Update on the Tax Reform Effort & Its Potential Impact on Non-Profits with Steven Woolf

Tri State J-Pro, Jewish Community Relations Council & Jewish Federation of Greater Philadelphia Present a Special Session for Executive Professional Leaders: “Update on the Tax Reform Effort & Its Potential Impact on Non-Profits” with Steven Woolf, Senior Tax Policy Counsel for Jewish Federations of North America.

Steven Woolf is a tax professional with extensive experience in individual and corporate tax, lobbying, and knowledge management. He is JFNA’s chief Washington advocate on legislative proposals, administrative regulations and public policy issues regarding nonprofit tax issues. Mr. Woolf creates and compiles nonprofit tax policy proposals and recommendations on behalf of the federation system.

Reservations Required One Week in Advance:

Contact: Penina Hoffnung, Senior Manager of Community Engagement
Email: [email protected]
Phone: 215-832-0813

A Metaphor for the Bush Tax Credits Destroying the Middle Class

Two years ago today, Senator Bernie Sanders filibustered the extension of the Bush Tax Credits. Ligorano Reese put Sanders speech to music by Michael Galasso using a melting ice sculpture as a metaphor to represent the middle class in this video entitled “A Thousand Cuts”. Bush tax cuts will expire at the end of the year.

WonkBlog: Should The Top Tax Rate Be 73%?

Dylan Matthews writes on The Washington Post’s Wonkblog:

Most arguments about tax brackets in the United States are over a percentage point or two. Obama wants the top rate to rise 4.6 points to 39.6 percent; Republicans want it to stay at 35 percent. Despite the revenue costs of low rates, some self-styled deficit hawks want the top rate to go even lower. Simpson-Bowles and Domenici-Rivlin, for instance, both put it at 28 percent.

But some tax experts think this is all much too timid. Two economists, Nobel laureate Peter Diamond at MIT and Emmanuel Saez at Berkeley, have argued that the optimal top bracket is 73 percent, higher than at any point in the United States since the 1960s. Many analysts get sticker shock at that number, but the Diamond/Saez paper lacked a detailed response until AEI released a paper by Aparna Mathur, Sita Slavov and Michael Strain attempting to debunk it.

The Six “Studies” Which Support Romney’s Tax Plan

Anderson Cooper and Chris Wallace take down the Romney/Ryan six “studies” myth.

The Washington Post Wonkblog reports:

Mitt Romney says that “six studies” prove that his tax plan adds up. They don’t.

Some of them reveal how Romney’s tax plan could conceivably achieve what he’s promised, under certain conditions — or at least come closer to it.
But others contradict the stated objectives of Romney’s tax plan and make questionable assertions about how he’d pay for his rate cuts, leaving some central questions about Romney’s tax plan unanswered and fueling the ongoing calls for more specifics.

Not all of the “six studies” are formal quantitative research: Three are online articles and one is an op-ed. But all try to answer the essential conundrum that the Tax Policy Center described in its original analysis: Romney wants to pay for $5 trillion in tax cuts by getting rid of tax deductions and exclusions that benefit Americans earning more than $200,000.

But getting rid of those upper-income tax breaks doesn’t fully pay for the rate cuts, the Tax Policy Center says: The only way to do this without increasing the deficit would be to raise taxes on lower-income Americans by an average of $2,000 to make up for a $86 billion annual shortfall – a finding that the Obama campaign now routinely cites in its attack ads.

Two of the “studies” the Romney campaign has cited are an op-ed and a blog post by Harvard economist Martin Feldstein. He says it’s possible to finance Romney’s tax cuts fully by closing loopholes and deductions, but only if you raise taxes on those households with incomes between $100,000 and $200,000.

And here is what Steven Colbert had to say about the Romney/Ryan mathemagical budget…

The Colbert Report Mon – Thurs 11:30pm / 10:30c
Mitt Romney’s Tax Plan Math
Colbert Report Full Episodes Political Humor & Satire Blog Video Archive

Projected change in tax burden under Romney plan according to Brookings Institution’s Adam Looney:

The Romney Returns: Taxing Conversations

Mitt Romney’s taxes are dominating the political conversation this week. To cut through the noise, here are some of the highlights.

