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Sunday, May 1, 2016

Philadelphia soda tax

The Pennsylvania primary election likely brought nationwide attention to Philadelphia's effort to create a soda tax. The tax aims to raise money for schools (see this 4/8/16 NPR story). It was also mentioned by at least Senator Sanders (he opposes) and Secretary Clinton (she supports).

Using principles of good tax policy, I oppose. Why?

Equity - This is a consumption tax and is regressive. That is, it has a bigger impact on low-income individuals than higher income individuals. The argument that it is taxing something "bad" is no excuse.  There are many bad things, why single out one item?

Neutrality - The tax law is not supposed to be affecting our decision-making. Taxes are intended to raise money for the government operations. If there is not enough money for schools, then spending or existing taxes should be changed. Senator Sanders was asked on Meet the Press if based on his reasons for opposing the soda tax he also opposes tobacco taxes. He answered no because tobacco causes cancer. (Huffington Post, 4/24/16).  That is a poor argument.  Tobacco taxes are also regressive and not all people who smoke (or are exposed to second-hand smoke) get cancer. Also, there are other ways to address these health concerns besides taxes. What about public health campaigns to educate consumers?

Economic Efficiency - Why tax just one type of sugar item?  Why not also candy? The tax will affect the marketplace by making soda a less attractive than other consumables.

Simplicity - A new tax will require new regulations and forms. The definitions and compliance will add more complexity to the tax system.

Appropriate Government Revenues - Education is a general fund expenditure and one of the key ones for state and local government. It should be funded by general fund revenues, not by special revenues. What happens when soda consumption drops and there is less money for the new education programs to be funded with this tax? Education funding should not be dependent on a special tax.

And, this is not a new issue.  I blogged on it in 2010 - 3/13/10 blog post.

What do you think?

Saturday, April 23, 2016

Can IRS stop printing forms and pubs?

Excerpt from Form 1040 instructions for 1954
Who remembers when the IRS mailed a packet with blank tax forms and instructions AND your Social Security number printed on your mailing label?  Several years ago the IRS reduced mailings such as when they could tell the taxpayer prepared their return with software the year before and for the past few years don't mail forms.  They do still print them to pick up at IRS service locations. All of the forms, instructions and publications can be read or printed from the IRS website.

On april 19, 2016, the House passed H.Res. 673. Per the Congressional Research Service, this resolution, “Expresses the sense of the House of Representatives that the Internal Revenue Service (IRS) should provide U.S. taxpayers with free printed copies of IRS Publication 17, which is entitled "Your Federal Income Tax" and provides individuals with general instructions for filing tax returns..

Statements in the Congressional Record (H1825-H1827 (4/19/16)) provide some additional considerations. Congressman Levin (D-MI) notes that the cost of printing and mailing Pub 17 is $500,000 and the H. Res. 673 does not include additional IRS funding to cover the cost. Congressman Benichek (R-MI) noted that he previously introduced the PAPER act (H.R. 3673) to require the IRS to mail paper tax forms and instructions to any taxpayer who filed on paper in the past. All good points.

Will the IRS ever be able to stop printing forms, instructions and publications? I think so. While not everyone has access to computers and printers, there are VITA sites and there could be more.  Also, the federal government could work with states to help ensure that libraries and schools can assist in providing what people need.  They could print Pub 17 and have it available. Perhaps grocery stores could sell it at a reduced cost.

That might sound bad to have people pay for an IRS publication, but printing at home or elsewhere also costs. A few decades ago publications cost a small amount. The instructions to the 1954 Form 1040 state that you can buy "Your Federal Income Tax" from the Government Printing Office for 25 cents!  That is about $2.25 today.

What do you think? When can the IRS stop printing paper?

Friday, April 22, 2016

Tax Reform in 2016?


While we are unlikely to see tax reform this year, there continues to be a lot of work going on in the tax committees on it.  And President Obama updated and released his framework for business tax reform this month (first report was released in Sept. 2012). I think the main impetus for the update was to address inversions to tie to the recent activities of IRS and Treasury.

