Earlier this week, the Bank of England Governor, Mervyn King, irked US authorities by pointing out that even the world’s economic superpower has a major fiscal problem -“even the United States, the world’s largest economy, has a very large fiscal deficit” were his words. They were rather vague, but by happy coincidence the International Monetary Fund has chosen to flesh out the issue today. Unfortunately this is a rather long post with a few chunky tables, but it is worth spending a bit of time with ”“ the IMF analysis is fascinating.

Its cross-country Fiscal Monitor is not easy reading and is a VERY big pdf (17mb), so I’ve collected a few of the key points. The idea behind the document is to set out how much different countries around the world need to cut their deficits by in the next few years, and the bottom line is it’s going to be big and hard (ie 8.7pc of GDP in deficit cuts around the world, which works out at, gulp, about $4 trillion).

But the really interesting stuff is the detail, and what leaps out again and again is how much of a hill the US has to climb. Exhibit a is the fact that under the Obama administration’s current fiscal plans, the national debt in the US (on a gross basis) will climb to above 100pc of GDP by 2015 ”“ a far steeper increase than almost any other country.

Read it all and look carefully at the graphs.

Portugal has been seen as one of the European Union members most vulnerable to an attack by the markets after Greece.

The austerity drive is designed to reduce the Portuguese budget deficit from 9.4 per cent of gross domestic product in 2009 to 7 per cent this year and 4.6 per cent in 2011. Portugal had initially targeted deficits of 8.3 per cent of GDP this year and 6.6 per cent in 2011. As part of the cuts, politicians and public sector managers will see their salaries fall five per cent.

The tax rises, which are being called a“crisis tax”, include a 2.5 percentage point increase in corporate tax to 27.5 per cent on annual profits above €2m, a 1 percentage point increase in value added tax to 21 per cent and increases of up to 1.5 percentage points in income tax.

Asked why he had broken a pledge not to increase taxes, Mr [José] Sócrates said: “The world has changed, and how, in the past two weeks.”

Read the whole article.

Oil companies face an immediate tax rise of 1 cent per barrel to help to pay for the clean-up in the Gulf of Mexico under proposed legislation rushed out by the White House.

The measure, unveiled as BP began a new attempt to contain the ruptured well that has leaked millions of gallons of crude oil into America’s southern coastal waters, would put an extra $500 million (£340 million) over ten years into the Oil Spill Liability Trust Fund, which covers damage caused by such disasters.

Under a $118 million spending plan outlined in the package, people affected by the spill ”” such as fishermen who have lost their livelihoods because of the contamination ”” will be granted financial assistance, and federal agencies will get additional funds to monitor the slick and assess its impact.

President Obama, said by a spokesman to be “deeply frustrated” that the leak has still not been plugged three weeks after it erupted, intends that BP will pick up most of the cost of his new plan.

Read it all.

In reality, however, the first budget has to include tax rises, both to show the new government means business and to buy time before the spending review that will detail the cuts. Put simply, tax hikes are straightforward and visible, while spending cuts become real only when delivered.

On this, all roads lead to Vat. An increase to 20%, introduced on January 1 next year (it could be phased, but retailers and businesses would probably prefer to get it out of the way) would press most of the right buttons. Those who fear it would derail recovery should remember the economy grew through the reimposition of Vat at 17.5% at the start of the year, a 2.5-point rise from its temporary level of 15%. Retail sales were hit in January, when snow also affected sales, but bounced back in February and March.

How damaging would a Vat rise be politically, when the Tories and Lib Dems spent most of the campaign talking about tax cuts? Voters are not as dumb as they sometimes look, and know something has to be done. A Vat hike at the time of a scrapped NI rise would at least fit in with the Tory philosophy of taxing spending not income.

Read the whole thing.

An all-but-overlooked provision of the health reform law is threatening to swamp U.S. businesses with a flood of new tax paperwork.

Section 9006 of the health care bill — just a few lines buried in the 2,409-page document — mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.

