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Monday, August 23, 2010

A Deduction in Every Pot

In my last edition, I promised (I got to quit promising) to send along some examples of how our elected government makes sure that every possible constituency is covered in any law or code. Of course this is a well practiced but cheap political trick used by all politicians to stay in office. Little did I know that the web is replete with all sorts of goofy examples of how businesses of all kinds are awarded deductions, subsidies, exclusions, etc. all in the name of saving them tax money and thus decreasing the nation's revenues. Hey, it has been goofy-hard to show you this information without going into Woody Woodpecker hysterics or without breaking down and just sobbing at the absolute stupidity of what goes on in the name of law-making.

I think I will start with my theme of actual taxes versus statutory (tax charts) taxes. Giant corporations and republicans would have you and me believe that our country is in ruin because we over-tax companies. However, more than one source indicates that this is far from the truth. Some estimate that the actual tax rate on corporations is half the 35 percent statutory rate, that many pay no taxes at all, and that corporations are constantly scheming and lobbying to find better ways to accumulate deductions and avoid taxes. In 1986 that great republican, R. Reagan signed The Tax Reform Act of 1986 and eliminated billions of dollars worth of loopholes and deductions to corporations. Then the Bush tax cuts and other silly laws allowed hoggish corporate America especially Big Oil and Big Bank to once again avoid taxes and to rake in unprecedented profits. Despite continual republican rantings about businesses being over-taxed, Bush II’s treasury department found that when our corporate tax rate is studied as a percentage of Gross Domestic Product we have the second lowest tax rate of all industrialized nations. Of course, republicans hope that you and I will not read their own information.

Companies involved in the recent tragedy in the Gulf illustrates how corporations can benefit from a specialized loophole: Transocean, LLC owns the rig that blew up, causing a pipe to rupture, and an oil leak to begin. Transocean was a Houston-based company that later incorporated in Delaware, then moved its accounting bases to Cayman Islands then to Switzerland thus lowering its corporate tax rate by 15 percent. Additionally, BP, by taking advantage of loopholes and beneficial depreciation allowances, was able to deduct 50 percent of the lease cost from Transocean or about 250 thousand a day since the rig was set up. OK, I know that some of you are thinking that these tax cut/benefits are good for the country because the money saved by the oil-corporations goes into more exploration and production, an argument consistent among no-government/no-tax conservatives. Actually, the largest oil companies spend less than 10 percent in exploration choosing instead to direct profits into dividends and corporate salaries, stock options, and benefits. The Big Five (BF)oil companies redirected 80 percent of its profits in 2009 into stock repurchase and into dividends thus driving up the price per share of stock thus making corporate executives even richer than they were. This of course is way cool if you are a CEO or a stock holder at or in one of the BF, but if you are a tax payer, you got screwed because you paid your share in taxes; those slick old oil boys did not. And these couple of examples are, as you might have guessed, simply a smattering of all the benefits oil gets (oh, btw, did u c where oil cos are classified as manufacturers and get a “manufacturers’ deduction, omg, congress is oil’s bffs) And do not believe for a second that beneficiaries of tax breaks reinvest in Merica- it ain’t happening, the investing is in plants and in companies far from here.

So that you do not think me obsessed with Big Oil consider the following deductions that small businessmen may enjoy: "It's always good to employ your kids," says Carter. Depending upon how much you paid them, they might be able to avoid income taxes. Plus, there is no Social Security tax when you hire your child who is 17 or younger and you can deduct the salary as a business expense. This break is available, however, only if you operate as a sole proprietor or as a partnership in which you and your spouse are the only partners. If your business runs as a corporation, then it, not you, are considered the employer and the corporation is not relieved of the tax liabilities. Make the money go even further. Have your child contribute to a Roth IRA, says Carter. Not only have you gotten a nice tax deduction from the salary and trained your youngster to save, you've also help establish a nest egg for his or her future. And, Self-employed and paying your own health insurance premiums? These costs are 100 percent deductible. This break primarily benefits proprietorships, but there are limits. The deduction can't be more than your business' net profit. And it's not allowed if you were eligible for other health care coverage, including that offered by your employed spouse's medical plan. Did your spouse work for you last year? Then, says Carter says, you can get the full medical premiums deduction on your return. As an employee, your spouse's premiums are 100 percent deductible; if you and the children were on her policy as dependents, so are those costs.

About five years ago Folks in the know (lobbyist and politicians) got concerned about the benefits set up by the Bush II administration for corporations who had moved their operations overseas yet got additional tax breaks for doing just that. Thus H.R.4520 Title: American Jobs Creation Act of 2004 was created and became law. I think the idea was to curb the tax benefits and to close the loopholes. Here are some samples of sections listed in the summary of the bill: (Sec. 102) Allows a tax deduction of nine percent of the lesser of a taxpayer's qualified production activities income or taxable income for the taxable year, beginning in 2010. Phases in the deduction at the rate of three percent in 2005 and 2006 and six percent for 2007, 2008, and 2009. Limits the amount of the deduction to 50 percent of W-2 wages (reportable gross employee wages) paid in a taxable year; Extends through 2010 the tax credit for alcohol used as fuel. ; Sec. 318) Allows rural letter carriers a miscellaneous tax deduction (subject to the two percent threshold) for their actual employment-related expenses in excess of their employer's reimbursement.; (Sec. 332) Increases the draw weight for a taxable bow from ten to 30 pounds or more for purposes of the 11 percent excise tax on bows and arrows. Reduces to 11 percent the excise tax on archery equipment, including quivers or broadheads. Imposes an excise tax of 12 percent on arrows.; (Sec. 341) Allows a business tax credit for producing oil and gas from marginal wells and on and on and on.

Damn, I should have dug through that bill way back as I might have gotten a decent deduction for smoking cheap cigars, using a Dell computer, stringing a bow, or clipping my dog. Maybe I should be a non-profit oil company and drill a non-productive well in my basement and get paid for its not producing. What a life! What a country! And if you have skimmed through this and still think health care reform or financial reform were anything but grand illusions or are still yakking about how damaging they were to Merica get over it, you are deluded.


http://www.reclaimdemocracy.org/corporate_welfare/real_tax_rates_plummet.php
http://www.taxpolicycenter.org/briefing-book/key-elements/business/statutory.cfm
http://blog.usw.org/tag/corporate-tax-rate/
http://ctj.org/pdf/energy20100709.pdf
http://www.bankrate.com/finance/money-guides/a-dozen-deductions-for-your-small-business-3.aspx
http://mediamatters.org/research/200902030003

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