IRS Must Define Political Activity

From the WashingtonPost.com:

The Aug. 22 article "Ruling sets up IRS as overseer of groups' gifts to campaigns" portrayed the ineffectiveness of the Internal Revenue Service enforcing disclosure on political spending. While the problem stems in part from an agency operating on "tax time," a fundamental reason the IRS cannot meaningfully enforce rules on nonprofit groups' political activity is its failure to give clear rules defining what is considered "political”.

For decades, the agency has relied on a "know it when we see it" approach, otherwise called the "facts and circumstances" test. In contrast to clear, practical rules that define lobbying for nonprofits, groups interested in political advocacy have little guidance and must guess how regulators will characterize their messages. It is this regulatory failure that allows Americans for Job Security to claim that its ads are issue advocacy and not electoral activity.

In the wake of the Citizens United Supreme Court decision, the IRS needs to step up and take on the hard task of providing guidance that defines political activity. Nonprofit organizations struggling to comply with vague rules and the public deserve no less.

U.S. Insurance Regulators Issue Consumer Alert on Death Benefits

From Bloomberg.com:

State insurance regulators, under pressure to improve disclosure of death-benefit payment options, issued a consumer alert about the industry practice of retaining funds rather than paying them in a lump sum.

“You may be able to earn a higher rate of interest on the life insurance proceeds if you select a different payout option,” the National Association of Insurance Commissioners said in the alert. “While the documents you receive might look like a checkbook, it might actually be drafts, which are similar to checks, but different in some ways.”

The alert was issued after an NAIC panel met yesterday in Seattle to review retained-asset accounts. The regulators created the panel after Bloomberg Markets magazine reported in July that insurers profit by holding and investing $28 billion owed to 1 million beneficiaries.

“Disclosure is paramount,” said Thomas R. Sullivan, co- chair of the working group, at its first meeting yesterday. “That seems to be the central issue.”

Retained-asset accounts let insurers keep proceeds of a life insurance policy in their general corporate accounts, earning investment income, while providing the beneficiary with a checkbook-like account that’s not insured by the Federal Deposit Insurance Corp. The NAIC heard testimony from Peter Gallanis of the National Organization of Life & Health Insurance Guaranty Associations that the accounts are covered by state insurance backstops. While beneficiaries can draw drafts on the funds, they don’t always clear as easily as checks.

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.

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A Call to Triple U.S. Spending on Energy Research

Over the past few years several experts have prompted the United States government to increase efforts to research new sources of energy. Tomorrow a group of business executives plan to release a study regarding the effects of this lack of research, and as this article from NY Times.com explains, they also plan to prompt the federal government to triple the amount of money being spent on energy research.

The group, which includes Bill Gates, the co-founder of Microsoft; Jeffrey R. Immelt, chief executive of General Electric; and John Doerr, a top venture capitalist, urges the government to more than triple spending on energy research and development, to $16 billion a year. And it recommends creation of a national energy board to guide investment decisions toward radical advances in energy technology.

Mr. Gates said in an interview that drastic changes were needed in the way the United States produced and consumed energy to assure its security and to begin to address climate change. He endorsed the administration’s goal of reducing greenhouse gas emissions by 80 percent by 2050, but said that was not possible with today’s technology or politics.

“Among all the swirl of different ideas of how to raise the money and how to regulate carbon,” he said, “there is no way either in this country or internationally you’re going to come close to meeting an 80 percent reduction unless you have an immense breakthrough.”

He said that the only way to find such disruptive new technology was to pour large sums of money at the problem, with the clear understanding that any number of ventures would fail before the eureka moment arrived.

Continue reading at NY Times.com…

U.S. Firms Dodge Billions in Taxes by Moving Profits Overseas

As the U.S economy tries to recover, some American businesses are legally dodging billions in taxes by taking advantage of overseas profit transfers. ABC News posted a new article on this questionable tax loophole that is saving U.S. businesses billions of dollars. You can find a snippet of their article below, or read the full post here.

As America struggles with record deficits, tax dodgers apparently are taking billions of dollars out of the country. A new report from the business giant Bloomberg News finds hundreds of companies skirting $60 billion in taxes, and the practice is completely legal.

Thirty million prescriptions were filed last year for the anti-depressant Lexapro, made by the U.S. pharmaceutical company Forest Labs. According to a story in Friday's Bloomberg Businessweek, most of the profits from that drug were transferred overseas, thus avoiding having to pay taxes in the United States.

