Thursday, Nov. 1, at 11:00 a.m., the House Ways and Means Committee will conduct a mark-up of the Temporary Tax Relief Act of 2007 -- the short-term portion of the broad tax reform bill that Committee chair Rangel unveiled last week. It provides both for a one-year patch for the AMT and for a package extending a number of popular tax credits and deductions for two years.

The Temporary Tax Relief Act will not be introduced with offsets. But it is expected that a set of offsets will be offered as an amendment during the mark-up. While the full complement of offsets has not yet been decided, the two offsets almost certain to be included are one closing the carried interest loophole for fund managers and another disallowing indefinite deferral of compensation earned by companies overseas.

More details as they become available...

The "mother of all tax bills" that House Ways and Means Chair Charles Rangel (D-NY) unveiled last week (see our summary), an effort to fix the Alternative Minimum Tax, provides an easy target for those fixated on how it complies with the House PAYGO rules and see the "mother of all tax hikes."

That talk is cheap, but expensive in the long run. PAYGO compliance spares the country increases in the national debt and accompanying debt service costs.

USA Today's lead editorial today challenges the fiscal rascals who blithely argue that AMT reform shouldn't be paid for because no one intended reform to become necessary:

For those for those who don't like the plan, we have one question: Where's yours?"

Last night, the Senate adopted a seven-year extension of the internet access tax moratorium by voice vote.

Seven years? Why not 11 or 13, which are also prime numbers. How was this number settled on and how did it win approval from Sens. Tom Carper (D-DE) and Lamar Alexander (R-TN), both of whom sought a four-year limit to the ban?

Carper and Alexander offered this, by way of "explanation":

This agreement is a common sense victory both for Internet users and for state and local governments. It continues the moratorium on Internet taxation, avoids unfunded federal mandates on states and cities, updates the definition of Internet access, and allows Congress to revisit the issue after seven years.

So how is it an improvement over the four-year House bill? And what about consideration of these important issues, obviated for the moment -- or until 2014 -- by the voice vote, examining the premise of the moratorium?

• the unfairness of a complete federal, state, and local tax moratorium for a sector enjoying a sustained period of robust growth and innovation;
• the unrealistic probability of states and localities imposing new internet access taxes when not a single one did so when the moratorium was allowed to lapse for 12 months over 2003-4; and
• the lack of a public interest in a moratorium, given studies showing no empirical evidence that internet access rates are lower in states that have levied a tax on Internet access and that internet access taxation has had no statistically discernible effect on computer ownership, and internet access conditional on computer ownership.

And here's why they don't.

October 25 edition of Fox News' Your World, host Neil Cavuto (with a hat-tip to Media Matters):

Throw in a Fox News alert for you. It is being called the mother of all tax hikes. Democrats unveiling a trillion-dollar tax plan today, it includes a 4 percent surtax on people earning $150,000 a year. Now remember when a million bucks was considered rich only last year at this time? So are these tax hikes going to stop people from striving for success?

I suppose Mr. Cavuto is aware that only the most rabid right-wingers would call the Rangel tax plan "a hike." But I certainly hope he's aware that the bill, net-net, is painstakingly revenue-neutral, as the House PAYGO rules require. The only people who are saying that tax reform doesn't need to comply with PAYGO tend to be, um, those same right-wingers.

Mr. Cavuto, take a hike.

The House Ways and Means Committee has released a "very preliminary" scoring of the Tax Reduction and Reform Act of 2007, introduced today by Committee Chair Charles Rangel (D-NY). Here ($).

Posted by Dana Chasin, 07:52:11 PM



Summary of the Rangel Tax Reform Bill

House Ways and Means Committee Chairman Charles Rangel (D-NY)'s revenue neutral $1 trillion tax reduction and reform bill would repeal the AMT after this year at a cost of $795.66 billion over 10 years. This cost would be recovered by a surtax of between 4 percent and 4.6 percent on adjusted gross incomes (AGI) above $200,000 for married couples filing jointly or above $150,000 for single filers, expected to raise $831.7 billion over 10 years.

