IMF urges double tax hit on banks to refund taxpayers

Banks should be slapped with two unprecedented taxes in order to compensate taxpayers for the billions of pounds lost in the financial crisis, the International Monetary Fund has recommended.
In a report delivered to G20 nations on Tuesday, but yet to be published, the Fund has urged countries around the world to impose two new taxes on financial institutions: a "financial stability contribution" which levies a small charge on their balance sheets, and a "financial activities tax", which taxes excess profits, including bonuses.
The recommendations are likely to strike fear into a banking sector reeling from the US Securities and Exchange Commission's fraud charges against Goldman Sachs.
If imposed by G20 governments, the Fund's proposals are likely to have a significant impact on the profitability of all financial institutions.
The IMF report recommended that the proceeds of the taxes should go towards both a fund to be used to repair the economic damage wrought by this and future financial crises, and towards general government revenues.
However, it did not rule out calls from various charities to put some of the cash towards development and environmental projects.
In what may be construed as a blow to the Conservatives, who have pledged to push on with a banking tax unilaterally if necessary, the Fund said that the tax ought to be imposed by as many countries as possible. However, the recommendations are likely to be seized upon by all the major parties, making their imposition extremely likely, according to insiders.
The Fund's report rules out a financial transactions tax – something marketed by campaigners as a Robin Hood Tax – as impracticable, and likely to cause economic damage by distorting flows of capital around the world. Its recommendation of a levy on balance sheets is not a surprise, although the imposition of this tax across the entire financial system rather than just banks, is more unexpected.
Few within the banking sector had anticipated that the Fund would suggest a second tax on financial activity – as revealed by Telegraph.co.uk earlier this month. However, the Fund said that a Financial Activities Tax, which is levied on banks' cashflow, would be the least distortionary way of raising money from banks.

State tax refund check's (almost) in the mail

When will you get that state refund check? Officials say state income tax refunds should arrive earlier this year than last year, when many state taxpayers complained of long delays.
They aren't saying that some delays won't occur, but Bill Newton, acting director of finance, said that this year returns are being paid earlier. A major reason for this is because the Alabama Education Trust Fund, where tax refunds are stored, is a little more flush with cash this year.
That fund depends heavily on state income tax collections.
A major reason for last year's long delays in the state sending out refund checks came down to simple human nature: people who are owed money by the state want that money quickly, while people who owe the state money are not in as big a hurry to pay it.
"Most taxpayers that are due a refund file earlier than taxpayers that are liable for additional payments," Newton said in an e-mail response to questions from the Montgomery Advertiser.
That means the fund often experiences requests for refunds before it has received the payments from other taxpayers that it needs to pay them
While that can be a problem any year, surprisingly, it was exacerbated by last year's major downturn in the economy, leading to far more people filing early.
Because more taxpayers had capital losses, which can be written off on tax returns, in 2009, more were scheduled to receive refunds and more filed early.
While officials from the Alabama Department of Revenue, the department that handles tax returns, and the Alabama Department of Finance, which actually mails out the refund checks, say delays are still possible, they say the sort of months-long delays some taxpayers suffered last year are unlikely.
Before finance can even think about paying a tax refund, the Department of Revenue must process the return. That process can take time in itself. Once the return itself is processed, Revenue sends a list of taxpayers owed refunds to Finance, and Newton says that department tried to cut the checks as swiftly as possible.
Even if the state pays the refunds on time, according to the law, many taxpayers will feel the refunds have been delayed because the law gives the department plenty of time to pay the refunds.
"If the refund has not been paid by the state within 90 days after the due date, state law requires interest be paid by the state,"
That due date is April 15, not the date that the tax return is received. That means a return filed by Feb. 15 and due a refund could sit for five months before that refund is paid.
Those rules only apply if the return is filed by the deadline and has no errors. If the taxpayer is late in sending in the return, seeks an extension or makes mistakes on the return, the state is allowed more time to mail out the refund.

(It's that time again): 5 myths about paying taxes

No one likes to pay taxes, but as we get ready to stand in line at the post office on the 15th, it might be useful to dispel some of the most common myths about this springtime ritual.
1. The poorest and the richest Americans pay no taxes
About 45 percent of households will owe no federal income tax in 2010, according to our estimates. Half of them earn too little, while the other half - mostly middle- and lower-income households - will take advantage of tax credits such as the earned-income credit, the child and child-care credits, the American Opportunity and Lifetime Learning credits, which help pay for college, and the saver's credit, which subsidizes retirement saving.
But even citizens who pay no income tax still pay other kinds of taxes. They pay Social Security and Medicare taxes when they work, sales taxes when they buy things and property taxes on their homes. Drivers pay gasoline taxes, and smokers and drinkers pay excise taxes on tobacco and alcohol. According to our research, more than 75 percent of us will pay at least some form of federal tax in 2010.
Those who pay no federal taxes are mostly the low- income elderly or very poor families with children. Even about half of those with annual incomes under $10,000 pay some federal tax, most often payroll taxes on wages.
And, yes, the richest Americans pay taxes, too. Though a tiny minority manage to avoid federal income tax through elaborate tax planning, 99.7 percent of those with annual incomes above $1 million will pay federal taxes this year, surrendering 27 percent of their earnings to the government. The average American taxpayer pays 18 percent.
2. Americans are overtaxed

