Top 1% Pays 37% of All U.S. Income Taxes

This is not specifically an accounting issue. But with recent attention to the 1% vs 99% media frenzy, it is worth examining some facts around who pays how much tax in the U.S.

Really interesting that the top 1/10 of 1% payc about 15% of all U.S. federal taxes. That is a total of 138,000 people.

This is an article from SmartPros.

The income earned by the top 1% of Americans has declined for the second year in a row while their average tax rate has increased, according to a new Tax Foundation study. The average federal tax rate for those reporting at least $343,927 in income has increased from 22.5% in 2007 to 24.0% in 2009, while the average income for the top 1% has declined from $1.4 million to $1 million over the same period.

The Tax Foundation's analysis is based on new data from the Internal Revenue Service on individual income taxes, reporting on calendar year 2009. The amount of individual income tax paid steeply declined by $166 billion, twice the decline from 2007 to 2008. Nationally, average effective income tax rates were at their lowest levels since the IRS began tracking them in 1986. The average tax rate for returns with a positive liability went from 12.2% in 2008 to 11.1% in 2009.

"During a time of economic downturn, we expect to see significant changes in both total income reported and the share of taxes paid by those with the highest incomes," said Logan. "Unlike middle-income wage-earners whose incomes and tax liabilities are fairly steady, high-income people tend to realize significant capital gains that fluctuate wildly with the economy, causing their income tax liabilities to fluctuate as well."

In 2009, the top 1% of tax returns earned 16.9% of adjusted gross income and paid 36.7% of all federal individual income taxes. In 2008 those figures were 20.0% and 38.0%, respectively. Each year from 2005 to 2007, the top 1 percent's constantly growing share of income earned and taxes paid set a record. The 2008 reversal of this trend continued in 2009.

The study also takes a look at the very highest earners, the top 0.1 percent of tax returns, which the IRS only began singling out in recent years. In 2009, those 138,000 tax returns accounted for nearly 7.8% of adjusted gross income earned (down from almost 10% in 2008), and they paid around 17% of the nation's federal individual income taxes (down from 18.5% percent in 2008).

"The very highest income group—the top one-tenth of one percent—actually has a lower average effective income tax rate than the rest of the top 1 percent of returns because these extremely high-income returns are more likely to have income from capital gains and dividends, which are typically taxed at lower rates," said Logan. "It's worth pointing out that in the case of capital gains and dividends, however, income derived from these sources has already been taxed once by the corporate income tax, which is not included in the current study, meaning the average effective tax rate numbers can be somewhat misleading."

CFOs Like New Goodwill Impairment Shortcut

CFOs seem likely to make heavy use of FASB’s new “qualitative” option for impairment testing.



Article by David M. Katz of CFO.com


Offered the chance to enable their company to avoid the currently complex calculations of goodwill-impairment testing, corporate finance executives will seize the opportunity in droves, a soon-to-be-released survey suggests.

Last summer Duff & Phelps and the Financial Executives Research Foundation, the parent organization of Financial Executives International, asked a group of CFOs, controllers, treasurers, and other corporate finance executives if their company would take advantage of a proposed Financial Accounting Standards Board shortcut. Under the FASB plan, companies could bypass the current two-step quantitative goodwill-testing process by making — and passing — a “qualitative” assessment of their impairments.

The two hundred FEI members who responded did so resoundingly in the affirmative. Sixty-nine percent of those working for private companies and 81% at public companies expect their employers to take advantage of the option for some or all of their reporting units.

They will now get their chance: on September 15, FASB stated a final version of its rule that companies will no longer be required to calculate the fair value of their reporting units if they judge, based on a qualitative assessment, that it’s more likely than not that their fair values are more than their book values. (Goodwill impairment occurs when the fair value of goodwill in a company’s reporting unit drops below the unit’s book value, also known as its “carrying amount.”)

The new option will be effective for annual and interim goodwill-impairment tests performed for fiscal years starting after December 15, and early adoption is permitted.

Previous FASB guidance required a company to test for goodwill impairment at least once a year using a two-step process. In step one, the entity had to figure out the fair value of a reporting unit and compare the fair value with the unit’s carrying amount. If the fair value were less than the carrying amount, then the company had to perform a second step to gauge the amount of the impairment loss, if there any.

