Lunch Links: OECD Raises U.S. Growth Projections Based on Trump’s Economic Plans; Compromise Support for D.C. Payroll Tax for Paid Leave; N.J. Gov. Christie Reverses Stance on Tax Reciprocity Pact
November 29, 2016
Today is November 29, the date in 1977 when the U.S. Supreme Court decided Commissioner v. Kowalski, which held that taxable income includes cash payments replacing a previous employer-provided direct benefit.
Robert Kowalski was a New Jersey state trooper who did not report as income on his tax return $1,371.09 in meal allowances he had received. In 1949, New Jersey began providing state troopers with a meal stipend for each day they were on duty, replacing a previous system where troopers had to go to designated meal stations during their shifts. The state found it more efficient as it reduced costs, gave troopers more flexibility, and didn’t require troopers to leave their duty areas to eat. Kowalski pointed to section 119 of the Internal Revenue Code, which excluded from taxable income any meals provided to an employee by his employer on the employer’s business premises.
Justice William Brennan, writing for the Court majority, rejected Kowalski’s argument. The Court held that the cash payments were income, and must be included in taxable income unless excluded or exempted by the Internal Revenue Code. Section 119, the only possible exclusion, excluded provided meals from taxable income but not cash allowances for meals. Congress had enacted the law to clarify when meals could be deducted or excluded and when they couldn’t, and Congress had not chosen to exclude cash payments.
Justice Harry Blackmun and Chief Justice William Rehnquist dissented, arguing that section 119 could apply since the entire state of New Jersey was “the premises of the employer,” and that the ambiguity of the statute in this area should be resolved in favor of the state trooper. They also noted unfairness in permitting exclusions for meals purchased by federal military personnel and overnight business travelers, but not state troopers.
Here are some interesting links I came across:
OECD Raises U.S. Growth Projection: Citing President-elect Trump’s planned tax cuts and infrastructure spending, the Economic Forecast Summary by the Organization for Economic Cooperation and Development (OECD) raised its U.S. growth forecast for next year from 2.1 percent to 2.3 percent. It projects U.S. growth will reach 3 percent in 2018, the highest level since 2005. (OECD / Fortune)
D.C. Payroll Tax for Paid Leave Advances: D.C. Council Chairman Phil Mendelson (D) released his compromise paid leave proposal, which would impose a 0.62 percent payroll tax on non-government employers, to fund up to 11 weeks of paid leave (90% of salary on the first $46,000, then 50% of salary, up to a cap of $1,000 per week). Employees could only take it once per year and only for new children or taking care of an ill parent or grandparent, not for their own illness. The tax would be collected starting in 2019 and the benefit could be used beginning in 2020. The payroll tax would be on employers due to congressional restrictions on taxing Maryland and Virginia residents who work in D.C. An earlier proposal had a 1 percent tax funding 16 weeks of benefits, but the numbers didn’t work out. (Tax Foundation)
What’s Next for Marijuana and Banking: Retail marijuana may be budding (sorry) in several states but federal prohibition means the banking industry steers clear of it. Everyone’s wondering if President-elect Trump has an opinion on the issue. (St. Louis Post-Dispatch)
Christie Reverses, Keeping New Jersey-Pennsylvania Tax Reciprocity: Gov. Chris Christie withdrew his announced withdrawal of New Jersey from a tax reciprocity pact with Pennsylvania, saying state legislators found budget savings from state health care costs. The Associated Press reports several New Jersey employers with Pennsylvania employees had complained about Christie ending the 39-year-old agreement that means New Jersey residents only pay New Jersey taxes even if they work in Pennsylvania, and Pennsylvania residents only pay Pennsylvania taxes even if they work in New Jersey. Back in 1977, New Jersey had a 2.5 percent top income tax rate and Pennsylvania had a 2 percent top income tax rate, so there wasn’t much of a gap; today, New Jersey’s is 8.97 percent and Pennsylvania’s 3.07 percent. (Associated Press)