Archive
New From the GAO
New GAO Reports
Source: Government Accountability Office
+ Reports
1. Housing Assistance: Opportunities Exist to Increase Collaboration and Consider Consolidation. GAO-12-554, August 16.
http://www.gao.gov/products/GAO-12-554
Highlights – http://www.gao.gov/assets/600/593766.pdf
+ Related Product
Housing Assistance: An Inventory of Fiscal Year 2010 Programs, Tax Expenditures, and Other Activities, an E-supplement to GAO-12-554. GAO-12-555SP, August 16.
http://www.gao.gov/products/GAO-12-55sp
2. Medicaid: States’ Use of Managed Care. GAO-12-872R, August 17.
http://www.gao.gov/products/GAO-12-872R
3. Federal Training Investments: Office of Personnel Management and Agencies Can Do More to Ensure Cost-Effective Decisions. GAO-12-878, September 17.
http://www.gao.gov/products/GAO-12-878
Highlights – http://www.gao.gov/assets/650/648401.pdf
Statistics of Income — Individual Income Tax Returns 2010
Individual Income Tax Returns 2010 (PDF)
Source: Internal Revenue Service
This report contains data on sources of income, adjusted gross income, exemptions, deductions, taxable income, income tax, modified income tax, tax credits, self-employment tax, and tax payments. Classifications are by tax status, size of adjusted gross income, marital status, type of tax computation and age.
On the Distributional Effects of Base-Broadening Income Tax Reform
On the Distributional Effects of Base-Broadening Income Tax Reform
Source: Urban Institute
This paper examines the tradeoffs among three competing goals that are inherent in a revenue-neutral income tax reform — maintaining tax revenues, ensuring a progressive tax system, and lowering marginal tax ratesâ??drawing on the example of the tax policies advanced in presidential candidate Mitt Romney’s tax plan. Our major conclusion is that any revenue-neutral individual income tax change that incorporates the features Governor Romney has proposed would provide large tax cuts to high-income households, and increase the tax burdens on middle- and/or lower-income taxpayers.
Tax Proposals by 2012 Presidential Candidates
Tax Proposals by 2012 Presidential Candidates
Source: Tax Policy Center (Urban Institute and Brookings Institution)
TPC has analyzed the distributional effects of tax proposals from President Obama, Republican presidential candidate Mitt Romney, and Republican vice-presidential candidate Paul Ryan. The following pages provide links to TPC research related to the 2012 candidates.
Implications of Governor Romney’s Tax Proposals: FAQs and Responses
Implications of Governor Romney’s Tax Proposals: FAQs and Responses
Source: Brookings Institution
Our recent paper examined the tradeoffs among competing goals in tax reform – including maintaining tax revenues, maintaining progressivity, and lowering marginal tax rates. As a motivating example, we estimated the degree to which individual income tax expenditures would have to be limited to achieve revenue neutrality under the individual income tax rates and other features advanced in presidential candidate Mitt Romney’s tax proposals, and how the required reductions in tax breaks could change the distribution of the tax burden across households.
In this note, we summarize our earlier results and answer a number of substantive questions we have received about the study. We also discuss new estimates that incorporate into our analysis the taxation of interest income from municipal bonds and the taxation of inside buildup in life insurance vehicles.
Executive compensation tax deductions cost Treasury $30.4 billion over 2007-10
Executive compensation tax deductions cost Treasury $30.4 billion over 2007-10
Source: Economic Policy Institute
A new EPI report, Taxes and executive compensation, by Temple University accounting professor Steven Balsam, provides estimates of the tax deductions and lost tax revenue associated with the executive compensation of publicly-held companies. The graph shows that tax-deductible executive compensation cost the federal treasury $30.4 billion over the years 2007–2010; $16.6 billion from performance-based compensation and $13.8 billion from other forms of compensation such as bonuses and salary.
Section 162(m) of the Internal Revenue Code, adopted in 1993 to discourage excessive executive pay, limits the deduction for executive compensation at publicly-traded corporations to $1 million in compensation per covered executive. An exception to the provision, however, allows corporations to deduct qualified performance-based compensation. This exception has a major weakness: While it requires that shareholders approve the performance-based compensation to preserve deductibility, corporations are only required to provide shareholders with general information. Thus, shareholders are asked to, and usually do, approve compensation plans without knowing the potential payouts from the plans or whether the performance conditions are challenging.