Romney is yet to release even a single complete tax return

John Marshall wrote a piece entitled Is the FBAR FUBAR?:

Through the last week of tax return follies, Mitt Romney has repeatedly stated that he’s released two years of tax returns and he’ll release no more. In fact, he’s yet to release even a single complete tax return. He filed for an extension for his 2011 returns and says he’ll release the final returns later this year when he files them. The 2010 return was actually incomplete. And what was left out points toward a question that a lot of reporters and tax experts have been wondering about but have been surprisingly reticent to discuss publicly.

Huffington Post noted yesterday that Romney never released his so-called FBAR documents [Report of Foreign Bank and Financial Accounts], special forms required [by the United States Treasury Department] from filers who have bank accounts in other countries. But the issue actually came up in a conference call back in January. Particularly about a Swiss bank account with UBS.

In that call, Romney blind trust advisor Brad Malt was asked whether Romney had “filed any and all required FBARs in a timely fashion.” To which he responded: “The people required to file FBARs are Mrs. Romney and myself, and we have filed all FBARs.”

The campaign has yet to release those FBARs. Why they’ve gotten pressed so little on it is a bit of a mystery to me.

But here’s where it gets interesting. Back in 2009, the IRS instituted a major tax amnesty program for folks who had previously secreted money in Swiss and other offshore banks. The amnesty stemmed from a settlement the US government had reached with UBS that year. Those who came forward voluntarily in the prescribed period of time could pay their back taxes, pay their fines but avoid any criminal penalties.

In 1994, Romney criticized Kennedy for not disclosing his taxes

It’s time the biggest-taxing senator in Washington shows the people of Massachusetts how much he pays in taxes. (Boston Globe, 4/19/1995)

*In 1968, Mitt’s father Gov. George W. Romney (R-MI) released twelve years of tax returns saying:

One year could be a fluke, perhaps done for show.

In 2008, Romney was being vetted as a possible running mate by Republican Presidential nominee John McCain, and Romney provides tax records going back to 1984 when he founded Bain Capital. After deliberation, McCain chose Gov. Sarah Palin as his running mate. McCain denies that the tax returns had anything to do with rejecting Romney saying simply: “Sarah Palin was the better candidate.”

In the end, we don’t know what is hidden in these tax returns, but we know that Romney is taking a lot of political heat for defying the tradition his father began whereby Presidential candidates make a full and detailed disclosure of their tax returns.

Romney is politically astute. He knows the cost of not providing this information. As CEO of Bain Capital, he has experience avoiding risk, so I would assume that there must be something in those returns which he thinks would be more objectionable to the American people than simply refusing to disclose his returns.

What could that be….? Many voices around the internet have proposed various alternatives.


  • No taxes at all: We already know that Romney paid a 14% tax rate in 2010. Most Americans pay far more than that even though they earn far less than Romney. Perhaps Romney was able to use capital losses and various deductions and loopholes to completely eliminate his tax obligation in 2009.
  • His magical IRA: Perhaps Bain Capital undervalued assets being deposited in Romney’s IRA account in order to avoid the $30,000 annual cap. His IRA is now worth $21 million to $102 million, so something seems amiss.
  • Bain Capital: Maybe he does want people to see how much he was paid by Bain during the period he “retroactively resigned”? The SEC Filing on the right is from Bain’s February 2001 SEC filing although Romney attempts to avoid blame for some of Bain’s outsourcing activity by claiming that he left Bain in February 1999.
  • His Address: Doc Jess notes the Romney “was able to get on the Massachusetts ballot by saying he worked for Bain, and therefore had Mass residency in 2000, 2001 and 2002. But that may not be true”.
  • Off-Shore Tax Shelters: As mentioned above, any American with over $10,000 in accounts overseas must file a Report of Foreign Bank and Financial Accounts. Romney has yet to release a single FBAR. Perhaps he is worried that that Americans would be appaled to learn how much money he has tucked away in Bermuda, Switzerland and the Cayman Islands? Or perhaps his take returns will reveal that he taking his money off-shore in order to evade American taxes? Did he perhaps participate in the IRS’s 2009 tax amnesty program?
  • Something else: The bottom line is that only Romney (and McCain) knows what is keeping Romney from releasing his tax returns.