The news is shocking to Lexapro customers like Tyler Hurst, who buys the drug at a Phoenix pharmacy.

"It does not say, 'The profits of this go outside the country,' anywhere," said Hurst as he looked at the drug bottle. "It is shady."

U.S. Minted More Millionaires In 2009

It should come as no surprise that the number of millionaires in the country decreased in 2008 due to the market meltdown, and poor economy. However, I was surprised when I read that the number of millionaires actually increased by around 16% in 2009, according to this article on CNN Money. As it explains, the number of households in the U.S. worth $1 million or more grew to 7.8 million in 2009.

The firm's report, "Affluent Market Insights 2010," also found that the number of ultra high-net-worth households, worth $5 million or more jumped 17% to 980,000 in 2009.

"This is largely attributed to the stock market rebound, since other assets including real estate and private businesses have not rebounded as dramatically," said George H. Walper, Jr., president of Spectrem Group.

The report comes one year to the day after the Dow and the S&P 500 closed at 12 year lows in the thick of the financial crisis.

Continue reading at CNN Money.com…

Congress Grapples with Estate Tax

Next week, the United States House of Representatives will vote on whether or not to extend the current estate tax rates or allow them to expire at the end of 2009. While members of Congress support the extension, the biggest roadblock will be getting legislation through the Senate, who will need to account for spending. The 10-year extension is estimated to cost $234 billion since the rate was due to increase in 2011.

"We believe that a permanent extension of the existing law is the best policy," Steny Hoyer, the chamber's majority leader, told reporters.

Preserving the current rates will be harder in the U.S. Senate because that body's rules require a way to pay for it.

A 10-year extension of the tax would cost an estimated $234 billion versus allowing the tax to revert to a higher rate in 2011, as currently scheduled, according to congressional aides.

Senate Finance Committee Chairman Max Baucus has proposed extending the current 2009 law and indexing it to inflation, but the Senate's intense focus on healthcare and limited days in the legislative calendar add further hurdles.

"We need to take the time to deal with it," said Senator Kent Conrad, a Democrat on the finance panel charged with tax issues. But he acknowledged the challenges in getting it done before the end of the year.

Continue reading at Reuters.com…

Can the Postal Service be Saved?

Over the weekend, the United States Postal Service announced that it had lost $3.8 billion over the past fiscal year, which ended on September 30^th. Their report claimed that they also delivered about 26 billion less pieces through the mail then they had the prior year, which translates to a nearly 13% drop.

The Postal Service, as it is quick to point out, is legally prohibited from taking tax dollars. But in order to stay afloat, the agency has been actively borrowing from the U.S. Treasury: At last count, according to Postal Service spokeswoman Yvonne Yoerger, it owes the government $10.2 billion.

Federal law dictates that the Postal Service can borrow up to $3 billion per year - but the debt cannot grow beyond $15 billion. That means that while the agency, which had revenues of $68.1 billion last year, could potentially borrow another $3 billion in 2010, it will soon no longer be able to legally borrow billions from the government.

Meanwhile, the Postal Service is estimating that without significant changes, it will lose another $7.8 billion in the coming year - and deliver another 11 billion fewer pieces of mail.

Which raises the question: Could the Postal Service be doomed?

"I don't think the Postal Service is in danger of going away totally," said Yoerger, the Postal Service spokeswoman. "But our current business model needs to be reviewed and revised to come up with a sustainable model so that we can get back to profitability while still continuing to meet our mission of serving all of the country with affordable, universal Postal Service."

Continued at CBS News…

US Clashes With UK Over New Tax Proposal

The United States and United Kingdom usually agree on economic policies, according to Tax Girl leaders from each countries have publicly taken different views on a proposal to tax financial transactions to fund banking rescues.

UK Prime Minister (for now) Gordon Brown is in favor of such a tax, referred to as a so-called “Tobin Tax”, as a way to take the burden off taxpayers in the midst of financial crisis. The idea would be to implement a tax or levy, also characterized as an insurance fee, to be implemented across the board on financial institutions in all economic centers including the US, Europe, Asia, and the Middle East. Brown described it as a “just distribution of risks and rewards.”

But US Treasury Secretary Timothy Geithner has said he would not support such a tax, adding that it should not be the position of those today to pay for future risks. He did not, however, rule out the idea of any responsibility by banks to pay for the economic crisis – he just apparently feels that it’s too soon to consider a tax in the face of other alternatives.