The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.

Read it all.

….he testified that he’d been so busy traveling across the state and nation preaching the Gospel that he’d neglected his personal finances and those of his church.

—From a WCNC article on Greater Salem City of God minister Anthony Jinwright, who, along with his wife, was in court on tax evasion and fraud charges

THE drama over Europe’s sovereign debt might seem good ammunition for American deficit hawks. Not so. As Barack Obama’s bipartisan deficit commission held its first meeting on April 27th, the rising cost of government debt across southern Europe was, if anything, being used to draw a favourable contrast between the American and Greek fiscal positions.

Nevertheless, the American fiscal picture has darkened considerably, thanks to the recession. The projected 2010 deficit, of around 11% of GDP, contrasts with one of 1.2% as recently as 2007, while the net public debt has climbed from 36% to 64% of GDP. These figures look good beside those of Greece, where debt may touch 150% of output by the middle of the decade. There is still enough gloom, however, to trigger concern over the potential for rising interest rates and continued fiscal weakness as America’s baby-boomers start to retire.

The good news is that the deficit is forecast to fall as the federal stimulus unwinds and growth returns.

Read it all.

With that as the backdrop, it would amount to progress if both parties, via the debt commission, agreed that two big steps can’t be avoided:

”¢ The tax system has to be changed. The U.S. doesn’t have a system that can fund the government the country wants. The Tax Foundation says the levies paid by the top 1% of taxpayers now exceed those paid by all of those in the bottom 95%. And the Tax Policy Institute says almost half of all filers will pay no 2009 income taxes at all, because of various exclusions and credits””up, by some estimates, from a quarter in 1990.

This may be great for those who like soak-the-rich rhetoric, but it’s no way to finance a country. More than that, it’s a bit of a hoax on middle- and lower-middle-class Americans. They certainly pay payroll taxes, and the more they are excused from the income tax-system, the more likely it is that they will be hit with sneakier and less-progressive taxes. Tax reform””a flatter tax system, a value-added tax, something””is needed.

”¢ Americans have to change how they think about retirement. When the economy recovers and costs for recession-related bailouts, stimulus spending and unemployment benefits are resolved, we’ll still be left unable to really afford our Social Security, Medicare and long-term-care commitments. When the easier stuff is done, this is the hard reality, requiring a new and nonpoliticized national discussion.

Read it carefully and read it all.

President Barack Obama suggested Wednesday that a new value-added tax on Americans is still on the table, seeming to show more openness to the idea than his aides have expressed in recent days.

Before deciding what revenue options are best for dealing with the deficit and the economy, Obama said in an interview with CNBC, “I want to get a better picture of what our options are….”

After the interview, White House deputy communications director Jen Psaki said nothing has changed and the White House is “not considering” a VAT.

Read it all.

How big a government do we want — and what can we afford? In closing deficits, what’s the best mix between tax increases and spending cuts? What programs are outmoded, ineffective or unneeded? How much should we tax the young and middle-aged to support the elderly? Should wealthier retirees receive skimpier benefits? Should eligibility ages for benefits be raised?

The basic budget problem is simple. For decades, the expansion of Social Security, Medicare and Medicaid — programs mostly for the elderly — was financed mainly by shrinking defense spending. In 1970, defense accounted for 42 percent of the federal budget; Social Security, Medicare and Medicaid were 20 percent. By 2008, the shares were reversed: defense, 21 percent; the big retirement programs, 43 percent. But defense stopped falling after Sept. 11, 2001, while aging baby boomers and uncontrolled health costs keep retirement spending rising.

Left alone, government would grow larger. From 1970 to 2009, federal spending averaged 20.7 percent of the economy (gross domestic product). By 2020, it could reach 25.2 percent of GDP and would still be expanding, reckons the Congressional Budget Office’s estimate of President Obama’s budgets. In 2020, the deficit (assuming a healthy economy with 5 percent unemployment) would be 5.6 percent of GDP. To cover that, taxes would have to rise almost 30 percent.

