Explosive Incentives for Both Job Creation & College Education Loan Reduction

College graduates are getting a double whammy. First, they can’t find good paying jobs, or even any, for that matter, after they graduate. And second, they have huge college education loans, to boot.....now that's what I call starting out your working life in a deep hole.

And there are now more than $1 trillion of college education loans outstanding.

And when you think about it, these college education loans are somewhat similar to what's happened with underwater housing mortgage loans.

Kids are pushed to go to college, and they take out tons of education loans. They are also told not to worry about their education loans since the value of their education will keep rising, just like US citizens were told not to worry about their mortgage loans, since home prices would keep rising.

But you know what? Given the horrible US economy, with the US Government both so broken and so devoid of problem solving creativity on financial matters, especially the Republicans in the US House, the value of education has not risen. There presently are little in the way of good job prospects for college graduates.

In all fairness, the country indeed should bail out US citizens with underwater home mortgages.

But in all fairness, the country should also take steps to help US citizens with underwater education loans.

And these education loans are economically more damaging to US citizens than home mortgage loans, because education loans cannot be eliminated in bankruptcy.

There are two ways to significantly improve the underwater status of US college graduates, and even ones who have education loans but are not college graduates.

First, the long-term job situation can turn around, adding value to the college education asset. And second, the US citizens' education loans can be wisely reduced.

This proposal does both.

My proposal here is that for every net full-time job addition by a business for the rest of 2011, and all of 2012, if the new hire has a college education loan outstanding, this new hire can choose to use up to 25% of his annual earnings for 2011, 2012, 2013 and 2014, to reduce a like amount of his outstanding education loan.

Also under my proposal, the amount chosen to be used to reduce education loans would not be taxable income to the new hire for US federal income tax purposes in any of those four years 2011 to 2014. Further, this portion of annual earnings used to reduce college education loans would not be subject to either employee or employer payroll taxes in any of those four years 2011 to 2014.

The business employing this person would withhold from the employee’s pay the amount to be used to reduce the college education loan. The business would then submit this amount withheld to the organization holding the college education loan.

The business would get a federal income tax deduction in each of the four years 2011 to 2014 for the entire wages of the new hire, including the portion of his wage that the new hire chooses to apply to his outstanding college education loan.

But as a very attractive added incentive, the business would also get a bonus tax deduction in the four years 2011 to 2014 for the amount of the wages the new hire elects to apply to his outstanding college education loan.

How could this very attractive program get wisely paid for?

Well first, if the business doing the hiring is a multinational corporation, this business would be eligible for the tax benefits under this program only if it also elects to say double fund it with a foreign earnings repatriation tax, given an attractive discounted US federal income tax rate incentive, such that it yields additional US tax receipts of twice the tax benefits the multinational corp receives each year under the new hire proposed program.

Second, all of the businesses, both multinational corps and domestic companies, taking advantage of the tax benefits of this program for late 2011 and all of 2012 new hires, would get all of their tax benefits recaptured, both the payroll tax holiday and the bonus federal income tax deduction for the education loan reduction amount, if the business didn’t at least retain the increased total full-time payroll counts through the end of 2014.

This tax recapture aspect means that the US Government is guaranteed to get their tax cost outflow back some way. They either get it with the additional people employed through 2014, with the resultant higher incremental US federal income tax receipts and payroll tax receipts, from the wages on the higher number of people employed. Or, the US Government gets it back by obtaining recapture tax, in situations where the business doesn’t keep its increased total full-time payroll count at least intact through the end of 2014.

Further, the US Government gets additional money back from the double funding of the program related to multinational corps due to the extra foreign earnings repatriation tax it is guaranteed to receive.

Thus, the way it is creatively designed, there should be some excess funding to the US Government under this proposal. This excess funding should be used to fund wisely-designed, fairly-chosen, and quickly-implemented US infrastructure projects.

Big Corp Tax Loophole Closer #44: Minimum Tax on Big Oil Worldwide Profit

When I extensively study the financial statements and footnotes of US Big Oil & Gas Corps and their related Corps, I find it amazing at how little Big Oil pays in both US Federal Income Tax and US State Income Tax on their Worldwide Income, in comparison to every other US Sector.

US Big Oil has severely damaged the US economy, with the resultant US job losses, by greedily charging such sky-high energy prices on both US businesses and US individuals, while substantially increasing their Pretax Profits, which increased 48% in the first half of 2011, on back of an even higher % increase in Pretax Profits in 2010.

And with its awesome power over the US Congress, US Big Oil piles on by paying such meager amounts of US Federal Income Taxes.

In fact, in 2010, the 42 largest US Big Oil Corps paid in Total US Federal Income Taxes (US Current Federal Income Tax Paid or Payable in 2010) of $7,010 mil, which in comparison to its 2010 Worldwide Pretax Income of $168,673 mil, yielded an effective US Federal Income Tax Rate Paid of an incredibly meager 4.2%.

I bet company employees all over the US would love to go to their Company Human Resources Departments and ask if they can fill out the forms necessary so that they would be able to be income taxed like a US Big Oil Corp.

Here are the individual US Big Oil Corps' Current Federal Income Tax Paid or Payable in 2010, their Consolidated Pretax Income(PTI), and their related effective US Federal Income Tax Rate Paid.

...............................Current US........................Effective
.................................Fed Inc....Consolidated...Tax Rate
................................Tax Paid...........PTI............Paid
..................................2010............2010...........2010
......................................(million of $s).....
Big Oil & Gas
Exxon Mobil..............1,270..........52,959...........2.4%
Chevron.....................1,501..........32,055...........4.7%
ConocoPhillips...........1,312..........19,750...........6.6%
Occidental Petroleum....614...........7,359............8.3%
Apache...........................25...........5,206............0.5%
Schlumberger.................76...........5,156............1.5%
Marathon Oil.................183...........5,122............3.6%
Devon Energy...............244...........3,568............6.8%
Hess..............................151............3,311............4.6%
Chesapeake Energy...........0............2,884...........0.0%
Halliburton..................(400)..........2,655.........-15.1%
Natl Oilwell Varco..........421...........2,397..........17.6%
Transocean, Ltd.............456...........2,309..........19.7%
Anadarko Petroleum......305...........1,641..........18.6%
Valero Energy................(75)..........1,498..........-5.0%
Murphy Oil.....................105...........1,414...........7.4%
Diamond Offshore...........184...........1,336..........13.8%
El Paso Corp.....................(4)...........1,310..........-0.3%
Baker Hughes.................179...........1,282..........14.0%
EOG Resources.................17...........1,151............1.5%
Spectra Energy...............105...........1,123...........9.3%
Noble Energy....................25...........1,031...........2.4%
Southwestern Energy........10.............995............1.0%
Noble Corp........................81.............917...........8.8%
Cimarex Energy................43.............914...........4.7%
Newfield Exploration.........(1)............829..........-0.1%
Pioneer Natural Res............0.............788...........0.0%
OneOk................................59............755...........7.8%
Williams Companies...........81.............746..........10.9%
Cameron Intl....................103............733..........14.1%
Ultra Petroleum.................22.............723...........3.0%
EXCO Resources...................1.............674...........0.1%
Ensco Intl..........................10.............645...........1.6%
FMC Technologies..............21.............538...........3.9%
Denbury Resources............16.............479...........3.3%
QEP Resources..................(17)............453..........-3.8%
Helmerich & Payne.............31.............438...........7.1%
Rowan Companies..............25.............379...........6.6%
Southern Union....................2.............350...........0.6%
Nabors Industries...........(138)............343.........-40.2%
Pride Intl..............................1.............252...........0.4%
Weatherford Intl................(34)...........205.........-16.6%

Total all 42.....................7,010.....168,673..........4.2%

And that above 4.2% tax rate is a bit overstated because 7 of the above Corps (Chesapeake Energy, Baker Hughes, Weatherford Intl, Noble Corp, Ensco Intl, Ultra Petroleum, Pride Intl, and Transocean, Ltd) combined their US State Income Tax Paid with their US Federal Income Tax Paid. Also, Transocean even combined its US and Foreign Income Taxes Paid together as one number.

And it's not just a 2010 thing. For the most recent 3 years combined, such effective US Federal Income Tax Rate Paid by these 42 US Big Oil Corps was a meager 4.9%.

Anyway, my proposal here is that all US Big Oil Corps should pay in US Federal Income Tax each year at least an amount equal to 10% of their Worldwide Pretax Income. That's not too much to ask, particularly in these horrible economic times, not just for US citizens and small businesses, but also for the US Debt Status.

When I run the detailed numbers on these 42 US Big Oil Corps, and use a conservative 10% average annual profit growth from 2012 to 2021, I get additional US Federal Income Tax Receipts over the 10 years from 2012 to 2021 of $273.5 bil.

And if I use a 15% minimum Federal Income Tax Rate, rather than a 10% minimum tax rate, I get positive CBO scoring of $480.5 bil over the 10 years from 2012 to 2021.

Perhaps the best way to go on a minimum tax on US Big Oil would be to apply a 10% minimum US Federal Income Tax on the first $10 bil of annual Worldwide Pretax Income, then a 15% minimum tax on any annual Worldwide Pretax Income in excess of $10 bil and up to $20 bil, and then a 20% minimum tax on any annual Worldwide Pretax Income in excess of $20 bil.

All of the tax receipts here should be used to reduce the US Debt.

