Jul
 
2

New 1023-EZ Form Makes Applying for 501(c)(3) Tax-Exempt Status Easier; Most Charities Qualify

From IRS Newswire, an IRS e-mail service

WASHINGTON — The Internal Revenue Service today introduced a new, shorter application form to help small charities apply for 501(c)(3) tax-exempt status more easily.

“This is a common-sense approach that will help reduce lengthy processing delays for small tax-exempt groups and ultimately larger organizations as well,” said IRS Commissioner John Koskinen. “The change cuts paperwork for these charitable groups and speeds application processing so they can focus on their important work.”

The new Form 1023-EZ, available today on IRS.gov, is three pages long, compared with the standard 26-page Form 1023. Most small organizations, including as many as 70 percent of all applicants, qualify to use the new streamlined form. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible.

“Previously, all of these groups went through the same lengthy application process — regardless of size,” Koskinen said. “It didn’t matter if you were a small soccer or gardening club or a major research organization. This process created needlessly long delays for groups, which didn’t help the groups, the taxpaying public or the IRS.”

The change will allow the IRS to speed the approval process for smaller groups and free up resources to review applications from larger, more complex organizations while reducing the application backlog. Currently, the IRS has more than 60,000 501(c)(3) applications in its backlog, with many of them pending for nine months.

Following feedback this spring from the tax community and those working with charitable groups, the IRS refined the 1023-EZ proposal for today’s announcement, including revising the $50,000 gross receipts threshold down from an earlier figure of $200,000.

“We believe that many small organizations will be able to complete this form without creating major compliance risks,” Koskinen said. “Rather than using large amounts of IRS resources up front reviewing complex applications during a lengthy process, we believe the streamlined form will allow us to devote more compliance activity on the back end to ensure groups are actually doing the charitable work they apply to do.”

The new EZ form must be filed online. The instructions include an eligibility checklist that organizations must complete before filing the form.

The Form 1023-EZ must be filed using pay.gov, and a $400 user fee is due at the time the form is submitted. Further details on the new Form 1023-EZ application process can be found in Revenue Procedure 2014-40, posted today on IRS.gov.

There are more than a million 501(c)(3) organizations recognized by the IRS.

Jun
 
27

Economists brush off dire GDP: ‘This is a blip’

Originally Published in The Hill

Economists and financial experts are bullish on the economy despite the stunning drop in gross domestic product reported for the first quarter of the year.

The Commerce Department on Wednesday reported that the gross domestic product (GDP) shrank by 2.9 percent in the first three months of 2014, far worse than the 2 percent contraction that had been expected.

The GDP number was the worst for the U.S. since the first quarter of 2009, when the country was mired in a deep recession.

Experts tracking the economy closely said the dismal report is no reason to panic, and argue the recession-era number can be attributed to a number of one-off factors, including harsh winter weather, a decline in exports exacerbated by global turmoil, and an expected spike in healthcare spending that never materialized.

“It was ugly reading, but I think it was a combination of a lot of one-off negative impacts that all hit at the same time,” said Scott Anderson, chief economist for Bank of the West.

“It’s eye-catching. It’s big,” said Ben Herzon, senior economist at Macroeconomic Advisers. “But we know what it’s about, and the reasons to expect a rebound in growth going forward are still there.

“That part of the story hasn’t changed.”

Financial markets also took the bleak new data in stride. All three major indices were in positive territory by Wednesday afternoon, with little sign that traders were hunkering down for rocky economic times.

The case that the awful first quarter report was an outlier is bolstered by the relative strength of other recent economic data.

The unemployment rate has fallen to 6.3 percent, and the U.S. has added over 200,000 jobs in each of the last three months. And there has been a run of good news on the housing front, which has long been deadweight on the economy.

Reports this week showed that sales of new single-family homes rose 18.6 percent to a seasonally adjusted annual rate of 504,000 units in May, the highest rate since May 2008.

Another report said sales of existing homes rose 4.9 percent in May, the largest gain on that front since August 2011. In addition, housing confidence rose 4 points in June, another good sign for the sector.

The housing market, which was hit hard by the severe winter weather, also stumbled last fall when mortgage rates rose as the Federal Reserve determined its tapering schedule.

“Potential homebuyers are adjusting to the higher mortgage rates, builders are responding by building homes at lower price points, and mortgage credit availability is slowing improving for first-time buyers,” said Mark Zandi, chief economist at Moody’s Analytics.

If the economy were to take a fundamental turn for the worse, it could be a blow to Democrats hoping to retain control of the Senate and gain seats in the House, as the party has made economic issues a central piece of their campaign message.

The underlying optimism around the economy could help explain the relatively muted political reaction to Wednesday’s disappointing numbers. A handful of Republican lawmakers blasted the Obama administration’s economic policies after the numbers came out, but Speaker John Boehner (R-Ohio) did not mention it during a press conference with reporters.