The bill's individual tax title also

• expands the earned income tax credit at a cost of $29.14 billion
• increases the child tax credit at a cost of $9.12 billion
• raises the standard deduction at a cost of $47.92 billion
• extends all expiring tax provisions for one year at a cost of $21.25 billion over 10 years

The bill's corporate tax title

• reduces the top corporate marginal tax rate from 35 percent to 30.5 percent provides a $384.39 billion and includes $398.417 billion in offsets that would
• repeals the Section 199 domestic production activities, raising $114.93 billion
• modifies the allocation of expenses and taxes on repatriation of foreign income ($106.39 billion)
• repeals the last-in, first-out (LIFO) accounting method over eight years ($106.51 billion.)
• increases to 20 years the amortization period for tax code Section 197 intangibles ($20.70 billion)
• repeals a 2004 provision that has not gone into effect yet that allowed U.S. corporations to elect special interest allocation rules that reduce the amount of interest expense allocated to foreign assets ($26.20 billion)
• codifies the economic substance doctrine ($3.59 billion)

The first order of business, now that House Ways and Means Committee Chairman Charles Rangel (D-NY) has introduced H.R. 3970, the long-awaited Tax Reduction and Reform Act of 2007, are the one-year provisions for an AMT hold-harmless patch for nonrefundable personal credits and an extension of popular tax credits and deductions. Ways and Means will take up these provisions and their offsets as a separate bill for mark-up perhaps as early as next week.

A package consisting of the patch and extenders provisions costs an estimated $68.5 billion over ten years, according to a bill summary published by the committee. The summary indicates that the cost of the patch is $47.14 billion over 10 years; the various extenders cost $21 billlion.

The package would be paid for in part by a $25.66 billion provision closing the so-called carried interest loophole for fund managers and a $22.64 billion plan to tax the deferred compensation plans of offshore hedge funds. Taken together, these two elements would come very close to offsetting the patch. It is not yet clear how the remainder of the package will be offset.

Robert Reich thinks we should tax income over $500,000 at 50 percent. Who am I to say to no?

Considering the magnitude of challenges ahead for America, it seems only reasonable that taxes should rise on the wealthy. Taxing the super-rich is not about class envy, as conservatives charge. It's about the nation having enough money to pay for national defense and homeland security, good schools and a crumbling infrastructure, the upcoming costs of boomers' Social Security (the current surplus has masked the true extent of the current budget deficit, but it won't for much longer) and, hopefully, affordable national health insurance. Not to mention the trillion dollars or so it will take to fix the Alternative Minimum Tax, which is now starting to hit the middle class.

Rather than get into the AMT/PAYGO weeds, I thought I'd point out what's probably obvious: the most likely candidate for an offset to the AMT patch is legislation to close the carried interest loophole. Shutting down a host of other corporate tax loopholes could also do the trick (see this article in The Watcher for more). Arguing that we shouldn't pay for the AMT patch is pretty close to arguing that we shouldn't address these injustices in the tax code anytime soon.

ITEM from the Republican Study Committee:

Rep. Jeb Hensarling of Texas and other members of the Republican Study Committee are asking colleagues to reject a patch for the alternative minimum tax that would result in what they call other tax increases to pay for it. In a Dear Colleague dated today, Hensarling and three other lawmakers wrote, "The correction of tax mistakes should never be offset with tax increases." The lawmakers wrote that they support efforts to prevent middle-class taxpayers from being subject to the AMT, but not by "offsetting tax increases on other people and businesses."

Rep. Jim McCreary (R-LA), ranking member of the House Ways and Means Committee outdoes Hensarling, commenting that "This is not a new tax cut that should be paid for. This is preventing a tax increase." McCreary seems not to take account of the facts 1) that the continuation of current law is never a tax increase proposal that must be offset under PAYGO and 2) that "patching" AMT is therefore a tax cut that must be paid for under PAYGO.