Big Corp Tax Loophole Closer #35 Update: Accelerated Tax Depreciation Methods and Lifes ..How Much US Debt Reduction?

In my earlier Big Corp Tax Loophole Closer #35 on Accelerated Tax Depreciation, my recommendation was to change the present very short tax depreciation lifes and accelerated methods, which all Big Corps use to depreciate their Property, Plant and Equipment(PPE) for US federal income tax purposes, to the much longer economic lifes, and to the much slower depreciation methods, used by Big Corps to depreciate this PPE in their audited financial statements.

This change would be made for PPE additions starting in say 2013 or in 2014, after the US economy, the US housing crisis, and the US job situation have all significantly improved.

My very rough estimate was that the tax raised by the US Government over the next 10 years would be up to $2 trillion for making these substantial, but fair, changes in tax lifes and depreciation methods.

In this post, I am providing my research results on my quick review of US Big Corps with Total PPE, Net of at least $2 bil each at their most recent fiscal year end date, which is Dec 31, 2010 for the bulk of these Big Corps.

In their footnotes, companies are required to disclose the amount of their Deferred Income Tax Liability directly related to all of their PPE.

For most companies, this Deferred Income Tax Liability is precisely the amount of Income Taxes they have saved through the end of the most recent fiscal year end due to using shorter tax lifes and accelerated tax methods in their income tax returns rather than using the more realistic economic lifes and methods they used to record depreciation on all of their PPE in their audited financial statements.

Thus, for most companies, if these Big Corps would have used the same tax depreciation lifes and methods as that used in their audited financial statements, this Deferred Income Tax Liability would be the amount of additional income tax, on a worldwide basis, that Governmental entities would have received through the end of their most recent fiscal year ends.

Granted, for multinational Corps, there would be some foreign Deferred Income Tax Liability included in these Deferred Income Tax Liability totals.

However, this is offset by the substantial additional amount of money the US Government would receive if the many foreign corps made similar changes to compute their tax depreciation on their PPE in their US federal income tax returns.

Further, my numbers below are only for publicly-held US Big Corps that I could quickly find that had Total PPE, Net of at least $2 bil each.

I found tons of US Big Corps with Total PPE, Net just short of $2 bil, which I didn’t include.

Further, I compared the Gross Cost of Total PPE, which is what depreciation is computed on, with the related Total PPE, Net, for the nine Very Big Corps, which had Total PPE, Net above $100 bil each.

What I found here was that the Total PPE, Cost of these nine Big Corps, exceeded the Total PPE, Net by a huge 95%.

What that means is that if I used Cost instead of Net, I would only be including in my research here US Big Corps with Total PPE, Cost above $3.9 bil. Thus, if I reduced that $3.9 bil Cost down by quite a bit, there would be tons of additional Big Corps I would have included, and also there would be substantial amounts of additional Deferred Income Tax Liability.

Here are these nine Very Big Corps:

………………….........………PPE, Cost.......PPE, Net
.............................................(bils of $s)......

ExxonMobil......................374.............200.....+87%
Chevron............................208.............105.....+98%
ConocoPhillips..................143................83.....+73%
Royal Dutch Shell..............286..............143....+100%
BP.....................................234..............110....+113%
Walmart............................149..............105......+41%
ATT..................................244..............103.....+136%
Verizon.............................212...............88.....+141%
GE.....................................110...............66......+66%

Total 9 Super Big Corps..1,960..........1,003.....+95%

I included both Royal Dutch Shell and BP, even though they are foreign corps, because they have such substantial operations in the US.

Let me briefly summarize my overall research results below here.

I found 319 Big US Corps, with Total PPE, Net of at least $2 bil each. These 319 Big Corps had total PPE, Net of $4.038 trillion, and a directly related Deferred Income Tax Liability on this PPE of $654.0 bil.

In addition, in a very quick review, I also found 20 Big Real Estate Investment Trusts (REITs), and 18 Oil & Gas Partnerships, with Total PPE, Net of at least $2 bil each. Both of these organizations are presently tax free for US federal income tax purposes. Their income, including their accelerated tax depreciation, is passed through to their partners, for US federal income tax purposes.

Assuming that US federal income tax related to accelerated tax depreciation were to apply at the same overall rate as that of the above US Big Corps, the related additional US federal income tax would be $27.8 bil for these 20 Big REITs and would be $18.4 bil for these 18 Big Oil & Gas Partnerships, which when added to the above $654.0 bil related to the 319 Big Corps, brings the total amount of additional US federal income tax through the end of the most recent year of $700.2 bil.

For CBO scoring purposes, over the next 10 years, from 2012 to 2021, this $700.2 bil will grow each year. Thus the final positive CBO scoring to the US Government over that 10 year period would be $1.198 trillion, assuming average annual growth of 5%, and would be $1.633 trillion, assuming average annual growth of 8%.

When you also factor in the tons of Big Corps not included in these 319, both publicly-held and privately-held ones, the total positive CBO scoring to the US Government over the next 10 years should be higher than $2 trillion, even ignoring the massive interest savings.

And if you were to include all Corps, other than small businesses, the positive CBO scoring would be substantially higher than $2 trillion.

In focusing on specific industries, the ones that have heavy PPE would be the ones paying the most here. I think that is only fair, since they have obtained the out-sized economic tax benefits in the past 20 years or so.

Here is the related percentage mix of the Total Deferred Income Tax Liability by Industry, for the Big Corps included in my research:

Oil&Gas………….......................................33%
Utilities……………….................................19%
Telecomm……………................................14%
Transportation………..............................10%
Total for these 4 PPE-heavy Industries…76%

Three large industries pretty much getting relatively unscathed here are High Tech, Financial, and Health Care.

What this reveals is that if you want to stimulate hiring in the High Tech and Health Care sectors, the more effective focus should be on additional R&D tax credits, particularly if you can creatively intertwine them with wise foreign earnings repatriation tax incentive funding, rather than focusing on accelerated tax depreciation. However, many High Tech Corps do have their sales stimulated by bold accelerated tax depreciation. Also, many High Tech Corps benefit significantly by wise computer software tax incentives.

What this also reveals is that if you want to prop up the Financial Industry, the key is effectively solving the Underwater Home Mortgage mess, and also propping up the Commercial Real Estate market, rather than providing accelerated tax depreciation incentives to Financial Corps. However, providing very highly accelerated tax depreciation, and green energy tax credits, on Commercial Properties will both help to prop up the severely depressed Commercial Real Estate market.

Below are the individual Big Corps, in each industry sector, along with the PPE, Net and the Deferred Income Tax Liability(DTL) related to this PPE, at the most recent fiscal year end balance sheet date.

......................................................PPE.........DTL on
......................................................Net...........PPE..
.........................................................(mils of $s)

Big Oil & Gas Corps
ExxonMobil.........................TX..199,548.....42,657
Royal Dutch Shell.................TX..142,705.....15,909
BP........................................TX...110,163.....27,309
Chevron...............................CA..104,504.....19,855
ConocoPhillips(1).................TX....82,554.....20,344
Apache.................................TX....38,151.......4,569
Anadarko Petroleum.............TX...37,957.....10,305
Occidental Petroleum............CA...36,536.......4,558
Chesapeake Energy................OK..32,378.......2,258
Marathon Oil.........................TX...32,222.......5,663
Valero Energy.......................TX...22,669.......4,835
Transocean...........................TX...21,458..........699
Hess......................................NY...21,127.......3,853
El Paso..................................TX...21,072.......2,132
Williams Companies..............OK...20,272.......1,784
Devon Energy........................OK...19,652.......3,130
EOG Resources......................TX...18,681.......4,373
Spectra Energy......................TX...16,980.......2,414
Schlumberger........................TX...12,071............0
Murphy Oil............................AR...10,368.......1,432
Noble Energy.........................TX...10,264.......2,389
Noble Corp............................TX...10,048.........297
Nabors Industries..................TX....7,815.......1,124
Pioneer Natural Resources.....TX....7,564.......1,695
OneOK....................................OK....7,313.........520
Plains Exploration&Prod........TX....7,221........1,711
Sunoco...................................PA....7,055.......1,563
Weatherford Intl.....................TX....6,940.........317
Halliburton.............................TX....6,842.........631
Denbury Resources.................TX....6,737.......1,725
Newfield Exploration...............TX....6,608.......1,519
Baker Hughes...........................TX....6,310.........377
Pride International..................TX....5,961..........148
QEP Resources.........................CO....5,890.......1,459
Southern Union.......................TX....5,704.......1,032
Southwestern Energy...............TX....5,298.......1,411
Tesoro.....................................TX....5,170.........941
Petrohawk Energy....................TX....5,133.........505
Ensco Intl.................................TX....5,050.........336
Linn Energy..............................TX....5,050......4,323
Range Resources......................TX....4,997.........859
Concho Resources....................TX....4,914.........753
Rowan Companies....................TX....4,793.........722
Atmos Energy...........................TX....4,793.........941
Sandridge Energy......................OK....4,734...........0
Whiting Petroleum....................CO....4,355.........806
Diamond Offshore.....................TX....4,284.........558
Cabot Oil & Gas..........................TX....3,763.........925
Helmerich & Payne....................OK....3,275.........703
QuckSilver Resources................TX....3,068.........292
Continental Resources...............CO....2,982.........675
Cimarex Energy.........................CO....2,922.........691
ATP Oil & Gas.............................TX....2,905.........330
Berry Petroleum........................CO....2,656.........386
Patterson UTI............................TX....2,621.........547
Ultra Petroleum........................TX....2,589.........448
Helix Energy Solutions..............TX....2,527.........384
Targa Resources........................TX....2,509..........24
SM Energy.................................CO....2,434.........529
Unit Corp...................................OK...2,400.........593
Antero Resources......................CO....2,160.........168
Cheniere Energy........................TX....2,158............0
Total 62 Big Oil & Gas Corps.......1,208,880....213,436