New From the GAO
New and Reissued GAO Reports
Source: Government Accountability Office
+ Report
1. International Taxation: Information on Foreign-Owned but Essentially U.S.-Based Corporate Groups Is Limited. GAO-12-794, July 16.
http://www.gao.gov/products/GAO-12-794
+ Reissued
1. Evolved Expendable Launch Vehicle: DOD Is Addressing Knowledge Gaps in Its New Acquisition Strategy. GAO-12-822, July 26.
http://www.gao.gov/products/GAO-12-822
Highlights – http://www.gao.gov/assets/600/593049.pdf
Still Standing: Planning for the High-Wealth Tax Increases Ahead
Still Standing: Planning for the High-Wealth Tax Increases Ahead
Source: Deloitte
The Supreme Court’s decision to uphold the Patient Protection and Affordable Care Act of 2010 means that two new tax increases in the health care reform law targeting earned and unearned income of certain wealthier individuals will take effect as scheduled in 2013.
Still standing: Planning for the high-wealth tax increases ahead examines these provisions and discusses practical steps taxpayers can take now to evaluate their tax positions for 2013 and prepare for the impact of these impending tax hikes.
CRS — Receipt of Unemployment Insurance by Higher-Income Unemployed Workers (“Millionaires”)
Receipt of Unemployment Insurance by Higher-Income Unemployed Workers (“Millionaires”) (PDF)
Source: Congressional Research Service (via Federation of American Scientists)
The economic recession that began in December 2007 officially ended in June 2009 when the U.S. economy reached a trough, or low-point, in business activity. This recession lasted 18 months, making it the longest of any recession since World War II. To date, there is some growth in the nation’s Gross Domestic Product (GDP), and unemployment rates have fallen—but they remain persistently high in comparison to previous years. Peaking at 10.0% in October of 2010, the unemployment rate was 8.2% in May of 2012, up from 4.6% in May of 2006.
In response to the sustained period of high unemployment rates, Congress has extended Unemployment Insurance (UI) benefits several times. As a result of the Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96, signed into law on February 22, 2012), UI benefits are potentially available for up to 99 weeks, which is longer than during any previous recession— although in practice, no state currently offers more than 79 weeks of benefits.
The temporary, long-term extension of UI benefits has occurred at a time when the federal government and the states face serious budget constraints. The recent debate in Congress over the latest extension took place in a climate of ongoing concern over the level of federal budget deficits. It was in this context that a proposal to restrict unemployment benefit receipt based on income emerged. Specifically, the House-passed version of H.R. 3630 (the Middle Class Tax Relief and Job Creation Act) included a provision that would impose an income tax on unemployment benefits for high-income individuals. Based on a scaled approach, the tax would increase to 100% for a single tax filer with Adjusted Gross Income (AGI) of $1 million (or AGI of $2 million for a married couple filing a joint return). The provision, however, was not included in the final version of the legislation that became P.L. 112-96.
Several other bills have been introduced in the 112th Congress that would restrict unemployment benefit receipt based on income (i.e., they would change the current requirement to provide unemployment benefits to all workers without income restrictions). S. 1944 would impose an income tax on unemployment benefit income for certain high-income tax filers, among other provisions. S. 1931 includes the same provisions for a tax on unemployment benefits received by high-income individuals as H.R. 3630. H.R. 235 and S. 310 would prohibit the use of federal funds to pay UI benefits to certain high-income individuals, among other provisions. While the recent debate in Congress commonly referred to restricting “millionaires” from receiving UI benefits, the various proposals specify different income thresholds at which the restrictions would apply (i.e., they vary in how they define high-income individuals).
To inform the policy debate, this report provides information relevant to proposals that would restrict the payment of unemployment benefits to individuals with high incomes. Three primary areas that may be of interest to lawmakers are addressed: (1) the current U.S. Department of Labor (DOL) opinion on means-testing UI benefits; (2) the potential number of people who would be affected by such proposals; and (3) policy considerations such as the potential savings associated with such proposals, particularly in terms of federal expenditures. The latter two issues are discussed because a small percentage (approximately 0.02%) of tax filers receiving unemployment benefit income had AGI of $1 million or more in tax year 2009 based on Internal Revenue Service (IRS) data.