The White House, meanwhile, sought to paint Wednesday’s report as an aberration.

Jason Furman, chairman of the president’s Council of Economic Advisers, wrote that the revisions for the first quarter of the year were the most dramatic in the roughly 30 years the government has tracked gross domestic product in that fashion. He also noted that the GDP number was “significantly below” other economic measures from that time, highlighting an increase in private-sector hours and industrial output in manufacturing from the same period.

He also noted that other economic indicators declined in the first two months of the year, only to spike back up in March, giving credence to the idea that harsh winter conditions held back the economy early in the year.

The widespread belief that the first quarter number was a one-off has only raised expectations for a strong second quarter report. Zandi forecasts a strong April-June quarter rebound that could see growth near a 4 percent annual pace. If that bears out, it would represent a nearly 7-point swing, with the economy expected to maintain a similar growth path for the rest of the year.

“We’ll see good growth in the rest of 2014. This is a blip,” said Gus Faucher, senior economist at PNC. “I do think that going forward, things are looking much better.”

Apr
 
24

IRS Workers Got $1.1 Million in Bonuses Despite Owing Back Taxes

originally posted on latimes.com on April 23, 2014

WASHINGTON — The IRS paid a total of about $1.1 million in bonuses over about two years to more than 1,100 employees who had been disciplined for failing to pay their own taxes, according to an inspector general’s report.

Those employees also received awards of more than 10,000 hours of extra time off and 69 faster-than-normal pay grade increases. They were among more than 2,800 IRS employees during that period who got performance awards within one year of disciplinary action, such as suspensions or written reprimands, the report found.

This is bad news for the Internal Revenue Service’s image, “which already has taken some very serious hits over the past couple of years,” said Pete Sepp, executive vice president of National Taxpayers Union.

The Treasury’s inspector general for tax administration noted that the performance awards did not violate the law.

But he said that “providing awards to employees who have been disciplined for failing to pay federal taxes appears to create a conflict with the IRS’ charge of ensuring the integrity of the system of tax administration.” The IRS’ contract with the National Treasury Employees Union says disciplinary action or investigations do not preclude an employee receiving a bonus or other performance award unless it would damage the integrity of the agency.

The inspector general’s report, released Tuesday, found that the more than two-thirds of IRS employees received performance awards in the 2011 and 2012 fiscal years.

The audit was done because new federal guidelines in 2011 required agencies to reduce spending on bonuses and other awards.

IRS spending on bonuses went down in 2012 compared to 2011.

In 2011, the IRS paid $91.6 million in bonuses and granted almost 520,000 hours of extra time off to a total of 70,500 of the agency’s approximately 104,400 employees, the report said. That amounted to awards for 67.5% of employees.

The following year, spending on cash bonuses dropped to $86.3 million and time off awards fell to about 490,000 hours. But the percentage of employees receiving performance awards increased. The agency gave awards to 67,870 of its 98,000 employees in 2012 — or 69.3%.

Throughout that time, many employees who had been the subject of disciplinary action received performance awards.

From Oct. 1, 2010, to the end of 2012, more than 2,800 employees who had been disciplined received more than $2.8 million in cash bonuses and more than 27,000 extra hours of time off, the report said.

Those included 1,146 employees with tax problems, the report said.

The IRS has been under fire since agency officials said last year that employees improperly targeted applications from conservative groups seeking tax-exempt status.

IRS employees disciplined for failing to pay back taxes should not be denied bonuses, but the money should be diverted to pay the penalty, said Sepp of the Taxpayers Union.

“If we’re assuming that the awards are given out on true merit … then say, ‘Sorry you owe $800 on a lien and you’ve exhausted all your appeals your reward is reduced accordingly,’ ” he said.

The inspector general, however, recommended the IRS consider a policy requiring managers to consider disciplinary actions, especially those for failure to pay taxes, before deciding on bonuses and other performance awards.

The agency issued a statement saying that it already was making changes to its bonus policy.

“The IRS takes seriously our unique role as the nation’s tax administrator. We strive to protect the integrity of the tax system, and we recognize the need for proper personnel policies,” the agency said.

The IRS said it had developed a policy linking conduct to performance awards for executives and senior-level employees.

Even without such a policy, during the previous four years “the IRS has not issued awards to any executives that were subject to a disciplinary action,” the agency said.

The IRS said it is considering a similar policy for the rest of the agency’s workforce, but that would have to be negotiated with the National Treasury Employees Union.

A spokesman for the union did not immediately respond to a request for comment.

Sepp said he had broader concerns about the large percentage of IRS employees receiving bonuses. “It just doesn’t’ seem in tune with the reality of any workforce, public or private, that more than half of them would get some kind of merit-based award,” he said.