In 2007, federal, state and local taxes claimed about $3.8 trillion, or 27 percent of U.S. gross domestic product. That's nearly $13,000 for every American. Two-thirds of tax revenue went to the federal government.
It may sound like a lot, but other developed countries collect even more. In 2006, taxes in 30 of the world's richest countries averaged 36 percent of GDP; only Mexico, Turkey, South Korea and Japan had tax rates lower than ours. And taxes in many European countries exceeded 40 percent of GDP because these nations offer more extensive government services than the U.S. does.
Americans do pay far more in individual income taxes than residents of other wealthy nations. Nearly 37 percent of U.S. tax revenue came from personal income taxes in 2006, about 10 percentage points more, on average, than in other industrialized countries. But we pay much less in sales taxes: 17 percent of 2006 U.S. tax receipts were from taxes on goods and services, or about half of the 32 percent average for rich countries.
Bottom line: We may hate our taxes, but we pay far less than people in other wealthy countries.
3. Higher taxes could eliminate the federal deficit
Washington spends more than it takes in through tax revenue, resulting in a projected budget deficit of almost $1.35 trillion in 2010, or 9 percent of GDP, according to the Congressional Budget Office. Couldn't we get rid of the deficit by raising taxes?
No. A study we conducted at the Tax Policy Center found that Washington would have to raise taxes by almost 40 percent to reduce - not eliminate, just reduce - the deficit to 3 percent of our GDP, the 2015 goal the Obama administration set in its 2011 budget. That tax boost would mean the lowest income-tax rate would jump from 10 to nearly 14 percent and the top rate from 35 to 48 percent.
What if we raised taxes only on families with couples making more than $250,000 a year and on individuals making more than $200,000? The top two income-tax rates would have to more than double, with the top rate hitting almost 77 percent, to get the deficit down to 3 percent of GDP. Such dramatic tax increases are politically untenable and still wouldn't come close to eliminating the deficit.
4. Most people's tax returns are way too complicated
No one claims that USA tax system is simple. After all, the Internal Revenue Code runs more than 3 million words, and the instructions for the widely used 1040 form take up more than 100 pages. Small wonder that three out of five tax filers pay someone to prepare their returns and that one in five uses software.
But most Americans have relatively simple tax returns. Nearly two-thirds of us claim the standard deduction and don't have to itemize our deductible expenses. And 40 percent of us file one of the simpler tax forms: the 1040A or the 1040EZ. The 2009 EZ has just 13 lines. Relatively few of us get income from any source besides wages and salaries, interest, dividends and pensions.
So, why do taxes seem so complicated? Blame Congress. Legislators use the tax code not just to collect revenue but to encourage and reward specific activities. The 1986 Tax Reform Act greatly simplified the income tax by getting rid of many special provisions and cutting the number of tax brackets. Since then, Congress has expanded the earned-income and child-care credits, created the child, saver's and education credits, established health savings and Roth retirement accounts, imposed different tax rates on dividends, created a class of long-term capital gains with a lower tax rate and doubled the number of tax brackets.
Last year's stimulus bill added temporary tax cuts that benefit house and car buyers, workers, and families with children, but it also made tax returns longer and harder to complete.
5. You should aim for a big tax refund
It's wonderful to receive a big check in the mail. And having to write a check to the IRS is never fun. But you're better off owing the government a small amount on April 15 than receiving a huge refund. Here's why: Even though it seems like you pay your income taxes once a year, you actually pay them all year long as your employer withholds taxes from your paycheck. When you file your tax return, you are refunded the difference between the tax you owe and the cash your employer withheld.
Three-quarters of Americans allow their employers to withhold too much. Income-tax refunds averaged nearly $2,300 in 2008. In effect, we're giving the government an interest-free loan. You'd be better off stashing these withheld wages in an interest-bearing bank account and writing a check to the IRS on April 15.
It's not hard to cut the amount of money withheld from your paycheck. Just give your employer a W-4 form asking to withhold less each payday. Your human-resources office should have the form, and it's easy to fill out. But there is a catch: If you owe too much (and there are specific rules defining what "too much" is), you may have to pay a penalty - usually interest on the unpaid tax. And, if you're not careful, you may end up owing more in taxes than you saved.