When McCreary realizes this, he should quickly inform his counterpart in the Senate, Sen. Charles Grassley (R-IA), the top Republican on the Senate Finance Committee. Grassley will be harder to convince, since he has an even more convoluted notion of why a patch shouldn't be paid for: because the government never intended to collect the large amounts of revenues the AMT would raise if it were left unchanged. Never intended to collect it?

That's a lot of rubbish. Now if you had such a load of fresh rubbish dropped on your street, would you believe someone who told you that the Department of Sanitation won't touch it because it never intended to collect it?

Via BNA (sorry, no link), we learn that Treasury Secretary Henry Paulson, through a letter to House Ways and Means Committee member Rep. Tom Reynolds (R-NY), is imploring Congress to clean up the Bush Administration's mess:

If Congress fails to [to implement a one-year AMT "patch"], we estimate that 25 million taxpayers will be subject to AMT in 2007 - 21 million more than were subject to the tax in 2006. We estimate that these 25 million taxpayers will pay on average an additional $2,000 in Federal income tax. For these taxpayers, failure to enact a patch for 2007 would result in a substantial unexpected tax increase.

Ummm, Hank, aren't you forgetting something?

Image by Flickr user jwinfred. Used under a Creative Commons License.

Yet another in a series of repeated instances of misreporting about the carried interest issue appears in an article by Nicholas Rummell in today's Financial Week:

Among the erroneous or misleading assertions in the article:

• "Last week, House Ways and Means Committee chairman Charles Rangel (D-N.Y.) drove another nail into the coffin of the carried interest bill, saying the overall [AMT] reform he had been planning—an effort to which the carried interest bill was to be attached—would be postponed until 2008."

  FACT: Rangel has said he will introduce not just the overall reform bill but another, smaller one to patch the AMT in the coming days — about which he has said: "We'll pay for it with great difficulty... It's going to be politically painful," implying that the carried interest bill, the only offset on the table which could pay for most if not all of the patch, was on the table. See here.

  FACT: Incredibly, this very reporter wrote ten days earlier that "Mr. Rangel has said that linking AMT to carried interest may create a "veto proof" bill." See here.

• "Senate Majority Leader Harry Reid (D-Nev.) has also said recently that he would not schedule the carried interest legislation for a floor vote until next session at the earliest."

  FACT: "The reality is that whether the Senate addresses the carried interest issue is largely up to the Senate Finance Committee, not Senator Reid." See here

• "While the carried interest bill is not exactly dead, it certainly seems to be in a coma."

  FACT: In a coma, or in committee? The article contradicts itself here, stating elsewhere: "a spokeswoman for Rep. Sander Levin (D-Mich.), who sponsored the carried interest bill, said the PE tax legislation is 'still very much in the mix' and that it would likely be attached to the one-year AMT patch legislation, a smaller bill. 'That bill still needs to be paid for,' she said, adding that that means carried interest may still be in play."

Although the American public is giving Congress some of its lowest ratings ever received, Congress has done an admirable job in respect worth pointing out: adherence to the principles of PAYGO. Between the adoption of the conference agreement on May 16, and the start of fiscal year 2008, nine laws affecting budget authority, outlays, or revenues have been enacted, including:

• Food and Drug Administration Amendments
• Extending Andean Trade Preferences
• Extending Transitional Medical Assistance
• Implementing 9/11 Commission Recommendations
• College Cost Reduction and Access Act
• Extending Trade Adjustment Assistance
• TMA, Abstinence Education, and QI Programs Extension

In every instance, Congress has stuck to its guns on PAYGO.

But its commitment to PAYGO will be tested in the weeks ahead, as Congress gets ready to adopt a one-year AMT patch and a package of extenders. To comply with PAYGO, these measure will need to raise revenues by the same amount that they cost.