A VAT could not painlessly fill this void. Applied to all consumption spending — about 70 percent of GDP — the required VAT rate would equal about 8 percent. But the actual increase might be closer to 16 percent because there would be huge pressures to exempt groceries, rent and housing, health care, education and charitable groups. Together, they account for nearly half of $10 trillion of consumer spending. There would also be other upward (and more technical) pressures on the VAT rate.

Read it all.

In Nashua, N.H., published reports said the city collected about $50,000 from two closed Catholic churches in 2004. A lower court agreed with the Diocese of Manchester when it fought the assessment. But the state Supreme Court upheld the city’s decision, saying warehousing religious artifacts does not rise to the level of “religious purposes.”

Other states, including Michigan, Colorado, New York and Utah, have declined to question how much a building has to be used to qualify for an exemption, according to court records.

New Jersey’s tax laws, and the way they are interpreted, mean that waves of consolidations sweeping local churches and religious institutions won’t bring much more revenue to local towns. State law exempts “all buildings actually used” by religious institutions for both worship and charitable purposes. The law also allows these groups two buildings and up to five acres for use as a parsonage, or home for the officiating clergy.

The key phrase in the law is “actually used,” said Lois H. Finifter, Atlantic County tax administrator, meaning it is used regularly. But she said the issue quickly becomes gray when challenged in court.

Read the whole article.

From here:

Harv’s Metro Car Wash owner Aaron Zeff was handed a tax bill that was originally four cents but was shocked to see that the bill increased by more than 5,000 times to $202.35, according to CBS News. The tax bill dated back from 2006 and the four cents grew by that much in four years….The Sacramento Bee reports that IRS spokesperson Jesse Walker is not commenting on the case, citing privacy laws.

The next day, at a breakfast with reporters in Washington, Douglas Elmendorf, the head of the Congressional Budget Office, confirmed that his economists have begun studying how to write a value-added tax, a form of national sales tax, because of growing congressional interest in drafting such a measure.

Elmendorf reminded the journalists of the grim news contained in his agency’s analysis of President Obama’s budget proposals. Agreeing with Bernanke that the current course is “unsustainable,” he said that unless something changes, the U.S. will emerge from the Obama years spending one-quarter more than it collects in revenue — 25 percent compared to 19 percent of the gross domestic product.

Closing the gap “can’t be solved through minor changes,” he said. Revenues projected under current laws would barely be sufficient to pay for Medicare, Medicaid, Social Security, defense and interest on the national debt. Everything else would depend on finding new revenues — or borrowing.

Read the whole piece.

In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

Tax cuts enacted in the past decade have been generous to wealthy taxpayers, too, making them a target for President Barack Obama and Democrats in Congress. Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.

Read it all.

The United States should consider raising taxes to help bring deficits under control and may need to consider a European-style value-added tax, White House adviser Paul Volcker said on Tuesday.

Read it all.

Despite a real estate implosion, property tax revenue collected by states and localities actually rose 2.7% last year to $421.8 billion.

Read it all.

In the scramble to find something, anything, to generate more revenue, states are considering new taxes on virtually everything: garbage pickup, dating services, bowling night, haircuts, even clowns.

“It’s hard enough doing what we do,” grumbled John Luke, a plumber in the Philadelphia suburbs. His services would, for the first time, come with an added tax if the governor has his way.

Opponents of imposing taxes on services like funerals, legal advice, helicopter rides and dry cleaning argue that this push comes as businesses are barely clinging to life and can ill afford to see customers further put off by new taxes. This is especially true, they say, in states like Michigan and Pennsylvania, where some of the most sweeping proposals are being considered this spring.

But this is also a period of economic gloom for states. Pension funds are in the red, federal stimulus help will soon vanish, and revenues from traditional sources like income and property taxes are slumping ever lower, with few elected officials willing to risk voter wrath by raising them.

