The commissioner of internal revenue has ordered his agency to delay collecting back taxes from Hurricane Katrina victims until after the Nov. 7 elections and the holiday season, saying he did so in part to avoid negative publicity.

The commissioner, Mark W. Everson, who has close ties to the White House, said in an interview that postponing collections until after the midterm elections, along with postponing notices to people who failed to file tax returns, was a routine effort to avoid casting the Internal Revenue Service in a bad light.

Kudos to David Cay Johnston for doing a little fact checking.

Nixon politicized the IRS. Are there any bad habits of Nixon's left that we haven't seen in this lot? (Not to mention all their newly-minted bad habits.)

There is a cancer on the Presidency. And this is one of its many symptoms.

Why were charities Mr. Abramoff’s go-to vehicles as he sought to transfer funds covertly through Washington’s corridors of power? The primary attraction was their opacity: their ability to raise money in any amount, without limit, from any individual or entity anywhere in the world without disclosing the contributors to anyone.

This makes good sense for honest charities helping people in need. But Mr. Abramoff took advantage of this situation to circumvent campaign finance laws and Congressional ethics rules and provide illicit benefits to powerful politicians.

Tax Cheats Called Out of Control: So many superrich Americans evade taxes using offshore accounts that law enforcement cannot control the growing misconduct, according to a Senate report that provides the most detailed look ever at high-level tax schemes.

I.R.S. to Cut Tax AuditorsThe federal government is moving to eliminate the jobs of nearly half of the lawyers at the Internal Revenue Service who audit tax returns of some of the wealthiest Americans, specifically those who are subject to gift and estate taxes when they transfer parts of their fortunes to their children and others.

Both stories are by David Cay Johnston, but he's too coy to remind us of the first when writing the second...

We particular favor Ashoka, Daily Bread Food Bank of Miami, EPIC, Human Rights First (formerly the Lawyers' Committee for Human Rights), and the University of Miami H.O.P.E. program (student public interest programs), but there are so many good causes to choose from.

A lawyer for an Orthodox Jewish couple claimed Monday that the Internal Revenue Service has violated the First Amendment by refusing to allow tax deductions for their children’s religious schooling. The IRS should allow the deductions because it permits members of the Church of Scientology to write off the cost of spiritual counseling sessions, attorney Jeffrey Zuckerman said during the first day of a non-jury trial in U.S. Tax Court before Judge John O. Colvin. The First Amendment prohibits the IRS from discriminating on the basis of religion, Zuckerman said.

Coincidentally, we were talking about this case at lunch before the faculty seminar yesterday. It has all sorts of implications….

Today’s New York Times, Wall Street Journal, and Washington Post report on an October 8 letter from the IRS threatening to revoke the NAACP’s tax-exempt status in light of NAACP Chairman, Julian Bond’s speech this summer condemning the policies of President Bush. Tax Prof Frances Hill (Miami) is critical of the IRS’s action in a Newsday article on the subject:

Frances Hill, a University of Miami law professor and an expert on the political rights of tax-exempt organizations, read Bond’s speech and said it was indeed critical of President George W. Bush. But she added that Bond was probably on safe legal ground because his speech was broadly conceived, didn’t focus solely on Bush and touched on a range of issues that have long been trademarks of the NAACP, such as equality and justice. “You can be passionate and still have a tax-exempt status,” Hill said. “If the IRS thinks that this speech is sufficient to trigger an audit, then I think we have quite a new standard and they must be planning to audit hundreds of other groups.”

Thank you all! I learned a lot about stuff and the blogosphere. Thank you Michael! It has been as much work as I expected. I cannot imagine how Michael finds time to blog, maintain this remarkable site (which I had no responsibility for, and which must take up as much time as blogging), and have a life. Amazing….. And Michael just emailed that I should have my own blog….

Well, I have been stalling for weeks on the fundamental issue of international tax policy: As a practical matter, in an open worldwide economy, can one country impose an income tax? There are two sub-issues: First, can a country tax residents (or citizens) on their worldwide income. Here, can the US tax Sue on her foreign surgeries, given that she can move? Second, can one country tax income related to mobile local factors of production? For example, can the US tax the capital of Ford Motor invested in a US factory if Ford can close the factory and move production to low-tax Mexico?

Tangent: This is where I got the idea for a multinational treaty discussed yesterday. The idea of negotiated sharing (sourcing) of the revenue base is not part of the conventional wisdom, however. Somebody suggested base sharing to me in passing about 20 years ago (as part of Treasury’s discussions surrounding California’s unitary tax). Back then, I rejected base sharing so quickly, that I even forgot who mentioned it to me. Don’t want to risk slandering somebody by guessing. But, as the problems of an income tax in an integrated world have become more clear, the power of negotiated base sharing stuck, if not the identity of who mentioned it to me.

The hard part is that the multinational treaty required to deal with mobile factors must address tax rates, not just sourcing and enforcement. Only by having one world-wide rate of tax (on the same basic base), after adjusting for differences in local services (which adjustment is impossible, of course), can one assure that taxes not affect location decisions. Boy, a tough nut to crack. The US certainly doesn’t want as big a government as in Europe. But, VATs, which are less sensitive to location problems (but do have problems with e-commerce), can be used to fine-tune the size of a given country’s government.

