Russia Imposes Flat Tax on Income, and Its Coffers Swell
By SABRINA TAVERNISE
The New York Times
NRSTA editorial comment: Rarely if ever do I interject editorial comments in a news story but in this case I feel compelled to do so. The New York Times characterization of the Russian flat income tax as "the envy of American right-wingers" is just plain goofy. Anyone with an ounce of common sense will see after reading this story that the Russian tax system is not worthy of praise. If the Russian Duma is anything like our House of Representatives the Russian tax system will soon become the 800-pound gorilla that is the U.S. tax system - hardly the envy of "right-wingers."
MOSCOW, March 19 — The American publishing billionaire Steve Forbes once trumpeted a flat-rate income tax so simple you could fill it out on a postcard. The Russian government recently took his advice about the flat tax to heart.
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But instead of a postcard, Russians are filling out 12 pages of forms.
Still, Russia is reporting stellar first results from a bold experiment, a 13 percent flat-rate income tax. The centerpiece of the government's tax reform program, it is the lowest rate in all of Europe and the envy of American right-wingers.
Personal income tax revenues jumped by 47 percent in 2001. Tax collection over all was up by half last year and, despite a small dip in February figures, the Russian Tax Ministry expects it to rise by more than that this year.
"The January figures made us happy," said Anna P. Komardina, deputy head of the individual income tax department at the ministry. "We have nothing to be sad about here."
The early success is leading economists to wonder if Russians, who rate the taxman one notch below the dentist, have leapt out of the shadows into the government's collection net. Or is the rise simply because traditional payers — oil and gas companies — are getting richer and paying more?
Either way, last year's figures are quite an improvement over those of the 1990's, when state tax authorities could not, no matter how they tried, beat taxes out of this stubborn economy. They begged. They pleaded. When all else failed, they sent in men with guns.
Finally they abandoned the old system, three different rates running as high as 35 percent, and turned to the flat income tax to offer a carrot.
In truth, it was not really that people had refused to pay. The economy, quite simply, was paralyzed. There was no cash. Companies paid one another in pigs, tires and teakettles, making taxes nearly impossible to calculate, never mind collect.
An economic explosion in 1998 solved that problem. "The cash came back," said Christof Ruehl, the World Bank's economist in Moscow.
Unlike Americans, the vast majority of Russians are not required to file an income tax return because their taxes are deducted from their wages. That makes life easy for most. For those who do not have taxes deducted, the procedure, which is not likely to impress Mr. Forbes, goes like this:
First, pick up forms from the tax inspector, since they are not available in post offices. Then read 32 pages of instructions and fill out the 12-page form. Print carefully — a misplaced mark is ground for rejection.
Next, hand deliver the forms, which are truly considered filed only after the tax inspector signs them. (Translation: forms lost in Russia's spotty mail system are your fault.) Finally, to pay, go to the state-owned savings bank Sberbank (but not during its lunch break) and fill out the same form twice. Carefully copy the 20-digit number across the top.
Exhausting? Russian accountants think so. Some carry gifts to soften surly inspectors, perfume for women and whiskey for men. Others come prepared with tranquilizers.
Svetlana, a 45-year-old accountant who takes on private clients in addition to her day job at a store that sells Italian bathroom fixtures, says she drinks a drop of Valerian, a homeopathic sedative, before making her case to the tax inspector. On a recent visit to the social security office, she was told, after waiting in line for over three hours, that she had incorrectly filled out one of her forms.
"I asked, 'Please show me how to fill it out,' " she said, on the condition her last name not be used. "They told me, 'That's not our job.' They told me to come back when I got it right."
Income tax is a small piece of the government's pie. Revenues from the tax make up about 13 percent of income, compared with more than 50 percent of all government tax revenues in the United States. The state here takes a much larger chunk in other taxes.
The other taxes are the heart of the problem. Long before employers deduct income tax from workers' wages, they must pay the government for pensions, social security and health care. As a result, businesses like to hide the true value of the wages they pay.