Big Utility Corps
Southern Co...............................GA...42,002.......7,983
Duke Energy...............................NC...40,344.......6,052
Nextera Energy...........................FL...39,075.......7,795
American Electric Power............OH...35,674.......5,301
MidAmerican Energy..................IA...31,899.......5,962
PG&E..........................................CA...31,449.......5,236
Edison International...................CA...30,184.......6,637
Exelon.........................................IL...29,941.......5,931
Dominion Resources...................VA...26,713.......3,027
AES.............................................VA...24,621.......1,245
Consolidated Edison....................NY...23,863.......3,019
Entergy.......................................LA...23,848.......5,948
Progress Energy..........................NC...21,240.......2,439
PPL.............................................PA...20,858.......3,536
Xcel Energy................................MN...20,663.......3,853
Energy Future Holdings...............TX...20,366.......4,321
Sempra Energy............................CA...19,876..........982
First Energy................................OH...19,788.......3,617
Ameren......................................MO...17,853.......3,310
PacifiCorp...................................OR...16,392.......3,302
Public Service Enterpr Grp..........NJ...16,390.......3,169
DTE Energy.................................MI...12,992.......2,558
Calpine.......................................TX...12,978.......1,280
NRG Energy................................NJ...12,517.......1,652
CenterPoint Energy....................TX...11,732.......1,887
NiSource....................................IN...11,097.......2,671
CMS Energy................................MI...10,069.......1,382
ONCOR Electric Delivery............TX....9,676.............0
Wisconsin Energy.......................WI....9,602.......1,347
Pinnacle West Capital.................AZ.....9,579.......2,211
Northeast Utilities......................MA....9,568.......1,613
Allegheny Energy.......................PA....9,302.......2,012
Constellation Energy..................MD....9,279.......1,768
NV Energy..................................NV....8,930.......1,004
PEPCO Holdings..........................DC....7,673.......1,681
Puget Energy.............................WA....7,273.......1,100
Great Plains Energy....................MO....6,892.........976
OGE Energy................................OK....6,464.......1,071
Alliant Energy............................WI....6,460.......1,420
Interstate Power&Light...............IA....6,459.........851
Dynegy.......................................TX....6,273.......1,215
Westar Energy............................KS....5,964.........932
EQT.............................................PA....5,910.......1,552
TECO Energy...............................FL....5,841.........716
Integrys Energy..........................IL....5,013.........955
Nstar Electric.............................MA...4,205.........765
Aqua America............................PA....3,469.........482
PNM Resources..........................NM....3,444.........580
UGI Corp....................................PA....3,053.........415
Vectren......................................IN....2,955.........566
Questar......................................UT....2,885.........178
CLECO........................................LA....2,784.........527
Avista........................................WA...2,714.........458
Black Hills..................................SD....2,495.........414
IPALCO......................................IN....2,362.........504
Northwestern Corp.....................SD....2,118.........252
Total 56 Big Utility Corps..............793,066...131,660

Big Telecomm Corps
ATT............................................TX..103,196.....34,172
Verizon......................................NY...87,711.....11,758
Comcast(2).................................PA...23,515.....28,468
Sprint Nextel..............................KS....15,214.......1,792
Time Warner Cable.....................NY..13,873.......3,587
Qwest Communications..............CO...11,794.......1,943
Liberty Global............................CO...11,112..........874
CenturyLink...............................LA....8,754.......1,762
Frontier Communications..........CT.....7,591.......1,448
Charter Communications...........MO....6,819..........626
DirecTV......................................CA....6,679.........723
Windstream................................AR....4,773.........986
METROPCS..................................TX....3,659.........656
American Tower.........................MA....3,624.........372
Telephone&Data Systems.............IL....3,558.........423
Cablevision Systems....................NY....3,431.........602
DISH Network.............................CO....3,232..........701
CC Media Holdings(3)..................TX....3,146.......2,203
NII Holdings...............................VA....2,960...........18
CBS(4).........................................NY....2,694.......2,312
US Cellular...................................IL....2,615..........320
Leap Wireless..............................CA....2,037.........266
Viacom.......................................NY....1,102.........527
Total 23 Big Telecomm Corps...........333,089....96,539

Big Transportation Corps
Burlington NoSantaFe.................TX...45,486......15,652
Union Pacific..............................NE...38,253......11,581
CSX.............................................FL...23,799.......7,557
Norfolk Southern........................VA...23,231.......7,453
Delta Air Lines............................GA...20,307......4,837
United Parcel Service..................GA...17,387......3,335
United Continental......................IL...16,945.......4,091
FedEx.........................................TN...15,543.......2,675
AMR...........................................TX...14,838.......3,985
Southwest Airlines......................TX...10,578......3,020
Kansas City Southern..................MO....4,902.........610
JetBlue.......................................NY....4,641.........576
US Airways.................................AZ....3,796.........642
Republic Airways........................IN....3,174.........662
Alaska Air Group.........................AK....3,117.........660
Skywest.......................................UT....2,943.........734
Total 16 Big Transportation Corps.....248,940...68,070

Big Conglomerate Corps
Berkshire Hathaway....................NE...93,126.....24,746
GE...............................................CT...66,214.........951
Loews.........................................NY...12,636.........644
3M.............................................MN....7,279.........695
Tyco International......................NJ....4,156.........711
Total 5 Big Conglomerate Corps.........183,411....27,747

Big Retail Corps
Walmart............................AR..105,098.......4,848
Target.............................MN...25,493.......1,607
Home Depot.........................GA...25,060.......1,073
Lowes..............................NC...22,089.........870
McDonalds..........................IL...22,061.......1,655
Kroger.............................OH...14,147.......1,515
Costco.............................WA...11,314.........414
Walgreens..........................IL...11,184.......1,050
Safeway............................CA....9,910.........650
Macy's.............................OH....8,813.......1,793
Kohls..............................WI....7,256.........747
Supervalu..........................MN....6,604.........345
Publix Super Markets...............FL....4,353.........410
Yum Brands.........................KY....3,830.........104
Best Buy...........................MN....3,823.........316
Darden Restaurants.................FL....3,622.........314
GAP................................CA....2,563..........39
Autozone...........................TN....2,520..........36
TJX................................MA....2,450.........275
Starbucks..........................WA....2,417..........26
Nordstrom..........................WA....2,318...........4
Staples............................MA....2,148...........0
Total 22 Big Retail Corps..............299,073......18,091

Big Chemical Corps
Dow Chemical.......................MI...17,668.......3,098
DuPont.............................DE...11,339.......1,614
Praxair............................CT....9,532.......1,038
LyondellBasell NV..................TX....7,190.......1,653
Air Products & Chemicals...........PA....7,051.........841
Mosaic.............................MN....6,636.......1,050
Monsanto...........................MO....4,227.........409
CF Industries......................IL....3,926.......1,069
Huntsman...........................UT....3,605.........520
Eastman Chemical...................TN....3,219.........781
Celanese...........................TX....3,017.........323
PPG Industries.....................PA....2,686.........450
Ashland............................KY....2,018.........258
Total 13 Big Chemical Corps.............82,114......13,104

Big Health Care Corps
Pfizer.............................NY...19,123.......2,146
Merck..............................NJ...17,082.......1,407
JNJ................................NJ...14,553.........769
HCA................................TN...11,352.........211
CVS Caremark.......................RI....8,322.......4,307
Abbott Labs........................IL....7,971..........64
Eli Lilly..........................IN....7,941.........505
Commun Health Systems..............TN....6,458.........685
Amgen..............................CA....5,522.........181
Baxter.............................IL....5,260..........47
Bristol Myers Squibb...............NY....4,664..........52
Tenet Healthcare...................TX....4,304.........469
Universal Health Svcs..............PA....3,253.........300
Becton Dickinson...................NJ....3,100.........319
Health Management Assoc............FL....2,665..........55
Covidien...........................MA....2,608.........251
Medtronic..........................MN....2,511..........89
UnitedHealth Group.................MN....2,200.........140
Total 18 Big Health Care Corps.........128,889......11,997

Big Financial Corps
AIG(5).............................NY...41,355.......4,753
Bank of America....................NC...14,306...........0
JP Morgan Chase....................NY...13,355.......3,500
Wells Fargo........................CA....9,644...........0
Morgan Stanley.....................NY....6,154.........180
American Express(6)................NY....2,905.........834
Capital One Financial..............VA....2,749..........66
US Bancorp.........................MN....2,487.........113
Total 8 Big Financial Corps.............92,955.......9,446

Big Food Corps
PepsiCo............................NY...19,058.......1,984
Kraft Foods........................IL...13,792.......1,845
Archer Daniels Midland.............IL....9,500.......1,016
Bunge, Ltd.........................NY....5,312.........179
Tyson..............................AR....3,674.........347
General Mills......................MN....3,346.........395
Kellogg............................MI....3,128.........320
ConAgra Foods......................NE....2,670.........452
HJ Heinz...........................PA....2,505.........940
Smithfield Foods...................VA....2,309.........337
Corn Products Intl.................IL....2,123.........250
Campbell Soup......................NJ....2,051.........221
Total 12 Big Food Corps.................69,468.......8,286