Apr
 
22

IRS Doing More Audits of Large Partnerships

Originally Published in ACCOUNTINGTODAY.COM

As the number of large partnerships involving 100 or more direct partners continues to grow, the Internal Revenue Service is taking a closer look at them, according to a new government report.

The report, from the Government Accountability Office, acknowledged that there is no statutory, IRS or industry-accepted definition of a “large partnership.” However, the GAO used a combination of criteria for partner size and asset size used by IRS to define large partnerships as those that reported having 100 or more direct partners and $100 million or more in assets. Due to the growth of large partnerships and the limited publicly-available data on them, the GAO was asked to provide information on the number and characteristics of large partnerships and on those large partnership returns that have been subject to an IRS audit.

The GAO report found that the number of large partnerships increased from 720 in tax year 2002 to 2,226 in tax year 2011. Large partnerships also increased in terms of the average number of direct partners and average asset size.

The IRS had data on two categories of large partnership return audits. First, the number of completed field audits of large partnership returns increased from 11 in fiscal year 2007 to 31 in fiscal year 2013. Second, IRS counted audits closed through its campus function, which increased from 42 to 143 over the same period. “Unlike field audits, campus function audits generally do not entail a review of the books and records of the large partnership return but rather were opened to pass through large partnership return audit adjustments to the related partners’ returns,” the GAO noted.

The percentage of IRS audits that resulted in no change to the taxpayer’s return varied from fiscal year 2007 to 2013 but was 52 percent for campus function audits and 45 percent for field audits in fiscal year 2013, according to the GAO.

Senate Finance Committee Chairman Ron Wyden, D-Ore., took note of the findings in the report and said it could play a role in the tax reform efforts. “This is a real problem and serves as yet another example of why Congress needs to get serious about comprehensive, bipartisan tax reform,” he said in a statement. “This includes looking at the growth of large partnerships and working with the proper parties—including the IRS—to put in place a smart framework for auditing and governance. By rebuilding our tax fundamentals, rather than jumping from one fire drill to the next, Congress can better ensure that we have a fair code and enforcement system in place.”

However, the IRS may be constrained in its audit efforts by budget constraints. IRS commissioner John Koskinen said recently that the audit rate for individual tax returns last year was at its lowest rate since 2005, due to budget cuts in recent years, and he expects it to decline further this year (see IRS Audit Rate Hits New Low).

Wyden, along with Senators Carl Levin, D-Mich., and John McCain, R-Ariz., pointed out that the GAO’s preliminary report shows that the IRS is failing to audit 99 percent of the tax returns filed by large partnerships with assets exceeding $100 million.

“The GAO report shines a needed spotlight on how the IRS is auditing large partnerships, and the news isn’t good,” said Levin, chairman of the Senate Permanent Subcommittee on Investigations. “The GAO report shows that while the number of these massive partnerships with massive assets has exploded, IRS audits haven’t kept pace.”

According to GAO, “[b]etween tax years 2002 and 2011, the number of businesses organized as partnerships (with 100 or more partners and $100 million or more in assets) increased more than 200 percent, accounting for $2.3 trillion in assets and $68.9 billion in total net income by 2011.”

Yet in 2012, for example, IRS field audits reviewed the books and records of only 0.8 percent of large partnership returns, according to the preliminary report.

“Auditing less than 1 percent of large partnership tax returns means the IRS is failing to audit the big money,” said Levin in a statement. “It means over 99 percent of the hedge funds, private equity funds, master limited partnerships and publicly traded partnerships in this country, some of which earn tens of billions each year, are audit-free. It is obvious something is wrong with the IRS audit program for large partnerships. We literally cannot afford to allow these entities to go unaudited.”

The final GAO report is expected to provide additional qualitative analysis of why the IRS has performed so few audits of large partnerships. It is expected to focus in part on the unified partnership audit procedures in the Tax Equity and Fiscal Responsibility Act (TEFRA), which some view as responsible for making large partnership audits time-consuming and expensive.

“If Congressionally-imposed red tape or budget cuts are partly responsible for the poor audit numbers, we need to find that out and change it,” Levin added.

The IRS told the Associated Press that budget cuts in recent years have led to reductions in its enforcement staff.

“Since Fiscal 2010, the IRS budget has been reduced by nearly $900 million,” the IRS said in a statement. “The IRS has about 10,000 fewer employees than in 2010, affecting our work across our taxpayer service and enforcement categories. Last year, we had 3,100 fewer people in our key enforcement positions than in 2010.”

Apr
 
15

IRS Reiterates Warning of Pervasive Telephone Scam

Sent In the IRS Newswire

WASHINGTON – As the 2014 filing season nears an end, the Internal Revenue Service today issued another strong warning for consumers to guard against sophisticated and aggressive phone scams targeting taxpayers, including recent immigrants, as reported incidents of this crime continue to rise nationwide. These scams won’t likely end with the filing season so the IRS urges everyone to remain on guard.