Take Oleg, 40, whose small Moscow company makes women's coats. He agreed to speak on the condition his last name not be used. Oleg's 36 seamstresses each earned $200 a month last year. But in tax filings, he declared that he paid them only $66.
On every dollar he pays his seamstresses, he must pay 35 cents in social taxes to the government. His conclusion? Don't tell the whole story.
"It's just not realistic," Oleg said. "Income tax comes after all the other wage taxes. They haven't changed. Why should I?"
But government policy makers are working hard to change the system. The new income tax is a sign of that to Vladislav L. Korochkin, the owner of a 450-employee company that grows and sells garden seeds.
Mr. Korochkin, 38, thinks that top officials have become more responsive to criticism. He even stated his complaints about the arduous accounting requirements of a new corporate tax to President Vladimir V. Putin at a meeting with a small-business lobby group in December.
"It hasn't gotten worse and that's pretty good," said Mr. Korochkin at his company's Moscow headquarters, where the walls are lined with brightly colored seed packets.
According to government records, more businesses are standing up to be counted. Finance Minister Aleksei L. Kudrin said recently that 400,000 new businesses were registered in the year and a half that ended last July, a rise of 11 percent.
Mr. Ruehl, the economist, advises caution. "There is no evidence that the increased tax collection is a result of people suddenly becoming happy taxpayers," he said. "The happy taxpayer is a person we have never met, which is weird because he should be very public."
Copyright 2002 The New York Times Company
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MARCH 24, 09:45 ET
Federal Workers Owe Back Taxes
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — Federal employees and retirees owe more than $2.5 billion in back taxes but actually are more conscientious taxpayers than Americans overall, the Internal Revenue Service says.
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As of October 2001, just over 2.8 percent of federal employees and retirees, or about 244,000, had balances due on past income taxes but had not agreed to an installment plan with the IRS.
For the population as a whole, that percentage was 5.2 percent. Still, IRS Commissioner Charles Rossotti says tax delinquency at any level by federal workers is cause for concern.
"If the public perceives that federal employees do not maintain the highest level of tax compliance, public confidence in government will suffer," Rossotti said in a letter to each federal agency head detailing that department's noncompliance rate.
The data, compiled by the IRS annually since 1993 and to be released next week, includes Congress, the White House, the Cabinet departments, courts and independent agencies.
In all, 381,500 federal employees or retirees out of almost 8.7 million were behind on their taxes. About 11.5 million of an estimated 177.5 million taxpayers nationwide owed $28.2 billion.
Those totals included about 2.3 million taxpayers who were paying off $8.6 billion in unpaid taxes through monthly installment agreements. About 137,000 federal employees were paying off $608.6 million that way.
It is the noncompliance rate for those who are not trying to pay off their tax bills that draws the most scrutiny.
On Capitol Hill, the House had a noncompliance rate of over 4 percent, compared with almost 3.5 percent for the Senate. These rates can include both members of Congress and their staffs, although the IRS is not permitted to disclose names of any individuals listed in the report.
The Executive Office of the President had a noncompliance rate of 3.4 percent. The Education Department and Department of Housing and Urban Development both were above 4 percent, highest among Cabinet agencies.
The Defense Department had by far the biggest outstanding tax bill at $205.6 million. In addition, more than 110,000 retired military personnel owed more than $1 billion, including those who had installment agreements to pay off their bills.
The Treasury Department, which includes the IRS, had the lowest noncompliance rate among Cabinet agencies at 1.5 percent. Even lower was the FBI had 1.4 percent, with 812 individuals owing about $3.5 million.
The rate for the CIA was not available because its total number of employees is classified, but intelligence agency did have 304 individuals who owed more than $2 million.
The National Security Agency, whose employee totals are also classified, had 450 employees owing $2.3 million.
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On the Net:
Internal Revenue Service: http://www.irs.gov
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MARCH 26, 11:26 ET
Top Tax Official Leaving in April
WASHINGTON (AP) — The top tax official in the Treasury Department, Mark Weinberger, will leave in mid-April, Secretary Paul O'Neill announced.