Big Mining Corps
Freeport-McMoran Copper Gold.......AZ...16,785.......3,874
Newmont Mining.....................CO...12,907.........857
CONSOL Energy......................PA...10,129.......1,221
Peabody Energy.....................MO....7,426.......1,242
Southern Copper....................AZ....4,095.........216
Cliff's Natural Resources..........OH....3,979.........223
Arch Coal..........................MO....3,309...........0
Massey Energy......................VA....3,218.........477
Alpha Natural Resources............VA....3,016.........708
Total Big 9 Mining Corps................64,864.......7,633

Big US Defense Contractor Corps
Boeing.............................WA....8,931.......2,644
United Technologies................CT....6,280.........647
Northrop Grumman...................VA....5,042.........521
Honeywell..........................NJ....4,840.......1,113
Lockheed Martin....................MD....4,554.........558
General Dynamics...................VA....2,971...........0
Raytheon...........................MA....2,003.......1,337
Total 7 Big US Defense Contractors......34,621.......6,820

Big Gaming Corps
Caesars Entertainment..............NV...17,767........2,517
MGM Resorts........................NV...14,554........2,732
Las Vegas Sands....................NV...14,502..........293
Wynn Resorts Ltd...................NV....4,921..........236
Total 4 Big Gaming Corps................51,744........5,778

Big Leisure and Entertainment
Carnival...........................FL...30,967............0
Walt Disney........................CA...17,806........4,510
Royal Caribbean....................FL...16,769............0
Time Warner........................NY....3,874............0
Starwood Hotel & Resorts...........NY....3,323...........21
Total 5 Big Leisure&Entertain Corps.....72,739........4,531

Big Forest and Paper Product Corps
International Paper................TN...12,002........2,174
Weyerhaeuser.......................WA....7,375..........692
Meadwestvaco.......................VA....3,255..........839
NewPage............................OH....2,558..........623
Total 4 Big Forest & Paper Corps........25,190........4,328

Big Publishing and Printing Corps
NewsCorp...........................NY....6,542........3,960
RR Donnelley.......................IL....2,139..........275
Total 2 Big Publishing&Printing Corps....8,681........4,235

Big Metal Corps
Alcoa..............................PA...20,161........1,077
US Steel...........................PA....6,486........1,071
Nucor..............................NC....3,852..........407
Steel Dynamics.....................IN....2,213..........449
AK Steel...........................OH....2,033..........385
Total 5 Big Metal Corps.................34,745........3,389

Big Household and Personal Product Corps
Procter & Gamble...................OH...21,239........1,742
Kimberly Clark.....................TX....8,356........1,081
Colgate Palmolive..................NY....3,693..........344
Total 3 Big HH and PP Corps.............33,288........3,167

Big Motor Vehicle and Auto Part Corps
Ford Motor.........................MI...23,179........1,146
General Motors.....................MI...19,235............0
Chrysler...........................MI...15,352..........362
Goodyear Tire & Rubber.............OH....6,165..........383
Paccar.............................WA....3,693..........695
TRW Automotive.....................MI....2,100..........189
Total 6 Big Motor Vehicle& Parts Corps..69,724........2,775

Big High Tech Corps
Intel..............................CA...17,899..........564
IBM................................NY...14,096........1,223
Hewlett Packard....................CA...11,763............0
Corning............................NY....8,943............0
Microsoft..........................WA....8,162............0
Google.............................CA....7,759............0
Micron Technology..................ID....6,601............0
Apple..............................CA....4,768............0
Johnson Controls...................WI....4,096...........40
Cisco Systems......................CA....3,941..........120
Texas Instruments..................TX....3,680...........83
TE Connectivity, Ltd...............PA....2,867...........76
Oracle.............................CA....2,857............0
EMC................................MA....2,528..........103
Qualcomm...........................CA....2,373..........100
Seagate Technology.................CA....2,245............5
Western Digital....................CA....2,224..........116
Xerox..............................NY....2,201............0
Total 18 Big High Tech Corps...........109,003........2,430

Big Beverage Corps
Coca Cola..........................GA...14,727........2,227
Coca Cola Enterprises..............GA....2,220..........190
Total 2 Big Beverage Corps..............16,947........2,417

Big Farm and Construction Equip Corps
Caterpillar........................IL...12,539........1,423
Deere..............................IL....3,791..........521
CNH Global NV......................IL....2,408..........292
Cummins............................IN....2,041..........145
Total 4 Big Farm&Constr Equip Corps.....20,779........2,381

Big Waste Management Corps
Waste Management...................TX...11,868........1,045
Republic Services..................AZ....6,699..........722
Total 2 Big Waste Management Corps......18,567........1,767

Big Misc Manufacturer Corps
Emerson Electric...................MO....3,287..........233
Whirlpool..........................MI....3,134..........103
Owens-Illinois.....................OH....3,107..........169
Owens Corning......................OH....2,754..........379
Eaton..............................OH....2,477..........567
Ball Corp..........................CO....2,048..........221
Illinois Tool Works................IL....2,023...........90
Total 7 Big Misc Manufacturer Corps.....18,830........1,762

Big Other Sector Corps
Phillip Morris Intl................NY....6,499..........395
Sysco..............................TX....3,204..........288
Airgas.............................PA....2,456..........636
Altria Group.......................NY....2,380..........425
CHS................................MN....2,253..........338
Nike...............................OR....2,115..........151
Total 6 Big Other Sector Corps..........18,907........2,233

Total all 319 Big Corps....4,038,514.....654,022

Big Oil & Gas Partnerships
Enterprise Products................TX...19,333
Kinder Morgan Energy...............TX...14,604
Energy Transfer Equity.............TX...11,853
Energy Transfer....................TX....9,801
Enbridge Energy....................TX....8,642
Plains All American Pipe Line......TX....6,691
Boardwalk Pipe Line................TX....6,258
El Paso Pipe Line..................TX....5,692
TransContinental Gas PpLn..........TX....5,024
OneOK Partners.....................OK....4,757
Panhandle Eastern Pipeline.........TX....3,386
NuStar Energy LP...................MN....3,187
Magellan Midstream.................OK....3,179
Southern Natural Gas...............TX....2,495
MarWest Energy.....................CO....2,319
Buckeye Partners...................TX....2,305
Chesapeake Midstream...............OK....2,227
Sunoco Logistics Partners..........PA....2,128
Total 18 Oil&Gas Partnerships..........113,881

Big REITs
General Growth Properties..........IL...28,164
Simon Property Group...............IN...19,797
Equity Residential.................IL...15,365
Prologis...........................CO...11,284
Host Hotels & Resorts..............MD...10,514
Boston Properties..................MA...10,441
HCP................................CA....8,677
Public Storage.....................CA....7,533
Developers Diversified Realty......OH....6,959
Avalonbay Community................VA....6,956
Duke Realty........................IN....6,326
AMB Property.......................CA....5,638
CommonWealth.......................MA....5,507
Ventas.............................IL....5,280
United Dominion Realty.............CO....5,243
MACK Cali Realty...................NJ....3,938
Regency Centers....................FL....3,717
Home Properties....................NY....3,536
Corporate Office Property Trust....MD....3,445
Plum Creek Timber..................WA....3,405
Total 20 Big REITs.....................171,725

Grand Total 357 Big Organizations....4,324,120

============================================

Late Big Utility Corp Additions Not Included in Above Numbers

........................................................PPE.......DTL on
........................................................Net.........PPE..
...........................................................(mils of $s)

SCANA....................................SC..9,662........1,418
AGL Resources.......................GA..4,405..........863
Portland General Electric........OR..4,133..........754
National Fuel Gas...................NY..3,450..........850
Hawaiian Electric Industries...HI..3,166...........375
Southwest Gas.......................NV..3,072..........500
Nicor......................................IL..3,023..........352
Piedmont Natural Gas............NC..2,438..........370
WGL Holdings........................DC..2,346..........429

Total all 9...................................35,695........5,911

Even More Explosive Incentives to Spur Principal Write-Downs of Underwater Home Mortgages

I think it would be helpful to first focus on just whose books all of these Mortgage Loans are on.

Most Loans are classified as Held-For-Investment, thus are recorded on the Balance Sheet at Amortized Cost, thus not at Fair Value.

A pretty high percentage of Mortgage Loans are on the books of 5 companies. At Dec 31, 2010, here are the Loans that were Held-For-Investment at these 5 companies.

……………………………...........(bils of $s)
Fannie Mae
…..Of Fannie Mae…………….......407
…..Of Consolidated Trusts…..2,577
…..Total Fannie Mae……….....2,984

Freddie Mac
…..Unsecuritized……………........192
…..By Consolidated Trusts…..1,646
…..Total Freddie Mac………....1,838

Banc of America……………........940

Wells Fargo…………………..........757

JPMorgan Chase……………........693

Total of these 5 Companies...7,212

Yeah, that’s $7.2 trillion of Loans Held-For-Investment, just on the books of these 5 companies. This is a really big deal, and a key part of the current US economic problem.

