Your taxes: Obama’s tax record – Could do better?

When it comes to tax collections, it seems the US is a little down but not out.

By LEON HARRIS
Tamar natural gas rig 370 (photo credit: Albatross)
Tamar natural gas rig 370
(photo credit: Albatross)
US President Barack Obama brought a message of hope for Israelis on his recent visit to Israel. He reminded us in his keynote speech on March 21 that “Israel has built a prosperous nation, through kibbutzim that made the desert bloom, business that broadened the middle class, innovators who reached new frontiers, from the smallest microchip to the orbits of space... Israel has established a thriving democracy with a spirited civil society and proud political parties and a tireless free press and a lively public debate... Our first free-trade agreement in the world was reached with Israel, nearly three decades ago. Today the trade between our two countries is at $40 billion every year...”
He could have added we are both energy superpowers.
Israel now has big gas reserves, and the US now has big energy reserves thanks to fracking technology.
So Israel has a useful big brother across the ocean. How big? US tax statistics Just before Obama’s visit, the US Internal Revenue Service (IRS) published its Winter 2013 Statistics of Income Bulletin.
In addition, there are ongoing tax-collection statistics on the IRS website. When it comes to tax collections, it seems the US is a little down but not out.
US federal gross tax revenues totaled $2.4 trillion in 2011 and $2.5t. in 2012, which is not bad but down from the alltime record of $2.7t. recorded in 2008, presumably before the credit crunch took hold. A trillion is a one followed by 12 zeroes. It equals a thousand billion (nine zeroes).
By far the biggest chunk of US tax revenues came from the individuals paying nearly $1.4t. in income tax and nearly $0.8t. in employment taxes in 2012. US businesses paid a whole lot less – nearly $0.3t. in business income taxes in 2012. The top five federal tax-paying states in 2012 were California ($292 billion), Texas ($219b.), New York ($201b.), Illinois ($124b.) and Florida ($122b.).
Advertisement
In 2010, US taxpayers filed 142.9 million federal tax returns, of which 41 percent showed total income tax of zero. That’s a lot of no-tax payers, the second highest in more than 25 years, according to the IRS bulletin. Some of that is thanks to the “911 exclusion” for US taxpayers living outside the US; for example, in Israel.
Land of opportunities? Don’t assume the rest is evenly spread. Adjusted gross income on the taxable US federal returns was $7.25t. in 2010.
But the top 1% of US federal tax returns, with adjusted gross income of at least $369,691, accounted for 37.4% of the total income tax reported in 2010... and the top 5% of tax returns accounted for 59.1% of total income tax reported.
Can you take it with you? When it comes to estate tax, this was temporarily repealed in the US in 2010. In 2012, estate and gift tax collected was a tiny $14.4 million (not billion or trillion). It seems US families plan around estate and gift taxes quite effectively.
There are many techniques for this. One technique involves charitable contributions of cash and corporate stock. In 2010, 22.5 million individual US taxpayers reported $44.3b. in noncash charitable contributions. Age plays a role; in 2010, taxpayers aged 65 and older donated 43% of all donations.
What is going on with business tax collections in the US? The IRS bulletin goes back to 2008 and reports that in that year, 83,642 foreign corporations controlled by US multinational corporations held $14.5t. in assets and reported receipts of $6.0t. But these “Controlled Foreign Corporations” (CFCs) only paid $662b. in income taxes, or an effective tax rate of 11% – presumably due to foreign tax credits? So the big picture is that US corporations are making a large part of their profits outside the US and keeping them there to minimize their US taxes. This makes their bottom line look better and is good for their stock price. All this adds to the US fiscal cliff.
Where are these CFCs? Over 42% were incorporated in Europe, and nearly 91% of the European CFCs were located in European Countries.
Some advice for Obama Obama should consider what it would do for the US dollar and the US economy if US multinationals were to repatriate their $14.5t. pile of overseas assets to the US. Even if there were no tax on the repatriation (as in Canada), the money would boost the US economy and future tax receipts. And the IRS should be encouraged to update the data; anecdotal evidence suggests the $14.5t. probably increased further since 2008. Investors, take note.
What about Israel? Tax receipts in Israel totaled NIS 251.7b. ($65.3b.) in 2012 and NIS 244.6b. ($68.4b.) in 2011, according to the Central Bureau of Statistics. (The average exchange rate of the shekel weakened from 3.5781 in 2011 to 3.8559 in 2012, according to the Bank of Israel.) Israel does not have an estate or gifts tax.
As always, consult experienced tax advisers in each country at an early stage in specific cases.leon@hcat.co Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.