Weinberger, 40, the assistant secretary for tax policy, was a key player in shepherding President Bush's 10-year, $1.35 trillion tax cut through Congress last spring and in the weeks of negotiations on legislation to stimulate the economy. Last week he announced a series of measures Treasury is taking to crack down on tax shelters.
In a statement Tuesday, O'Neill said Weinberger wanted to "spend some much-needed quality time" with his wife, Nancy, and four young children. Before his Treasury appointment, Weinberger was a partner at Ernst & Young LLP, had been a member of President Clinton's Social Security Advisory Board and also worked on Capitol Hill.
There was no immediate word on a replacement, who will be appointed by the president.
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March 27, 2002
Tax Report
by Tom Herman
The Wall Street Journal
Criticism Mounts Over IRS Delays In Replying to Compromise Offers
In a report to be released soon, the General Accounting Office points to continued problems in the IRS's "offer-in-compromise" program, in which the IRS is authorized by law to compromise with people who can't afford to pay all their tax debts. Even though the IRS has added staff, "the inventory of unresolved offers and the processing times have grown," says the congressional investigative agency's report. The report also says the IRS now takes about 10 months, on average, to reach a verdict on taxpayer offers.
The IRS's "continued inability to solve these problems hurts everyone involved," says Sen. Chuck Grassley (R., Iowa), the Finance Committee's ranking Republican member. "It hurts the taxpayer who owes money and wants to settle his debts and get on with his life. It hurts all taxpayers in general, because it means tax money isn't coming into the Treasury that could be coming in." This program is "too important not to work." An IRS official says it will take years to make major progress.
IRS Commissioner Rossotti says the agency has launched initiatives designed to "reduce inventory and processing time."
VISA FINALLY JOINS three other companies letting taxpayers pay with plastic.
For the past few years, taxpayers have charged federal taxes to their MasterCard, American Express or Discover cards. Recently, Visa U.S.A. jumped into the business with a two-year pilot program. Phase one involves federal income-tax payments. Look for agreements with additional tax authorities, such as state and local governments, in coming weeks and months, says Rhonda Bentz, a Visa spokeswoman.
As of mid-March, the IRS had received more than 20,000 credit-card charges, up 13% from a year earlier. The IRS doesn't charge a fee, but private-sector companies that process payments do charge a "convenience fee." The IRS expanded its credit-card program this year to include installment-agreement payments for 1998 or later, and extension-related payments for taxpayers living outside the U.S. and Puerto Rico.
THE IRS WILL EASE a rule on gifts to charities.
The IRS is expected to announce soon a significant change in part of a rule requiring donors to get acknowledgments from charities for gifts of $250 or more. Under current law, donors who want to deduct their contributions must get acknowledgments by the date they file their return, or the return's due date including extensions, whichever comes first. A canceled check isn't enough.
The problem is that some charities have been flooded with gifts since Sept. 11 and haven't yet thanked everyone. In response, the IRS is expected to say a donor will have satisfied the requirement to deduct gifts made on Sept. 11, 2001, or later, but before Jan. 1, 2002, if the donor either has received the required acknowledgment by Oct. 15, 2002, or has evidence of a good-faith effort to obtain one. An example of a good-faith effort would be sending the charity a letter or e-mail requesting the acknowledgment.
The IRS previously has said charities may send acknowledgments by e- mail, not just snail mail.
TAX-SCAM SCRUTINY: The Senate Finance Committee plans hearings next month on tax scams, cons and other forms of evasion. The panel will focus on abuses both by individuals and businesses, says an aide to Chairman Max Baucus, a Montana Democrat.
POETIC PLEA: William J. Johnson, a certified public accountant in Tampa, Fla., writes: "When it comes to tax simplification/ I have a word for the wise./You could help all the tax preparers/If you'd make W-2 forms all the same size."
THE BIGGER THE ESTATE, the greater the chance of an IRS audit.
That message emerges from a recent IRS publication. It shows the government received 123,500 estate-tax returns during calendar-year 2000 and audited 7,707, or around 6%.
