Geithner Favors Allowing Tax Cuts for the "Wealthy" to Expire

From Examiner.com:

In another move sure to up the ante in the perceived class warfare being waged by the Obama administration, Treasury Secretary, Timothy Geithner has said that he is favorably disposed to allowing the present tax cuts for the "wealthiest people" to expire.

He calls it the "responsible thing to do", although most Blue Dog Democrats and Republicans would disagree, as they see it as a failed economic policy (increasing taxes on the wealthiest people) that would only hurt economic growth, in the long run.

While speaking on ABC's "This Week" this morning, Geithner professed that allowing the tax cuts to expire would send a signal to the world that the United States was willing as a country, to take concrete steps, necessary to reducing long-term budget deficits.

What he however failed to propose was how exactly the government intended to make up for the still expected shortfall, as the so-called wealthiest people already pay close to two-thirds of the taxes.

The truth is that invariably, higher taxes on the wealthiest people, will end up hurting the economy in the long run as the latter will withdraw or significantly reduce their charitable donations, thus negatively impacting the non-profit sector of the economy.

Geithner: Changes Will 'Restore Balance' To Tax Code

The White House unveiled some new tax cut benefits for corporations, that Treasury Secretary Timothy Geithner says will restore balance to the US tax code. I have included a snippet from a Wall Street Journal story on the new changes, but the full text can be read here.

The White House on Monday unveiled proposals to cut tax benefits for U.S. corporations that invest overseas and to use some of the expected revenue to make permanent a tax credit for investment in research and development.

U.S. President Barack Obama hailed the proposal and another intended to crack down on individuals who use overseas accounts to dodge U.S. taxes. Collectively, the administration said two proposals and other international tax changes to be released with the administration's budget later this month would raise $210 billion over 10 years.

The proposals target the foreign profits of U.S. firms like Intel Corp. (INTC), Eastman Kodak Co. (EK), Agilent Technologies (A), Johnson & Johnson (JNJ), Motorola Inc. (MOT) and Pfizer Inc. (PFE).

U.S. Treasury Secretary Timothy Geithner, who appeared with Internal Revenue Service Commissioner Douglas Shulman alongside the president on Monday, said the administration's proposals are intended to "restore balance" and fairness to the U.S. tax code and end "indefensible tax breaks."

Obama called the proposed changes a "down payment" on reforms to ensure that U.S. companies "pay what they should."

Currently, U.S. businesses may take immediate deductions on their U.S. tax returns for expenses on overseas investments, but defer paying U.S. taxes on profits from those investments. Obama characterized the practice as part of a "broken" tax code that favors companies for investing overseas as opposed to those that invest and create jobs at home.

Under the administration's proposal, companies would be barred from taking deductions on their U.S. taxes for offshore investments until they pay taxes on their offshore profits. It calls for the change to take effect in 2011, estimating it would raise $60.1 billion from 2011 to 2019.

That is similar to a measure proposed by House Ways and Means Chairman Charles Rangel, D-N.Y. But in one difference from the Rangel proposal, the White House plan would preserve the tax benefit for U.S.-based research that is related to overseas business.

Additionally, the administration called for new limits on tax provisions that allow U.S. businesses to claim a credit against their U.S. taxes for the foreign taxes paid, saying some U.S. firms take advantage of it by inflating or accelerating foreign-tax credits. Closing such loopholes would raise $43.0 billion from 2011 to 2019, the administration said.

Expected revenue from such changes would fund a permanent extension of the research and development tax credit, now set to expire at the end of the year, the administration said. Obama plans to provide a $74.5 billion R&D tax credit over 10 years to businesses that invest in the U.S. The administration also is looking to beef up IRS enforcement, proposing to add 800 full-time employees at the tax-collection agency.

Geithner Pledges ‘Ambitious’ Crackdown on Tax Havens

From Bloomberg.com:

Treasury Secretary Timothy Geithner said the U.S. government will mount an “ambitious” program to crack down on companies that use offshore locales to avoid paying taxes.

Closing loopholes and hunting tax evaders are especially important at a time when the economy is deteriorating and the government is running a record budget deficit, Geithner told the Senate Finance Committee today in Washington.

“We’re going to have a much more ambitious effort to deal with offshore tax havens,” Geithner said in response to questions from the panel. Allowing companies and individuals to escape paying their share “isn’t fair, particularly given the scale of the fiscal challenges we inherited,” he said.

A congressional report released in January found that in 2007 83 of the 100 largest publicly traded U.S. companies had units in low-tax or no-tax jurisdictions like the Cayman Islands or the Isle of Man. They included American International Group Inc., Citigroup Inc., Bank of America Corp. and Morgan Stanley, all of which were given taxpayer money through the $700 billion financial rescue.

Some of Geithner’s counterparts in Europe have vowed to take similar action, and the issue may be discussed when finance ministers for the Group of 20 industrial and developing nations meet next week in the U.K.

Yesterday, German Finance Minister Peer Steinbrueck said Switzerland should change laws that shield foreign tax dodgers from investigation in their home countries.