Video of Ann Romney and DNC ad follows the jump.
Ann Romney: We’ve give all you people need to know

DNC Advertisement: “Mitt Dancing Around The Issues.” (Note: This ad was retracted after the DNC decided not to no longer refer to Ann Romney’s horse in their advertisements.

GOP Protects Millionaires From Being Taxed Like Commoners

Today is Tax Day when Americans pay their share to support our country. Of course, some of the wealthiest Americans are not paying their fair share and the Senate Republicans voted last night to make sure that continues to be the case.

Statement by President Barack Obama

Tonight, Senate Republicans voted to block the Buffett Rule, choosing once again to protect tax breaks for the wealthiest few Americans at the expense of the middle class.

The Buffett Rule is common sense. At a time when we have significant deficits to close and serious investments to make to strengthen our economy, we simply cannot afford to keep spending money on tax cuts that the wealthiest Americans don’t need and didn’t ask for.  But it’s also about basic fairness – it’s just plain wrong that millions of middle-class Americans pay a higher share of their income in taxes than some millionaires and billionaires.  America prospers when we’re all in it together and everyone has the opportunity to succeed.

One of the fundamental challenges of our time is building an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same rules.  And I will continue to push Congress to take steps to not only restore economic security for the middle class and those trying to reach the middle class, but also to create an economy that’s built to last.

Why The Secrecy With Romney’s Taxes?

It is a long-standing tradition for Presidential candidates to make their income tax return history public. To the right is Franklin D. Roosevelt’s tax return for 1913, the first year the United States assessed an income tax having passed the 16th amendment, two decade before he become President. This tradition is important since it gives the public the transparency it needs to understand possible conflicts of interest their chief executive might have.

Gov. Mitt Romney (R-MA) has resisted calls to do so, but even his supporters have urged him to reconsider. Gov. Chris Christie (R-NJ) spoke on Morning Joe this morning:  

“I’ve released all of my tax returns…and I released them every year after I filed them, right after I filed them, to the public of New Jersey so they can see everything. And I think that’s the right way to go and that’s what I would tell Gov. Romney to do.”

Mitt Romney may not have a job right now (as he famously pointed out to a group of unemployed Floridians, but he does have plenty of income from his stake in Bain Capital and his other investments amounting to $190 million to $250 million. The politically embarrassing thing is that his investment income is only taxed at 15% while the tax rate for wages goes up to 35%.

“It’s probably closer to the 15 percent rate than anything. My income comes overwhelmingly from some investments made in the past, rather than ordinary income or earned annual income.” – Mitt  Romney

In addition, having no “earned income” the millionaire Romney probably pays no Social Security and Medicare payroll tax whatsoever while “Joe Schmoe” probably pays an additional 15% if he is self-employed or 7.5% if he is employed with his employer making up the difference.

Warren Buffett recently deplored how unfair our tax system is when millionaires pay a lower tax rate than ordinary Americans. A Spectrem Group survey shows that 68% of millionaires agree. Being the poster child for the inequity in our tax system is certain a political liability for Romney. Speaker Newt Gingrich (R-GA) has proposed a flat 15% tax, but Romney’s tax plan maintains the current disparity against earned income and in favor passive investment income.

At Monday’s Debate, Romney was pressed on this tax issue. He still would not commit but suggested that he might release his 2011 tax return once he becomes the Republican nominee.

Kelly Evans (Wall Street Journal economics correspondent): Governor Romney, Speaker Gingrich, Senator Santorum — and now vocally tonight Governor Perry — are calling for you to release your tax records. The Obama campaign is asking for the same thing. Governor, will you release your income tax records?

