With help from Aaron Lorenzo
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— A new GAO report detailing the size of executive retirement plans has sparked new legislation from Sen. Bernie Sanders (I-Vt.).
— The House is set to vote on anti-vaping legislation today, with the newest version raising significantly less revenue than a bill that passed the Ways and Means Committee last year.
— Position filled: It took awhile, but Treasury Secretary Steven Mnuchin chose a veteran of both the private and public sector to take over as National Taxpayer Advocate.
THANKS FOR CLICKING ON this week-ending version of Morning Tax, where we’re wondering whether Steven Seagal is under siege for his cryptocurrency habits. Or does he think he’s above the law? Is the SEC out for justice? Or making an executive decision?
D’oh! What’s a dord? Today marks 81 years since an editor noticed that the word “dord” in the Webster’s New International Dictionary didn’t have an etymology, leading to its eventual deletion from the dictionary. What had happened? An editor had written “D or d,” in suggesting an abbreviation for density, and the word stuck in print for years.
Set us straight, with great tips and feedback.
POT OF GOLD? This was a bit of low-hanging fruit for Sanders, one of the top candidates for the Democratic nomination — the GAO found that, just at some 400 or so big companies, retirement plans that allow executives to defer pay and taxes had around $13 billion worth of assets in 2017.
Sanders called that setup “outrageous,” comparing the generous treatment that executives get on sometimes millions of dollars to the more meager tax deferment an average worker gets on their IRA, as The Wall Street Journal reported.
Compared to other parts of Sanders’ platform, this particular proposal — which would turn the deferred compensation in those plans into taxable income when it vests, rather than when it’s distributed — is rather modest, raising some $15 billion. A very similar idea was also initially included in the 2017 GOP tax law, H.R. 1 (115), before being dropped after protests from the business community.
A bit more from the GAO: The report also found that the required company filings on what’s in their executive retirement plans may lack sufficient detail. On top of that, IRS auditors don’t have good enough instructions in the agency’s examination manual to ferret out any missing information — offering another example of criticism that IRS audits spare the rich too much. “To the extent some companies are failing to report this income, they may continue to do so at the cost of foregone federal tax revenues while lacking an important incentive from IRS to cease this practice,” the GAO report said.
LET’S TALK VAPING: There’s a lot going on with that House vaping bill, but this is interesting from a narrow tax perspective — the Joint Committee on Taxation projects that H.R. 2339 (116) will raise a bit under $5 billion over a decade.
That’s far from nothing, but it’s also significantly less than the almost $10 billion that JCT estimated would come from the standalone vaping tax measure, H.R. 4742 (116), from Reps. Tom Suozzi (D-N.Y.) and Pete King (R-N.Y.) that Ways and Means passed in October.
The bill the House is set to vote on today also incorporates the measure already passed by Ways and Means, which taxes nicotine from vaping at the same rate as nicotine from cigarettes. So what exactly happened here? For starters, the merged measure also bans menthol cigarettes, which reduces the amount of revenue the bill would raise.
But JCT now also projects that taxing vaping the same as cigarettes will also raise less revenue than originally expected — just under $8 billion over a decade. That’s in part because of new regulatory changes included in the bigger bill and changes in state regulations, which JCT thinks might decrease demand for vaping products, as someone familiar with the scoring process noted.
In any event, the anti-vaping measure has sparked a spirited family debate among House Democrats, as our congressional team notes — in large part, over concerns that the menthol ban could lead to overpolicing of black communities.
WELCOME ABOARD: Erin Collins, Mnuchin’s choice for the IRS’s in-house watchdog, has been a tax attorney at KPMG for the last two decades, before which she spent 15 years in the IRS chief counsel’s office, as Pro Tax’s Aaron Lorenzo reports.
Collins also comes aboard after the taxpayer advocate has been waiting for a permanent head for awhile — Nina Olson, the previous watchdog, stepped down at the end of last July. Interestingly enough, Collins also took some criticism from people on both the right and the left on Thursday, before she’s even spent one day on the job.
Or at the very least, informed observers laid out some reasons for skepticism: For instance, Sen. Ron Wyden of Oregon, the top Democrat on the Finance Committee, noted Collins’ extensive experience at a Big Four accounting firm. “So I’d particularly like to discuss her priorities for improving IRS customer service for working folks,” Wyden said in a statement.
And Andrew Moylan of the conservative National Taxpayers Union found the choice of a former IRS veteran “uninspired,” arguing that “what is a Trump presidency for if it’s not for ignoring political conventions to appoint an outsider that would shake up a tired agency?”
TAX REFUND UPDATE: The number of tax refunds that the IRS issued early in the filing season dropped a bit from last year, as Forbes noted — and, it should be noted, the agency has only released statistics through Feb. 7.
On a related note, the Consumer Financial Protection Bureau is using the filing season to try and prompt taxpayers to use refunds to bolster their savings. “Tax time is a great opportunity to take that first important step of building your savings. Increased savings can enhance a consumer’s financial well being,” said a CFPB spokesperson.
DID WE SAY 5 PERCENT? The Czech Republic might look to scale back its digital tax proposal, which would be the broadest in all of Europe, Bloomberg reports. Prague’s current proposal would place a 7 percent tax on local digital revenue on companies like Google, Apple, Facebook and Amazon, a level that the U.S. ambassador to the country called “extraordinarily high” while also stressing that America believes those kinds of levies are discriminatory. Now, Finance Minister Alena Schillerova says the Czech Republic is considering a 5 percent tax rate. The Czech parliament is expected to pick up its debate over a digital tax next month, which is also when Austria, Italy and Turkey could put their taxes into law.
IT’S A MINIMUM TAX: Massachusetts lawmakers are seeking to update the state’s corporate tax structure to funnel more money toward transportation, as MassLive reported. Perhaps not surprisingly, the state’s business community is cool to that idea, but top Democrats say it’s time to increase a tax that’s been untouched for around three decades. The new proposal would create a system with nine tiers based on a company’s annual sales, with the lowest bracket covering all businesses bringing in less than $1 million, ranging all the way to a top tier focusing on businesses with at least $1 billion in sales. (Companies in the lowest tier would owe $456, while those in the top bracket would have to cough up $150,000.) Democrats say it’s high time that businesses contribute more to the state transit system, and believe the proposal could raise some $150 million a year. But business groups say it’d be unfair to tax companies on sales instead of profits, among other complaints.
Could Sanders’ tax-and-spend agenda be his biggest general election weakness?
Rep. Kevin Brady (R-Texas) tries to throw the brakes on talks of indexing the gas tax to inflation.
Education Secretary Betsy DeVos is plugging her tax credit scholarship proposal with conservatives, as Democrats continue to be skeptical.
DID YOU KNOW
Phil Collins performed in both London and Philadelphia during Live Aid, a one-day concert held at both sites in 1985.
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