On the Distributional Effects of Base-Broadening Income Tax Reform
On the Distributional Effects of Base-Broadening Income Tax Reform
Source: Brookings Institution
This paper examines the tradeoffs among three competing goals that are inherent in a revenue-neutral income tax reform—maintaining tax revenues, ensuring a progressive tax system, and lowering marginal tax rates. As a motivating example, we estimate the degree to which individual income tax expenditures would have to be limited to achieve revenue neutrality under the individual income tax rates and other features advanced in presidential candidate Mitt Romney’s tax plan, and how the required reductions in tax breaks could change the distribution of the tax burden across households. (We do not score Governor Romney’s plan directly, as certain components of his plan are not specified in sufficient detail, nor do we make assumptions regarding what those components might be.)
New From the GAO
New GAO Reports and Testimony
Source: Government Accountability Office
+ Reports
1. Federal Buildings Fund: Improved Transparency and Long-term Plan Needed to Clarify Capital Funding Priorities. GAO-12-646, July 12.
http://www.gao.gov/products/GAO-12-646
Highlights – http://www.gao.gov/assets/600/592378.pdf
2. Medicaid: Providers in Three States with Unpaid Federal Taxes Received Over $6 Billion in Medicaid Reimbursements. GAO-12-857, July 27.
http://www.gao.gov/products/GAO-12-857
Highlights – http://www.gao.gov/assets/600/593096.pdf
3. Ownership by Minority, Female, and Disadvantaged Firms in the Pipeline Industry. GAO-12-896R, August 2.
http://www.gao.gov/products/GAO-12-896R
4. Federal Fleets: Overall Increase in Number of Vehicles Masks That Some Agencies Decreased Their Fleets. GAO-12-780, August 2.
http://www.gao.gov/products/GAO-12-780
Highlights – http://www.gao.gov/assets/600/593248.pdf
5. Cancellation of the Army’s Autonomous Navigation System. GAO-12-851R, August 2.
http://www.gao.gov/products/GAO-12-851R
6. Iraq and Afghanistan: State and DOD Should Ensure Interagency Acquisitions Are Effectively Managed and Comply with Fiscal Law. GAO-12-750, August 2.
http://www.gao.gov/products/GAO-12-750
Highlights – http://www.gao.gov/assets/600/593262.pdf
7. Secure Communities: Criminal Alien Removals Increased, but Technology Planning Improvements Needed. GAO-12-708, July 13.
http://www.gao.gov/products/GAO-12-708
Highlights – http://www.gao.gov/assets/600/592416.pdf
+ Testimony
1. Service-Disabled Veteran-Owned Small Business Program: Vulnerability to Fraud and Abuse Remains, by Richard J. Hillman, managing director, forensic audits and investigative service, before the Subcommittees on Economic Opportunity and Oversight and Investigations, House Committee on Veterans’ Affairs. GAO-12-967T, August 2.
http://www.gao.gov/products/GAO-12-967T
2012 State Sales Tax Holidays
2012 State Sales Tax Holidays
Source: Federation of Tax Administrators
Chart includes links to relevant pages for each state.
The Book of the States 2012
Source: Council of State Governments
State revenue collections in the 2011 fiscal year grew by 6.4 percent and state general fund spending increased by 4 percent following two straight years of decline. The 2011 tax revenues are just $26.6 billion under the peak reached in 2008 and are just shy of the 2007 collections. Meanwhile, the challenges facing states in many programs continue to grow. State spending on Medicaid programs, for instance, is expected to increase nearly 50 percent from 2010 to 2012. Those are just a few examples of information and data found in the 2012 edition of The Book of the States, The Council of State Governments’ annual almanac of information about the states.