In the new guidance, FASB says a company choosing to make a qualitative assessment must base it on “such events and circumstances” as macroeconomic conditions, industry and market conditions, raw materials and labor costs, and “overall financial performance such as negative or declining cash flows.”

Gary Roland, a managing director at Duff & Phelps, says he is surprised that a higher percentage of private-company finance executives didn’t say their company would take advantage of the shortcut. After all, FASB first came up with the idea in response to a push from private companies to provide them with a simpler, cheaper testing process.

Nevertheless, Roland had expected a strong positive response from companies across the board. “There’s no surprise that certain entities would want to take advantage of this because they weren’t happy with the fees,” he says.

The survey, however, recorded just the hopes of finance executives and is only a partial reflection of how many companies will actually take advantage of the shortcut, according to the valuation consultant. “It still could be a difficult proposition,” depending upon how narrowly companies passed impairment tests in prior years and how stringent auditors are in allowing companies to take the shortcut, he adds.

LAW5504 Comparative Law and Business

Essay Questions

Question 1: (2000 words)

Select a jurisdiction in accordance with the instructions given in paragraphs E5-E7 of the Course Book.  Your selected jurisdiction must not be on the black list unless it is specifically referred to on the white list.  Identify which legal tradition or traditions (civil law, common law, Islamic law, East Asian law) your selected jurisdiction embodies.  Justify your view.  If your selected jurisdiction also embodies other legal traditions discussed in Glenn (ie. chthonic [chapter 3], Talmudic [chapter 4] or Hindu [chapter 8]), you should also discuss them.  If your selected jurisdiction draws on legal traditions not discussed in Glenn (eg. Roman-Dutch law or Scandinavian law), you should discuss them as well.  To what extent is Regionalisation evident in your selected jurisdiction?  Justify your view.  To what extent are Diasporas evident in your selected jurisdiction?  Give examples where appropriate.

Question 2: (2000 words)

You are the Marketing Manager for an Information Technology (IT) corporation based in your selected jurisdiction, that has big plans to embrace the opportunities presented by Globalisation.  The IT corporation manufactures and retails IT products that attempt to compete with Apple Inc.  The IT corporation has developed an eMac, ePod, ePhone, and ePad etc.  The Board of the IT corporation has identified huge target markets in the United States, European Union, Asia and the Middle East.

The Board has asked you to prepare for the next Board meeting by being in a position to outline what issues need to be considered in deciding to what extent the IT corporation can expect to expand into one of the identified target markets by negotiating standard terms contracts that largely favour the IT corporation, to be used with wholesalers and retailers in various countries within those target markets.

Choose a country that embraces a legal tradition that differs from the legal tradition embraced by your selected jurisdiction.  Your chosen country must not be on the black list unless it is specifically referred to on the white list.

·         Clearly identify your chosen country in your answer.

Using the private international law of your selected jurisdiction, outline how you can ensure that:

1.      These contracts will be governed by the contract law of your selected jurisdiction; and

2.      Any legal disputes arising under the contract will (to the extent that is possible) be dealt with in only the courts of your selected jurisdiction.

In choosing a country, you must ensure that your selected jurisdiction is being compared with either the common law (if your selected jurisdiction does not embrace the common law tradition) or the civil law (if your selected jurisdiction does not embrace the civil law tradition), but not both.  If your selected jurisdiction does not embrace either the common law tradition or the civil law tradition, compare with only one of these.

Question 3: (500 words)

Does your selected jurisdiction recognise corporations that have (1) separate legal personality to its owners, and (2) limited liability for the owners of the corporation?  If so, how does it do this?  If not, what is the major form of business organisation recognised in your selected jurisdiction?

As you discuss this, compare briefly with either the common law tradition (if your selected jurisdiction does not embrace the common law tradition) or with the civil law tradition (if your selected jurisdiction does not embrace the civil law tradition), but not both.  If your selected jurisdiction does not embrace either the common law tradition or the civil law tradition, compare with only one of these.