Mitt Romney: You know, I looked at what has been done in campaigns in the past with Senator McCain and President George W. Bush and others. They have tended to release tax records in April or tax season. I hadn’t planned on releasing tax records because the law requires us to release all of our assets, all the things we own. That I have already released. It’s a pretty full disclosure. But, you know, if that’s been the tradition and I’m not opposed to doing that, time will tell. But I anticipate that most likely I am going to get asked to do that around the April time period and I’ll keep that open.

Evans: Governor, you will plan then to release your income tax records around April?

Romney: I think I’ve heard enough from folks saying, look, let’s see your tax records. I have nothing in them that suggests there’s any problem and I’m happy to do so. I sort of feel like we are showing a lot of exposure at this point. And if I become our nominee, and what’s happened in history is people have released them in about April of the coming year and that’s probably what I would do.

Why not release them immediately?

Why not release the entire record and not just the upcoming return which is due in April?

Mitt Romney’s father Gov. George Romney (R-MI) ran against Richard Nixon for the Republican Nomination in 1968. He released a full 12 years of income tax records almost a year before the election. Why doesn’t his son do the same?

Does Romney fear that there is something in his tax return which would jeopardize his chances in the Republican primary? Is that why he wants to wait until his victory is fait accompli?

Is Romney, concerned with anti-Mormon bigotry, worried that detailed records of his tithing to the Church of Jesus Christ of Latter-day Saints might derail his campaign?

According to Sam Younman of Reuters,

Tax analysts say Romney may have good reason to be reluctant to release his returns.
His vast fortune is invested in dozens of funds linked to Bain Capital LLC, the powerhouse private equity firm he co-founded and led for 15 years. Several Bain funds have offshore connections and take advantage of tax breaks used only by the U.S. financial elite.

His tax returns could shed light on how Romney and Bain use offshore strategies to avoid taxes, said Daniel Berman, a former U.S. Treasury deputy international tax counsel and now director of tax at Boston University’s graduate tax program. Bain funds in which Romney is invested are scattered from Delaware to the Cayman Islands and Bermuda, Ireland and Hong Kong, according to a Reuters analysis of securities filings.

With these tax shelters in place is his tax rate really even 15%? Accordingly, John Marshall suggests the Romney is working on unwinding some of these tax shelters for his 2011 Tax Return so that his tax rate will not be so embarrassingly low.

Time’s Adam Sorensen believes this the “the perfect campaign issue” for Democrats:

It lies at the intersection of the personal, professional and political identities they plan to foist on Romney in the general election: the privilege they hope will make it hard for voters to relate to Romney, the erstwhile career in private equity that they hop will taint him as a economic predator rather than a turnaround artist, and the regressive tax policies they hope can drive a wedge between the Republican party and the middle class.

Chris Clizza at the Washington Post’s The Fix contrasts Romney and Obama:

The political problem for Romney in all of this is not that he’s wealthy. (President Obama is quite wealthy in his own right thanks to the success of his books.) It’s that the way Romney talks about money can make him seem drastically out of touch with average people — an issue that is exacerbated by the fact that he is running for president in a time of incredible economic hardship… Being rich isn’t the problem. Being unaware that lots and lots of other people aren’t (and what that means in real terms) is.

Video comparing the tax cut of the top 1% to the total income of the bottom 99% after the jump.

Birth Tax vs. Death Tax: Borrowing Money to Create More Paris Hiltons

Ten years ago, Bush and the Republican Congress set out to reduce or eliminate the estate tax which they derided as the “death tax.” However, is it fairer to tax people who are dead and can no longer make use of their wealth, than to increase the national debt which will be the legacy we are leaving our children and their children. Perhaps it would be fair to call the Republican proposal “a birth tax” since future generations will be born saddled with an increasing share of the national debt in order to fund lavish inheritances for multi-millionaire heirs and heiresses like Paris Hilton.

The Republicans wanted to completely eliminate the tax, but they could not resolve the budget implications involved in doing so. Instead, they employed a nice trick. They limited the budget implications by making the changes expire after a decade, but they made the changes incremental building up to this last year in which there was no estate tax whatsoever. By doing so, they hoped to set a favorable baseline for the current debate on future estate tax policy. Indeed, many people would now consider any return to the previous status quo to be a “tax hike”.