Interestingly, Russia appeared to be in agreement with the US with Russian finance minister, Alexei Kudrin, also voicing skepticism over the tax. Canadian Finance Minister Jim Flaherty also expressed concern over the tax.

However, Max Lawson, the senior policy adviser for Oxfam was enthusiastic about the UK proposal, saying:

Gordon Brown today signaled that payback time for banks could be just around the corner. A tax on banks would be a major step towards clearing up the mess caused by their greed.

While the two day G20 Summit has ended, the matter is far from over. The International Monetary Fund is already looking into this very issue with an eye towards what it’s calling a financial sector tax. One way or the other, we’ll see further discussion on this…

Source: Tax Girl

Improper US Government Payments Hit $98 Billion

As the nation continues to debate the House of Representatives health care reform bill, new statistics have emerged showing that improper payments made by the federal government to people, firms, and contractors rose to $98 billion this year. Over half of the errors were reportedly made in the Medicare and Medicaid programs, which according to Budget Director Peter Orszag, shows the need for some type of health care reform.

Improper payments in the Medicare and Medicaid programs totaled $55 billion in fiscal 2009, according to documents provided by OMB.

Medicare covers healthcare for the elderly and some disabled, while Medicaid does the same for the poor.

Orszag said the error rate for payments under Medicare Advantage, where private insurers offer coverage to Medicare beneficiaries, jumped to 15 percent, or to $12 billion, in fiscal 2009. The error rate was 10 percent in fiscal 2008.

"This was not the result of methodological changes. This is one of the reasons why, as part of health reform, we believe there are crucial changes necessary to the Medicare Advantage program," he said on a telephone conference call.

Continued at CNBC.com…

U.S. Needs to Borrow Less than Expected: Geithner

From MarketWatch.com:

The U.S. government's borrowing needs will likely be much less than originally expected, as bank have been repaying funds received during the crisis, Treasury Secretary Timothy Geithner told news channel CNBC.

"We are likely to have to borrow substantially less than we initially anticipated to help repair the damage to our financial system," Geithner said during an interview in Singapore, where he attended a meeting of finance ministers from Asia-Pacific countries.

Geithner also repeated his stance that a strong dollar is in the U.S. interest.

The dollar rose on Thursday, after slumping to 15-month lows earlier this week on expectations that the Federal Reserve will not raise interest rates any time soon.

Geithner's comments came as finance ministers from the Asia-Pacific Economic Cooperation also told Geithner that the region needs a strong dollar, Dow Jones reported, citing a Russian official.

U.S. to Sell $81 Billion in Long-Term Debt Next Week

According to Bloomberg.com, the U.S Treasury Department plans to set a new record next week, by selling $81 billion in long-term debt, as part of their quarterly auctions. They plan to replace the inflation-protected 20-year bond with a reintroduced 30-year security. The move comes as an attempt to reduce the massive budget deficit of over $1 trillion.

The Treasury will auction $40 billion in three-year notes on Nov. 9, $25 billion in 10-year notes Nov. 10 and $16 billion in 30-year bonds Nov. 12. The amounts were in line with the median forecast of $80 billion in a Bloomberg News survey of nine analysts.

The U.S. is headed for a second straight year of budget deficits exceeding $1 trillion, and the country’s legal limit on debt may be reached next month. Treasury debt-management director Karthik Ramanathan told bond market participants this week to expect another year of government debt sales of $1.5 trillion to $2 trillion, minutes of the meeting showed today.

“Treasury debt managers will continue to remain aggressive in managing financing needs while minimizing potential market implications,” the Treasury said in a statement in Washington.

The government is on course to reach the debt limit, which currently stands at $12.1 trillion, by mid- to late-December, the department said. If the Treasury is forced to take evasive maneuvers to stay below the limit before Congress raises it, existing tools won’t create much extra room, officials said at a press conference.

Debt Limit

“Depending on the date that we hit the debt limit, they could last days or at most weeks,” compared with five or six months in previous debt-limit impasses, said Matthew Rutherford, deputy assistant Treasury secretary for federal finance.

U.S. Will Set Guidelines to Modify Real-Estate Loans

From Bloomberg.com:

U.S. bank regulators, saying losses on souring commercial real-estate loans pose the biggest risk to lenders, will issue guidelines to help the institutions modify the agreements.

