When the European Union’s finance ministers met in Copenhagen on 30 March they gave the clearest indication yet of what has been clear to most observers for months: that the 27 member states cannot agree a tax on financial transactions. A tax on share deals modelled on the UK’s stamp duty might be possible, but a wider tax on financial trades is off the agenda for the foreseeable future. The German finance ministry, one of the strongest supporters of the tax, admitted as much at the meeting, calling for work to focus on a tax on share transactions.

Since June 2011, when the European Commission announced it would propose an FTT, it had been obvious that the plan would not fly…
Apparently heedless that the object was immoveable, José Manuel Barroso, the Commission president, last week made yet another attempt to exert irresistible force in support of the tax. He told members of national parliaments and the European Parliament that the revenue raised by the tax would allow member states a cut of up to 50% in their contributions to funding the EU.

Perhaps Barroso’s intransigence is inspired by the unfortunate fact that the FTT proposal was central to the Commission’s plans for financing the EU’s multiannual financial framework (MFF) for 2014 to 2020. Removing the idea of an EU-wide tax from the agenda leaves a big hole in Barroso’s plans for financing the MFF.

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Prime Minister Mariano Rajoy will unveil the most austere budget since before Spain’s return to democracy in 1978, risking a deeper recession in a bid to avoid succumbing to Europe’s debt crisis.

“There’s interest in seeing how they are going to manage this particular trick of cutting the budget so aggressively,” said Harvinder Sian, an interest-rate strategist at Royal Bank of Scotland Group Plc in London, during a telephone interview. “The recession will be dramatic.”

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At some point, the spectacle America is now calling a presidential campaign will turn away from comedy and start focusing on things that really matter””such as the “fiscal cliff” our federal government is rapidly approaching.

The what? A cliff is something from which you don’t want to fall. But as I’ll explain shortly, a number of decisions to kick the budgetary can down the road have conspired to place a remarkably large fiscal contraction on the calendar for January 2013””unless Congress takes action to avoid it.

Well, that gives Congress plenty of time, right? Yes. But if you’re like me, the phrase “unless Congress takes action” sends a chill down your spine””especially since the cliff came about because of Congress’s past inability to agree.

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The agency says it has strengthened the electronic system used to screen returns for potentially fraudulent refund claims by thieves who often use other people’s Social Security numbers or other identifying information. When the computer detects reason to suspect fraud, it refers a tax return for investigation, holding up the refund for weeks.

This and other computer glitches have slowed refunds and led to widespread unhappiness, particularly among low- and moderate-income people, who often receive significant cash refunds thanks to a range of tax credits and often rely on that money to pay bills.

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Pinched by the global recession and tough-love budget demands of the European Union, the Italian government is looking for extra revenue, and has its eyes set on commercial properties owned by the Roman Catholic Church.
On Feb. 15, the government of Prime Minister Mario Monti announced it wants to revise rules on the tax-exempt status of church-owned commercial property. Although the exemption also applies to other not-for-profit entities, such as trade unions, political parties and religious groups, the Catholic church is its largest beneficiary.

“Such a move would have been unimaginable six months ago,” said Francesco Perfetti, a history professor at LUISS University in Rome. “After all, no matter whether you are a believer or not, the church is an integral part of Italy’s culture.”

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Corporate America’s love affair with debt is driven by a heavy subsidy, courtesy of the federal tax code. It’s an unhealthy preference that the Obama administration is now reviewing.

The problem arises because the interest that corporations pay on their debt is deductible on their federal taxes.

To understand the effect of this deduction, imagine if you could deduct the interest you pay on your debt. I am not just talking about the deduction on your home mortgage. This would be a deduction for all of the interest paid on your credit card bills, auto loans and any other loans you had, including the one from Uncle Mikey….

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The Obama administration will propose lowering the top income-tax rate for corporations to 28% from 35% but would raise overall tax revenue by eliminating dozens of popular deductions in an effort to restructure the corporate tax code.

The proposal, which will be announced Wednesday, would lower the “effective” tax rate on manufacturers to “no more than 25%,” according to a senior administration official, down from the current average rate of about 32%. It raises taxes on oil and gas companies that would lose many large deductions and subsidies.

The plan would require U.S. companies operating overseas to pay””for the first time””a minimum tax rate on their foreign earnings.

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For the fourth year in a row, President Obama is proposing lower tax deductions for the wealthy on donations to churches and other nonprofit organizations. And for the fourth year in a row, nonprofit groups say the change would lead to a dramatic drop in charitable giving.

The reduction, included in Obama’s 2013 budget proposal, rankled the Union of Orthodox Jewish Congregations of America.