There are also Mortgage Loans classified as Available-For-Sale on the books of these 5 companies, which are recorded on the balance sheet at Fair Market Value. But the largest portions of Loans are classified as Loans Held-For-Investment, and are recorded at Amortized Cost.

How big of a problem is Amortized Cost vs. Fair Market Value for these Loans?

Well, if you can believe the company’s audited financial statements and footnotes, both Fannie Mae and Freddie Mac have the Total Fair Market Value of their Loans above their Total Amortized Cost…..and by not a small amount……Fannie Mae by $46 bil and Freddie Mac by $14 bil. That surprised me, and is good news.

On the other hand, two of the three huge commercial companies have their Total Fair Market Value of their Loans below their related Amortized Cost at Dec 31, 2010, as follows…..Bank of America $15 bil and Wells Fargo $11 bil…..that’s not good news. On the positive side, JPMorgan Chase’s Total Fair Market Value of their Loans are above their related Amortized Cost by $3 bil.

Here are the Allowance for Loan Losses as a percentage of Loan Balances at Dec 31, 2010:

Fannie Mae………...2.06%
Freddie Mac………..2.11%
Wells Fargo………...3.04%
Bank of America…..4.45%
JPMorgan Chase…..4.66%

Given the horrible US housing crisis, I was very surprised at how low these Bad Debt assessments are. I thought that they would be much higher. Frankly, I think these companies, and their external auditors, are optimistically dreaming, particularly the first four.

So to solve the US Housing crisis, the country must also deal with the Loans on the books of Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac are in essence the US Government.

Thus, the US Government shouldn’t need to incentivize them to write down the principal balance of all their underwater mortgages.

Perhaps the best way to go here is for both Fannie Mae and Freddie Mac to sell to the US Government at Fair Market Value the portions of all mortgage loans that are more than say 90%, or probably even better, more than 80% of the FMV of the related Homes. That will let both Fannie Mae and Freddie Mac get rid of the clearly toxic portion of all of their Mortgage Loans.

The US Government writes down the principal balance on all of these mortgage loans it acquires to what it paid for them, or Fair Market Value. The home owner is elated, as will be the US housing market and also the US economy.

And Fannie Mae and Freddie Mac both also reduce, in some even-handed manner, the interest rate a bit on all of their remaining home mortgage loans, both the ones that were previously underwater, and also the ones that weren’t underwater.

Also, the US Government reduces the interest rate a bit on these now second mortgage loans it acquires, and the homeowner doesn’t have to make principal payments to the US Government for a period of time, until after the US economy and US unemployment have both gotten much better. And the term of this second mortgage is for 10 years, which matches the CBO scoring period.

The CBO scoring to the US Government should be substantially positive. And both Fannie Mae and Freddie Mac should need no more US Government capital infusions. And if this plan is both wisely designed and well implemented, both Fannie Mae and Freddie Mac should eventually get nice stock price appreciation, most of which will accrue to the benefit of the US Government.

Now back to the commercial financial institutions.

I earlier proposed very explosive tax incentives for these financial institutions to either write down their principal balances of underwater home mortgages or to sell to the US Government at Fair Market Value the portions of all mortgage loans that are more than say 90% of the Fair Market Value of the related homes.

The huge carrot here was explosive acceleration of Loan Loss Provision US federal income tax deductions in the year these underwater loans are either written down or sold.

But these large financial institutions have repeatedly shown that their patriotism to their company and to their own pocketbooks far exceeds their patriotism to the US.

Thus, I think it would be wise to add a stick to this carrot tax incentive approach.

I would also require all large financial institutions, which obstinately choose neither to write down their underwater first and second home mortgages, nor to sell them to the US Government, to get their Total Loan Loss federal income tax deduction for 2012 reduced by a reasonably large percentage of the total underwater amount of all their first and second home mortgage loans that are underwater.

Big Corp Tax Loophole Closer #43: Eliminate Tax-Exempt Investments and Tax Credits of Big Financial Corps

By reviewing income tax footnotes in SEC filings of many Big Financial Corps, including Big Insurance Corps, it just amazes me of the whole-scale US federal income tax breaks that have been given to this industry. Clearly, Big Financial Corps lobbyists have been very effective with the US Congress over the years.

There are four tax breaks most Big Financial Corps have received. Of these four, there are two that clearly dominate in magnitude….Tax exempt investments and tax credits, predominantly earned on low income housing.

The US Government and the Fed have created an economic environment in which the cost of financing by Big Financial Corps is incredibly low.

And particularly given that even in this really low cost of financing environment, Big Financial Corps have still been so reluctant to make loans, it makes no sense to me that the US Congress permits these Big Financial Corps to make tax-exempt investments.

I call what the Big Financial Corps are doing here “piling on”.

And given how horrible the US housing crisis has been on homeowners, just how have all of these housing tax credits granted to Big Financial Corps worked out? Clearly, the only beneficiaries have been the Big Financial Corps granted these huge housing tax credits.

Anyway, below here are the four tax breaks in just the most recent year 2010 that each of the Big Financial Corps have taken advantage of.

..............2010 US Federal Income Tax Benefits Received From.....
...................................................................................Bank
........................................Tax.........Dividend.............Owned
......................................Exempt.....Income......Tax.....Life
....................................Invstmnts.Exclusions.Credits.Insur...Total
.................................................(in million of dollars).....................
Big Financial Corps
Bank of America(1)....NC....981.........................732..............1,713
JPMorganChase.........NY...597.........................920..............1,517
Wells Fargo................CA...283...........291.........577....223...1,374
Fannie Mae(2)...........DC....183..........................888..............1,071
Citigroup...................NY...883................................................883
Freddie Mac(3)..........VA...213..........................585................798
US Bancorp...............MN...214..........................462................676
PNC Fincl Services.....PA.....53............57..........175......73......358
Morgan Stanley.........NY...105..........................223................328
GE Capital Services....CT....................................291................291
BB&T.........................NC....125..........................105................230
Goldman Sachs..........NY...129............................90................219
Key Corp...................OH.....17...........................117......48......182
SunTrust Banks..........GA....74.............13............88................175
Fifth Third Bancorp...OH.....34...........................133................167
Regions Financial......AL.....23...........................102......33......158
Capital One Fincl(4)...VA...................................158................158
Bank of NY Mellon.....NY....85.............................66................151
Ameriprise Financial.MN....13.............69............33................115
American Express.....NY...113.................................................113
State Street Corp.......MA....75.............................27...............102
HSBC USA..................NY....12.............................86.................98
Santander Hldgs US....PA....26............................40.......19.......85
Comerica...................TX.....................................49.......15.......64
M&T Bank..................NY....32.............................30.................62
Huntington Banc........OH.....7.............................23.......21.......51
Marshall & Ilsley........WI....14.............................15.......16.......45
First Horizon Natl......TN.....................................24.......10.......34
Zions Bancorp............UT....22..............................9...................31
NY Community Banc..NY...10...............................6..................16
BOK Financial.............OK.....5...............................6........4.........15
Commerce Bancshs....MO....13...................................................13
Northern Trust............IL....11...................................................11
Total 33 Big Fincl Corps..4,352.........430.......6,060....462..11,304

Big Insurance Corps
AIG...........................NY...587.........108.................................695
Berkshire Hathaway..NE.....27.........477.................................504
Travelers..................MN...476...............................................476
MetLife.....................NY...242............................82................324
Hartford Fincl Svcs...CT....152..........154.................................306
Prudential Fincl........NJ....214............................58................272
Chubb.......................NJ....241................................................241
Allstate.....................IL....176................................................176
Lincoln National.......PA...105............................42................147
Loews.......................NY....85..................................................85
CNA Financial...........IL.....84..................................................84
UnitedHealth Grp.....MN....65..................................................65
WR Berkley................CT....63..................................................63
Cincinnati Fincl........OH.....36.............19.................................55
WellPoint(5).............IN.....53..................................................53
Progressive Corp(6).OH....19..............30................................49 Cigna(7)...................PA....34..................................................34
Genworth Fincl........VA....32..................................................32
HCC Insurance(8).....TX....27..................................................27
Humana...................KY....24..................................................24
Torchmark...............TX......3.............................13..................16
American Fincl Grp..OH....16..................................................16
Assurant..................NY.....8................5.................................13
Principal Financial...IA......3..............10.................................13
Total 24 Big Insur Corps.2,772........803..........195.....0....3,770

Total 57 Big Financial &
.....Insurance Corps.......7,124......1,233.......6,255..462...15,074

It should be pointed out that the tax break on the Tax Advantaged Investments shown above is just the 35% tax rate on tax exempt income, as is disclosed in these companies’ income tax footnotes. The real tax cost here to the US government would be much higher than the amounts shown above, since the interest yield on taxable investments is substantially higher than that on tax exempt investments.

Yeah, that’s right, $15.1 bil of US federal income tax breaks in only one year.

My proposal here is to eliminate all four of these tax breaks given to Big Financial Corps.

Let me project the positive CBO scoring on this, just for the above Big Financial Corps.

I’ll start with the $15.1 bil of 2010 total tax breaks. And for the Tax Exempt Investment tax break, I’ll gross it up to convert it to the tax receipts on taxable investments. And I’ll assume the total tax breaks grow by 5% per year.

For the ten years 2012 to 2021, the positive CBO scoring is $262 bil. For the second ten years 2022 to 2031, the positive CBO scoring is another $427 bil.