Reduced demand for space has led to falling rental rates, adding to losses on the loans, leaders of the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Office of Thrift Supervision told the Senate subcommittee on financial institutions today.

“The most prominent area of risk for rising credit losses at FDIC-insured institutions during the next several quarters is in CRE lending,” FDIC Chairman Sheila Bair said, referring to commercial real estate. “Prudent loan workouts are often in the best interest of financial institutions and borrowers.”

Large concentrations of commercial property loans are behind many of the 123 banks that failed in the past two years, draining the FDIC’s deposit insurance fund. Commercial real- estate loans totaled almost $1.1 trillion as of June, representing 14 percent of all loans and leases, Bair said.

Federal bank regulators will soon issue guidelines on commercial real-estate loan workouts, Bair said without providing specifics.

“The guidance we are working on is intended to promote supervisory consistency, enhance the transparency of CRE workout transactions, and ensure that regulatory policies and actions do not inadvertently curtail the availability of credit to sound borrowers,” said Timothy Ward, the OTS’s deputy director of examinations, supervision and consumer protection.

Why the U.S. needs a Value Added Tax

A few months ago I mentioned the possibility of a Value Added Tax (VAT) being created in the U.S. to help increase Federal revenue. It looks like the issue is getting more attention, according to this new article on Reuters.com by Christopher Swann. In the article Swann suggests that a VAT could pay for health care reform, and provide enough revenue to lower tax rates across the board. Check out the text of the article below.

Swelling deficits and an aging population leave few palatable options when it comes to taxes. The best choice by far would be the creation of a new value added tax — a “money machine” that can bring in huge sums with relatively little effort. America is alone among rich nations in not charging a VAT, and its continued unwillingness to do so will make it harder to cope with the fiscal challenges ahead.

Giving birth to a new tax will certainly not be an easy sell. The stunning 1980 reelection defeat of Al Ullman, the powerful chairman of the House Ways and Means Committee who had advocated a VAT, is still a warning to American politicians.

The timing of a new tax on consumption may also seem suspect. Aren’t we supposed to be getting Americans back into the malls?

VAT, however, is worth the risk. It could yield enough money to pay for healthcare reform, as well as a meaty cut in income tax and a reduction in the deficit. It could also be done without destroying Obama or the Democrats.

Unlike taxing the rich — which has emerged as a favorite strategy of many Democrats — a VAT is extremely easy to collect. This is partly because it is gathered from each producer in a chain.

Swiss Seek U.S. Tax Deal Before UBS Case Continues

From Reuters.com:

A looming court case against Swiss bank UBS AG could prove a stumbling block to the United States and Switzerland clinching a tax agreement this week.

Switzerland, whose private banks manage around $2 trillion of foreign wealth, aims to secure 12 new bilateral tax deals by the end of 2009 which could allow it to be removed from an OECD "grey list" of states which need to improve tax cooperation and avoid possible sanctions from G20 nations.

It has already secured five agreements, with Denmark, Norway, France, Mexico and one other unnamed country, and plans to put the issue to a referendum. Talks between Swiss and U.S. officials restart in Washington on Tuesday.

Swiss President Hans-Rudolf Merz has asked U.S. Treasury Secretary Timothy Geithner to drop a tax evasion case against UBS in return for a new tax accord, which might struggle for ratification in Switzerland if the U.S. Internal Revenue Service (IRS) persists with its pursuit of the bank.

"We believe there has to be some kind of agreement before July 13 when the IRS and UBS are due to take part in a mini-trial," said analyst Teresa Nielsen at Vontobel, adding this could even come in an 11th hour deal on July 12.

Tax Havens Onshore

From the New York Times.com:

Few here in Switzerland have been other than disgusted by the behavior of UBS and many of us have moved money away from that bank in protest. However, your editorial “The Swiss and their secrets” (May 16) supports demands that are of dubious legality.

Were the Americans to practice what they preach, the I.R.S. would investigate its own tax havens of Delaware, Wyoming and Nevada, the latter having allowed some 80,000 dummy companies to be anonymously registered in 2008 alone, presumably for U.S. tax evasion reasons.

Moreover, a long overdue overhaul of tortuous U.S. tax laws might prove more productive than attacks on a foreign bank; many of the 52,000 U.S. customers of UBS whose names your editorial asks for might then be happy to head home.