“We were hoping this would not come up again this year. We asked that they not renew it, but unfortunately the request was not taken,” said Nathan Diament, the group’s Washington director. “It’s a real concern.”

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In place of those cuts, the president offered a mixture of real steps to reduce the deficit ”” including nearly $2 trillion in additional taxes over the coming decade, mainly at the expense of high-income Americans ”” and bogus ones, such as almost $850 billion in “savings” from the previously planned end of foreign combat operations, a chunk of which would be spent on infrastructure and jobs programs. The one bright spot: Obama didn’t ignore the rapid and unsustainable growth in healthcare entitlements, as he did in last year’s budget. Instead, he called for saving about $360 billion over 10 years on those programs, in part by paying drug companies less for medicines prescribed to low-income Medicare patients.

There’s little chance this Congress will agree to many, or even any, of those suggestions. Tax increases seem particularly unlikely. But even if lawmakers were to adopt all of Obama’s deficit-cutting measures, they wouldn’t go far enough to set the budget on a path toward balance.

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US economic growth will slow dramatically if tax rises and spending cuts come into effect as planned in 2013, according to new figures from the Congressional Budget Office.

The expiry of tax cuts originally passed by president George W. Bush, the end of a 2 per cent payroll tax holiday and automatic spending cuts agreed last August will reduce growth to just 1.1 per cent in 2013 unless changes are made.

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South Carolina residents who bought things last year from Amazon.com are now receiving emails reminding them that they owe the state money, because the online retailer didn’t collect the sales taxes.

While Amazon’s customers might be surprised, South Carolina residents always have been required to pay tax on online purchases — it’s just a question of who collects the money. In practice, when it comes to declaring online purchases and paying the tax, consumers have been lax, costing the state an estimated $110 million annually….

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When people heard that Mitt Romney’s federal income tax rate was about 15 percent, the immediate reaction of many was to assume that their own rate was higher. The top marginal rate is 35 percent, after all, and the marginal rate on a couple with $70,000 in taxable income is 25 percent.

The truth is that most households probably pay a lower rate than Mr. Romney. It is impossible to know for sure, given that he has yet to release his tax return. What is clear, though, is that a large majority of American households ”” about two out of three ”” pays less than 15 percent of income to the federal government, through either income taxes or payroll taxes.

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What’s dragging down U.S. economic vigor?

According to Harvard Business School graduates, political gridlock, faltering schools, and a convoluted tax code are making American companies less competitive in the global marketplace.

A new survey of the business school’s alumni found that nearly three-quarters of respondents expect the U.S. to be less competitive over the next three years. They said the U.S. is losing ground to emerging economies, where low wages, increasingly skilled workers, growing markets and proximity to customers frequently trump traditional American strengths such as sophisticated infrastructure, a reliable legal system and effective macroeconomic policy.

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Congressional leaders reached an agreement Thursday to temporarily extend a payroll-tax cut by two months and begin negotiations on a yearlong extension, aides said.

he agreement could end a political stalemate over the payroll-tax cut, which lowered Social Security taxes for 160 million Americans in 2011. Under the tentative agreement, the House will vote again on a two-month extension and the Senate will prepare to negotiate for an extension that will run through 2012.

Aides said House Speaker John Boehner (R, Ohio) has agreed to hold a new vote Friday on extending the tax cut, bowing to increasing pressure to end an impasse that threatened to leave workers with a tax increase next year.

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…unlike the debt-ceiling drama and the destructive impasse over a grand bargain to rein in the spiraling national debt, a stalemate on the payroll tax could be good for Social Security, good for the deficit, and good for disproving the conviction that “temporary” tax cuts must never be allowed to expire.

Let us explain.

As we’ve pointed out previously, the 2-percentage-point cut in the payroll tax (from 6.2% to 4.2%) might give a short-term boost to the economy, but it contributes to Social Security’s long-term insolvency at a time when the retirement program is already paying out more in benefits than it is collecting in taxes. A one-year extension would drive up next year’s federal deficit by more than $100 billion.
The payroll tax issue also raises the question of whether there’s any such thing as a temporary tax cut. At the end of next year, the unaffordable Bush tax cuts are set to expire. Extending the payroll tax cut would set a precedent and give ammunition to those who want another extension of the Bush cuts, adding as much as $5 trillion to deficits over the coming decade.

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A Republican payroll tax cut bill that sailed through the House despite a White House veto threat is dead on arrival in the Senate, and it will soon be time for talks on a final package, the Senate’s top Democrat says….

Reid says he will schedule a vote shortly on the House-passed bill to underscore its irrelevance ”” a vote that should start the clock ticking on what stands as the year’s final, high-stakes partisan faceoff.

