Bush Budget: Tax Law Crackdown To Raise $29.5 Billion Thru 2017 February 5, 2007Posted by notapundit in US News, White House.
WASHINGTON (Dow Jones)–The Bush administration is launching an effort to collect an estimated $29.5 billion in uncollected taxes, partly through new reporting requirements on securities sales.
The proposals to close part of the estimated $290 billion tax gap are included in the White House’s proposed $2.9 trillion budget plan for the 2008 fiscal year, released Monday.
Overall, President George W. Bush’s fiscal 2008 budget calls for $1.85 trillion in tax cuts over the next 10 years, primarily by making his first-term tax cuts permanent law. As he has in years past, Bush wants Congress to make into permanent law the repeal of estate taxes, reductions in income tax rates, and lower capital gains and dividends taxes. These tax cuts are due to expire in 2011.
Several new proposals this year would address the “tax gap,” a measure of uncollected taxes. The Bush budget would require corporations, investors and merchants to report more details of their business dealings to the Internal Revenue Service. This is part of a move to boost the overall compliance rate with the tax code, which was 86% in 2001.
A key proposal in this expanded “information reporting” includes new reporting requirements for the basis of publicly traded securities, which involves a measure of stock purchase price plus any necessary adjustments. The Bush budget has few details of the plan and a Treasury spokeswoman declined immediate comment.
Underreporting of capital gains resulted in $11 billion of the tax gap, according to a 2001 IRS estimate.
Proposals to address capital gains shortfalls have been made on Capitol Hill, however. Congress’ Joint Committee on Taxation last year proposed brokers to report to the client and to the IRS the adjusted basis of publicly traded securities sold during the preceding taxable year.
One congressional tax expert, Marc J. Gerson of the law firm Miller & Chevalier, said the Democratic-controlled Congress would find such a proposal attractive, particularly under new budget rules that require any tax benefits to be offset with revenue increases.
“Congress will be looking for money and they will gravitate towards this,” said Gerson, a former Republican staff member on the House Ways and Means Committee.
Industry groups have warned about the burden posed by such plans. The Securities Industry Association has said such a tax basis reporting requirement “presents substantial challenges for brokers.”
Other changes to tax information reporting would involve certain payments to corporations, expanded “broker information reporting,” and reporting on merchant payment card reimbursements. It would also require a certified tax identification number from non-employee service providers. And it would require increased information reporting for certain government payments for property and services. The plan also involves increased penalties for incomplete tax information returns.
The Bush budget plan also would expand a variety of tax penalties to deter wrongdoing by tax preparers, punish failure to comply with electronic filing requirements or for filing erroneous tax refunds.
Another major change would involve the airline ticket tax. The budget envisions a $69.7 billion tax cut due to modifying the “Airport and Airway trust fund,” beginning in fiscal 2009. The budget said this proposal involves changing the funding of the Federal Aviation Administration.
“The FAA’s current excise tax system, largely based on taxes on the price of airline tickets, does not have a direct relationship between the taxes paid by users and the air traffic control services provided by the FAA,” the budget said.
“Under the reauthorization proposal, FAA would collect user fees from commercial aviation operators for air traffic control services starting in 2009,” the proposal said.
New initiatives include revamping tax treatment of employer-provided health care. The President’s proposals are designed to encourage more people to buy private health-care policies instead of relying solely on employer-provided plans.
This proposal would cost $121 billion through 2012, but it more than pays for itself through 2017, the budget contends, bringing in $5.15 billion over the 10 year period.
The proposal would classify employer-provided health insurance benefits as taxable income. It would give all taxpayers the same deduction for health insurance, $15,000 for families, $7,500 for singles. As a result, workers with a generous health plan, or “Cadillac” health plans, would pay taxes on the amount exceeding the deduction.
The budget also proposes expanding and making Health Savings Accounts more flexible, a $10.4 billion benefit.
In other areas, the Bush budget proposes $33 billion in tax incentives to boost savings and charitable giving, make health care more affordable, strengthen education and help the environment.
It would permanently extend the corporate research and development tax credit, a proposal made in prior years.
It would repeal two energy tax breaks, such as a more favorable recovery period for natural gas distribution lines and write-offs for geological and geophysical exploration expenses. This would bring in $1.5 billion through 2017.
The budget would extend relief from the Alternative Minimum Tax for one year, in fiscal 2008, at a cost of $47.9 billion. The AMT was created in 1969 and was designed to halt tax evasion by the wealthy.
Congress failed to index the AMT to inflation and so it is capturing an increasing number of middle-income taxpayers in high-tax states such as New York, California and New Jersey.
According to the Congressional Budget Office, with no change in law, the number of taxpayers subject to the AMT is expected to rise from 4 million in 2006 to 39 million by 2017.
By Rob Wells, Dow Jones Newswires