Republicans argue that taxing an estate is an example of double taxation. However, this is not true since many estates consist of appreciated assets (stock, businesses, real estate) which have never been taxed, since capital gains are only taxed at the time of sale.

Republicans argue that the income tax is a disincentive to work. However, the same cannot be said of an inheritance tax. If anything, huge tax-free windfalls leave an unskilled heir or heiress without any reason to work. Winston Churchill argued that estate taxes are “a certain corrective against the development of a race of idle rich”. Indeed, according to the  research at Syracuse University, the more wealth one inherits, the more likely one is to quit the labor market.

Year Plan Initial rate Applies only to income above: Top rate Applies only to income above:
2001 Original rates 18% $675,000 55% $3,000,000
2010 Current rates 0% 0%
2011 No action by Congress 18% $675,000 55% $3,000,000
2011 Obama GOP Compromise 35% $5,000,000 35% $5,000,000
2011 Obama 2008 45% $7,000,000 45% $7,000,000
2011 McDermott plan 45% $2,000,000 55% $10,000,000
2011 Sanchez, Sanders et al plan 45% $3,500,000 65% $500,000,000

There are a number of estate tax proposals on the table including one hammered out by President Obama and the Congressional Republicans, and recently passed by the Senate. They propose a 35% flat tax on estates beyond the first $3,500,000 (or $7,000,000 for couples). This plan is likely to meet stiff resistance in the House of Representatives.

If nothing is done by the end of the year, we will return to the estate tax rates prior to the passage in 2001 of Bush’s Economic Growth and Tax Relief Reconciliation Act. At that time, the estate tax applied to single people estates over $675,000 (or couples with estates twice as large). The amount over that amount was taxed progressively higher starting at 18% and reaching 55% for the portion of the estate over $3,000,000.

Though the Republicans try to frame the tax debate as a populist issue, only the richest quarter of a percent of our nation’s families would pay any estate tax at all under the plan negotiated between Obama and the Republicans.
Those that do pay would only pay a marginal rate of 35% which is less than the pre-Bush top rate of 55%, and far less than the top marginal rate of 77% which was in effect from 1941-1976.

Even if Congress does nothing and the Bush tax cuts are allowed to expire, only 2% of estates will pay any inheritance tax whatsoever. Furthermore, this tax can be avoided in a number of ways such as leaving the excess estate to some worthy charity.

Last month Responsible Wealth gathered millionaire and multi-millionaire signers of the call who are small business owners and entrepreneurs to speak out on why they support a strong estate tax.

High-profile signers of Responsible Wealth’s “call to preserve the estate tax” include Forbes 400 members David E. Shaw, Julian Robertson, Jr., George Soros, John Sperling, and Ted Turner. All six children of David Rockefeller, the oldest Forbes 400 member, have signed too….

Microbrewery owner Dave Eiffert explained how when his parents died in 1994 and there was a federal estate tax exemption of $600,000 per person, an estate tax was due. “It was pretty hard to write a large check to the IRS, but I strongly thought it was the right thing to do, and look I still had enough money to start a business and provide jobs in my state.” The Snoqualmie Falls Brewery outside of Seattle that Eiffert co-founded in 1997 employs 20.

Another speaker, Jerry Fiddler, a venture capitalist in Oakland, Calif., who sold his software company Wind River Systems to Intel in 2009 and is clearly in estate tax territory, said: “The estate tax is the best possible way to pay back into the common good. I see it as a point of pride to pay back in.” He said that Congress should reinstate the estate tax at the 2009 levels, indexed for inflation, adding: “They should do it now and they should do it permanently.”

To find a lower tax rate imposed on the crème de la crème of society, we would have to look all the way back to the roaring twenties. This was a time when people earned their fortunes the old fashioned way, they inherited it. This was a time of the Great Gatsby and a time of speculation and excesses which led to the Great Depression.

