Senate Republicans are delaying their budget. Facing fiscal chaos in the House, Senate Budget Committee Chair Mike Enzi announced yesterday that his panel will hold off on its budget work at least until April. Meanwhile, Democratic senators Harry Reid, Dick Durbin, Chuck Schumer, Patty Murray and Barbara Mikulski penned a letter to Majority Leader Mitch McConnell urging him to stick with the spending levels in last December’s Bipartisan Budget Act.
Are the EU’s tax investigations unfair to US companies? The US Treasury will consider “all modes of engagement” to discourage the European Union from disproportionately targeting US-based multinationals in its investigations of possible “illegal state aid.” Treasury Secretary Jack Lew wants the EU to focus on cooperative efforts to tackle base erosion and profit shifting.
Meanwhile the Supreme Court upholds one IRS crackdown against US taxes on multinationals. The US Supreme Court won’t hear an appeal by American International Group, Bank of New York Mellon, and BB&T Corp. They wanted the court to overturn a lower court ruling that will cost them $1 billion in back taxes. In part, the case involves transactions called structured trust advantaged repackaged securities, or STARS. The IRS successfully argued the deals had no economic substance.
In New York, a move to close the carried interest loophole. There’s a new state-wide campaign to require hedge fund managers to pay ordinary income tax rates instead of lower capital gains taxes on their compensation. State lawmakers introduced a bill yesterday that would raise taxes on state residents who benefit from the lower rate. The state tax increase would precisely offset federal tax savings and lawmakers say they’d use the $3.7 billion in new revenue to finance public investments like schools and economic development. However, the plan would require Massachusetts, New Jersey, and Connecticut to follow suit to prevent managers from ducking the tax by relocating to a neighboring state.
Speaking of economic development: Be careful with tax incentives. TPC’s Norton Francis explains: “States must be careful not to go overboard on tax incentives at the expense of investments in workforce and infrastructure. Careful monitoring, tax expenditure budgets, and more transparency in big-ticket tax incentives, particularly discretionary ones, can genuinely inform policy makers to make decisions consistent with the state’s economic development strategy.”
Facebook is feeling… generous? The social network giant will award bonuses of $396 million to its United Kingdom staff over the next three years. By doing so, Facebook will offset the amount of tax it will now have to pay to the UK—instead of Ireland. It translates to a bonus of about $1.1 million per UK employee.
And China feels the need for tax reform. It plans to change its personal income tax system to include deductions for mortgage interest, education expenses, and the cost of raising children. China wants to boost consumption and reduce its economic reliance on investment. The State Council will submit a draft law to the National People’s Congress this year.
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