“This is born out of necessity,” said Gov. Edward G. Rendell of Pennsylvania, a Democrat. His proposed budget, being debated in Harrisburg, would tax services including accounting, advertising and data processing.

Read it all from the front page of Sunday’s New York Times.

This is helpful material in terms of provisions and dates when they are to become effective.

Got this (via im) yesterday from a friend who lives in Washington state:

Just got a bill Friday for a new $800 a year rain tax only they called it surface water management–to pay for all the rain that runs off my tree-covered 5 acres

.

Read it all and follow the links as you are inclined.

The forced march to pass ObamaCare continues, and all that matters now is raw politics. But opponents should go down swinging, and that means exposing such policy debacles as President Obama’s 11th-hour decision to apply the 2.9% Medicare payroll tax to “unearned income.”

That’s what savings and investment income are called in Washington, and this destructive tax wasn’t in either the House or Senate bills, though it may now become law with almost no scrutiny.

Read it all.

There is a chance to introduce a tax that will recognise both the massive expansion of the financial services industry in recent years and the fact that taxation has never kept up with this ”“ but also a tax that will generate really substantial resources to deal with the urgent global needs that can’t wait for some miraculous turnaround in the economy. If we are serious about wanting to tackle real poverty at home or abroad, would we prefer to see an increased burden on domestic taxpayers or an innovative approach that looks for help to the enormous revenues of the financial world? There certainly is a profound connection between poverty and the banking crisis ”“ we all know the new pressures on jobs and the poor at home ”“ and the World Bank has estimated that two million more children could die as a result of the downturn.

The plan is to tax certain transactions between financial institutions ”“ not burdening the High Street banks or the private currency transactions of holidaymakers, but targeting the hundreds of billions that flow between the big players in the financial industry. A tax of an average of 0.05% on these transactions ”“ 50p in every £1000 ”“ could generate something like £250 billion per annum.

Read it all.

There is a chance to introduce a tax that will recognise both the massive expansion of the financial services industry in recent years and the fact that taxation has never kept up with this ”“ but also a tax that will generate really substantial resources to deal with the urgent global needs that can’t wait for some miraculous turnaround in the economy. If we are serious about wanting to tackle real poverty at home or abroad, would we prefer to see an increased burden on domestic taxpayers or an innovative approach that looks for help to the enormous revenues of the financial world? There certainly is a profound connection between poverty and the banking crisis ”“ we all know the new pressures on jobs and the poor at home ”“ and the World Bank has estimated that two million more children could die as a result of the downturn.

The plan is to tax certain transactions between financial institutions ”“ not burdening the High Street banks or the private currency transactions of holidaymakers, but targeting the hundreds of billions that flow between the big players in the financial industry. A tax of an average of 0.05% on these transactions ”“ 50p in every £1000 ”“ could generate something like £250 billion per annum.

Read it all.

While President Obama’s push to raise federal income taxes for the wealthy gets lots of attention, the continuing upward creep in the sales tax rates imposed by state and local governments has gotten less notice.

But Vertex Inc., which calculates sales tax for Internet sellers, reports that the average general sales tax rate nationwide reached 8.629% at the end of 2009, the highest since the Berwyn, Pa., company started tracking data in 1982. That was up a nickel on a taxable $100 purchase from a year earlier and up nearly 40 cents for the decade. The highest sales tax rate in the country now stands at 12%.

During 2009 seven states and the District of Columbia raised sales tax rates, with one jurisdiction — North Carolina — actually doing it twice. Only four states hiked rates in 2008 and only one in 2007. Given state budget problems, the 2009 state sales tax increases aren’t surprising. States have also been raising income tax rates on the wealthy and on corporations and boosting excise taxes on alcohol and tobacco. With states now facing record budget shortfalls, more tax increases seem likely.

Read it all.

The Democrats have not been completely irresponsible. It’s just that as the health fight has gone on, their passion for coverage has swamped their less visceral commitment to reducing debt. The result is a bill that is fundamentally imbalanced.