The actual numbers will be much higher due to several factors. First, my numbers are just for the Big Financial Corps that I found, and there are many others. And second, the interest rates are extremely low now, and shouldn't continue like this for the entire long-term CBO scoring period.

And if it were concluded that the above tax breaks closed would also apply to Non-Financial Big Corps, then the positive CBO scoring would be substantially higher than the above numbers.

All of the tax proceeds under my proposal here should be used to reduce the US Deficit.

And it is very difficult for me to understand how the US Congress would require a reduction of Medicare benefits in lieu of closing these egregious tax loopholes of Big Financial Corps.

Explosive Tax Incentives for Research & Development

The real beauty about all US companies having their US R&D expenditures being stepped up is that US job creation almost automatically flows from it.

Why is that?

Because the overwhelming majority of R&D expenditures are people costs. If a business decides it is in its best economic interests to step up R&D spending, it will hire more people.

It's that simple.

And nothing is going to make the US more competitive in the long run than to invest in R&D today.

Given the just horrible US job situation, I am proposing here to double for the remainder of 2011, the R&D tax credits from the present 20% to 40% for all purely domestic companies and also for smaller multinational corps. And for all of 2012, the R&D tax credits for these companies would be increased from 20% to 30%.

The above smaller global corps would have the option of paying for all of their R&D tax credits earned in both all of 2011 and in all of 2012 by the additional federal income tax resulting from having some of their foreign earnings repatriated, which should be given an incentivized dividend received deduction of perhaps 30% or 40%. The Suits can decide the fair, most effective discount percentage here.

For all really large multinational corps, I would increase the R&D tax credits from 20% to 30% for the remainder of 2011, and from 20% to 25% for all of 2012, but they would be entitled to no R&D tax credit in either all of 2011 or in all of 2012, except to the extent it is 100% funded by a like amount of US federal income taxes from repatriating their foreign earnings used just for this purpose. I would consider granting these large global US companies an incentivized dividend received deduction of perhaps 10% to 20% on these foreign earnings repatriated used only to 100% fund their R&D tax credit. The Suits can decide the fair, most effective discount percentage here.

And the Suits can also decide the above key fair cutoff between the larger multinational corps and the smaller multinational corps. Perhaps, the Suits might decide it would be fairer to break down the multinational corps into more than just two groups.....smaller and larger. I would have no problem with that.

When I do the math, the above is more than paid for.

How could that be?

It's because of the substantial amount of additional US tax receipts that will come in from the foreign earnings repatriation. And these additional US tax receipts are not just on the increased R&D percentage related to multinational corps.

The twist here that pays for it all is that there will now be incremental US tax receipts from the foreign earnings repatriation on the existing 20% R&D tax credit for global companies. And these incremental foreign earnings repatriation taxes will be tied in to all of the R&D tax credits for all of 2011 and all of 2012.

Thus, it should more than cover the additional US government tax outflows from the increase in the R&D percentage from 20% to 40% for the rest of 2011, and from 20% to 30% for all of 2012, for the purely domestic companies.

Any excess funding raised here from the positive CBO scoring should be used on wisely designed, fairly selected, and quickly implemented US infrastructure investments.

Big Corp Tax Loophole Closer #42: Eliminate Big Financial Corp Tax Advantaged Leasing

Presently, many Big Financial Corps use very favorable tax-advantaged lease transactions, when they lease out all kinds of property.

This tax-advantaged leasing permits these Big Financial Corps to report taxable income from many leasing transactions substantially slower than the way these transactions are recorded in their audited financial statements under US Generally Accepted Accounting Principles (GAAP).

To show how huge this tax loophole is, below here are the related Deferred Income Tax Liabilities at Dec 31, 2010 of a handful of Big Corps that use lease financing.

The Deferred Income Tax Liability is the tax effect of the difference between the tax-advantaged finance leasing that Big Financial Corps are using to reflect these lease transactions in their federal income tax returns and the much more economically logical approach to record these leasing transactions that US GAAP requires.

Deferred Income Tax Liability on Leasing Transactions
December 31, 2010
......................................millions of dollars

Big Financial Corps
GE Capital Services...................10,980
Toyota Motor Credit Corp US......6,061
Wells Fargo.................................3,703
Bank of America..........................2,957
US Bancorp..................................2,269
JPMorgan Chase..........................2,160
Boeing Capital Corp.....................1,551
Ally Financial..............................1,545
PNC Financial Services................1,153
Bank of NY Mellon.......................1,093
Key Corp.....................................1,033
Fifth Third Bancorp........................801
SunTrust Banks..............................701
CIT Group......................................685
State Street Corp............................463
Northern Trust...............................382
Regions Financial...........................303
M&T Bank.......................................295
Comerica........................................287
BB&T...............................................211
Total 20 Big Financial Corps.......38,633

Non-Financial Corps
Verizon Communications.............1,980
IBM..............................................1,950
Ford................................................928

Grand Total of all 23 Corps..........43,491

Given that this very quick review resulted in 23 Big Corps taking advantage of this existing lease accounting tax loophole, which amounted to $43.5 bil at 2010 year end, the positive CBO scoring to the US Government over the next ten years of eliminating this egregious tax loophole will amount to clearly more than $100 bil.

The economic damage to Big Financial Corps from this proposal is substantially softened here due to this corporate tax loophole closer being treated as a Temporary Tax Difference under US GAAP. The total federal income taxable income for these leasing transactions will be the same over the long run. Thus, there will be no income tax charge to the income statements of these Big Corps from my proposal here.

Given the country's massive debt level, this tax leasing loophole should clearly be closed.

And all of the money raised here should be used to reduce the US Deficit.

Big Corp Tax Loophole Closer #41: Big Financial Partnerships and Big Mutual Insurance Companies

In thoroughly studying financial statements of Big Financial organizations, I am just amazed at how many large Financial Partnerships I have run across.

And so many of these Financial Partnerships are extremely profitable, particularly on an after-tax basis, since they pay so little in US federal income tax.

Just to cite one here of the many, New York-based KKR generated Pretax Income of $7.9 bil in 2010 and another $6.9 bil in 2009. So what was KKR’s Total Income Tax Expense for those two years combined? Would you believe only $112 mil? It’s true.

And there are so many huge Big Financial Hedge and Big Financial Trading firms.

Also, there are so many huge Mutual Insurance Companies that pay so little in US federal income taxes.

Let me give some brief information of just three of them.

New York Life Insurance generated Pretax Income of $2.5 bil in 2010 and another $1.8 bil in 2009. How much current federal income tax did it pay for those two years combined? Would you believe only $145 mil? It’s true. New York Life also has Total Equity at Dec 31, 2010 of a monstrous $25.5 bil.

USAA, based in Texas, generated Pretax Income of $3.6 bil in 2010 and another $4.3 bil in 2009. And its Total Equity at Dec 31, 2010 is $18.7 bil.

Liberty Mutual Group, based in Massachusetts, generated Pretax Income of $2.3 bil in 2010 and another $1.2 bil in 2009. And its Total Equity at Dec 31, 2010 is $17.0 bil.

In addition to the above three, here are another ten of the many Big Mutual Insurance Companies, paying so little in US federal income tax:

Illinois-based State Farm
Massachusetts-based MassMutual
NY-based TIAA
Ohio-based Nationwide Insurance
Rhode Island-based FM Global
Wisconsin-based Northwestern Life
Wisconsin-based American Family Insurance
California-based Pacific Life Insurance
NY-based Guardian Life Insurance
Nebraska-based Mutual of Omaha

When the country faces such an incredibly high debt, I think the last thing we want to do is to permit any of these Big Financial Partnerships, Hedging and Trading Companies and Big Mutual Insurance Companies, which are paying so little in US federal income taxes, to be able to do that.

My proposal here is that all Big Financial Partnerships and Big Financial Hedge and Trading Firms, which are paying so little in US federal income tax, should be taxed, for federal income tax purposes, as a normal corporation would be.

Also, I think that all annual excess profits of Mutual Insurance Companies should be federal income taxed. And an excessive hoarding of Equity by these Mutual Insurance Companies should also be federal income taxed.

The Feds can determine what an excess amount of profits and equity would be for these Big Mutual Insurance organizations.

All of the tax proceeds raised here should be used to reduce the massive US debt.

Business-Run Technology Training Centers in High Unemployment Areas

This proposal deals with new and existing businesses establishing their own very high quality technology training centers in high unemployment areas all over the country. The advanced technology training would not just be computer-related high technology, but also green technology, advanced manufacturing technology, medical technology, and other high technology areas.

The technological training would be very rigorous and would need to get approved by the US Dept of Education.

Full-time employed people would not be eligible to take these rigorous technology training courses.

The amounts charged for this technology training will be reasonable in amount and must be approved by the US Dept of Education.

The students taking this technology training can either pay the business performing the technology training directly, or instead could elect to have it paid for later by having it withheld from their pay after they find a job.

Unlike other education loans, these business-run technology training fees owed could be eliminated if the student later files for bankruptcy.

A person getting this high technology training and subsequently finding a job, gets his first $10,000 of wages in 2011, and first $35,000 of wages in 2012 tax free, for both US federal income tax purposes and also for payroll tax purposes, but only if the company he now works for withholds from his pay, in some reasonable manner, the amount owed to the business that performed his high technology training.

The business hiring these technology-trained students would also get its normally matched share of payroll taxes on these students tax free.

