The voices of Tax Policy Center's researchers and staff
Congress is in recess through the mid-term elections. The Daily Deduction will post each Monday until then.
Stranger than fiction: The IRS, “structuring,” and asset seizures. A business’ cash deposits, if under $10,000, do not trigger a government reporting requirement. But that could look like “structuring” to the IRS: Keeping cash deposits low specifically to avoid reporting, a tactic used by drug traffickers or terrorists. If it looks like structuring, the IRS can seize the money, and keep it until its owner proves he or she was not trying to avoid reporting it. This includes small business owners and wage earners who are not under any criminal suspicion. Banks aren’t allowed to tell their customers that their deposit habits may be problematic, unless customers ask. The New York Times reports the agency made 639 of these seizures in 2012.
Is FATCA making the choice between paying US taxes and renouncing US citizenship easier? The Foreign Account Tax Compliance Act, in effect since July 1 and designed to reduce tax evasion, requires foreign banks to report financial data on American expat clients. The Joint Committee on Taxation projected FATCA would generate $8.7 billion in tax revenue over 10 years. But in July, August and September, the number of expats giving up their passports jumped by 39 percent compared to same months last year: 776 versus 560. So far, 2,353 Americans have renounced their citizenship this year. Last year at this time, the number was 2,369.
Hungary has a plan for the world’s first internet tax. It isn’t trending. The government proposal features a tax of about 61 cents on each transferred gigabyte of data. It’s designed to plug holes in Hungary’s 2015 budget. Hungary is one of the EU's most indebted nations. Tens of thousands of Hungarians planned to protest the tax yesterday. Hungary’s ruling party offered to cap the tax, similar to the country’s cap on its voice-based telephony levy.
The OECD has a new plan of action on tax administration. Tax commissioners in the Organization for Economic Cooperation and Development have agreed on three actions to improve tax compliance and administration across borders. The first: Create a new international platform focusing on cross-border tax avoidance and sharing information on tax risks. The second: Invest in a new automatic information exchange to counter tax evasion while protecting taxpayer confidentiality. The third: Improve the operation of the mutual agreement procedure to deal with issues of double taxation.
Public Private Partnerships: The devil is always in contract details. TPC’s Tracy Gordon spins a tale of a tunnel-boring machine and a Nobel laureate. The former was key to a big infrastructure program in Seattle, until it got stuck underground. Now, the city government and its private contractor are stuck trying to figure out who should pay to free it. Jean Tirole just won the Nobel Prize in economics for work on incomplete contracts, specifically “contingencies that are “observable but not verifiable” or enforceable in a court of law”—kind of like a trapped tunnel-boring machine. As Gordon writes, “Contracting is rough business. States and localities need help thinking through all of the challenges.”
A 40-year average is no benchmark for budget normalcy. At least, that’s Donald Marron’s conclusion: “We don’t want a normal budget every year. When the economy is weak, it makes sense for taxes to fall and spending and deficits to rise. When the economy is strong, deficits should come down, perhaps even disappear, through a mix of higher revenues and lower spending.” He calls for more objective benchmarks that can’t be skewed by a few outlier years.
A tax lawyer and a tax economist walk into a bar… The economist writes an equation on a napkin. The lawyer scratches his head. Too often, lawyers don’t really understand what economists say. As TPC’s Howard Gleckman describes, tax economists and tax lawyers do think and speak differently. “Economists want to know why tax law works the way it does and how it changes behavior. Lawyers focus on the mechanics of how the law works…” The trick is to not speak past each other. (Bars can be loud enough.)
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