New From the GAO
New GAO Reports
Source: Government Accountability Office
1. Appraised Values on Tax Returns: Burdens on Taxpayers Could Be Reduced and Selected Practices Improved. GAO-12-608, June 5.
http://www.gao.gov/products/GAO-12-608
Highlights – http://www.gao.gov/assets/600/591381.pdf
2. Foreclosure Review: Opportunities Exist to Further Enhance Borrower Outreach Efforts. GAO-12-776, June 29.
http://www.gao.gov/products/GAO-12-776
Highlights – http://www.gao.gov/assets/600/592060.pdf
Mandate-Based Health Reform and the Labor Market: Evidence from the Massachusetts Reform
Mandate-Based Health Reform and the Labor Market: Evidence from the Massachusetts Reform (PDF)
Source: National Bureau of Economic Research (via Wharton School)
We model the labor market impact of the three key provisions of the recent Massachusetts and national \mandate-based” health reforms: individual and employer mandates and expansions in publicly-subsidized coverage. Using our model, we characterize the compensating di erential for employer-sponsored health insurance (ESHI) | the causal change in wages associated with gaining ESHI. We also characterize the welfare impact of the labor market distortion induced by health reform. We show that the welfare impact depends on a small number of \sucient statistics” that can be recovered from labor market outcomes. Relying on the reform implemented in Massachusetts in 2006, we estimate the empirical analog of our model. We nd that jobs with ESHI pay wages that are lower by an average of $6,058 annually, indicating that the compensating di erential for ESHI is only slightly smaller in magnitude than the average cost of ESHI to employers. Because the newly-insured in Massachusetts valued ESHI, they were willing to accept lower wages, and the deadweight loss of mandate-based health reform was less than 5% of what it would have been if the government had instead provided health insurance by levying a tax on wages.
New From the GAO
New GAO Reports and Testimonies
Source: Government Accountability Office
+ Reports
1. Freedom of Information Act: Key Website Is Generally Reliable, but Action Is Needed to Ensure Completeness of Its Reports. GAO-12-754, June 28.
http://www.gao.gov/products/GAO-12-754
Highlights – http://www.gao.gov/assets/600/592011.pdf
2. Defense Management: Steps Taken to Better Manage Fuel Demand but Additional Information Sharing Mechanisms Are Needed. GAO-12-619, June 28.
http://www.gao.gov/products/GAO-12-619
Highlights – http://www.gao.gov/assets/600/592023.pdf
3. Internal Revenue Service: Status of GAO Financial Audit and Related Financial Management Recommendations. GAO-12-695, June 28.
http://www.gao.gov/products/GAO-12-695
Highlights – http://www.gao.gov/assets/600/592016.pdf
+ Testimonies
1. Mission Iraq: State and DOD Face Challenges in Finalizing Support and Security Capabilities, by Michael J. Courts, acting director, international affairs and trade, before the Subcommittee on National Security, Homeland Defense, and Foreign Operations, House Committee on Oversight and Government Reform. GAO-12-856T, June 28.
http://www.gao.gov/products/GAO-12-856T
Highlights – http://www.gao.gov/assets/600/591998.pdf
2. Residential Appraisals: Regulators Should Take Actions to Strengthen Appraisal Oversight, by William B. Shear, director, financial markets and community investment, before the Subcommittee on Insurance, Housing and Community Opportunity, House Committee on Financial Services. GAO-12-840T, June 28.
http://www.gao.gov/products/GAO-12-840T
Highlights – http://www.gao.gov/assets/600/592001.pdf
3. Information Security: Cyber Threats Facilitate Ability to Commit Economic Espionage, by Gregory C. Wilshusen, director, information security issues, before the Subcommittee on Counterterrorism and Intelligence, House Committee on Homeland Security. GAO-12-876T, June 28.
http://www.gao.gov/products/GAO-12-876T
Highlights – http://www.gao.gov/assets/600/592009.pdf
4. Modernizing the Nuclear Security Enterprise: Observations on the Organization and Management of the National Nuclear Security Administration, by Gene Aloise, director, natural resources and environment, before the Subcommittee on Strategic Forces, House Committee on Armed Services. GAO-12-867T, June 27.
http://www.gao.gov/products/GAO-12-867T
Highlights – http://www.gao.gov/assets/600/591975.pdf
Presentation by the Comptroller General
1. Partnership and Collaboration: Meeting the Challenges Across All Levels of Government, by Gene L. Dodaro, Comptroller General of the United States, before the 19th Biennial Forum of Government Auditors, Alexandria Virginia. GAO-12-882CG, June 27.
