Womenstake

Aim Higher to Close Tax Loopholes and Create Jobs

by Reggie Oldak, Senior Counsel,
National Women's Law Center

We told you before Memorial Day that Congress was taking aim at a major tax loophole that allows extremely wealthy investment managers to pay lower taxes than teachers, nurses, and other hard-working Americans. They’ve lowered their sights, but we’re still working for a strong bill that will meet the urgent needs of unemployed women and men, and shrink tax preferences for the very rich and corporations.

The House voted in December 2009 to eliminate the "carried interest" loophole, taxing investment fund managers on their compensation at the same ordinary income tax rates that everyone else pays—up to 35 percent instead of the 15 percent rate for capital gains. A compromise provision in the American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213) passed by the House on May 28 would partially close the loophole: ordinary income tax rates would apply to 75 percent of earnings, and 25 percent would still be taxed at the lower capital gains rate. While there’s no tax policy reason to prefer one group of earners over another, especially in a bill so ambitiously titled, this compromise also had been endorsed by Senate Finance Chair Max Baucus (D-MT).  After three occasions on which the House had passed a bill closing the loophole, only to see it die in the Senate, the prospect of getting three-quarters of a loaf out of the Senate made us giddy.

Taxes Aren’t Just for the Little People, After All

by Reggie Oldak, Senior Counsel,
and Joan Entmacher, Vice President for Family Economic Security,
National Women's Law Center

Congress is taking aim at a major tax loophole that allows extremely wealthy investment fund managers (the top 25 hedge fund managers earned an average of over $1 billion each last year) to pay lower tax rates than teachers, nurses, and other hard-working Americans. 

The provision to increase taxes on "carried interests" is included in the American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213), introduced jointly by acting House Ways and Means Committee Chair Sander M. Levin, D-Mich., and Senate Finance Committee Chair Max Baucus, D-Mont. yesterday. Both the House and the Senate are expected to vote on the bill next week, before they recess for Memorial Day.

Setting the Table for Tax Reform

by Reggie Oldak, Senior Counsel,
National Women's Law Center

The new, bipartisan National Commission on Fiscal Responsibility and Reform met for the first time yesterday. The Commission has until Dec. 1, 2010 to report to Congress on a plan that will balance the federal budget (excluding interest payments on the debt) by 2015 and "meaningfully improve the long-run fiscal outlook." In opening remarks, President Obama emphasized that "everything is on the table."

Just in time for dinner, the Congressional Research Service (CRS) has issued a report analyzing a very progressive source of revenue—the estate tax. The Economic Growth and Tax Relief Act of 2001, under the last Administration, provided for a gradual reduction in the estate tax and then elimination of the tax for one year. The House passed a bill last year that would have permanently extended the estate tax at 2009 levels—a complete exemption for estates valued at $3.5 million ($7 million for couples) or less, with the excess taxed at a top rate of 45 percent. A few super-wealthy families want an even bigger exemption and a lower rate. The Senate did not act to extend the estate tax last year, so there is no tax at all for 2010. In 2011, the estate tax reverts to 55 percent, with an exemption for estates valued at $1 million ($2 million for couples) . . . unless Congress reduces it again.

Yes, Virginia, You Have an Advocate at the IRS

by Reggie Oldak, Senior Counsel,
National Women's Law Center

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose mission is to ensure that tax problems not resolved through normal channels are promptly and fairly handled. Each state has a Taxpayer Advocate to assist that state’s taxpayers.

Nina E. Olson, the National Taxpayer Advocate, heads the TAS. Yesterday, she testified before the House Ways and Means Oversight Subcommitee about problems people have in dealing with the IRS. As we approach the April 15th deadline for filing our taxes, you might not be surprised to hear that she said the current IRS telephone service is "inadequate". 

Of special note, however, is that she also said the agency is not doing enough to meet the needs of low-income taxpayers. We know that low-income taxpayers are disproportionately women. Ms. Olson pointed out that low-income taxpayers have other characteristics that not only limit their ability to earn income but also impair their ability to comply with documentation requests in tax disputes. 

Make Wealthy Investors Pay Their Fair Share of Medicare Taxes

by Reggie Oldak, Senior Counsel,
National Women's Law Center

President Obama is stepping up the pressure on Congress to pass health care reform now. His plan includes a financing proposal that would raise almost $184 billion over ten years by making sure the wealthiest Americans pay their fair share to support Medicare. 

Medicare is financed by a combination of a dedicated tax on earnings paid by workers and employers, income tax, and premiums paid by beneficiaries. But wealthy investors aren’t contributing their fair share because investment income—such as dividends, interest, and capital gains—is entirely exempt from the Medicare tax. (And, because income from capital gains and dividends is taxed at substantially lower income tax rates than income from work, wealthy investors get another break there.)

Death and Taxes

by Reggie Oldak, Senior Counsel,
National Women's Law Center

Last Thursday, a man deliberately crashed his private plane into an Austin, Texas building that houses the Internal Revenue Service. We are appalled at this act of violence that resulted in at least two deaths and seriously injured others. 

