear that when Senator Patty Murray says "identify savings", she may be referring to chain-CPI for cost-of-living-adjustments (COLAs) on the elderly and disabled who rely on Social Security, and for those who receiver military and Veterans benefits.
But regarding the U.S. tax code, it clearly benefits the wealthy and well-connected --- and historically, it's always been this way (even in a "supposed" progressive tax system). So it would be unfair, and unacceptable, to ignore every last loophole and special interest carve-out, yet ask seniors and families to bear the burden of deficit reduction alone.
But the House Budget Committee Chairman Paul Ryan (R-Wis.) warned last week in the panel's opening meeting that the conferees' work should not turn into an argument about raising taxes. He said the panel should instead find "non-tax revenue" and "user fees" to go along with "other spending cuts" if the intention is to replace or soften the sequester.
Below is a Dirty Dozen list many egregious loopholes mentioned in the Democrat's memo that Republicans should either bring to the negotiating table or explain to the American people why they can’t find a single loophole to close to get a bipartisan deal. Several Republicans have already said that closing any tax loopholes was not on the table. Ask them, "Why not?"
1. End Tax Deductions for Shipping Jobs Overseas—The last thing we need to do is give companies an incentive for shutting down business operations here in the U.S. and offshoring those jobs overseas. But right now, the tax code allows businesses to deduct their expenses when they move a plant overseas. Closing this loophole would save about $200 million over ten years.
2. Close the Corporate Jet Loophole—Corporate jet owners can deduct their investments over five years, while commercial aircraft must be depreciated over a longer period. Closing this unfair loophole would save taxpayers almost $4 billion over ten years.
3. Close the Carried Interest Tax Break—With the "carried interest" loophole, hedge fund managers and private equity advisers face a 20 percent tax rate on their compensation, while all other taxpayers pay ordinary rates of up to 39.6 percent. Ending this loophole would save more than $17 billion over ten years.
4. End the John Edwards/Newt Gingrich Loophole—Some wealthy business owners knowingly mischaracterize their income as business profits instead of salary to avoid Medicare and Social Security payroll taxes. Ending this loophole would save about $12 billion over the next ten years.
5. Stop Tax Subsidies for Yachts and Vacation Homes—The wealthiest Americans often are able to deduct interest on loans that finance their vacation homes and yachts. Closing this loophole could save taxpayers as much as $15 billion over ten years.
6. Close the "Check-the-Box" Loophole—Many U.S. multinational corporations use this loophole in the tax code to make certain foreign subsidiaries disappear on paper, simply by checking a box on an IRS form. This allows these companies to avoid massive amounts of U.S. and even foreign taxes. Ending these so-called "Check the Box" schemes would save as much as $80 billion over ten years.
7. Treat Companies Managed and Controlled in the U.S. as U.S. Companies—Companies that are managed and controlled right here in the U.S. can avoid taxes by incorporating and setting up a P.O. Box in a tax haven overseas. In fact, 18,000 companies claim their headquarters is located inside a single five-story building in the Cayman Islands. Ending this loophole would save taxpayers almost $7 billion over ten years.
8. Tax Risky Derivative Contracts on a "Mark-to-Market" Basis—Excessive and risky bets on derivative contracts were a primary cause of the financial crisis. But the current tax system actually encourages these risky bets with complex and inconsistent rules, allowing Wall Street bankers to game the system. Streamlining the tax rules for speculative derivative contracts – by taxing them on a "mark-to-market" basis – would save at least $16 billion over ten years.
9. Limit Corporate Deductions for Excessive Executive Stock Options—Right now, big corporations claim enormous deductions by compensating their executives in stock options instead of regular paychecks, thereby skirting existing rules that limit deductible cash compensation to certain employees to $1 million per year. This loophole encourages the same type of reckless, short-term profit focus that contributed to the financial crisis. Closing this loophole would save as much as $50 billion over ten years.
10. Stop Wealthy Individuals from Playing Tax Games with their Retirement Accounts—Wealthy individuals should not be able to use their tax-deferred Individual Retirement Accounts (IRAs) as estate planning tools. But right now, that is exactly what is happening. Tightening these rules to prevent individuals from accumulating millions and millions of tax-deferred dollars in IRAs, as well as continuing to defer tax on these amounts until decades after they die, would save about $10 billion over ten years. (It's reported that Mitt Romney has $102 million in an IRA account.)