Of those estates worth less than $1 million, the IRS audited 1,623, or about 3% of the total in that group. Of those in the $1million-to-less- than-$5 million group, it audited 4,496, or about 8% of the total in that group. And it audited 1,588 of those worth $5 million or more, or around 29% of the total in that group.
The basic exclusion from estate and gift taxes rose to $1 million this year from $675,000 in 2000 and 2001.
BRIEFS: Notable and Quotable: "The Republican leadership likes to talk about pulling the tax code up by the roots," says Rep. Charles Rangel (D., N.Y.). "But, every year, they just add more fertilizer to it." ... Lone dissenter: The only Republican senator to vote against the economic-stimulus package enacted March 9 was Lincoln Chafee of Rhode Island. He is concerned about mounting budget deficits, an aide says.
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MARCH 27, 04:10 ET
States Mulling New 'Sin Taxes'
By MATTHEW DALY
Associated Press Writer
HARTFORD, Conn. (AP) — First it was cigarettes. Now it's beer, wine — even candy.
A few weeks after Connecticut lawmakers approved a 61-cent-per-pack increase in the state's cigarette tax, they are considering a plan to double taxes on alcohol and impose new taxes on sales of some sugary snacks.
And if one state lawmaker has his way, the state's 6 percent sales tax might be extended to yarn, seeds and some other "optional products."
At least nine revenue-strapped states have recently looked at "sin taxes" to help balance the budget, said Lee Dixon, a health policy analyst with the National Conference of State Legislatures. Besides Connecticut, alcohol tax increases have been proposed in Alaska, Hawaii, Kansas, Nebraska, New Mexico, Oregon, South Carolina and Tennessee, he said.
Democrats, who control the Connecticut General Assembly, say plans are preliminary as they look to close a $1 billion, two-year budget gap. But that hasn't stopped Republicans from denouncing what they call an attack on Joe Six-Pack and his Twinkie-eating siblings.
"From beer drinkers and home gardeners to grandmothers knitting baby clothes, no one is safe when the Democrats are on a taxing frenzy," said House Republican Leader Robert Ward.
"It's not a sin to eat apple pie. It's not a sin to drink alcohol in a moderate way," he said.
In Hawaii, the Senate has approved a 50 percent increase in the state liquor tax, only half the increase proposed by Gov. Ben Cayetano, while the House approved an unspecified increase in the tobacco tax.
"Alcohol doesn't help anybody, and if I could wipe out alcohol with a law I'd do it. The same thing with tobacco," Cayetano said Tuesday.
"If people want to use it, then they should pay because the cost to the state government in terms of health care, in terms of welfare and all of that is very, very large," he said.
As proposed, Connecticut's tax rate on liquor would jump from $4.50 per gallon to $9 per gallon.
The bill would also remove a sales tax exemption on candy and other sweets purchased in school cafeterias, nursing homes, hospitals and other large institutions. Those items are already taxed when bought at convenience stores, though they are considered groceries — and non- taxable — when bought at a grocery store.
Separately, a key lawmaker wants to lift sales tax exemptions on yarn purchased for non-commercial use, vegetable seeds — flower seeds are already taxed — and even health club memberships.
"These so-called sin taxes are all on optional products and can be additional revenue sources for the state," says Sen. Martin Looney, co-chairman of the Legislature's tax-writing Finance Committee.
Most of the ideas will go nowhere, said Senate President Pro Tem Kevin Sullivan, a Democrat from West Hartford. Still, he said, "There is an issue of fairness and balance. People want to talk about all options."
Connecticut Democrats said they are building on Republican Gov. John G. Rowland's call to raise the state tax on cigarettes by 61 cents per pack. The increase takes effect April 3 and will make Connecticut's $1.11 per pack tax the third-highest in the nation.
Some liquor-buyers said they think the tax increase is a good idea.
"I wouldn't go for doubling, but maybe 20 percent would be OK," said Harry Shook of West Hartford, who was buying a case of port at Rogers Fine Liquors in West Hartford.
"I don't think it should only be smokers" who pay higher taxes, Shook said. "Everybody should share it."
Sentiment at a recent public hearing was decidedly different.