The IRS will always send taxpayers a written notification of any tax due via the U.S. mail. The IRS never asks for credit card, debit card or prepaid card information over the telephone. For more information or to report a scam, go to www.irs.gov and type “scam” in the search box.

People have reported a particularly aggressive phone scam in the last several months. Immigrants are frequently targeted. Potential victims are threatened with deportation, arrest, having their utilities shut off, or having their driver’s licenses revoked. Callers are frequently insulting or hostile – apparently to scare their potential victims.

Potential victims may be told they are entitled to big refunds, or that they owe money that must be paid immediately to the IRS. When unsuccessful the first time, sometimes phone scammers call back trying a new strategy.

Other characteristics of this scam include:

• Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.

• Scammers may be able to recite the last four digits of a victim’s Social Security number.

• Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.

• Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.

• Victims hear background noise of other calls being conducted to mimic a call site.

• After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

• If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.

• If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.

• If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

The IRS encourages taxpayers to be vigilant against phone and email scams that use the IRS as a lure. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.

More information on how to report phishing scams involving the IRS is available on the genuine IRS website, IRS.gov.

You can reblog the IRS tax scam alert via Tumblr.

Mar
 
20

Tax Season Unleashes Cyberscams

Originally Posted on CNN Money

As if tax season isn’t stressful enough, cybercriminals are also out in full force, looking to unleash attacks against unsuspecting small businesses.

Cybercrooks often use current events to disguise their attacks, said Kevin Haley, director of Symantec Security Response.

In 2011, for example, the royal wedding triggered a huge spike in spamming emails. Similarly, the annual tax filing season creates a perfect storm for cyberschemes.

“Not only do criminals exploit its anxiety and fear factor, but the tax season also gives them the opportunity to generate a variety of social engineering tricks,” Haley said.

These typically take the form of (fraudulent) tax-themed messages from the IRS that are actually phishing scams and ransomware.

Related: Most dangerous cyberattacks against small businesses

Small businesses are targeted more than large firms because they’re more vulnerable and the schemes are more lucrative.

“Large companies are better protected,” said Haley. “Cybercriminals know that smaller firms are more lax with their security and probably keep more money in their bank accounts.”

Alex Watson, director of security research at Websense Security Labs, said his firm has tracked a sharp increase in tax-related cyberscams this year against businesses.

“We’re seeing about 100,000 IRS-themed email scams circulating every two weeks in the U.S.,” said Watson. “They started in late December and it’s going strong now.”

Related: Cybercrime’s easiest prey: Small business

Here are the three most dangerous cyberattacks:

Financial Trojans: This type of attack uses names of popular tax-prep programs like Turbotax. Haley said targets receive an email with an attachment disguised as an important tax document from Turbotax.

“In most cases, the attachment looks like a spreadsheet or a document file,” he said.

If you open it, it launches malware on to your computer or phone. Once it’s installed, the malware allows scammers to steal login information and bank account credentials.

Tax-themed phishing scams: Haley said these scams use HTML files that capture personal data and company information and then send it to a server controlled by the cybercrooks.

In its annual list of “Dirty Dozen” tax scams, the IRS highlighted this particular attack, which is carried out through a fraudulent email or website.

The IRS emphasized that it never uses email to request personal or financial information.

IRS-disguised ramsonware: This attack mimics a Cryptolocker threat, meaning the virus seizes control of your computer files and threatens to erase them unless you pay a ransom.

During tax season, Haley said the Cryptolocker virus is disguised in an email that purports to have important tax-related information.

“This is a particularly vicious attack,” he said. “It will not only lock your personal files but also encrypt them and hold them for ransom.”

Some businesses feel they have no choice but to pay, he said.

Want to outsmart the cybercriminals? Regularly back up important files or encrypt sensitive data, Haley said.

There are other steps small businesses can take to protect themselves from cyberscams.

Good security software is a must, said Haley, as is password protection. Just don’t use the same password everywhere! Also, be very careful about clicking on links in an email.

Finally: “Be suspicious,” Haley said. “Scammers are quite good at making emails and links look legitimate. Know that the email ‘from’ the IRS will never be from the IRS.” To top of page

Mar
 
18

What do I need to know about the Health Care Law for my 2013 Tax Return?

Originally shared via the IRS Tax Tips Mailing List

For most people, the Affordable Care Act has no effect on their 2013 federal income tax return. For example, you will not report health care coverage under the individual shared responsibility provision or claim the premium tax credit until you file your 2014 return in 2015.

However, for some people, a few provisions may affect your 2013 tax return, such as increases in the itemized medical deduction threshold, the additional Medicare tax and the net investment income tax.