This past year, we’ve seen how hard it is to even pass legislation that expands benefits. To actually reduce benefits and raise taxes, we’re going to need legislators who wake up in the morning passionate about fiscal sanity. The ones we have now are just making things worse.

Read it all.

The recession can now claim another troublesome record: state tax collections shrank at the end of 2009 for a fifth consecutive quarter, the longest period of continuing state revenue declines since at least the Great Depression, according to a new report.

Over all, state tax collections fell to $134.5 billion in the last quarter of 2009, a 4.1 percent drop from the $140.2 billion collected during the same period a year earlier, according to the report, which will be released Tuesday by the Nelson A. Rockefeller Institute of Government.

While the drop in tax collections was less severe than earlier in the year ”” the record for the steepest drop was set last spring when tax collections fell by 16.6 percent compared with the same period in 2008 ”” the continuing declines are putting even more stress on states.

Read it all and Taxprof has a graphic there.

So all is coming right. Sales of existing homes in the final quarter of last year were 27.2% above the 2008 level. Home construction jumped 2.8% in January, to its highest level in six months. The mining, manufacturing and utilities sectors also grew at satisfactory rates as did retail sales.

So confident is the Federal Reserve in the recovery that it has raised a key interest rate.

Alas, every silver lining has a cloud ”” in the case of the American economy, several. For one thing, the fiscal deficit, which is fuelling some of the growth, is clearly unsustainable. Even under the rosy scenario posited by the president ”” economic growth at about twice the rate the non-partisan Congressional Budget Office is predicting ”” the deficit will still be unsustainably high, and rising, in 2020.

Congress knows this, the president knows this, and the opposition knows this. But the Democrats want to fill the gap by raising taxes, anathema to Republicans, who fear such a move would stifle growth by reducing entrepreneurs’ incentive to create new businesses and jobs. The Republicans want to cut spending, a move the Democrats say would stifle growth by prematurely withdrawing a prop from a fragile recovery.

Read it all.

A nationwide atheist group is asking religious leaders to take Jesus’ advice and render unto Caesar what is Caesar’s — especially when it comes to taking the federal tax break on their housing.

The Wisconsin-based Freedom from Religion Foundation says the housing exemption gives churches an unfair advantage because they can compensate their leaders with tax-free housing. Other nonprofits, such as the foundation, can’t do that. So it’s suing the federal government to outlaw the housing allowance.

“We think the law is rotten at the core,” said co-president Annie Laurie Gaylor. “It is not constitutional, it is not fair, and it is not necessary.”

But the exemption’s supporters point to a similar court dispute in 2002 that went nowhere after Congress almost unanimously rushed to save the housing break.

Read it all.

Capital will be made more expensive if this tax ever comes about, hitting the ability of poorer countries to raise investment funds. Fortunately the tax is not likely to come about, since it would require the agreement of every tax jurisdiction to make it work, and the record of international consent, as illustrated by the stalled World Trade talks, is minimal. Without that consent, traders would simply move to where it was not levied.

The “Robin Hood Tax” might look superficially attractive, but it would do profound damage to the world economy and, far from hitting “the rich”, it would be the world’s poor who suffered most. This could be one reason why Bank of England Governor Mervyn King described it as “bottom of the list” of options.

If campaigners want to spend charitable funds on these campaigns, they would be more effective in calling not for higher taxes, but for the end of the protectionist tariffs that prevent poorer countries from selling their goods.

Read it all.

“I am really worried about the United States … more worried than I’ve ever been in my career,” McDonald, chairman and chief executive of the world’s largest household products maker, told Reuters in an interview at his company’s Cincinnati headquarters. “I worry about the deficit, I worry about an uncertain future.”

McDonald, a member of the U.S. Advisory Committee for Trade Policy and Negotiations who visited Washington, D.C. last weekend, said he has told government officials that they must “create greater certainty for business.”

Read it all.