A spokesman for beer brewer Anheuser-Busch said the plan would "increase a regressive and inequitable tax that hits working families the hardest."
Steve Leon, owner of Steve's Price Cutters Liquors in Wethersfield, said the plan would just encourage Connecticut residents to drive out of state to buy a case of beer. It also would discourage residents of neighboring states from coming into Connecticut to buy alcohol, Leon and other critics said.
The proposal could cost as much $500,000 in liquor revenue and eliminate as many as 2,000 jobs, said Peter Cressy, president of the Distilled Spirits Council of the United States.
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MARCH 27, 12:30 ET
NJ Budget Increases Tobacco Taxes
By JOHN P. McALPIN
Associated Press Writer
TRENTON, N.J. (AP) — New Jersey's governor has proposed higher cigarette and corporate taxes to avert a $5 billion shortfall blamed partly on the Sept. 11 attacks and the recession.
Gov. James E. McGreevey won election in November after pledging not to raise taxes. After taking office, he said his vow extended only to the sales tax and income tax.
On Tuesday, he emphasized that his $23.7 billion budget for fiscal 2003, which represents a 1.5 percent increase over current spending, did not require hikes in either.
But it included increases in taxes on tobacco products, casino services and fees for state services. It also would eliminate the deduction on taxes paid in New Jersey by Pennsylvania residents.
McGreevy said the hikes were justified because New Jersey's expected budget shortfall is "the biggest of any state in the nation, and perhaps the biggest in national history." Treasury Deparment officials said comparison of state budgets is difficult because each calculates its debt differently.
McGreevey said state revenues would grow modestly under his plan. He offered few specifics, however.
The biggest proposed increase is in taxes collected from corporations. Changes in the tax code will generate $1.9 billion, an increase of 66 percent.
"No employer can absorb millions of dollars in extra taxes without hurting the middle-class taxpayers that the governor said he wouldn't hurt," said Philip Kirschner, executive vice president of the New Jersey Business and Industry Association. "People are going to lose their jobs because of this."
McGreevey called the changes an end to loopholes in the tax structure that allowed some of the state's biggest employers to pay only $200 in state taxes a year.
The budget will keep popular tax rebates in place while increasing money for state troopers, security measures, cancer research and reading programs.
New taxes on cigarettes will collect an estimated $200 million and the state will borrow $1.1 billion from the national settlement with cigarette manufacturers.
Lawmakers must pass the budget before July 1, the start of the 2002- 2003 fiscal year.
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On the Net: http://www.state.nj.us
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MARCH 27, 13:21 ET
Make Changes Now for 2002 Taxes
By JOYCE M. ROSENBERG
AP Business Writer
NEW YORK (AP) — With income tax filing season nearing an end, you're probably glad to be done with the mental gymnastics and paperwork, and looking forward to just focusing on running your small business.
Don't be in such a rush — working on your taxes probably showed you a few things you could be doing differently. You'll be better off making those changes now, before you get sidetracked and find yourself in the same spot a year from now.
Accountants recommend that their clients sit down soon after tax time and do some financial planning, not just for the business, but for themselves. Personal finance needs, including saving for college tuition and retirement, are often ignored amid the daily demands of business.
But while many business owners have the best of intentions, something comes up and that planning never happens. "I have clients who are supposed to come back in May or June, and do some planning, but half of them cancel the appointment," said Douglas Stives, a certified public accountant with Wiss and Co. in Red Bank, N.J.
The result often is the March or April lament that begins "If only I'd ..."
The top item on many CPAs' planning checklists is setting up a retirement plan. If you meant to create one last year and didn't, you should get started right away. The sooner you and your employees, if you have any, start saving, the more money you'll make.
Jeffrey Callahan a CPA and tax attorney with Bederson & Co. in West Orange, N.J., noted that under the tax relief law enacted last year, the limits on contributions to plans including 401(k)s are increasing this year, which means you'll be able to take a bigger deduction on your 2002 return.
Putting a retirement plan together can be a complicated process because there are several different types, some requiring more paperwork and compliance with tax laws than others. You can save yourself a lot of time by consulting a financial or human resources professional.