http://www.gao.gov/products/GAO-12-882CG
New From the GAO
New GAO Reports and Testimony
Source: Government Accountability Office
+ Reports
1. Recovery Act: Tax Debtors Have Received FHA Mortgage Insurance and First-Time Homebuyer Credits. GAO-12-592, May 29.
http://www.gao.gov/products/GAO-12-592
Highlights – http://www.gao.gov/assets/600/591173.pdf
2. Management Report: Improvements Needed in Controls over the Preparation of the U.S. Consolidated Financial Statements. GAO-12-529, June 27.
http://www.gao.gov/products/GAO-12-529
Highlights – http://www.gao.gov/assets/600/591936.pdf
3. Millennium Challenge Corporation: Georgia and Benin Transportation Infrastructure Projects Varied in Quality and May Not Be Sustainable. GAO-12-630, June 27.
http://www.gao.gov/products/GAO-12-630
Highlights – http://www.gao.gov/assets/600/591950.pdf
4. Polar-Orbiting Environmental Satellites: Changing Requirements, Technical Issues, and Looming Data Gaps Require Focused Attention. GAO-12-604, June 15.
http://www.gao.gov/products/GAO-12-604
Highlights – http://www.gao.gov/assets/600/591644.pdf
5. Geostationary Weather Satellites: Design Progress Made, but Schedule Uncertainty Needs to be Addressed. GAO-12-576, June 26.
http://www.gao.gov/products/GAO-12-576
Highlights – http://www.gao.gov/assets/600/591913.pdf
6. Kachemak Bay Ferry: Federally Funded Ferry Was Constructed with Limited Oversight and Faces Future Operating Challenges. GAO-12-559, June 11.
http://www.gao.gov/products/GAO-12-559
Highlights – http://www.gao.gov/assets/600/591506.pdf
7. Planning and Flexibility Are Key to Effectively Deploying Broadband Conduit through Federal Highway Projects. GAO-12-687R, June 27.
http://www.gao.gov/products/GAO-12-687R
8. National Mediation Board Mandates in the FAA Modernization and Reform Act of 2012. GAO-12-835R, June 27.
http://www.gao.gov/products/GAO-12-835R
+ Testimony
1. Environmental Satellites: Focused Attention Needed to Mitigate Program Risks, by David A. Powner, director, information technology management issues, before the Subcommittee on Energy and Environment and Investigations and Oversight, House Committee on Science, Space, and Technology. GAO-12-841T, June 27
http://www.gao.gov/products/GAO-12-841T
CRS — Federal Taxation of Aliens Working in the United States
Federal Taxation of Aliens Working in the United States (PDF)
Source: Congressional Research Service (via Federation of American Scientists)
A question that often arises is whether unauthorized aliens and other foreign nationals working in the United States are subject to U.S. taxes. The federal tax consequences for these individuals are dependent on (a) whether an individual is classified as a resident or nonresident alien and (b) whether a tax treaty or totalization agreement exists between the United States and the individual’s home country.
In general, an individual is a resident alien if he or she is a lawful permanent U.S. resident or is in the United States for a substantial period of time during the current and past two years (the “substantial presence” test). Otherwise, he or she will typically be classified as a nonresident alien. Resident aliens are generally taxed in the same manner as U.S. citizens. Nonresident aliens are subject to different treatment, such as generally being taxed only on income from U.S. sources. Exceptions exist for aliens with specific types of visas or employment.
An individual who is in the country unlawfully is, like any other alien, classified as either a resident or nonresident alien. This classification is for tax purposes only, and it does not affect the individual’s immigration status. These individuals’ eligibility to claim the earned income tax credit is restricted because the tax code requires that taxpayers claiming the credit provide their Social Security number (SSN), as well as those of their spouse and dependents. Unauthorized aliens are ineligible for SSNs, and therefore file their tax returns using an individual taxpayer identification number (ITIN). In the 112th Congress, legislation has been introduced that would, with some differences, impose an SSN requirement for claiming the additional child tax credit (e.g., H.R. 3630, H.R. 5652, H.R. 3275, and H.R. 1956), for claiming any part of the child tax credit (H.R. 3444 and S. 577), or for claiming any credit or refund (e.g., H.R. 1196). Two of these bills—H.R. 3630 and H.R. 5652—have been passed by the House; however, H.R. 3630 was enacted into law (P.L. 112-96) without the provision.