Here are some additional tips:

Filing Requirement: If you do not have a tax filing requirement, you do not need to file a 2013 federal tax return to establish eligibility or qualify for financial assistance, including advance payments of the premium tax credit to purchase health insurance coverage through a Health Insurance Marketplace. Learn more at HealthCare.gov.

W-2 Reporting of Employer Coverage: The value of health care coverage reported by your employer in box 12 and identified by Code DD on your Form W-2 is not taxable. Learn more.

Information available about other tax provisions in the health care law: More information is available on IRS.gov regarding the following tax provisions: Premium Rebate for Medical Loss Ratio, Health Flexible Spending Arrangements, and Health Saving Accounts.

More Information

Find out more tax-related provisions of the health care law at IRS.gov/aca.

Find out more about the Health Insurance Marketplace at HealthCare.gov.

Feb
 
27

Taxpayers Plan to Use Tax Refunds for Necessary Expenses

Originally Published in Accounting Today

About 52 percent of Americans intend to spend their annual tax refund on necessary expenses such as loans, credit cards and other household expenses, while another 30 percent plan to put the money into savings and only 8 percent plan to invest the tax refund money, according to a new survey.

The survey, released Tuesday by the financial services firm Edward Jones, contrasts with a similar survey released Monday by TD Ameritrade, which found greater interest in investing tax refunds, at least among the investors who were polled (see Many Plan to Invest Their Tax Refunds).

The Edward Jones survey polled over 1,000 taxpayers in general. It found that the respondents between the ages of 55 and 64 are most likely to save their refund (43 percent). Respondents who are just a few years younger had a much different opinion, with only 25 percent of those between 45 and 54 years of age planning to save their tax refunds. The survey’s youngest respondents, those between the ages of 18 and 34, are most likely to spend their refund checks on “fun” things such as clothes, entertainment and restaurants (12 percent). This compares to just 5 percent of those 65 and older who would do the same.

Household income has the most influence on the decision to save, spend or invest a tax refund in 2014. Survey respondents with the lowest household income (those making less than $35,000 a year) are the most likely to spend their tax refund on necessary expenses (61 percent). This compares to just over one-third (37 percent) of those with the highest household income ($100,000 or more). The wealthiest respondents are not the most likely to invest their refunds, the survey found. Instead, those with household incomes between $50,000 and $75,000 were the most likely to invest the tax refund money.

In general, households with children are the most likely to spend their tax refunds on everyday expenses, and those with older children are even more likely. Following that point, Americans with no children are the most likely (10 percent) to spend their tax refund on something “fun,” whereas only 1 percent of those with children ages 13 to 17 are willing to splurge.

Americans living in the Northeast are the most likely to invest their tax refunds (11 percent). Those who live in the West are the most likely simply to save their tax refunds (35 percent).

Feb
 
24

Cities with highest (and lowest) taxes

Originally Published on Yahoo!

Although a little late this year, due largely to the federal government’s 17-day shutdown in 2013, tax season is here. And, according to a new report, what you owe in taxes could be largely determined by where you live.

The report, released by the Office of Revenue Analysis of the government of the District of Columbia, reviewed the estimated property, sales, auto and income taxes for a hypothetical family at various income levels in 2012 in the largest city within each state. City tax burdens vary widely. A family of three earning $75,000 in Cheyenne, Wyoming, paid just $3,475, or 4.6% of its income, in state and local taxes. In Bridgeport, Connecticut, a family of three earning $75,000 paid $16,333, or 21.8% of its income — a total that does not even include federal taxes.

ALSO READ: Ten U.S. Cities Where Violent Crime Is Soaring

Not surprisingly, tax rates influence overall tax burdens significantly. This is especially true for property taxes. Seven of the cities with the highest tax burdens also had among the 10-highest property tax rates, according to the Office of Revenue Analysis. Homeowners in Columbus, Ohio, which had the fifth-highest tax burden in the nation, paid an effective rate of $3.57 for every $100 in home value, the highest such rate in the U.S.

Lori Metcalf, fiscal analyst at the Office of Revenue Analysis, noted in an interview with 24/7 Wall St. that property taxes tended to comprise a higher share of state and local tax burdens. Because of this, “the trend that you see in the property tax should be reflected in the overall burden.”

Another tax that is often important in determining overall tax burden is the income tax. This is especially true for cities with the lowest tax burdens, seven of which are located in states that do not have an income tax. Only one of the five cities with the lowest tax burdens, Billings, Montana, is not located in a state that has no income tax.

Yet the relationship between income taxes and higher tax burdens is not as straightforward. To highlight this, Metcalf noted that higher incomes families usually live in higher-value homes. “This means that when you pay income taxes you’ll have a larger deduction because you’ll have a larger property tax based on a more expensive home and a larger mortgage interest deduction,” Metcalf explained. As a result of this deduction, homeowners’ income tax burdens are often reduced, obscuring the relationship between income taxes and overall tax burdens.