The teachers in these very high quality technology training schools would get their first $10,000 of wages earned teaching there in 2011 and first $35,000 of wages earned there in 2012 tax free for payroll tax purposes. And if these teachers have education loans, they will be reduced by 25% of the wages earned teaching these courses in both 2011 and 2012.

Explosive Tax Incentives for Whole-Scale US Commercial Building Upgrades

My proposal here is to give highly-charged accelerated tax depreciation for all Commercial Building Upgrades and all new Commercial Buildings built in either the rest of 2011 or in all of 2012.

And my proposal will do it wisely without a CBO scored cost to the US Government over either the next 10 years, or frankly forever.

Presently, for US federal income tax purposes, real property tax deprecation on both new buildings and on remodelings of existing buildings is spread over many years, much longer than the ten-year CBO scoring period.

My proposal here is to allow businesses of all sizes that make commercial building remodelings or build new commercial buildings in the remainder of 2011, or in all of 2012, to get first-year tax expensing of the entire first 9 years of tax depreciation, which is allowed presently under the tax rules, on these type of building expenditures.

Then, the tax basis of the building investment made gets reduced for this highly accelerated first-year tax depreciation taken.

Thus, there would be no tax depreciation deductions allowed on this building improvement in the following 8 years.

And then, all tax depreciation taken after the first 9 years under present tax law, would be dramatically accelerated in some fashion, such as by cutting the remaining tax life in half, and thus doubling the previous annual tax depreciation starting in Year 10.

This highly incentivized scheme doesn’t change total real property tax depreciation, it just accelerates it dramatically from Years 2 through 9 to Year 1. And it also accelerates it starting in Year 10.

Because you are just moving total tax depreciation around among years, there shouldn’t be any long-term CBO scoring cost to the US government for this initiative.

And then to really help small and medium-sized businesses, as well as larger business in a federal income tax loss situation, particularly those in the Rust Belt, I would also let them choose a first-year tax equivalent refundable 35% investment tax credit, in lieu of the first-year highly accelerated real property tax depreciation resulting from this initiative.

And a company choosing this 35% investment tax credit option will not be allowed any tax depreciation deduction in the first 9 years. And then after reducing the tax basis of this building investment by the appropriately equivalent pretax amount, it would start tax depreciation in the 10th Year, on a very accelerated basis.

In addition, these Commercial Building Remodelings and new Building expenditures would be among those allowed as eligible property additions in my Explosive Jobs & Investment Tax Credit (EJ&ITC) combination proposal I previously offered in a recent earlier post.

Explosive Incentives to Spur Small Business Job Creation

Some of my recent earlier proposals are designed to clearly foster small business job creation in the US.

My Explosive Jobs and Investment Tax Credit proposal has much higher Jobs Tax Credits ceiling amounts for smaller businesses than for larger businesses.

Many potential small business people are stymied in starting or expanding a business by having Underwater Home Mortgages. My Explosive Incentives to Spur Principal Write-Downs of Underwater Home Mortgages helps them relieve a lot of this financial pressure. Also, it has higher Accelerated Loan Loss Provision federal income tax deductions for smaller financial institutions than for larger ones. And further, it allows a front-end refundable tax benefit for these Accelerated Loan Loss Provisions of smaller financial institutions that can’t get the immediate tax benefit from them.

My Improving the US Livable Wage Deficit proposal eliminates the entire 6.2% payroll taxes on the first $35,000 of wages of all employees in 2012.

My Turning First-Year Steeply Accelerated Tax Depreciation into a True Job Creator proposal lets small businesses elect an upfront tax equivalent tax credit in lieu of 100% tax expensing for their equipment purchases in the rest of 2011 and all of 2012.

Now let me add to these small business job creation proposals.

Upfront Refundable Tax Benefits for Research Expenditures

Many business start-ups aren't able to receive the tax benefits from their research and experimental costs in the first year, or even in the first several years, because they are operating at a taxable loss in the initial years of their businesses.

The tax benefits here relate to both the federal income tax deduction for research and experimental costs incurred as well as the tax credit related to the increased research expenditures.

A significant part of these research expenditures relate to the hiring of new employees, who perform the necessary research to grow the innovative business.

This lack of upfront cash inflow is a clear obstacle to start up or to expand an innovative business, where substantial upfront research expenditures are necessary, but the economic benefit to the business can be way down the road.

Thus, my proposal to make US businesses more competitive, and at the same time to increase job hiring, is to permit small and medium-sized businesses to get an upfront refundable federal tax benefit for both the tax deduction of their research costs incurred and also the tax credit for their incremental research expenditures incurred, in either the remainder of 2011, or in all of 2012.

The upfront cash infusion from these refundable research tax benefits will spur innovative small business start ups. With the Great Recession, and saddled with a high debt load from financing their college educations, and perhaps from even having underwater home mortgages, prospective entrepreneurs are devoid of the cash necessary to start up a new innovative business.

There is another key initiative that would add juice to the job creation coming from this Research Tax Incentive. Since 40% of the graduate students in the country’s very best research universities are foreign students, then the last thing we should be doing is kicking these foreign students out of the country after they get their graduate degrees. They are needed here to grow the US economy. They are prime job creators.

There will be no long-term CBO cost to the US Government for a clear majority of these upfront research tax benefits granted by the US government. These businesses are getting the same research tax deductions and research tax credits in the long run, it's just that under this proposal, they are just being accelerated to spur business start-ups, immediate job creation and innovation.

Seven IRS Processes Severely Hurting Small Businesses

During the Bush/Cheney Presidency, I had two years of my micro small business tax returns audited by the IRS in a 100% tax audit of every item. When I think about this tortuous, extremely lengthy tax audit process, seven items come quickly to mind, explained in detail below, which I think will be extraordinarily helpful for small business success, and job creation.

As I’m sure you will conclude here after reading all of my below comments, that the question that has to be asked is…..why in the world would anyone in their right mind want to start a small business, when there is such an unfriendly-to-business, harassing, incompetent, and patently unfair IRS audit process just waiting to pounce on, and consume so much time of, the small business entrepreneur?

#1 Safe Harbor Total Home Office Federal Income Tax Deduction

So many small businesses are run out of the owner’s home. And with the Internet, this trend is growing, and will continue to explode.

A small business owner should not have to spend the incredible amount of time necessary to support all of the many tax deductions for having his small business operating out of his home. I spent hundred of hours researching and supporting all of my many home-office tax deductions.

And I spent many hundreds of additional hours defending my tax deductions in an incredibly grueling IRS audit running nearly four years of time. I’m not kidding.

The logical solution here is for the IRS to allow as a simple option a standard “Safe Harbor” Home Office Total Federal Income Tax Deduction.

Thus, the small business owner can spend his time growing his business, and creating jobs, rather than continually having to deal with incompetent, bungling, harassing IRS Agents in a clearly unnecessary IRS tax audit, involving so many issues that are so immaterial in amount.

Under my proposal, a small business owner can elect to claim his/her Home Office federal income tax deductions in the very lengthy, time-consuming way. It’s just that a very simple “Safe Harbor” amount could be elected instead.

#2 Safe Harbor Total Automobile Expenses Federal Income Tax Deduction

So many small businesses have one or more automobiles that are used in their small businesses.

The time necessary to prepare Mileage Logs is an incredible time-consuming burden. My hunch is that many small businesses don’t prepare these Mileage Logs contemporaneously, as the IRS requires.

A small business owner should not have to spend the incredible amount of time necessary to prepare these contemporaneous Mileage Logs. This time is much better spent growing his small business and creating jobs.

And if you don’t prepare detailed contemporaneous Mileage Logs, in a tax audit, I found that the IRS will tell you to prepare them in detail, after the fact. However, after spending hundreds of hours recreating these Mileage Logs over a two year period, as best as I could, the IRS agent then decides not to accept the overwhelming majority of these Mileage Logs. And even when there is clear documentation where the automobile went on specific dates. I’m not kidding.

There clearly is something wrong here.

The logical solution is for the IRS to allow as a simple option a standard “Safe Harbor” Automobile Expense Total Federal Income Tax Deduction.

Under my proposal, a small business owner can elect to claim his Automobile federal income tax deductions in the very lengthy, time-consuming contemporaneous Mileage Log way. It’s just that a very simple “Safe Harbor” amount could be elected instead.

#3 IRS Appeals Process Stopping to a Halt

I appealed my tax audit findings. I was told that this Appeal would be completed by a certain date.

Instead, the IRS Appeals Officer elected not to do the necessary work on my Appeal.

In all fairness, there should be an IRS process in place where if the IRS asserts that the Appeal will occur within a certain period of time, and the work by the Appeal Officer is not done by then, and in my case it was not even started, then the whole amount in dispute should be thrown out.

#4 IRS Avoidance of Settlement of Items in Dispute

At every level of my IRS audit, the IRS refused to even attempt to settle any of the many items that were in dispute.

The logical solution here is that if the IRS refuses to try to settle an audit at any level, all the way up to and including the Tax Court, then the whole amount in dispute should be thrown out.

#5 IRS Lack of Technology Use in Communications with the Taxpayer

In a tax audit, all levels of the IRS communicates with the taxpayer only by snail mail. This archaic, ineffective process stops the audit progress to a walk, and no doubt contributed much to the more than 1,500 hours I spent on my IRS audit.

In addition, during my IRS audit, many IRS employees refused to return my phone calls. My hunch is that there were many more than 100 of my phone calls that were not returned by the IRS. I'm not kidding.