Tax Court Takes Swipe at Daschle-Geithner-Killefer-Solis

The Tax Professor blog recently posted an entry discussing the tax courts taking an evident swipe at the recent surge in publicized famous tax evaders. You can find a segment of the article below, but the full post can be found here:

The Tax Court yesterday held that the IRS did not abuse its discretion in refusing to accept her proposed offers in compromise, upheld the IRS's tax lien and levy against her, and upheld the IRS's refusal to abate tax penalties. Taylor v. Commissioner, T.C. Memo. 2009-27 (Feb. 5, 2009). In its conclusion, the Tax Court appeared to take a swipe at Tom Daschle, Tim Geithner, Nancy Killefer, and Hilda Solis:

Both petitioner and respondent repeatedly commented on petitioner's stature as a beloved and well-known professional singer as support for their respective positions in these consolidated cases. We disagree with both parties insofar as they contend that a taxpayer's celebrity status is somehow relevant to what this Court must do in deciding whether the Commissioner's collection action may proceed. Every taxpayer, no matter how famous or notorious, has a legal obligation to honestly report and pay his or her income tax liability each year and is entitled to fair enforcement of Federal tax laws. ... Respondent gave petitioner ample opportunity to rectify her failure to pay estimated tax when due and considered petitioner's collection alternatives in accordance with applicable administrative and legal requirements.

Geithner Wins Treasury Job, Despite Tax Woes

Reuters recently posted an article today about Geithner being confirmed by the Senate despite his tax problems. A segment of the article can be read below, but the full article can be found here.

Senators were expected to set aside their misgivings about Timothy Geithner's past income tax errors and confirm the 47-year-old New York Federal Reserve Bank chief as Treasury secretary on Monday night.

With the economy in full-blown crisis, Geithner's experience in dealing with the past year's rapid-fire rescue efforts of key financial firms will trump the taint from his late payment of $34,000 in self-employment taxes to the Internal Revenue Service that he will command.

Geithner will be President Barack Obama's top economic official for a crisis-management team that is already deeply involved in pushing a big package of spending and tax-cuts through Congress to lift the recession-mired economy.

He also will immediately face the question of whether the new administration should go back to Congress to seek money beyond the Treasury-run $700 billion financial rescue package to sop up bad assets sitting on bank balance sheets, perhaps in a government-run "bad bank."

TurboTax Responds to Treasury Nominee’s Disclosure

From The Washington Wire:

The Senate Finance Committee has taken special interest in recent years in tax-preparation software, trying to encourage taxpayers to file electronically. So perhaps it shouldn’t have been surprising that tax software came up at the confirmation hearing for Timothy Geithner, President Barack Obama’s nominee for Treasury secretary.

Geithner has been mired in controversy over his failure to pay certain taxes earlier this decade during his time as an International Monetary Fund official.

Sen. Chuck Grassley, the Finance Committee’s top Republican, ran through a long list of questions about Geithner’s tax decisions. Geithner said he filed his own taxes in 2001 and 2002.

“Did you use software to prepare your 2001 and 2002 tax returns?” Grassley asked

“I did,” Geithner said.

“Which brand did you use?” Grassley asked.

Geithner, chuckling, appeared resistant at first. “I’ll answer that question, sir, but I want to say these are my responsibility, not the tax software’s responsibility.”

Then he got to the point: “But I used TurboTax to prepare my returns.”

Asked whether the software prompted him to report income and pay self-employment taxes on his IMF income, Geithner said, “Not to my recollection.”

It would’ve been highly unlikely for off-the-shelf tax software to include provisions for IMF workers’ highly unusual tax arrangements. And if Geithner failed to feed the proper information into his software, of course, it wouldn’t provide any warnings.

But the word was out. And TurboTax maker Intuit Inc. was forced to respond.

“Each year, millions of Americans use TurboTax to accurately prepare and file their federal and state tax returns,” Dan Maurer, senior vice president and general manager of TurboTax, said in a statement late this afternoon. “The software helps taxpayers report their income and find the deductions and credits they’re entitled to claim. TurboTax, and all software and in-person tax preparation services, base their calculations on the information users provide when completing their returns. TurboTax also has built-in error-checking tools that routinely catch common taxpayer mistakes. Federal law and our own privacy policy prohibit us from discussing specifics of any customer’s return.”

Intuit shares rose 71 cents today to $23.49, or 3.1% on a day the Nasdaq composite index rose 4.6%. The stock took a noticeable drop after Geithner made his remarks just before 11 a.m., but that move appears to track a dip in the broader market.

Geithner's Tax History Muddles Confirmation

From the Wall Street Journal:

Timothy Geithner didn't pay Social Security and Medicare taxes for several years while he worked for the International Monetary Fund, and he employed an immigrant housekeeper who briefly lacked proper work papers.

Those issues, and a series of other tax matters, scuttled a tentatively scheduled confirmation hearing Tuesday for Mr. Geithner as Treasury secretary, Senate Finance Committee aides said. The tax matters were instead the subject of a closed-door meeting between the nominee, currently president of the Federal Reserve Bank of New York, and members of the Senate Finance panel, in whose hands his confirmation lies.

Several senators said after the meeting that they intended to remain supporters of Mr. Geithner, who has playing a central role in tackling the financial crisis. Senate Finance Chairman Max Baucus (D., Mont.) called the issue serious, but not disqualifying.

"I still support him," said Sen. Orrin Hatch (R., Utah) as he emerged from the meeting. "He's a very competent guy."

Sen. Charles E. Grassley of Iowa, the committee's senior Republican, didn't give Mr. Geithner a pass. "It's serious, and whether or not it's disqualifying is to be determined," Mr. Grassley said after the meeting.