At a speech to the U.S. Chamber of Commerce on April 15, Congressman Brady, chair of the House Ways and Means Committee stated:


"By June, we intend to produce a consensus blue print for comprehensive pro-growth tax reform."

There have been more hearings on tax reform including hearing proposals of members of Congress.

Senator Hatch, chair of the Senate Finance Committee, continues to work on his report on corporate integration (taxing corporate income once only).

As part of his April 15 speech, Congressman Brady also laid out his principles of tax reform.  Here they are along with those that Senator Hatch released in December 2014.

Congressman Brady:
1.Make tax code “simpler, fairer, and flatter.”
2.Close loopholes and “special interest provisions” to lower rates for all.
3.Make system competitive.
4.Encourage business activity in US & move from worldwide to territorial system.
5.Pro-growth tax reform.
6.Reform to improve tax system, not to address spending problem.

Senator Hatch (wants broader base, lower rates and territorial system):
1.Economic growth.
2.Fairness.
3.Simplicity.
4.Permanence.
5.Competitiveness.
6.Promote savings and investment.
7.Revenue neutrality.

A lot of the principles can be met by removing or cutting back the roughly 250 special tax rules in our tax system such as the exclusion for employer-provided health insurance, the mortgage interest deduction, fringe benefits, credits, preferential rates, and more. That makes the law simpler, more equitable and transparent and neutral. It also allows for lower rates. Today's high rates exist because of so many special rules.

What do you think? Do you have any principles to add to the lists of Congressman Brady and Senator Hatch?

Friday, April 15, 2016

Will we see candidate 2015 tax returns after April 18?

You likely already heard that the due date for your 2015 return is not April 15 (today), but April 18. This is due to a tax rule (IRC section 7503) that says if the required date for an act is Saturday, Sunday or a legal holiday in the District of Columbia, then the action is to take place on the next day that is not a Saturday, Sunday or legal holiday. April 16 is Emancipation Day in DC (see video). This is a legal holiday. Because it falls on Saturday this year, it is celebrated on April 15 making that day a holiday. All of this pushes the due date to April 18 for your individuals return. And most likely your state income tax return too.

At the Democratic Debate on April 14, Senator Sanders said he would release his 2014 return. I thought they were mixed up on the dates and they meant his 2015 return. But, it is the 2014 return which he released the next day (so, why did it take so long?). It is the only return he has released.

Tax Analysts has a great website of president, vice president and presidential candidate tax returns going back many years.  I notice that all of the candidates have only released through 2014 (as of 4/15/16).  So, will they get their 2015 return filed by April 18 or go on extension to October 17 (rather than October 15 due to the rule discussed above)?  We'll see.

I also notice that Tax Analysts has Sanders' 4-page return that is just two pages each of federal and Vermont.  The candidate's website has the full 7-page version of the Form 1040.

I'll have more later on what the possible value is of these tax returns anyway.  And I'll pose some questions about some of the items on the returns. Not that they are wrong, just that they look odd, such as unreimbursed employee business expenses consisting of meals.  Who did Sanders take out to eat?  Wouldn't his employer reimburse these if work-related? An employee can only deduct unreimbursed employee business expenses if work-related and the employer has a policy that they can't be reimbursed. more lateer.

What do you think?

Thursday, April 14, 2016

Transparency for individual taxes


Transparency as a principle of good tax policy means taxpayers should understand taxes and how they apply to them. Despite lots of data on a filer's Form 1040, the one number people focus on is the amount due or refund. Clearly the better number is total federal income tax liability. And better yet, people should also consider other federal taxes paid - payroll, and excise taxes, as well as various state taxes. Computing one's marginal and average tax rates and knowing how they compare to other taxpayers is good. Knowing where the money goes is also good.

Some have proposed taxpayer receipts, but I think they generally are too vague.

I've got a short article - Transparency for individual taxes, in today's AICPA Tax Insider. It suggests ideas for getting more information to individuals so they can better understand their taxes. I also suggest a chart to use - by the filers or their return preparers, to help get this data.  You'll see a link in the article to a word version of the chart so you can modify it for your needs.

What do you think?