Category Archives: Taxation

EITC Continues to Reach Families in Poor Places

Source: Andrew Schaefer, Beth Mattingly, Kennedy Nickerson, Jessica Carson, Carsey School of Public Policy at the University of New Hampshire, Data Snapshot, October 9, 2018

From the summary:
Recent proposals in the House and Senate (for example, the Grow American Incomes Now Act) focus on amplifying the Earned Income Tax Credit (EITC)—a refundable tax credit for low-income workers—to compensate for growing wage inequity. We find that the share of EITC filers who are families with children is especially high in the poorest counties (those counties outlined in black on Map 1), including many places throughout the South.

Key Findings:
The Earned Income Tax Credit provides tax relief to working people with low to moderate income, with much larger credits for tax filers with children. The credit is refundable, meaning that the EITC reduces the amount of tax owed, and any amount above that may be issued as a refund.

FactCheck: have the Trump tax cuts led to lower unemployment and higher wages?

Source: Fabrizio Carmignani, Saul Eslake, The Conversation, September 2, 2018

….Minister for Finance Mathias Cormann’s statement that corporate tax cuts in the US had “led to stronger investment, stronger growth, lower unemployment rate and higher wages” is not supported by evidence.

Cormann pointed to US economic data from the second quarter of 2018 (shortly after the US corporate tax cuts were enacted) to support his statement.

Cormann correctly quoted the figures about GDP growth and the unemployment rate. His statement on wage growth is debatable, and there are qualifications to be made about his interpretation of the capital investment data.

But the simple observation that some US economic indicators improved in the second quarter of 2018 does not imply that those improvements were caused by the tax cuts.

Even if causation could be established, one quarter of data tells us very little about the effect of tax reform. It takes time for companies and workers to adjust to changed taxation environments. These adjustments happen progressively over time, and this can lead to significant differences in the short term and long term responses.

It’s worth noting that the improvement in economic conditions in the US started in mid-2016, around 18 months before the tax reform…..

Trump Tax Cut Truths

Source: Americans for Tax Fairness, 2018

Claims that corporations are sharing a big slice of their huge Trump tax cuts with employees through bonuses and wage hikes are mostly hype, the “Trump Tax Cut Truths” website of Americans for Tax Fairness (ATF) shows.

The data on this website primarily covers Fortune 500 companies, whose revenues are two-thirds of the entire U.S. economy (GDP). But the universe is all Fortune 1000 corporations and businesses not on the Fortune 1000 that are included in the List of Tax Reform Good News maintained by Americans for Tax Reform.

Data estimates are based on information from corporations, the media, independent analysts or ATF research and cover activities since the tax law was passed on December 20, 2017. Sources for the data below can be found here or on the separate spreadsheets found here. See the Methodology explanation for more details.

How Trump’s tax cuts favor whites over minorities

Source: Alexis Gravely, Center for Public Integrity, August 21, 2018

Data analysis shows people of color will get much smaller tax breaks over time. ….

…. Starting next year, every income group will see their average tax rates drop. But rates for the super wealthy, those earning more than $200,000 a year, will decrease between 2.1 and 3.1 percent of their income, compared to half a percent for those earning less than $30,000, according to the Joint Committee on Taxation, a nonpartisan congressional panel that analyzes the effect of proposed tax changes in bills.

For later years, the disparities only become greater.

Between 2019 and 2025, many Americans earning less than $30,000 will see their taxes increase until their effective rates are actually higher, as much as 0.7 percentage points more than if the new tax law had not passed, according to the JCT. The wealthy will continue to pay at lower rates, as much as 1.5 percentage points lower.

That’s not only a bad deal for the poor; it has a disproportionate impact on blacks and Hispanics. Nearly 40 percent of black households earn less than $30,000, followed by 30 percent of Hispanic households, according to the Center’s analysis. Only 22 percent of white households earn less than $30,000. ….

IRS Will No Longer Require Disclosure of Certain Nonprofit Donor Information

Source: David H. Carpenter, Congressional Research Service, Legal Sidebar, LSB10187, August 14, 2018

In July 2018, the Internal Revenue Service (IRS) announced that certain organizations that are exempt from paying federal income tax (tax-exempt organizations or EOs) under the Internal Revenue Code (IRC), including social welfare organizations, labor unions, and trade associations, will no longer be required to disclose the names and addresses of their “substantial” donors in Schedule B of their annual Form 990 returns to the IRS. Charitable tax-exempt organizations described in IRC Section 501(c)(3), which are statutorily required to disclose certain donor information, were not impacted by the July 2018 policy.

The IRS noted several reasons for making the change, including reducing administrative burdens and protecting sensitive, nonpublic personal information. In opposition, some have argued that the IRS’ policy change will reduce transparency over the funding sources of EOs’ political activities and make it more difficult for the IRS to enforce tax laws. At least one state has filed a lawsuit seeking to have the new policy set aside, alleging that the IRS implemented the policy in violation of the Administrative Procedure Act (APA).

This Sidebar will first provide background on the statute and regulations regarding EOs’ disclosure of contributor information. Next, the Sidebar will discuss the justifications of and reactions to the new policy, including the views of proponents and opponents of the new policy. The Sidebar will then discuss the litigation Montana has filed against the policy. Finally, the Sidebar will provide considerations for Congress…..