But the tragedy does call attention to important (if arcane) tax issues. The pilot’s motive may have been a grievance about whether he was an employee or an independent contractor for employment tax purposes. The issue is complicated, and a full analysis involves the Internal Revenue Code, 20 common-law factors, years of court cases and administrative rulings, section 530 of the Revenue Act of 1978, and section 1706 of the 1986 Tax Reform Act. 

This pilot, a computer software engineer, apparently wanted to be treated as an independent contractor because that would have provided him with more work opportunities. For most women, it’s the other way around. 

The Rich Got Richer – and They Paid Lower Taxes!

by Reggie Oldak, Senior Counsel,
National Women's Law Center

According to a recently-released IRS report, the earnings of the 400 wealthiest taxpayers hit new highs in 2007. Adding insult to injury, the tax rates they paid dipped to new lows.

The group had an average income of $344.8 million (each) in 2007, up from an average of $263.3 million in 2006. At the same time, their effective income tax rate fell to 16.62 percent, down from 17.17 percent in 2006. In 1992, the first year the IRS published this data, average income was “just” $46.79 million; the effective tax rate was 26.38 percent. 

In 2007, twenty five of the top 400 paid an effective tax rate of 10 percent or less, and almost three-quarters of them paid 20 percent or less.

The IRS is careful to explain that their data represent a changing group of taxpayers over time rather than the same 400 every year, but I can tell you I’m not on the list in any year.

Who says the rich are just like the rest of us?

Why Tax Banks? That’s Where The Money Is.

by Reggie Oldak, Senior Counsel,
National Women's Law Center

President Obama today called for a “Fiscal Crisis Responsibility Fee” to be paid by about 50 of the largest financial institutions to “recover every single dime the American people are owed” for the bailout of Wall Street.

The proposed fee would be imposed on financial firms with more than $50 billion in assets. It would be in place for at least 10 years, longer if needed to pay back the Troubled Asset Relief Program (TARP) money provided to Wall Street during the recession. The fee is expected to raise $90 billion over 10 years; $117 billion – the projected cost of TARP – over about 12 years.

The statute that created the TARP requires that the President have a plan to recoup this money by 2013, to ensure that the program does not add to the deficit or national debt. He’s ahead of schedule by three years. 

The fee will require approval by Congress. Let’s hope those calling for fiscal discipline act quickly to shift the burden from struggling families to the large institutions that helped cause our economic crisis. 

It’s Time to Stop Helping Wealthy Tax Evaders

by Reggie Oldak, Senior Counsel,
National Women's Law Center

The House could do the right thing today.

For years, the National Women's Law Center has been calling for an end to special treatment that enables some of the wealthiest Americans to pay lower income tax rates than ordinary working Americans and dodge payroll taxes at the same time. Private equity fund managers do this by making payment for their services look like a return on passive investment (unearned income) instead of ordinary compensation (earned income).

A bill up for consideration would finally close the loophole for what some call “carried interest”. We call it payment for services, and we think it’s high time struggling families who lack health care, adequate nutrition, and quality child care stop picking up the tab.

The National Women's Law Center has joined with other national organizations to support H.R. 4213, which would fairly and responsibly offset the cost of "tax extenders," those provisions that Congress periodically passes to extend, for a year or so, various temporary tax breaks. We have our doubts about some of the extenders, which mostly benefit corporations, but we support the bill because, in addition to finally closing the “carried interest” loophole, the bill would reverse Congress's tradition of increasing the budget deficit every year by extending these "temporary" tax breaks without paying for them.

The bill also would begin to crack down on very wealthy individuals and corporations who evade taxes by hiding money in countries known as “tax havens.” And, it would require that Congress evaluate the effectiveness of corporate tax breaks before extending them each year, as it does for discretionary spending on programs that assist low-income women and their families. 

Health Care Reform Is Good for Small Businesses – Especially Women's

by Reggie Oldak, Senior Counsel,
National Women's Law Center

My father owned a small business. So I grew up understanding the difficulties and pressures small businesses face: hiring, retention, the high cost of providing benefits, the need for investments in equipment or inventory, for example.

But I don’t understand claims that the America’s Affordable Health Choices Act of 2009 (H.R. 3200), now being considered in the House, will hurt small business. Yes, small businesses have a hard time finding affordable health insurance for their employees. That’s why the bill includes insurance market reforms that will reduce costs for small businesses and a new tax credit for very small businesses to help them offer coverage. So, while the U.S. Chamber of Commerce (predictably) rants against the bill, local Chambers aren’t falling into line.

The U.S. Women’s Chamber of Commerce is taking a very different stance from the U.S. Chamber. Recognizing that women face special challenges in securing affordable health care, it urges Congress to take “swift and strong action” to reform the American health care system to provide “guaranteed, affordable, quality health care without discrimination,” including a “robust government-led public plan to take on the insurance carriers.”