ALSO READ: America’s Fastest Growing (and Shrinking) Economies

Several factors not reviewed by the Office of Revenue Analysis, whose study focused primarily on the characteristics of tax systems, may play a role in determining tax burdens. One such potential factor is unemployment. In many cities with low tax burdens, the unemployment rate was also very low. Sioux Falls, South Dakota, and Billings, Montana, had among the lowest unemployment rates in the nation in 2012. At the other end of the spectrum, Detroit, Michigan and Providence, Rhode Island had both hefty tax burdens and high unemployment.

A number of the cities with the lowest tax burdens were located in states that are considerably less densely populated, such as Alaska, Wyoming, and South Dakota. Even some of the cities themselves are in less densely populated metro areas. Birmingham, Alabama, had one of the lowest tax burdens in the U.S. and was located in the the least densely populated metro area of any reviewed. By comparison, many of the cities with high tax burdens are located in more densely populated parts of the country, such as the Northeast.

While this falls outside the scope of the report, it is possible that the reason areas with low population density have lower tax burdens is because the cost of running these cities is less. Local governments with fewer residents can spend less on government services. As a result, the government does not have to make as much in taxes.

Several low tax burden cities were also located in states that had a relative abundance of fossil fuels, including oil, natural gas, and coal. Houston, Texas, is located in the nation’s top state for oil and natural gas production. Cheyenne is the largest city in Wyoming, which accounts for a large portion of the nation’s coal output. A 2012 study by the National Conference of State Legislators found that Alaska, Montana, and Wyoming, all of which have cities with low tax burdens, relied on taxing oil and gas activity for much of their revenue.

Based on the Office of Revenue Analysis’ report: “Tax Rates and Tax Burdens in the District of Columbia — A Nationwide Comparison,” 24/7 Wall St. reviewed the cities where a hypothetical family of three in different income brackets had the highest and the lowest combined tax burdens. To calculate tax burden, the report identified four different types of taxes: income, property, automobile, and sales. The report examined tax systems in the largest city in each state, as well as in Washington, D.C. All estimates are for the 2012 fiscal year. Median housing value and median income data used by the report to determine property value are for metro areas. When two cities were located within the same metro area, county level data was used. 24/7 Wall St. also reviewed income figures for these areas from the U.S. Census Bureau, as well as area unemployment rates as of 2012 from the Bureau of Labor Statistics.

Cities Paying the Highest Taxes:

5. Columbus, Ohio Taxes for family earning $25,000: $2,953 (17th lowest) Taxes for family earning $150,000: $22,333 (6th highest) Unemployment rate: 6.1%

A family of three earning $25,000 a year in Columbus faced only an 11.8% tax burden, lower than more than half of all cities reviewed. However, tax burdens for families with higher earnings were among the highest in the nation. This is due in large part to the city’s real estate taxes. Although the housing values in the city were not especially high, lower than the average for cities reviewed, residents faced especially high property taxes. At 3.57%, Columbus had the highest effective property tax rate of any city.

4. Baltimore, Md. Taxes for family earning $25,000: $2,950 (16th lowest) Taxes for family earning $150,000: $24,747 (4th highest) Unemployment rate: 7.2%

Baltimore area residents are fairly well-off compared with most of the country — median household income was nearly $67,000 in 2012, among the nation’s highest. Baltimore’s property tax burden is especially high. Families of three earning $150,000 paid $13,772 in property taxes in 2012. Families earning $25,000 had no income tax burden, but those earning $150,000 paid more than 5% of their income in state and local income taxes alone, the sixth-highest percentage of any city reviewed.

ALSO READ: States With the Best (and Worst) Schools

3. Milwaukee, Wisc. Taxes for family earning $25,000: $3,245 (26th highest) Taxes for family earning $150,000: $26,296 (2nd highest) Unemployment rate: 7.4%

Like a number of other cities with high tax load, Milwaukee residents faced especially high property tax burdens. The effective property tax rate in the city was 3%, higher than all but a few regions reviewed. Also driving up taxes were the especially high income tax burdens in the city. The state used a graduated income tax system, meaning tax rates are higher for families that earn more, although Milwaukee had no local income taxes.In 2013, the state reformed its tax code, lowering the highest rate as well as the number of overall tax brackets. Wisconsin Governor Scott Walker recently pushed the state assembly to cut both property taxes and and the income tax rate for the state’s lowest tax bracket.

2. Philadelphia, Pa. Taxes for family earning $25,000: $3,794 (7th highest) Taxes for family earning $150,000: $25,317 (3rd highest) Unemployment rate: 8.6%

Philadelphia’s poorer families were subject to a much higher tax burden than those in most other large cities. A family of three earning $25,000 in 2012 paid $788 in income taxes that year, more than all but one other large city. The city’s property tax burden was also considerably high for most income levels that year. A family whose earnings fell into the $100,000 tax bracket, for example, paid more than $11,806 in property taxes in 2012, second-most among large cities. After a new property tax valuation system was implemented and some residents’ tax assessments more than tripled, the city introduced a “gentrification relief program” at the end of 2013. Fuel was also heavily taxed in 2012, with gasoline costing an additional 31 cents per gallon due to state taxes, which were among the highest in the U.S.

