* US payroll tax talk mired in election-year politics. Richard Cowan and Donna Smith ? Reuters.
Republican and Democratic leaders accused each other of bad faith negotiations on Tuesday as both parties played hardball in talks to extend a tax cut for 160 million U.S. workers. Both sides agree the payroll tax cut should be renewed for a full year before it expires on Feb. 29, and its extension has been seen as a foregone conclusion. But the parties are far apart over how to pay for it and the rancor of election-year politics complicates lawmakers? work. They argued over whether to continue a pay freeze on federal workers for another year, saving around $26 billion, and whether to squeeze $31 billion out of the Medicare healthcare program for the elderly. Link.
* Romney?s returns revive scrutiny of lawful offshore tax shelters. Jonathan Weisman ? The New York Times.
Mitt Romney?s tax returns suggest the Republican presidential candidate?s personal finances could remain an issue in the presidential campaign. And it highlights how, under the tax code, legality and fairness are not necessarily the same thing. By going offshore, pension funds, universities, foundations and even large individual retirement accounts can structure those investments to avoid that heavy a tax. The issue revolves around ?blocker corporations,? set up in tax havens like the Caymans to help nonprofit giants avoid the unrelated business income tax, which was created to prevent nonprofits from straying into profit-making ventures that compete with taxpaying companies. Although not illegal, so-called UBIT blockers cost the U.S. Treasury nearly $1 billion a decade, according to Congress?s bipartisan Joint Committee on Taxation. Link.
* Senate highway bill would tap into individual?s retirement money. John McKinnon ? The Wall Street Journal.
The Senate Finance Committee is expected to pass a highway bill that boosts? revenues with a series of narrow tax increases, including raising taxes on money saved for retirement. Specifically, the Senate committee would curb what are known as ?stretch? IRAs and 401(k)s. The path to a final deal with House Republicans on the contentious transportation-funding issue remained unclear, and the House bill doesn?t contain the IRA tax change. But the proposal signaled that Senate leaders are likely to continue targeting personal retirement accounts. The Senate Finance bill would require taxes to be paid on the account as if it were fully distributed within five years of the account holder?s death. The proposal would raise about $4.6 billion over the next decade. Link.
* Business fears anger over tax bills. Elizabeth Rigby ? The Financial Times.
Corporate leaders are preparing themselves for attack over the amount of tax companies pay in the UK, fearing ministers may try to reduce public anger about bonuses and executive pay by turning their attention to business taxes. John Cridland, director-general of the CBI business lobbying organization, is launching a campaign to outline how much business contributes to the public purse, as he tries to prevent the issue becoming ?another pillar of crony capitalism.? The CBI campaign also marks the ?official? start of a wider fightback by business leaders, fed up with the harsh words that have been bandied about in the row over bonuses which culminated last week in Fred Goodwin being stripped of his knighthood and Stephen Hester, the Royal Bank of Scotland chief executive, waiving a 1 million pound ($1.59 million) pay-out. Link.
* Liechtenstein tax amnesty extended. Vanessa Houlder ? The Financial Times.
A groundbreaking amnesty for offshore tax evaders has been extended by a year as part of a deal that underlines Liechtenstein?s efforts to shed its reputation as one of the most secretive havens in the world. Liechtenstein has agreed to exchange information with the UK under a double tax treaty that will come into force in January 2013. The deal helps Britain ensure that offshore income is taxed while extending a number of UK tax advantages to Liechtenstein?s residents, companies, trusts, foundations and investment funds. Link.
* The Zuckerberg tax. David Miller ? The New York Times opinion.
Miller, a tax lawyer, says Facebook founder Mark Zuckerberg can avoid a $2 billion tax bill by simply using his stock as collateral to borrow against his tremendous wealth and avoid all tax. That?s what Lawrence J. Ellison, the chief executive of Oracle, did. He reportedly borrowed more than a billion dollars against his Oracle shares and bought one of the most expensive yachts in the world. If Zuckerberg never sells his shares, he can avoid all income tax and then, on his death, pass on his shares to his heirs. When they sell them, they will be taxed only on any appreciation in value since his death. Our tax system is based on the concept of ?realization.? Individuals are not taxed until they actually sell property and realize their gains. But this system makes less sense for the publicly traded stocks of the superwealthy. A drastic change is necessary to fix this fundamental flaw in our tax system and finally require people like Warren Buffett, Ellison and others to pay at least a little income tax on their unsold shares. The fix is called mark-to-market taxation. Link.
* Time to close the carried-interest loophole. Allan Sloan ? The Washington Post opinion.
Politics has moments when it?s actually useful. A case in point is the uproar over Mitt Romney?s tax returns, which may help rid us of a small but noxious and symbolic loophole worth several billion dollars a year to managers of investment partnerships. This is known as ?carried interest? ? finance-speak for investment managers? piece of their investors? profits. Much of Romney?s income derives from that source. Because tax law treats carried interest as a piece of a partnership rather than as a (fully taxable) fee, Romney?s carry gets the same tax treatment that the funds? investors get: as long-term capital gains, taxed at 15 percent. In an ideal world, closing the carried-interest loophole would be only the first step in a total tax reform. And we would close the loophole properly. Some reform efforts that stalled would not only have closed the loophole, but would also have done something unfair: treated any profit on any sale of any stake in investment-management partnerships as ordinary income rather than capital gains. Link.
($1 = 0.6300 British pounds)
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