The Exuberant Accountant - Scott Heintzelman

What if I told you I knew a way for the government to provide a $1 trillion stimulus to our economy and it would not cost taxpayers a penny (in fact, it would create a huge windfall of new tax revenue) – would you be interested in learning more?

It sounds too good to be true, right? Well, actually no, it is available to us right now, but it has become very political (hard to imagine anything in Washington DC becoming politicized). 

U.S. companies have over $1 trillion of offshore earnings that have never been taxed in this country. Nearly all industrialized nations apply a "territorial tax system" in which companies with operations or affiliates abroad pay only the taxes imposed on profits by the host country. So in Sweden, England, and China multinational companies can, in most cases, ship earnings home with little or no extra tax imposed. 

When I want to know what is happening behind the political rhetoric in Washington DC, I turn to Dean Zerbe aka The Dean of Tax. This former Tax Counsel and Sr. Counsel for the Senate Finance Committee (and now the National Managing Director of The alliantgroup) writes a blog that is picked up by Forbes and his recent post was very insightful about what is happening with the debt talks and what impact these may have on small business. Here is the entire post with permission:

As we head into the final turn of the debt discussion – while there is uncertainty about the final result (and when that result will take place) – there is growing clarity on the issue of taxes. What is the clarity on taxes? There will be no increase of taxes above current tax policy as part of the debt deal. 

Despite abuse from much of the press, demands from the administration and the threat of withholding cocktail party invitations from the chattering classes in Georgetown — the House Republicans have shocked Washington by ultimately holding firm against any tax increase above current tax policy as part of the debt ceiling.

Why do I say current tax policy?  Because there has been a significant amount of hide-the-ball in discussions of tax policy with some – the Six Senators Proposal comes to mind — with discussions of a tax cut but within the framework of current tax law. Recall that under current tax law almost all the Bush/Obama tax cuts expire (yes, Obama added a fair amount to the Bush tax cuts when he came into office).  So the proposals of cutting taxes from current law means in reality a result of hundreds of billions of dollars in tax increases over what individuals and businesses are paying today – current tax policy. I don’t know why people don’t trust Washington. 

In a move that many expected, the IRS announced today an increase in the mileage rate effective July 1^st.

This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011. 

The medical and moving rate will also increase to 23.5 cents. 

The IRS normally updates mileage rates once a year in the fall for the next calendar year, but with recent increases in fuel prices decided to make this mid-year adjustment. 

The announcement can be found at this link on the IRS website.

It is often stated that the federal budget deficit would be greatly reduced if tax rates were increased for the wealthiest Americans.

Many in Washington have made this one of their focal points over the past several years, citing the “Bush Tax Cuts” as favoring the wealthiest 1% of Americans (i.e. taxpayers making approximately $380,000 or more a year). In a recent speech, President Obama stated that the budget deficit could be minimized if the wealthiest Americans were asked “to pay a little more.” 

Is this true though? In 2008, the top 1% paid 38% of all taxes. This is actually up from 37% paid by the richest 1% in 2000. The bottom 50% of Americans only paid 2.7% of the total tax burden in 2008 - down from 3.91% in 2000. So the trend already is that the rich are paying more and more of the total tax burden, even during the “Bush Tax Cut” years that have been labeled as being friendly to the wealthiest Americans.

Advocates of increasing tax rates for the wealthy often cite the 1950’s as a major success, and attribute the top rate of 91% in the early 1950’s as being the catalyst for this. What people often forget is that the middle class was also paying a much higher effective rate. In fact, during the 1950’s, the middle class was paying a much bigger percentage of the overall tax burden than they do today.