Business planning also means looking at what your company's needs are likely to be this year and determining, among other things, if you need to make any capital expenditures. Keep in mind that small businesses generally can deduct up to $24,000 of the cost of new equipment in the year it was purchased, or they can depreciate it over several years if that works more to their advantage.
Planning isn't the only part of the business that many owners neglect because they're so intent on building the company. Many probably discovered yet again during tax season that their record-keeping leaves something to be desired.
Stives said some business owners show up in April "with a bag of junk, books that don't balance, bank statements missing ... Those are the ones that cause stress for me and themselves and end up paying way too much in accounting fees."
A business owner who runs a company well works with an accountant throughout the year. "They bring in a trial balance several times a year, and then the tax return is a slam-dunk, nothing to it," Stives said.
While 2002 is one-quarter over, it's not too late to get more organized. At the very least, investing in business management software will help you keep your company's books more efficiently.
But if you're still too busy to do the job right even with software, or if the financial side of your business really isn't your strong point, then you really need to get some outside help.
If your company is big enough, "hire the best controller that you can find," Callahan suggested. Your accountant can help you find one.
Callahn said smaller firms probably can do just fine with a bookkeeper who can handle double-entry accounting, which keeps track of all aspects of a transaction. Your accountant can also help you locate a good bookkeeper.
If you're concerned about the expense, look into part-time bookkeeping help or a bookkeeping service that will bill you by the hour. At tax time, you'll find it was worth the investment.
"At the end of the year, a bookkeeper will save so much money in fees," Callahan said.
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MARCH 28, 08:29 ET
IRS Easing Charity Documentation
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — Tax season is getting easier for people and charities involved in the outpouring of generosity that followed the Sept. 11 attacks.
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The Internal Revenue Service announced Wednesday it won't require as much immediate documentation as usual for people who made donations last fall, making it simpler for taxpayers to claim deductions and lifting a paperwork burden for hundreds of nonprofit organizations.
More than $2 billion has been contributed specifically in response to the attacks on New York and Washington, according to the Chronicle of Philanthropy. Much was donated to established groups such as the American Red Cross, but the IRS also lists 262 tax-exempt organizations that were created in the weeks after the attacks.
These less-experienced groups, tax experts say, could be having trouble getting out the paperwork a taxpayer needs to justify claiming a charitable deduction.
"More established charities are more accustomed to sending out letters automatically," said Bob D. Scharin, editor of Warren, Gorham & Lamont's Practical Tax Strategies.
Current law requires taxpayers making contributions of $250 or more to have "contemporaneous" written documentation from a charity if their tax return is challenged. A canceled check by itself isn't good enough, because cheaters could pad the amount with money used for some non- charitable purpose.
For contributions made after Sept. 11 and before the end of 2001, the rules have been relaxed for deductions that could be claimed on tax returns due April 15 in most of the country.
The IRS says taxpayers who made such donations will have until Oct. 15 to either obtain the normal written acknowledgement or show a good- faith effort to get one. Such an effort could include a letter or an e- mail sent to the charity.
Other rules remain the same. For instance, a qualified appraisal is required for any noncash contribution over $5,000, or over $10,000 for securities that are not traded publicly.
Taxpayers who traveled to New York or Washington to help a church or charitable group with recovery efforts could also qualify for deductions. Reasonable out-of-pocket food, lodging and travel expenses — including 14 cents per mile for people who drove — can be deducted, but not if the taxpayer was already reimbursed.
"It would be helpful to get a letter saying that you were not reimbursed," Scharin said.
RIA, a New York-based publisher for tax professionals, has these other tips:
- There is no deduction for the value of services rendered to a charitable cause. For example, a lawyer who provided free legal work for a charity can't deduct those as normal billable hours.
- First-class accommodations for an out-of-town charitable trip can be deducted, but only if they are reasonable given the circumstances. Court decisions have permitted such deductions for senior charity officials because staying in luxury hotels was acceptable for a person in that position.
- Wining and dining people such as potential contributors on behalf of a charity is deductible, but not the taxpayer's own food or drink.
