What is Tobin Tax and it’s Issues?

The primary aim of Tobin tax, unlike most taxes, is not to raise revenue, but to discourage short-term speculation, particularly in the foreign exchange markets. In the currency markets, enormous amounts of money are traded daily, as traders attempt to make profits from small discrepancies between the relative values of currencies.

The primary aim of Tobin tax, unlike most taxes, is not to raise revenue, but to discourage short-term speculation, particularly in the foreign exchange markets.

In the currency markets, enormous amounts of money are traded daily, as traders attempt to make profits from small discrepancies between the relative values of currencies.

What Problem Is the Tobin Tax Trying To Solve?

With no fixed exchange rate mechanism between currencies it is up to a large number of economic entities to determine the relative values of currencies in the marketplace. In itself this is no bad thing, but short-term currency speculation where large amounts of money are shifted between currencies with different interest rates make it difficult for countries to implement monetary policy.

The Credit Crunch and the Tobin Tax

Although foreign exchange speculation was not the cause of the credit crunch, it hampers countries ability to implement economic policy.

The Tobin Tax and the G20 Summit

Sarkozy's proposal for the G20 summit extended the remit to any financial transaction - it is unlikely that he will be able to carry this proposal in that form, but the credit crunch has made some unthinkable solutions thinkable. Perhaps the Tobin Tax will be one of them, an idea whose time has come.

Small Business will Gears up to Fight Taxes

It was throbbing enough this year for states, hit hard by the effects of the economic downturn, to balance their budgets. And 2010 will only be worse.

Most of the states approved a balanced budget for the 2009 fiscal year. But many states were in the red within two months of the fiscal year’s start on July 1, by a total of about $24 billion. States face a combined budget shortfall of $350 billion in the next two fiscal years, according to the center and the Council of State Governments, which uses similar projections.

Many legislatures made cuts to programs such as healthcare and social services, and reduced support for public colleges and universities. Most of those funds will be gone next year. At the same time, the economy isn’t expected to perform the type of rapid turnaround that would, for example, drive real estate values back up. In addition, continued high unemployment rates will mean reduced income-tax receipts, more outlays for unemployment claims and additional demand for safety-net services.

"Businesses are frequently the easiest bogeyman when it comes time for legislators to look at.”Small business owners will need to be even more vigilant and organized to protect themselves when the tax man looks their way in 2010. It’s hard to believe that they would continue to come after America’s job creators during a continuing recession, but that’s what we have to expect."

Housing Crisis Leads to Loan Alteration and Tax-Exemption Surge

Although a large amount of national awareness has lately been focused on the issue of foreclosures and defaults, another huge problem that is much less well publicized is the issue of property taxes.

When the nation's housing crisis has risked the homes of millions of Americans, it also created a huge heap of unpaid bills- further risking homes to tax seizures, causing multi-million dollar shortfalls for many local governments who were already struggling to make ends meet because they rely on property taxes to pay for lots of public programs.

Treasurers and Tariff collectors in hundreds of communities across the nation are reporting that they have observed a sharp increase in the amount of delinquent businesses and homeowners coinciding with the country's increasing unemployment rate. They are bracing themselves for a higher level of delinquencies and defaults than in years past.

Authorities will do their best to set up settlement plans in the year or two after you have fallen behind or stopped paying. Usually within the first month or two, lenders will step in to protect their investment by agreeing to a loan modification or ordering a temporary freeze on payments. But in the end, if they don't get paid, the lenders or tax collectors will seize homes.

Many homeowners, however, will be adequate for legitimate property-tax reductions, and almost ten times the usual number of people is applying for them. The process doesn't necessarily require professional handling, many homeowners can do it themselves, if they feel well-prepared enough to appear before an appeals board. Those who do not feel comfortable enough should hire a property-tax consultant or an attorney, and a loan modification expert or real estate appraiser. Many of these services are available online.

Taxpayer’s Important Responsibilities

Taxpayers have always been responsible for the precision of their tax returns, which should not be new to anyone who has filed a return. But for first-time filers, or for those who have not filed in some time, there are ways to avoid possible run-ins with the IRS.

Disclosure Responsibility

Tax returns are centered on the standard of disclosure – more specifically, “full disclosure” – of income, number of dependents, credits elected (especially the Earned Income Tax Credit), filing status, and any other oral or written disclosures made that are necessary for a tax return preparer to complete the return.

Disclosure Problems

While the burden of disclosure is narrowed by working with a tax professional, willfully disregarding disclosure responsibilities can put taxpayers alone in unfamiliar territory, facing fines and imprisonment, not to mention the tax liability they faced from the start.
Income from employment or other sources generally should be informed in the period recognized. With items such as wage income reported on a Form W-2, the IRS can easily verify income and withholding levels.

The Value of Professional Help

The taxpayer is in charge for the content and accuracy of the return. With this in mind, taxpayers should consider the value of a tax professional’s skill and knowledge in income taxes. Consulting a tax professional can make taxpayers aware of potential issues that could stem from their tax situation. A little money spent consulting with a tax professional could result in a bigger refund and, just as important, a lot less stress if examined by the IRS.

Does Tax Affect SMEs Creation and Growth?

The taxation of small and medium-size enterprises (SMEs) is an important topic for policy makers, as SMEs make up the vast majority of businesses and typically account for the bulk of employment in OECD countries. The OECD has just released Tax Policy Study No. 18: “Taxation of SMEs: Key Issues and Policy Considerations”, which examines a broad range of SME tax issues, including: the possible influence of taxation on SME creation, business structure and growth; arguments for and against tax incentives for SMEs; and measures to address a relatively high tax compliance burden on SMEs.