“It was dead before it got to the Senate,” Reid said of the House legislation. “The Senate will not pass it. The sooner we demonstrate that, the sooner we can begin serious discussions on how to keep taxes from going up on middle-class Americans.”

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The Obama White House, in its own version of the New Year’s Eve countdown in Times Square, has added a banner to its website ”“ a clock ticking down the seconds to when taxes on the middle class will rise “if Congress doesn’t act.”

That tax hit is the 2 percent payroll tax cut now set to expire at midnight, Dec. 31. If Congress fails to at least extend that tax cut, the Social Security tax rate for employees jumps back to 6.2 percent, up from 4.2 percent. If that happens, the average American taxpayer stands to lose about $1,000 in 2012.

Leaders on both sides of the political aisle in Congress offer assurances that by year’s end the tax break will be extended. As lawmakers head into an election year, the stakes are simply too high to kick that can down the road. But GOP leaders, especially, are running up against strong opposition from the rank-and-file on anything that looks like caving on pledges to reduce deficits, dramatically cut spending, and reject all tax increases (which are an issue in this case because Democrats propose to pay for extending the payroll tax by a tax hike on millionaires.

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“State budgets are certainly improving; however, growth is weak, and there is not enough money for all the bills coming in,” said NASBO Executive Director Scott Pattison. “State officials will still be cutting some programs, and increases in funding for any program except for health care will be rare.”

The report says that Medicaid, the combined federal-state health program for the poor and the disabled, will place the biggest budgetary burden on states. Because of increasing caseloads, declining federal help and spiraling health-care costs, state Medicaid spending is growing much faster than state revenue, crowding out funding for other priorities.

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We haven’t had the robust democratic debate about the role of government that lies at the heart of America’s budget stalemate. The truth is that most Democrats and Republicans want to avoid such a debate because it would force them into positions that, regardless of ideology, would be highly unpopular. This does not mean that the congressional supercommittee, charged with making modest cuts in deficits, need fail. There is a basis for honorable compromise; squandering it would confirm politicians’ preference for fighting over governing.

Contrary to much press coverage, the committee’s Republicans opened the door to compromise by abandoning — as they should have — opposition to tax increases. Sen. Pat Toomey of Pennsylvania proposed a tax “reform” that would raise income taxes by $250 billion over a decade. First, he would impose across-the-board reductions of most itemized deductions and use the resulting revenue gains to cut all tax rates. Next, he would adjust the rates for the top two brackets so that they’d be high enough to produce the $250 billion. All the tax increase would fall on people in the top brackets….

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Committee members continued to meet on Capitol Hill to present legislation that could be voted on by the Congress to cut $1,200bn from the budget over 10 years.

But both sides had already begun to blame each other, with Republicans resisting tax rises in any form and Democrats demanding extra revenues be balanced against spending cuts on the grounds of fairness.

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Conceding that talks on a grand budget deal are near failure, Congressional leaders on Sunday pointed fingers at each other as they tried to deflect blame for their inability to figure out a way to lower the federal deficit without having to rely on automated cuts.

The testy exchanges ”” which dominated the Sunday talk shows ”” made clear that leaders in both parties now see the so-called sequester ”” a term meaning an automatic spending cut ”” as the most likely solution to reduce the federal deficit by $1.2 trillion over 10 years, instead of a negotiated package of spending reductions and tax increases, something they have been unable to achieve over the last 10 weeks.

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A special U.S. committee charged with reducing the federal deficit is entering a critical week for reaching a deal but has not considered extending its Nov. 23 deadline, a panel member said Monday.

“Every member understands that time is running out,” House Democrat Chris Van Hollen, a member of the “super committee,” said in an interview with MSNBC’s “Morning Joe” program. “This is the moment to get it (a deal) done if we’re going to get it done.

“The clock’s ticking. We’ve got just a little over two weeks and that includes the time that it will take to put the final touches on any agreement that we might be able to reach,” he said.

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A financial transaction tax would be the wrong choice for Europe at any time; and particularly now.

To understand the impact of FTT, we need to answer four essential questions. Is it an efficient means of raising tax revenue? Would it benefit the end-users of the financial markets, both businesses and consumers? Would it enable the creation of economic growth and jobs? And would it make financial markets more stable?

First, financial services is a mobile, global and highly competitive sector. The European Commission’s suggests that Europe would lose 10 per cent of its securities market, 40 per cent of its spot currency market and 70 to 90 per cent of its derivatives market if FTT were introduced.
These are alarming numbers and economically very damaging ”” and they are not mere conjecture. Sweden’s FTT (from 1984 to 1991), resulted in between 90 and 99 per cent of traders in bonds, equities and derivatives moving from Stockholm to London. This was an expensive lesson for Sweden. Its experience should prevent Europe from making a similar mistake.