Want a lower tax bill? So do Apple and Genentech

Source: Catherine Ho, San Francisco Chronicle, August 12, 2018

For-profit companies don’t typically downplay the value of their assets.

But when it comes to paying property taxes, some of Silicon Valley’s largest companies are going head to head with officials to try to prove that some of the equipment and machinery they used to become global titans are actually worth a lot less than what county tax assessors say.

In the Bay Area, Genentech and Apple are particularly aggressive in opposing tax assessors — elected officials who determine the value of property for tax purposes. Both companies are leading years-long efforts to recoup tens of millions of dollars they say they’ve overpaid in taxes on buildings, land, lab equipment, computers and other items….

…. There is nothing illegal or unethical about appealing assessments. Companies are entitled to contest property assessments they believe are done improperly or inaccurately. But the tactics taken by Genentech, Apple and other large corporations, county assessors say, border on abusing the system.

The practice, they say, forces local governments to hold millions of dollars in limbo that would otherwise go to taxpayer-funded programs like schools, roads and special districts, in case they have to issue refunds to the companies. ….

Related:
Apple argued building was worth $200 not $1B to lower tax bill
Source: Ali Breland, The Hill, August 14, 2018

Amid Legal and Political Uncertainty, DACA Remains More Important Than Ever

Source: Tom K. Wong, Sanaa Abrar, Tom Jawetz, Ignacia Rodriguez Kmec, Patrick O’Shea, Greisa Martinez Rosas, and Philip E. Wolgin, Center for American Progress, August 15, 2018

Note: The survey results can be found here. For more information on the survey, please contact Tom K. Wong.

Since it was first announced on June 15, 2012, the Deferred Action for Childhood Arrivals (DACA) policy has provided work authorization as well as temporary relief from deportation to approximately 822,000 undocumented young people across the United States.

From July 16 to August 7, 2018, Tom K. Wong of the University of California, San Diego; United We Dream; the National Immigration Law Center; and the Center for American Progress fielded a national survey to further analyze the experiences of DACA recipients. The study includes 1,050 DACA recipients in 41 states as well as the District of Columbia.

This research, as with previous surveys, shows that DACA recipients are making significant contributions to the economy and their communities. In all, 96 percent of respondents are currently employed or enrolled in school.

….Several years of data, including this 2018 survey, make clear that DACA is having a positive and significant effect on wages. The average hourly wage of respondents increased by 78 percent since receiving DACA, from $10.32 per hour to $18.42 per hour. Among respondents 25 years and older, the average hourly wage increased by 97 percent since receiving DACA. These higher wages are not only important for recipients and their families but also for tax revenues and economic growth at the local, state, and federal levels…..

New York sales tax collections reach eight-year high, a credit positive for many cities and counties

Source: Robert Weber, Thomas Jacobs, Moody’s, Sector Comment, August 8, 2018
(subscription required)

On 1 August, the New York State (Aa1 stable) Comptroller’s Office announced that first half of calendar year 2018 sales tax collections grew 6% over 2017, the highest six-month increase since 2010. Sales tax revenues are a significant revenue stream for many counties and cities across New York, and sales tax growth also indicates that New York’s economy is improving. Additionally, the early effects of the federal tax law may be having a positive influence on people’s buying habits through the first half of 2018. As a result, these results are credit positive for many cities and counties in New York.

Related:
Deficit financing legislation helps distressed local governments but lacks teeth
Robert Weber, Thomas Jacobs, Gregory W. Lipitz, Naomi Richman, Leonard Jones, Moody’s, Sector Comment, August 8, 2018
(subscription required)

New York’s (Aa1 stable) legislation allowing municipalities to issue bonds to liquidate operating deficits is an important tool for local governments mired in financial distress. However, accessing this deficit financing has produced mixed results, providing a one-time influx of cash but still leaving local governments vulnerable to poor management decisions.

Employee Benefits—Tax Cuts and Jobs Act of 2017

Source: Mark E. Bokert and Alan Hahn, Employee Relations Law Journal, Vol. 44, No. 1, Summer 2018
(subscription required)

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017 (TCJA), which significantly amends the Internal Revenue Code of 1986 (Code). While the main focus of the TCJA may be on lowering corporate and individual tax rates, the TCJA also includes meaningful changes in the area of employee benefits and executive compensation, including changes to the Patient Protection and Affordable Care Act (ACA), the tax treatment of how public companies and tax-exempt organizations pay their executives, and the tax treatment of various fringe benefits. Among the changes in the benefits and compensation arena, the TCJA effectively repeals the ACA individual mandate by reducing the individual mandate penalty to zero, effective as of January 1, 2019; prohibits public companies from deducting certain performance-based compensation paid to their top executives; and provides that nonprofit organizations are subject to excise taxes for certain compensation packages paid to their highest paid employees.

Some expected changes impacting benefits and compensation never came to fruition. For example, while some earlier drafts of the TCJA included a repeal of Section 409A of the Code and the expansion of Health Savings Accounts (HSAs), the final law does not include any meaningful changes in these areas.

This column provides an overview of some of the changes enacted by the TCJA that impact the employer-employee relationship. Employers will want to work with their legal counsel to understand the nuances of the TCJA to determine whether any of their employee benefits plans or executive compensation arrangements should be amended in light of the TCJA and whether they should consider revising benefit packages offered to their employees.