- An asset purchased to perform volunteer duties, such as a car, cannot be deducted as long as the taxpayer retains ownership. But it is deductible if the taxpayer either donates the purchase price or the asset itself to the charity.
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On the Net:
IRS: http://www.irs.gov
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MARCH 28, 15:22 ET
Inflation May Drive up Tax Bills
By ROBERT TANNER
AP National Writer
For taxpayers in at least a half-dozen states from Alabama to Hawaii, next month's bill will likely take a bigger bite than last year's because legislators don't account for inflation when they craft tax law.
The problem is that governments in those states do not automatically increase their standard deductions along with inflation, leaving middle- and lower-income taxpayers with bills that have grown steadily for years.
"It's a built-in tax increase," said Oklahoma state Rep. Dan Webb, an accountant and Republican who has pushed for change for over a decade. "We've been basically cheating the taxpayers of Oklahoma for all these years."
Since 1982, his state's standard deductions have remained unchanged, with a top level of $2,000 for singles. Alabama ($2,000 for singles) also hasn't changed since 1982. Hawaii ($1,500 for singles) hasn't changed since 1989.
Other states in similar situations include Georgia, Louisiana and Virginia — plus the District of Columbia.
In comparison, the federal government tied its standard deductions to inflation in 1985 by a technique known as indexing, and has seen the standard deduction for singles grow from $2,390 in 1985 to $4,550 this year.
Of the 41 states that levy an income tax, nearly half increase their deductions as inflation rises. Most others adjust their deductions sporadically. The rest have allowed their standard deductions to languish.
To decrease a taxpayer's bill, tax codes provide standard deductions for single taxpayers, married couples (who can file jointly or separately) and single heads of households.
The majority of taxpayers use the standard deduction rather than itemize. In 1999, 67.5 percent of taxpayers claimed a federal standard deduction, the Internal Revenue Service estimated. In Oklahoma, 61 percent used the standard deduction for state income taxes.
Lawmakers in some states that haven't adjusted their deductions for a decade or longer are fighting to increase them now, but acknowledge tough odds in a year when nearly every state is facing budget shortfalls.
The lack of action means at least $4,000 lost over the past decade to an Alabama family of four with an income of $42,000, said Kimble Forrister, executive director of Alabama Arise, a Montgomery-based advocacy group for the poor.
His group wants to raise the state standard deductions to match the federal deductions, at an estimated cost of $300 million, which would mean a family below the poverty line wouldn't owe any income tax.
What rankles critics the most is that the inflation-driven tax liability hits taxpayers with the lowest incomes, since they are most likely to rely on standard deductions rather than itemizing deductions.
"People who are simply struggling to keep up with the cost of living will be progressively taxed at higher rates, as if they were getting richer," said Pete Sepp of the National Taxpayers Union. "It's almost as if being thrown a concrete life preserver when you're trying to keep your head above water."
Tax administrators say that focusing solely on standard deductions ignores other steps lawmakers may take to ease the financial burdens of the tax system.
"From a policy impact, you need to consider other factors," said Harley Duncan, executive director of the Federation of Tax Administrators. "They may not be making an adjustment on deductions, but are you lowering property taxes? Or adjusting sales taxes?"
Georgia, for instance, while failing to adjust its standard deductions since 1987, has just increased its personal exemption — a different category of deduction that decreases a person's tax liabilities.
Several other states that haven't changed deductions for singles have increased them for married couples, as in Kansas, Mississippi and North Carolina. Oregon increased the standard deduction for married couples, but also raised the tax burden for singles — and will begin indexing in 2003.
Also, the relatively slow rate of inflation in recent years means a less flagrant increase in tax liability compared to the double-digit inflation of the early 1980s, Duncan said. Back then, public pressure drove Congress to begin indexing for inflation.
Neither low inflation nor budget shortfalls are reason to let the current situation continue, said Webb in Oklahoma.
"This is one case where even the IRS is doing better than the Oklahoma legislature," he said. "Isn't that terrible?"