1. Bridgeport, Conn. Taxes for family earning $25,000: $4,001 (4th highest) Taxes for family earning $150,000: $33,208 (the highest) Unemployment rate: 7.8%

No large U.S. city had a higher tax burden than Bridgeport, where a family of three earning $150,000 a year paid more than 22% of its income in state and local taxes. However, the metro area, which includes affluent Fairfield county, is wealthier than much of the U.S. and was used to calculate home values and property burdens by the Office of Revenue Analysis. More than 20% of households had an annual income of at least $200,000, more than any other metro area reviewed. The city’s high tax burden was due in large part to property taxes, as the area had both high home values and high effective property tax rates. Also propelling the city to the top of the list were Connecticut’s relatively high income tax burden of 5.2% on families earning $150,000 per year as well a high tax burden for car owners.

Click here for the full list of cities paying the highest taxes.

Cities Paying the Least in Taxes:

5. Sioux Falls, S.D. Taxes for family earning $25,000: $2,772 (10th lowest) Taxes for family earning $150,000: $9,425 (3rd lowest) Unemployment rate: 4.1%

The low tax burden in Sioux Falls is partly due to the absence of a state income tax. However, city also had low tax burdens in other categories measured. Families in the area with higher incomes had lower tax burdens than families with lower incomes. This was due to the state’s tax structure, which was criticized by the Institute on Taxation & Economic Policy, a think tank that supports a progressive tax code, for being too reliant on low-income residents. However, even Sioux Falls’ lowest income residents faced a relatively low tax burden.

4. Anchorage, Alaska Taxes for family earning $25,000: $2,366 (4th lowest) Taxes for family earning $150,000: $9,790 (4th lowest) Unemployment rate: 6.0%

Automobile tax burdens in Anchorage were consistently low across all levels of income. Like most American cities, Anchorage did not have a local gasoline tax in 2012, and the state’s gasoline tax of 8 cents per gallon that year was the lowest in the nation. The city also had no excise or personal property tax that it charged to car owners. Sales tax burdens were also considerably lower than in other large cities — families in every tax bracket paid less than $200 in sales taxes in 2012. The median income of city residents was more than $71,000 in 2012, one of the highest nationwide. Alaska, however, taxed none of this income because it is one of few states without any income tax.

ALSO READ: The 10 Most Hated Companies in America

3. Billings, MT Taxes for family earning $25,000: $2,347 (3rd lowest) Taxes for family earning $150,000: $10,668 (7th lowest) Unemployment rate: 4.4%

Billings families faced some of the lowest sales and property tax burdens in the nation. Montana did not have a general sales tax in 2012. Helping to keep property taxes low, Billings levied real estate taxes on only a small portion of a home’s value, and residents also paid a relatively low effective property tax rate. Billings had one of the nation’s lowest jobless rates as of December as well. Just 4.4% of people in the workforce were unemployed in 2012, and the State has benefitted from the nearby Bakken Shale oil boom. Montana taxes oil and gas production, which can alleviate the tax loads residents face.

2. Las Vegas, Nev. Taxes for family earning $25,000: $3,260 (24th highest) Taxes for family earning $150,000: $8,314 (2nd lowest) Unemployment rate: 11.2%

Unlike most cities with low tax burdens, Las Vegas had an exceptionally high unemployment rate of 11.2% in 2012, nearly the worst compared with other large cities. The median income was also lower than $50,000 that year, less than median incomes in most urban areas. Overall, property taxes were low in 2012. A family earning $150,000 paid slightly more than $5,000 that year in property taxes, one of the lowest amounts nationwide.

1. Cheyenne, Wyo. Taxes for family earning $25,000: $2,476 (5th lowest) Taxes for family earning $150,000: $6,307 (the lowest) Unemployment rate: 6.1%

Cheyenne had the lowest tax burden of any state in the nation, and not only because Wyoming had no state income tax. The total sales tax rate of just 6.0% in Cheyenne, which was lower than in most comparable cities, contributed to the the low sales tax burden in the city. Wyoming residents also paid just 14 cents in state taxes per gallon on gas, one of the lowest rates in the U.S. and a major reason why tax burdens on car ownership were towards the low-end. Additionally, Cheyenne’s effective property tax rate of 0.67% was among the lowest in the nation. Low tax rates on families in the city and the state may be tied to Wyoming’s energy industry. The state is the nation’s largest producer of coal, as well as a sizable producer of oil and natural gas, and taxes from these industries help the state fill its coffers.