As Justice Louis Brandeis said, “We can have concentrate wealth in the hands of a few, or we can have democracy, but we can’t have both.” Even Andrew Carnegie testified in support of the creation of an estate tax in 1916.

It seems that the Republican Party wants to “Take America Back” to an era of generations of entrenched wealth, creating a “new plutocrarcy to rival the industrial barons of America’s Gilded Age”. Unfortunately, as a misplaced gesture of “bipartisanship” Obama is willing to lead us along that road.
Estate Tax Facts

  • A table of historical estate tax rates can be found at http://jewi.sh/etax
  • The estate tax has been imposed in the United States since 1916. Small estate taxes were applied in the past: The Stamp Tax of 1797 (repealed 1802), The Revenue Act of 1862 (repealed 1872) and the War Revenue Act of 1892 (repealed 1902). These taxes were small percentage which in the later two cases varied by a factor of around 6 depending on how closely related the heirs were to the deceased. In a similar way, France’s inheritance tax depends on the relationship between the deceased and his heir. Immediately family pays a maximum 40% marginal tax rate, but siblings pay a maximum of  45%, “significant others” pay a maximum of 50%, other close relatives pay a flat rate of 55%, and distant relatives or unrelated heirs pay a flat rate of 60%.
  • Federal Estate Tax only applies to the amount over the personal exemption ($1,000,000 in 2009 and $3,500,000 in 2011 under Obama/GOP plan). This liability can sometimes be reduced by:
    • $1,000,000 in gifts given to relatives during your lifetime,
    • The part of the estate given to your spouse,
    • Part of the amount of your family business,
    • Designating a charity among the recipients of the estate.
    • The amount paid for a state estate tax.
    • Generation skipping transfers up to $1,000,000 (2009) or $3,500,000 (2011, Obama/GOP Plan)
    • Universal credit $345,800 (2009) or $1,455,800 (2011, Obama/GOP plan)

Payroll Tax Holiday Imperils Social Security

— Sharon Bender

As Congress and the White House hold increasingly contentious conversations about a package of tax cuts, B’nai B’rith International expresses its deep concern about the impact some of the proposed changes could have on the vital senior safety net, Social Security.

The White House and Congressional Republicans are working on a tax plan that could include reducing Social Security payroll taxes-which are worker Social Security contributions-for one year, undermining the steady and reliable worker contribution as a Social Security funding source. This system has worked well-experts agree Social Security is solvent until at least 2039.

“Removing a dedicated funding source for Social Security puts the future of the program in grave jeopardy,” B’nai B’rith International President Dennis W. Glick said. “Once the dedicated funding source is slashed, and people are used to lower taxes, they could easily blame Social Security for any changes. This could endanger future benefits and recreate the severe elderly poverty the system was created to address.”  

More after the jump.
The idea behind this payroll tax holiday is to stimulate the economy-people could use the extra money they bring home each paycheck to make big purchases.  

The Social Security payroll tax may be a convenient way to provide this stimulus, but jump-starting the economy has nothing to do with Social Security and will create an unacceptable risk to an essential program.

As we learn over and over, Congressional “temporary” fixes have a way of becoming permanent. And the real possibility of losing forever part of this dedicated funding is not a risk we can afford Social Security to take.

Once the tax holiday year expires, long-time opponents of Social Security could cast the return to normal payroll tax rates as a major tax hike, instead of the restoration it truly would be. This in turn could lead to unnecessary resentment of a program that millions of older Americans rely on as their only source of income. Social Security could be portrayed as a deficit-buster that we have to tame, when in reality the program does not contribute to the deficit and has nothing more to do with this rate change than being a convenient vehicle for implementing a temporary stimulus.

“Social Security does not add to the deficit, period.” B’nai B’rith Director of Aging Policy Rachel Goldberg, Ph.D., said. “We have very real deficit problems and a stalled economic recovery to tackle, but tampering with this program is not the way to address them. We cannot afford to get used to this tax rebate, and we cannot afford to let the tax holiday threaten the future of Social Security.”