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On the Net:
Center on Budget and Policy Priorities: http://www.cbpp.org
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MARCH 28, 18:31 ET
Judge OKS IRS Visa Record Summons
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — The IRS reasonably suspects people are evading taxes by using Visa cards issued by foreign banks, a federal judge found in approving a summons for revenue agents to obtain Visa records from 30 offshore tax havens.
The Internal Revenue Service wants to examine records from Dec. 31, 1999, through Dec. 31, 2001, for Visa International credit and debit cards issued by banks or other financial institutions in Switzerland, the Cayman Islands, Bermuda, Hong Kong, Liechtenstein, Malta, Panama and more than two dozen other jurisdictions.
U.S. District Judge Phyllis Hamilton of San Francisco, in a ruling late Wednesday, agreed that the IRS had demonstrated "there is a reasonable basis for believing" many of these cardholders were not complying with U.S. tax laws. She granted the agency's request for a summons to obtain the Visa records.
The government estimates that 2 million U.S. citizens may hold cards from offshore banks. While the cards are not illegal, bank secrecy laws in tax-haven countries frequently enable people to hide large incomes — and escape U.S. income taxes — while using their plastic to live lavishly.
Rather than trying to crack those secrecy laws, the IRS began in 2000 using "John Doe" summons to obtain records directly from the card companies. The information is then used to target people for audits and prosecution for tax evasion.
The IRS already has obtained 1.7 million offshore transaction records from MasterCard International Ltd. Earlier this week, American Express Co. agreed to release similar records. Both of those cases, however, involve far fewer tax haven countries than the Visa summons.
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On the Net:
IRS: http://www.irs.gov
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MARCH 28, 19:16 ET
Taxes Inflation Glance
By The Associated Press
States where the standard tax deductions have remain unchanged for more than a decade.
Alabama: $2,000 maximum standard deduction for singles; $4,000 for married couples filing jointly. Unchanged since 1982.
District of Columbia: $2,000 for singles; $2,000 for married filing jointly. Unchanged since 1987.
Georgia: $2,300 for singles; $3,000 for married filing jointly. Unchanged since 1987.
Hawaii: $1,500 for singles; $1,900 for married filing jointly. Unchanged since 1989.
Louisiana: $4,500 for singles; $4,500 for married filing jointly. Unchanged since 1983.
Oklahoma: $2,000 maximum for singles; $2,000 maximum for married filing jointly. Unchanged since 1982.
Virginia: $3,000 for singles; $5,000 for married filing jointly. Unchanged since 1989.
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Sources: Wisconsin Legislative Fiscal Bureau, state revenue departments.
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MARCH 29, 09:54 ET
Tokyo Gov't Appeals Tax Ruling
TOKYO (AP) — The Tokyo government appealed a lower court ruling that a local tax on banks operating in the capital was unfair, a court official said.
The appeal was filed with the Tokyo High Court on Friday, said Tetsuro Yoshitomi, an official in the Tokyo government's tax bureau.
The action comes three days after the Tokyo District Court accepted the banks' claim that it was illegal to single out any given industry for higher taxation.
In the ruling, the city government was ordered to refund about 74 billion yen ($556 million), which included compensation awarded to the banks and taxes the banks had paid.
Though 21 banks originally sued, some have since merged so the decision affected 18 banks.
The levy, implemented on April 1, 2000, placed a 3 percent tax on profits at banks with assets of more than 5 trillion yen ($38 billion) that do business here.
Tokyo Gov. Shintaro Ishihara has said the tax was needed to bolster the capital's deficit-plagued finances.
The banks, the national government and regulators claimed the tax would harm major lenders already burdened with bad debt left over from the collapse of a speculative asset bubble in the late 1990s.
The government estimates there are 43 trillion yen ($323 billion) in bad loans in Japan's banking system. Private analysts say the figure is likely much higher.
The problem loans have been blamed for thwarting Japan's efforts to haul its economy from a decade-long slump.
In 1999, the national government injected billions of dollars into the banks to write off non-performing loans, losses from which exempted many of the companies from taxes.
A similar bank tax is levied in Osaka, Japan's second-largest city in western Japan.
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