Click here for the full list of cities paying the least in taxes.

Feb
 
15

After GOP filibuster bid, Senate votes to suspend Treasury’s borrowing limit

Originally published in the Washington Post

After a dramatic vote, the Senate cleared the critical 60-vote threshold Wednesday that allowed for passage of legislation to suspend the Treasury’s borrowing limit.

The cliffhanger vote was scheduled for 15 minutes, but it lasted an hour. It ended when Senate Minority Leader Mitch McConnell (R-Ky.) and his leadership team voted to end a potential GOP filibuster, casting votes that left them exposed to attacks from conservative opponents.

After the filibuster threat was choked off, the Senate approved the debt ceiling legislation on a party-line vote, 55 to 43, sending it on to President Obama for his signature, ensuring that the Treasury will not default on more than $17 trillion in federal debt.

Stock markets, already jittery this month, started a slow but steady drop throughout the 2 o’clock hour as the vote looked in doubt, ending the day down slightly. The votes came two weeks before the Feb. 27 deadline established by Treasury Secretary Jack Lew, after which experts warned of havoc in financial markets if Congress did not act.

Democrats were relieved at the outcome. “It was painful to watch,” Sen. Patty Murray (Wash.) said afterward.

That followed Tuesday’s vote in the Republican-controlled House, which required overwhelming Democratic support to approve the legislation.

The bill, which passed the House by a 221 to 201 vote, received the support of just 28 Republicans. In previous years, House Republicans had proved to be the greatest obstacles in striking compromise fiscal deals. So after the Tuesday vote, Senate approval was expected to be a pro forma matter.

Instead, Wednesday turned into a wild ride in the Senate. All the political unrest that has roiled the Republican Party in recent years — the establishment vs. conservative outsiders who threaten incumbent Republicans with primary challenges from the right — was on full display.

As he has for the past year, Sen. Ted Cruz (R-Tex.) placed himself at the center of the day’s action. McConnell and Majority Leader Harry M. Reid (D-Nev.) had sought to allow a simple majority – all Democrats – to approve the suspension of the debt limit until March 2015. But Cruz refused to go along, forcing more complicated procedural moves. That infuriated his Republican colleagues, because it meant that at least five GOP senators would have to vote with the Democrats to end the filibuster.

“Today was a classic victory for Washington establishment interests, and the people who lost today are the American people,” Cruz told reporters after the vote. He said he didn’t regret forcing 12 Republicans into a vote that could hurt them with conservative voters in GOP primaries.

“It should have been an easy vote,” he said. Cruz declined to say whether he supported McConnell’s continued leadership of the Republican caucus. “That is ultimately a decision . . . for the voters of Kentucky,” he said before ducking into an elevator.

McConnell is facing a difficult reelection bid. If he fends off a challenge by a conservative businessman in the Republican primary, he will confront Kentucky Secretary of State Alison Lundergan Grimes in the general election in November.

Republicans had been trying to warm up to their relatively new colleague after openly feuding with him in the fall, but Wednesday’s actions brought out Cruz’s critics again. “There was no endgame there,” said Sen. Bob Corker (R-Tenn.). “There was no stated outcome by anyone other than a clean debt ceiling. We can put the country through two weeks of turmoil, or we can get this vote done.”

The drama came at 2 p.m. as Republicans exited a closed-door lunch without a clear plan for how many would join with the 55 members of the Democratic caucus to end the filibuster, but they were determined to avoid having the vote fail and create financial uncertainty as the deadline neared.

Early in the vote, just two or three Republicans had given their support on the procedural vote. A long standoff ensued. Attention focused on Sen. Lisa Murkowski (R-Alaska), who has supported many recent compromises with Democrats but was initially unwilling to stick her neck out without a lot of support from other senior Republicans.

“I got a chance to visit with a lot of close friends,” Murkowski joked afterward, alluding to the many huddles she had on the floor with McConnell.

Murkowski lost her 2010 Republican primary to a tea party-backed challenger but then won the general election as a write-in candidate.

At that point, McConnell’s leadership team was unanimously opposed to cutting off the filibuster, but in a surprise move, the GOP leader and his top deputy, Minority Whip John Cornyn (R-Tex.), stepped up to vote yes.

Rank-and-file Republicans appreciated the tough votes by McConnell and Cornyn.

“They did what they thought was best for the party and the future of the caucus. I think people appreciate that,” said Sen. Lindsey O. Graham (R-S.C.), who is facing a collection of primary challengers this year. Graham voted to sustain the filibuster.

“They were leaders who led,” Sen. Mark Kirk (R-Ill.), who was one of the first yes votes among Republicans, told reporters.

Once the threat of a filibuster was thwarted, the 12 Republicans then flipped around and voted against final passage of the debt ceiling suspension.