There are some halfway measures. For example, today, the US has rules that reduce the tax benefits to an individual from expatriating artfully. International cooperation helps in enforcing such rules. But, going beyond policing citizenship and residency to place restrictions on international flows of capital or services just to solve tax problems seems like the tail wagging the dog.

Well, nobody said it was going to be easy. Like a true academic, as Johnny Rotten sang, I just see Problems, Problems….

Oh, well, back to taxing the nowhere and everywhere profits of multinationals. The world-wide network of tax treaties rests on the arm’s-length notion, which, I have argued (and the comments seem to be moving somewhat — somewhat — toward accepting), misses nowhere and everywhere profit. This is real important, as failure to tax nowhere and everywhere profit guts business income taxes as a source of revenue for countries. (Yes, tax jocks, the current US regs, whiile pretending to be arm’s-length regs, do capture some nowhere and everywhere income.)

I have a very academic, not very novel, big government, law and economics inspired, fix: Rather than the current network of hundreds of bilateral tax treaties, we need a huge multinational tax treaty. The participant countries would work together to carve up business profits consistently in a fashion that seems reasonable to them. In other words, I would substitute governmental negotiation for policy makers trying to figure out where income is earned.

There is some reason to believe that negotiated tax bases might work: Negotiated carve-ups happen today. Under bilateral tax treaties, a multinational can request the two countiries involved to work together to avoid double taxation. A few really big multinationals have been the subject of such negotiations. These negotiations ultimately result in the countries involved carving up the income of the multinational in a fashion that is acceptable to all parties.

Obviously, a huge multinational tax treaty is so large and difficult an undertaking that only a 20-year academic would waste time thinking about it. (And don’t even think about what America’s right wing thinks about multinationalism.)

Also, under my proposal, as in every bargaining, there are problems from unequal negotiating positions. In particular, the US would be tempted to overreach. (In an earlier post, I mentioned how the Kennedy and Johnson administrations used bilateral tax treaties to protect developing countries. Those days are gone, sniff…) The multinational nature of the negotiation process that I propose is intended, among other things, to reduce the impact of uneven negotiating positions by enabling countries with similar interests to act in concert. More naive academic theory (from someone who knows little bargaining theory), perhaps. I submit, however, that multinational cooperation is the only workable long-term solution.

Tomorrow: Finale: Keeping Sue home

The classic analysis of the “extra” profitability of multinationals looks to market barriers. If there weren’t barriers to forming a multinational, there would be new ones created seeking that extra profit. As more multinationals are formed, the extra profit goes away. After all, it must be costly to set up a business that can function legally and practically as one enterprise in many countries, or everybody would do it. Back when there were few multinationals, the market barrier analysis seemed to tell the whole story. Today?

Other kinds of intangibles can give a multinational extra oof. Coca Cola is the classic example. Its profitability is attributable in considerable measure to a name and a formula. Consider the tax issue: Where does Coca Cola earn money? (Note the analogy to my Sue example.) The formula sticks world-wide. Advertising, promotion, and marketing in one country can help sales in another. There is no arm’s-length price for the name or the formula to help figure out what Coca Cola US earns.

But, it appears that there is something in multinationals in addition to expertise, know-how, goodwill, going concern value, trademarks, service marks, and so on. It seems that multinationals have “extra extra” value. Multinationals can access world capital markets in ways that single-country corporations cannot. Because of thinness in the worldwide derivatives markets, a multinational can diversify risks in ways not otherwise available. Worldwide development and marketing coordination is easier in a multinational. And so on.

With a little shoving, one can push the extra extra value analysis into the other approaches. The sheer size required to be a multinational can be viewed as a barrier to entry. Knowing how to play, and playing, the world can be viewed as an intangible. But, to me, it seems helpful to analyze extra extra value separately from extra value, so long as the developing empirical research bears out that there really is extra value in multinationals that is not attributable to assets or traditional non-asset value like goodwill, know how, and going concern value.

If there really is extra extra value in a multinational, the question arises as to where that profit is situated so that countries can tax it. In fact, it is nowhere and everywhere.

Tomorrow: Taxing nowhere and everywhere…….

Yesterday, I noted, and one great comment (by the ominously named Consultant) telegraphed, that stripping is the ball game when it comes to protecting the US business income tax base. What is going on? One can get a feel for the hidden concerns here by reading between the lines of the Treasury report that I gave a link to yesterday.

Which gets us back to stripping. There is an unspoken assumption among many policy makers that we have to allow Honda and Toyota to reduce their US taxes by stripping in order to get them to open plants in the US. Apparently, the US otherwise is a bum deal. But, we can take US companies for granted. Under this analysis, inversions just involve turning US multinationals into foreign multinationals, which is OK, as it just eliminates the unfair US discrimination against its own companies.

Give ‘em an inch…..