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— Rising chatter on expanding a new tax incentive for charitable giving, enacted recently to address economic woes from the coronavirus pandemic, gives rise to more questions.
— The Treasury Department can make getting stimulus payments much easier for millions more economically disadvantaged and rural Americans, some senators are saying.
— Tax haven-headquartered businesses shouldn’t get rescue money, a growing number of European nations argue.
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WOULD THAT BE BETTER? Congress just allowed taxpayers who don’t itemize their deductions to write off up to $300 in charitable deductions through the CARES Act, H.R. 748 (116). And while the early reviews for that provision haven’t been great, there’s already talk about enlarging the so-called above-the-line deduction. The Penn Wharton Budget Model found that the new charitable deduction, currently in place for only this year, would cost around $2 billion and spark an extra $110 million in donations — an increase of about 0.03 percent.
One of the ideas being floated for expanding that tax break, as our pal Kaustuv Basu wrote recently for Bloomberg Tax, is to make it equal to a third of the standard deduction — or $4,000 for single filers and $8,000 for households. PWBM looks more favorably on that policy, at least when scored on a permanent basis — finding that it would increase donations by between 2 percent and 3 percent while costing around $171 billion over a decade. (A tax credit for charitable contributions, the group projects, would cost $267 billion over 10 years but boost donations by more than 5 percent.)
The poor score for the temporary above-the-line deduction fueled criticism that the provision not only won’t do much to boost philanthropy, but it also will be difficult to enforce.
Charity advocates make the case that the way to make the incentive better is to make it bigger. Rick Cohen of the National Council of Nonprofits added that every little bit matters for smaller nonprofits these days, especially after many got shut out from the Paycheck Protection Program for small businesses. “These nonprofits need every donated dollar they can get. On the grand scale, it may not seem like a lot, but just a couple hundred dollars can mean everything to a nonprofit and the people who rely on it,” Cohen said.
Speaking of scoring tax measures, the Joint Committee on Taxation has ratcheted back its estimate of how much a controversial break for pass-through businesses included in the coronavirus stimulus plan will cost. In a revised estimate, the agency now says loosening so-called loss limitation rules will cost $135 billion over the next decade, not $170 billion as it originally projected.
The cost has been a sore point for liberals like Rep. Lloyd Doggett (D-Texas) and Sen. Sheldon Whitehouse (D-R.I.), who’ve complained for days about the price of the break, especially because it primarily benefits wealthy businesspeople.
The original JCT estimate also confused some wonks because it showed the provision — which allows companies more power to turn losses into tax refunds — losing money for the Treasury throughout the 10-year budget window. That was surprising because companies taking advantage of the break would be using more of their losses now, instead of in coming years.
The revised JCT estimate shows the provision will lose money through 2021 before beginning, in subsequent years, to generate money for the government.
SENSING A PATTERN: A growing number of lawmakers is pushing Treasury to ensure that stimulus payments reach the millions of Americans who don’t have high-speed internet, or any internet at all. Nearly two dozen Senate Democrats and independents sent Treasury Secretary Steven Mnuchin a letter seeking help for those without broadband internet get their payments, which are worth up to $1,200 for individuals and $2,400 for couples.
Following earlier pressure from Capitol Hill, Treasury and the IRS agreed to automatically send stimulus payments to recipients of Social Security, Supplemental Security Income, railroad retirement benefits and Veterans Affairs aid, after initially indicating they’d need to file tax returns. Millions of them have so little income that they aren’t usually required to file taxes.
Some 14 million to 15 million Americans are non-filers, but only 2.9 million had registered for stimulus payments on the new non-filer website, IRS officials told Capitol Hill staffers at a Wednesday briefing, according to a congressional aide. The agency is working to improve its other web-based tool for payment status updates, IRS officials also said.
Praising Treasury’s previous “course corrections,” Senate Minority Whip Dick Durbin and colleagues asked Mnuchin to “leverage the resources and information at your disposal or partner with the necessary federal agencies” to get the money to people with slow or no internet access. At a minimum, more than 21 million Americans lack high-speed internet, according to a 2019 FCC report they cited.
A similar campaign is under way to speed $500 stimulus payments for dependents who weren’t registered by a Wednesday deadline that regulators had set just two days earlier. Treasury would have had to delay payments to all Social Security beneficiaries if not for the deadline, a department aide said. But for those who missed it — again, people not typically required to file tax returns — the money won’t arrive until next year. That’s too late, according to a letter from a separate bloc of 40 Senate Democrats and independents to Mnuchin and the head of the Social Security Administration. The families of some 1 million dependent children will feel the impact, the senators wrote, urging a solution “as quickly as possible — before next year.”
NO SOUP FOR YOU: More and more European countries are restricting coronavirus aid from tax haven-registered companies. Such limits don’t have traction across the full European Union, but that hasn’t stopped France, Italy, Belgium, Poland and Denmark from withholding emergency funds from businesses registered in tax havens like Panama and the Cayman Islands, according to three of our overseas coworkers: Simon Van Dorpe, Elisa Braun and Thibault Larger.
Beyond the immediate effects, tax justice advocates believe such national measures could improve transparency and level the playing field in global corporate taxation. But they also worry that some European countries that act like tax havens themselves have evaded scrutiny in the bailout-restriction environment, including the Netherlands, Luxembourg and Switzerland.
That sort of criticism also invites questions about Delaware, which many American and foreign companies claim as their home and is frequently labeled a tax haven, too. “The French list of tax havens is very like the European one but it’s a very political list. The main tax havens don’t appear on it, for example Luxembourg, Switzerland and Delaware,” said Raphael Pradeau, from the campaign group Attac France.
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TALKING FISCAL UNITY IN THE EU: A fiscal compact is needed in the European Union if member states want to band together on a large rescue package to help them economically weather the coronavirus pandemic, Germany’s top financial official said. “It will certainly be necessary to harmonise a few things,” Reuters reported German Finance Minister Olaf Scholz as saying. Scholz said he has long pushed for a minimum taxation level in the EU to avoid tax dumping, and the article said other options included a financial transactions tax and emissions-linked taxes on air transport. EU leaders, who are considering rescue funding of up to 2 trillion euros, heard from European Central Bank Governor Christine Lagarde that they should brace for losing between 5 percent and 15 percent of their economic output. Most European Union member states operate under centralized monetary policy, but they remain autonomous on fiscal policy.
MINNESOTA LEGISLATORS DEBATE FORGIVEN LOANS: GOP state lawmakers in the land of 10,000 lakes are making hay about possible tax implications for small businesses taking federal loan money, but some in the business community say it’s much ado about nothing, according to the Minneapolis Star Tribune. The concern centers on emergency loans of up to $10 million from the federal government’s Paycheck Protection Program. The loan amounts are forgivable if certain conditions are met, and that forgiveness isn’t federally taxable. But forgiven debt is treated as taxable income in Minnesota. That means more than 46,000 companies in the state that have received the emergency federal loans would be on the hook for more than $600 million in taxes, according to House Republicans, though business owners said conditions for forgiveness mandate them to spend the funds on payroll, utilities or real estate costs, all of which they can write off from their taxes as legitimate business expenses.
The IRS releases FAQs on net operating losses and repatriation.
Unemployment benefits go untaxed in 15 states.
The American Institute of CPAs recommends a range of administrative, filing and payment relief for state and local taxes.
State officials in Wisconsin claim it has more than 15,000 lakes, topping the nearly 12,000 claimed by Minnesota state officials, though Minnesota’s 10-acre-plus definition of what counts as a lake is about five times larger than Wisconsin’s.
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