This clearly slows down the IRS audit process.

The logical recommendation is for the IRS to get with the times and use email and other technological advances in its communications with the taxpayer being audited. And as a common courtesy, all IRS employees should be required to return all US taxpayer phone calls.

#6 IRS Inappropriate Handling of Casualty Losses

What I surprisingly discovered in my IRS tax audit was a whole-scale, dishonest effort by the IRS to prevent clearly legitimate casualty loss tax deductions, like those caused by devastating tornadoes.

And in my case, it even went so far as an IRS Agent taking pictures of our severely damaged tornado property after the tornado hit, and backdating these pictures to a date before the tornado hit to make it appear to an IRS engineering expert making an evaluation of the casualty loss that the devastating damage to our property occurred before the tornado hit.

And this incredible strategy worked.....in her official report, the IRS engineering expert disallowed our whole casualty loss because she concluded that the devastating damage to our property wasn't caused by the tornado, but was there before the tornado hit. I'm not kidding.

The logical proposal here is that when a devastating tornado or other similar act of nature hits a community, and there have been so many of these in the US, instead of taking whole-scale measures to both discourage legitimate casualty losses from being claimed and to prevent legitimate casualty losses claimed from being allowed in tax audits, the IRS should instead take the high road and do just the opposite.

The IRS should publicly and widely communicate to the community devastated by tornadoes and other acts of nature the steps taxpayers should take to obtain legitimate casualty losses tax deductions for tornado and other similar damages. And the IRS should train its IRS Agents on the proper approach to fairly audit casualty losses claimed by taxpayers on tax returns.

#7 IRS Disallowance of Clearly Legitimate Items

I found that a widespread practice of some IRS Agents is to disallow certain items in a tax audit, even though it is clear that they know they have no basis for doing so. They will claim otherwise, but clearly on some items disallowed, they know they have absolutely no basis.

What I also found is a whole-scale effort throughout the IRS, and by other US Government Agencies, to protect an IRS Agent who follows such a tax audit strategy.

My proposal is that in such situations, there should be an automatic Federal Prosecutorial Process option, outside of both the IRS and the FBI, and directly with the US Dept of Justice, which is available for the US citizen being audited to be easily able to pursue.

What this will do is to stop a substantial amount of the widespread IRS disallowance of clearly legitimate tax deductible items in tax audits.

Turning First-Year Steeply Accelerated Tax Depreciation into a True Job Creator

Presently, there is 100% first-year tax expensing for equipment purchases in the rest of 2011, and 50% first-year bonus tax depreciation for equipment purchases in all of 2012.

To stimulate presently dormant US economic growth, my first proposal here is to up the 50% first-year bonus tax depreciation in 2012 to 100% first-year tax expensing.

The 100% first-year tax expensing is indeed a substantial first-year earnings generator for US Big Corps. The 50% first-year bonus tax depreciation is also a nice first-year earnings generator for US Big Corps.

However, neither of them are job creators. When I study past implementations of 50% bonus tax depreciation, this non-job-creating conclusion is pretty clear cut.

Also, they are both substantial short-term drains on US Government financial coffers.

So, the question to be raised is why in the world would the US Government permit 100% first-year tax expensing and 50% first-year bonus tax depreciation?

I think the answer is that the Big Corps again hustled the Obama Administration and the US Congress by deceptively convincing them that it would create tons of full-time US jobs. What absolute, complete self-serving hogwash.

At some point, I think the US Government will get wiser and realize that it can’t trust US Big Corp assertions like these.

Although they will all publicly say otherwise, the overwhelming majority of US Big Corps have no interest in full-time US job creation for their individual firms. They are only interested in their Corporation’s profits. They work for their stockholders. Their patriotism to their stockholders far out-trumps their patriotism to their country.

Given this unfortunate selfish environment, I still think there is a wise way to turn 100% first-year tax expensing for equipment purchases into a true job creator, and to do so cost effectively.

My proposal here would not permit 100% first-year tax expensing in either the rest of 2011, or in all of 2012, unless a business also has a sufficient number of net new jobs added in the period the equipment is placed in service. The Feds can decide the proper amount of accelerated tax depreciation to be permitted per net new job added.

In addition, there should be tax depreciation recapture in situations where the businesses getting 100% first-year tax expensing don’t retain these net new job additions for a certain period of time, like for four years.

In addition to being a true job creator, such an approach also spends US Government funds wisely. If the business purchasing equipment doesn’t add to their full-time job count, it doesn’t cost US taxpayers a dime in the first year.

Also, US taxpayers get their money back later if the business getting first-year 100% tax expensing, doesn’t retain its full-time employee adds for a reasonably long period of time.

And to help smaller businesses, and also larger businesses in a tax loss situation, I also would give all businesses a choice. They could either take the 100% first-year tax expensing for the remainder of 2011 and all of 2012, or they could instead choose an upfront tax equivalent refundable tax credit, with no subsequent tax depreciation allowed.

This latter approach fairly lets smaller firms and troubled larger firms get the same economic benefit from first-year 100% tax expensing as that received by Big Corps.

In addition, the latter approach makes it much more likely for smaller business and troubled larger businesses to get financing for an equipment purchase.

Improving the US Livable Wage Deficit

The gap between the US rich and every one else continues to widen sharply.

And it is becoming tougher and tougher for the many employed to live on the wages they receive.

Further, a clear forgotten group are the “Underemployed”, many of whom work two or three part-time jobs, for meager wages, just to survive. And so many of these Underemployed are recent college graduates, with substantial education debt.

My proposal here improves this horrible situation for 2012, and at the same time, stimulates consumer spending and US economic growth.

The 2% payroll tax holiday in 2011 was on the entire present Social Security base wages of $106,800. Thus, anyone making above $106,800 in 2011, received a payroll tax cut of 2% X $106,800, or $2,136 in 2011.

This 2% payroll tax holiday goes away in 2012.

My proposal here is to eliminate the entire 6.2% payroll taxes on the first $35,000 of wages in 2012. For someone making $106,800 or above, that will make them whole in 2012 with the payroll tax cut they received in 2011.

But this proposal really helps the working stiffs who are really struggling, particularly the neglected Underemployed.

To pay for this, I would reinstate the 6.2% payroll tax on all wages earned in 2012 above a certain level…..ideally wages above $1 million. The Feds will have to do the math to determine the exact minimum higher level of wages needed to apply the 6.2% payroll tax rate to in order to balance out in total the payroll tax cut for those making less than $106,800. My rough math says it could be a bit less than $1 million, but certainly more than $500,000.

Bonus Employer Jobs Tax Credit for High Unemployed Groups

In the most recent month of July 2011 US Bureau of Labor Statistics, here are some key Unemployment Rates for specific groups:

.....All Overall........9.3% (seasonally adjusted)
.....All Black..........15.9%
.....All Hispanic.....11.3%
.....All Veterans....10.3%

And then, focusing on more specific groups, with high unemployment rates:

.....Black Men 20 and over.......17.0%
.....Black Women 20 and over..13.4%
.....All Blacks 16 to 19..............39.2% (seasonally adjusted)
.....All Hispanics 16 to 19.........36.2% (not seasonally adjusted)

Veterans
.....Gulf War-era I Vets.........9.2%
.....Gulf War-era II Vets......14.1%

In all fairness, given the above very high Unemployment Rates, my proposal here gives additional Employer Jobs Tax Credits for adding employees in the higher Unemployment Rate Groups.

In my earlier proposal on Explosive Jobs & Investment Tax Credit (EJ&ITC), my recommended floor for the Employer Jobs Tax Credit was $10,000 for one net job addition. My proposal here is to increase this floor for one net job addition in these High Unemployment Groups, as follows:

Gulf War-era I Vets.....+$2,500
Gulf War-era II Vets...+$5,000
All Blacks...................+$5,000
All Hispanic...............+$5,000

Thus, a business which has 100 full-time employees at the beginning of the period, who are Gulf War-era II veterans, and which has 105 full-time employees at the end of the period, who are Gulf War-era II veterans, would have its Employer Jobs Tax Credit floor increased by $5,000 for each of these 5 net Gulf War-era II veteran additions.

In my earlier proposal on Explosive Jobs & Investment Tax Credit (EJ&ITC), my recommended tentative ceiling for the Employer Jobs Tax Credit for one net addition varied based upon Business Size, as follows:

Smallest Businesses.....$30,000
Smaller Businesses......$27,000
Mid-Sized Businesses...$25,000
Larger Businesses.......$22,500
Largest Businesses......$20,000

My proposal here is to increase this tentative ceiling for the Employer Jobs Tax Credit for one net job addition in these High Unemployment Groups, as follows:

Gulf War-era I Vets.....+$2,500 X 2.5 = $6,250
Gulf War-era II Vets....+$5,000 X 2.5 = $12,500
All Blacks...................+$5,000 X 2.5 = $12,500
All Hispanic...............+$5,000 X 2.5 = $12,500

Thus, a Business Classified as "Smallest Business" which has 20 full-time employees at the beginning of the period, who are Hispanic, and which has 25 full-time employees at the end of the period, who are Hispanic, would have its tentative Employer Jobs Tax Credit ceiling increased by $12,500 for each of these 5 net Hispanic additions. Thus, its tentative ceiling for the Employer Jobs Tax Credit for one net Hispanic addition would increase from $30,000 to $42,500.