Finally, the provisions of an income tax treaty or totalization agreement may reduce or eliminate taxes owed to the United States. An income tax treaty is a bilateral agreement between the United States and another country that addresses the income tax treatment of each country’s residents while in the other country, primarily with the intent of reducing the incidence of double taxation. Totalization agreements are bilateral treaties that address social security taxes. In 2004, the United States signed a totalization agreement with Mexico, but it has not yet been transmitted to Congress for review. In the 112th Congress, the Consolidated Appropriations Act, 2012 prohibits the Social Security Commissioner or Social Security Administration (SSA) from using any of the funds appropriated by the act to pay compensation to SSA employees to administer Social Security benefit payments under any U.S.-Mexico totalization agreement that would not otherwise be payable. Other legislation has been introduced that would state it is the sense of the House that the U.S.-Mexico totalization agreement “is inappropriate public policy and should not take effect” (H.R. 1196), or address a constitutional issue with the manner in which totalization agreements are disapproved by Congress (S. 181).
CRS — Employee Stock Options: Tax Treatment and Tax Issues
Employee Stock Options: Tax Treatment and Tax Issues (PDF)
Source: Congressional Research Service (via Federation of American Scientists)
The practice of granting a company’s employees options to purchase the company’s stock has become widespread among American businesses. Employee stock options have been praised as innovative compensation plans that help align the interests of the employees with those of the shareholders. They have also been condemned as schemes to enrich insiders and avoid company taxes.
The tax code recognizes two general types of employee options, “qualified” and nonqualified. Qualified (or “statutory”) options include “incentive stock options,” which are limited to $100,000 a year for any one employee, and “employee stock purchase plans,” which are limited to $25,000 a year for any employee. Employee stock purchase plans must be offered to all fulltime employees with at least two years of service; incentive stock options may be confined to officers and highly paid employees. Qualified options are not taxed to the employee when granted or exercised (under the regular tax); tax is imposed only when the stock is sold. If the stock is held one year from purchase and two years from the granting of the option, the gain is taxed as long-term capital gain. The employer is not allowed a deduction for these options. However, if the stock is not held the required time, the employee is taxed at ordinary income tax rates and the employer is allowed a deduction. The value of incentive stock options is included in minimum taxable income for the alternative minimum tax in the year of exercise; consequently, some taxpayers are liable for taxes on “phantom” gains from the exercise of incentive stock options. On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (P.L. 110-343) was enacted. This law included provisions that provided abatement of any taxes still owed on “phantom” gains.
Nonqualified options may be granted in unlimited amounts; these are the options making the news as creating large fortunes for officers and employees. They are taxed when exercised and all restrictions on selling the stock have expired, based on the difference between the price paid for the stock and its market value at exercise. The company is allowed a deduction for the same amount in the year the employee includes it in income. They are subject to employment taxes also. Although taxes are postponed on nonqualified options until they are exercised, the deduction allowed the company is also postponed, so there is generally little if any tax advantage to these options.
The following seven key laws and regulations concerning stock options are described: Section 162(m)—“Excessive Remuneration,” Sarbanes-Oxley Act: Stock Option Disclosure Reforms, SEC’s 2003 Requirement of Approval of Compensation Plans, FASB Rule for Expensing Stock Options, American Jobs Creation Act of 2004 (Section 409A), IRS Schedule M-3, and SEC’s 2006 Executive Compensation Disclosure Rules.
This report explains the “book-tax gap” as it relates to stock options and S. 2075 (Ending Excessive Corporate Deductions for Stock Options Act) introduced by Senator Carl Levin. U.S. businesses are subject to a dual reporting system. One set of rules applies when they report financial or “book” profits to the public. Another set of rules applies when they report taxable income to the Internal Revenue Service. The “book-tax” gap is the excess of reported financial accounting income over taxable income.
This report will be updated as issues develop and any new legislation is introduced.