The study considers differing income tax and social security contribution burdens of unincorporated and incorporated SMEs in detail, and analyses average statutory tax rates to investigate possible tax distortions to business creation and business structure decisions of a single owner/worker of an SME.

The study presents various arguments for and against the targeting of tax incentives at SMEs. Along with traditional market failure arguments, certain basic tax provisions, with uniform application to firms of all sizes, may result in a relatively high tax burden on SMEs, possibly creating impediments to SME creation and growth. SMEs may also face a disproportionately high tax compliance cost burden compared to larger businesses, calling for adjustments to administrative approaches and/or policy to address impediments to SMEs posed by tax compliance cost considerations. The study also provides country examples of SME tax incentives and compliance cost reduction measures.

Taxation system in the United States

Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation. United States taxation includes local government, possibly including one or more of municipal, township, district and county governments. It also includes regional entities such as school and utility, and transit districts as well as including state and federal government.

Tax distribution

As of 2007, there are about 138 million taxpayers in the United States. The Treasury Department in 2006 reported, based on Internal Revenue Service (IRS) data, the share of federal income taxes paid by taxpayers of various income levels.
Inflation and tax brackets

Most tax laws are not accurately indexed to inflation. Either they ignore inflation completely, or they are indexed to the Consumer Price Index (CPI), which some argue understates real inflation. In a progressive tax system, failure to index the brackets to inflation will eventually result in effective tax increases (if inflation is sustained), as inflation in wages will increase individual income and move individuals into higher tax brackets with higher percentage rate.

Federal income tax

Depending on individual income, the marginal tax rate ranges from zero to 35%. Income tax is also imposed on the taxable income of most corporations and again on dividends paid to stockholders, although individuals usually pay a preferential tax rate on dividends; this is sometimes referred to as double taxation.

One unique aspect of federal income tax in the United States, is that the U.S. uses citizenship in addition to residency in determining whether a person's income is subject to U.S. taxation. All U.S. citizens, including those who do not live in the United States, are subject to U.S. income tax on their worldwide income.

Tax deductions/credits

The U.S. government rewards certain behavior with tax deductions or tax credits. For example, amounts used to pay mortgage interest on a personal home may be deductible, if the taxpayer elects to itemize. Taxpayers who do not participate in an employer-sponsored pension plan may contribute up to $4,000 ($5,000 if age 50 or above) into an individual retirement account, and deduct that contribution from their gross income if they fall within certain income limits.

Methods of calculation

There are two required ways to calculate the U.S. income tax. The "regular tax" is based on the gross income minus any applicable deductions and then a marginal tax percentage is applied according to the taxpayer's income bracket.

The second way, the "Alternative Minimum Tax" (AMT) is based on the gross income, computed without regard to certain tax preference items (such as tax-exempt interest on certain private activity bonds) and with a reduced number of exemptions and deductions.

Early Tax Returns Show Numerous Recovery Refund Errors

The IRS reported that an early sampling of this year’s tax returns shows great perplexity about last year’s recovery rebate. According to the Service, about 15% of all individual tax returns filed so far contain errors involving the recovery rebate credit.

The mistakes include returns that claim the credit when the taxpayer is not permitted to it, returns that claim the wrong amount for the credit, and returns that have the amount of last year’s rebate check improperly entered on the recovery rebate credit line (line 70 of the 2008 Form 1040).

The IRS sent out about 139 million recovery rebate checks last year, as provided by the Economic Stimulus Act of 2008, P.L. 110-185. The rebate represented an advance tax credit for tax year 2008 and was available to individuals other than nonresident aliens, dependents and estates or trusts.

On their 2009 returns, taxpayers must reconcile the amount they received last year in a recovery rebate check (if any) with the amount of the credit they were actually entitled to. If the amount of the check exceeds the amount of the allowable credit, the taxpayer will not have to recognize the excess as taxable income. If the amount of the check was less than the amount of credit the taxpayer is entitled to, the taxpayer will be eligible to claim the difference on the 2008 return.

The 2008 Form 1040 instructions include a worksheet for properly figuring the amount of the credit.

Tax Crisis Looming for Self-Employed

The self-employed face a New Year tax crunch that could cost them dear. 3.5m will be hit by the usual demands from Revenue & Customs for advance tax payments based on the previous year's earnings - but these make no allowance for the economic slowdown. They can ask for these payments to be reduced to reflect lower expectations by contacting their tax office.

But if business picks up again, they will have to pay interest on the difference - at a whopping 5.5%. And this interest is not tax-deductible. This is an issue well worth flagging up for self-employed people.

Mike Warburton, tax partner at accountant Grant Thornton, said: 'In January, self-employed people are liable to pay not only what they owe from their earnings on 2007-2008, but a down payment on expected tax due in 2008-2009. A second down payment is due in July.

'The Revenue assumes they will make the same profit as they did last year, without taking account of what has since happened to the economy.'

Whiting said: 'I am not sure the Revenue exactly highlights the fact people can ask for these estimates to be reduced. You can tell them it has not been such a good year as last year.

'But if you get it wrong, you have to pay interest. And there are also penalties available to the Revenue if you really frankly were trying it on. 'I would advise people to ask for a reduction if their circumstances have changed, but do not be silly about it.'