11. Defer Interest Deductions Related to Foreign Income—Current tax rules allow U.S. multinational corporations to finance expanded overseas operations with debt, and then deduct the interest on that debt before they report any foreign income to the IRS. This unfair tax break shifts tax burdens onto Americans and U.S. businesses without foreign operations. Ending this loophole would save more than $50 billion over ten years.
12. Close Estate Tax Loopholes for the Wealthiest Americans—Millionaires and their heirs can skirt the estate tax through a form-over-substance scheme that involves setting up a two-year grantor retained annuity trust (GRAT). If the grantor outlives the trust term of two years, the trust assets avoid estate taxation. Closing this loophole, by requiring a ten-year minimum term for grantor trusts, would save more than $3 billion over ten years.
Surprisingly, the memo makes no mention of repealing a host of other tax breaks that the oil and natural gas industry has been receiving for almost a century. Congressional Democrats and President Obama have traditionally targeted these tax breaks as part of budget talks but have never succeeded in reducing or eliminating them. In the past year, the American Petroleum Institute and other trade groups and companies in the oil and gas industry have made tax reform—and specifically preserving their current tax treatment—their top priority.
BusinessWeek reports that some House Republican leaders were worried about political damage if the party’s top tax writer (Rep. Dave Camp) releases a plan to revise the U.S. tax code and limit popular breaks for the non-wealthy. Camp has held the details of his plan closely, particularly those on politically charged issues such as the mortgage interest deduction, capital gains rates and the exclusion for employer-provided health insurance.
The National Journal predicts how the budget deal will die:
Rep. Paul Ryan began the budget conference committee last month by warning Democrats that they would sabotage the negotiations by insisting on a debate over more revenue. “If this conference becomes an argument about taxes, we’re not going to get anywhere,” Ryan told the group on Oct. 30. It took Democrats all of one week to dismiss his advice.
Top House Republican leaders will huddle with the chairman of the Ways and Means Committee in a meeting that could help determine the path of chief tax writer
Rep. Dave Camp’s
(R-Mich.) push to introduce legislation to revamp the tax code.
Speaker John Boehner (R-Ohio), Majority Leader Eric Cantor (R-Va.) and Majority Whip Kevin McCarthy (R-Calif.) will meet with Camp as the prospect of legislation remains murky, despite Camp’s repeated pledges to introduce a bill this year --- but tax reform is highly unlikely in the 113th Congress (just as it was in Democratic controlled 112th Congress).
Even though Senate Democrats argue using $50 billion raised from closing loopholes to offset the across-the-board budget cuts doesn’t imperil tax reform, it’s important to note that House Republicans — including co-chair Rep. Paul Ryan — have said any tax money raised should be used to lower rates.
Rep. Dave Camp's plan includes lowering the top individual rate to 25 percent from 39.6 percent and the top corporate rate to 25 percent from 35 percent --- even though the actual "effective" corporate tax rate that most many corporations now pay is a well-known joke --- some pay no tax at all. And the rate for capital gains (the top 0.01 percent's income) this year is only 23.8% --- and is still lower than the top marginal rate for ordinary wages. (Also, read my post on marginal tax rates: Taxes: How Congress Lets the Rich Pay Less)
Meanwhile, Reuters reports that “the Internal Revenue Service has obtained court orders to force five U.S. banks to divulge information about U.S.
tax dodgers account holders who allegedly hid money with banks based in Switzerland and Bermuda to evade taxes."
But the banks are not going quietly. Reuters also reports that
a court challenge from the Texas Bankers Association and the Florida Bankers Association “threatens to undermine a broad U.S. government crackdown on offshore tax
evasion avoidance and jeopardize a web of carefully crafted international agreements."
"It is unlikely that Republicans will agree to any of them. Some represent good tax policy and should be approved, regardless of what happens to the budget talks. Others sound good, but won’t accomplish much after the tax lawyers root out new ways around them." (So expect more loopholes, not less.)
In other words, all the talk by our politicians (Republicans and Democrats alike) about closing tax loopholes and tax reform is just that...all talk (just like it's always been). Half of Congress are millionaires and all benefit from the current tax code as it currently is, so they have no incentive to change anything. For the past 40 years all their pontificating and bull$hit has been nothing but one big charade.