Second, what will be the impact on users of financial markets, including ordinary consumers? Economic theory suggests that a transaction tax would largely be passed on to end-users, whether they are savers, investors or businesses. The European Commission itself makes this point.

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What happens when you get George Soros, Tom Harkin, Bill Gates, Ralph Nader and the Archbishop of Canterbury together in a French hotel room with a stick of incense and a magnum of champagne””and turn off the lights?

Answer: the…[Financial Transaction] Tax.

OK, so we need to work on our punchlines. But a tax on financial transactions is exactly what these characters have all endorsed in one form or another as the miracle cure to the world’s economic ills. French President Nicolas Sarkozy and German Chancellor Angela Merkel have also picked up the cause, and they are leaning on President Obama to endorse it at this week’s G-20 summit in Cannes, France.

So here we go again.

Readers of the blog will know I do not like to call this the Tobin Tax since strictly speaking Tobin originally was focused explicitly on something else less broad than the current proposal. Read it all–KSH.

Representatives from the United Kingdom’s main Christian denominations and charities submitted a letter to the Chancellor of the Exchequer (treasury secretary) on 31 October, urging the government to tackle tax avoidance in order to “Close The Gap” between rich and poor.

“Tax evasion and avoidance is estimated by the Treasury to cost the U.K. at least 35 billion British pounds [US$56.4 billion] annually. This is nearly nine per cent of U.K. tax revenue. The efficient collection of this revenue would lessen the demand to cut social and welfare expenditure which is hurting the poorest in our communities so much,” the letter read.

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The United States will likely suffer the loss of its triple-A credit rating from another major rating agency by the end of this year due to concerns over the deficit, Bank of America Merrill Lynch forecasts.

The trigger would be a likely failure by Congress to agree on a credible long-term plan to cut the U.S. deficit, the bank said in a research note published on Friday.

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Plenty of lawmakers are against tax breaks and so-called loopholes. Unless, of course, they personally helped create them.

The Senate Republican leader, Mitch McConnell, for instance, says he is open to ending tax breaks for special interests. But when it comes to a tax break he secured in 2008 for the owners of thoroughbred racehorses, he argues that the measure is essential for the protection of jobs in his home state of Kentucky.

Senator John Kerry, Democrat of Massachusetts, says he too wants to eliminate such breaks, except when it comes to beer. He is one of the main supporters of a proposal that would cut taxes for small beer makers like the Samuel Adams Brewery in Boston.

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We’re just stuck?

If we don’t deal with it ”“ if we don’t proactively say we’re going to get our deficit under control ”“let me put it this way: My personal belief is that if we do proactively get our long-term budget issues under control, the bond market will say, “Okay, you’re credible and we will buy your bonds, because you have put yourself on a credible path ”“ whether it’s through cuts, whether it’s through tax increases, however you want to do it ”“ but you have to do it. But you have shown us a credible way to get to the place where the growth rate of your deficit is below the growth rate of nominal GDP.”

But if we don’t do that, my wine bottle of pain becomes a jeroboam and we end up downing it all at once.

That sounds ugly.

It is. It will force budget cuts; it will force tax increases of the magnitude that no one is ready to contemplate. We’re talking cuts in Medicare, cuts in education, in defense, in spending of all kinds. That would create a depression, a true depression that would last 4-5 years, push unemployment to 20%-25%….

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The commission’s own research shows that such a tax would have a negative impact on growth: Algirdas Semeta, the European commissioner for taxation, said this week that it would cut GDP across the EU by about 0.5 per cent. At a time when Europe is struggling to grow at all ”“ and when growth is essential to dragging its economies out of the mire ”“ this would be a crippling reverse.

One would have thought that this assessment would be enough to kill the idea stone dead ”“ especially since the Government has made it clear that Britain will veto the plan, since such a tax would only make sense if it were introduced globally, to avoid a mass exodus of financial institutions from the area affected. Mr Barroso, however, has other ideas….

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Nearly a third of the nation’s cities are laying off workers this year. More than half have canceled or delayed infrastructure projects. And two out of five have raised their fees.

The catalog of service cuts and fee increases comes as America’s cities are bracing for what they expect will be their fifth straight year of declining revenues, according to a survey of city finance officers to be released on Tuesday by the National League of Cities.

One of the main culprits is the property tax, which many cities and local governments rely on heavily. Property tax collections, which are usually quite resilient, are projected to fall by 3.7 percent this year ”” their second year in a row of declines ”” as tax assessments belatedly catch up with the lower property values left behind by the battered real estate market. Sales tax collections are projected to be slightly higher this year, but income tax collections are projected to be slightly lower, as unemployment and lower wages take their toll in many places.

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