A dissenting view of PAYGO issues from -- of all people -- the administration's budget director, Jim Nussle:

We think PAYGO for taxes is a little bit perverse and doesn't recognize that it's really your money, it's not the government's money.

Nussle forgot to say this at his confirmation hearing this summer, for some reason.

Two key developments today point to a possible emerging House-Senate compromise on alternative minimum tax (ATM) legislation.

House Ways and Means chair Charles Rangel (D-NY) Rangel told reporters this afternoon that he would advance a one-year "patch" of the ATM. He added that a more comprehensive and permanent bill to rewrite the AMT that he has been working on for months will probably not face a vote by the full House until next year. "Vetting it would bring us more support than fast-tracking it," Rangel said. In any event, the Senate has made clear that a broader tax bill is a nonstarter in that chamber.

In another important development today, Senate Finance Committee ranking member Charles Grassley (R-IA) said for the first time that he would welcome a compromise that indexed, or "patched" the AMT threshold to protect the vast majority of taxpayers, while raising taxes on the wealthy to defray the budgetary impact, refining his earlier position that "AMT is a phony revenue source. [T]he revenue the AMT would not collect as the result of repeal or reform should not be offset as a condition of the repeal or reform."

With must-pass a one-year AMT patch (cost estimate: $55 billion) and a two-year tax extenders bill ($30 billion) coming down the pike in the next month or two in Congress, fiscally responsible members are searching high and low for the roughly $85 billion in offsets needed under PAYGO for these two bills alone.

Closing the carried interest tax loophole can probably pay for one but not both of these measures. Some little-noted but timely and resourceful proposals -- all in the Senate Finance Committee hopper right now -- can help raise the rest of the revenue needed for PAYGO compliance. Three of the most promising of these are summarized below:

• S. 681: The Stop Tax Haven Abuse Act

  Tax cheats make it harder to maintain America's highways, protect our borders, advance medical research, and inspect our food. They make it difficult to give needed tax relief to small businesses and middle-income victims of the alternative minimum tax. S. 681 would strengthen federal regulators' ability to combat offshore tax haven and tax shelter abuses via a set of practical enforcement tools that would begin to reduce the $100 billion offshore tax gap that forces honest taxpayers to shoulder a greater tax burden than they would otherwise have to bear. Estimated savings to taxpayers: $5 billion a year.

• S. 1124: The Tax Lien Simplification Act
  Outdated federal tax lien laws and procedures force the IRS to waste taxpayer dollars on an old-fashioned, inefficient, and burdensome paper tax lien filing system that should be replaced by a modernized electronic filing system capable of operating at a fraction of the cost. S.1124 -- which has bipartican support -- would bring the federal tax lien system into the 21st century. Currently, the IRS service center staff is charged with filing tax liens nationwide and complying with the myriad filing rules in effect in the 4,100 recording offices across the country. Amending the law to streamline the tax lien filing system, moving it from a paper-based to an electronic-based system, would not only advance the more efficient, cost-effective tax system we all want, it would also save $570 million in taxpayer money over ten years.

• S. 2116: The Ending Corporate Tax Favors for Stock Options Act
  Right now, U.S. accounting rules require companies to report their stock option expenses one way on the corporate books, while Federal tax rules require them to report them a completely different way on their tax returns. In most cases, the resulting book expense is far smaller than the resulting tax deduction. So, under current U.S. accounting and tax rules, stock option tax deductions often far exceed the stock option expenses recorded by the companies. In 2004, corporations took $43 billion more in deductions on their tax returns for stock option compensation expenses than the stock option expenses actually shown on their financial statements for the same year. This disparity enabled corporations, as a whole, to reduce their taxes for the year by $10, perhaps as much as $15, billion.

From the good folks over at Angry Bear and Econospeak, a little common sense about the deficit: it's not really going down.

The general fund deficit, that is. You see, Social Security revenues are in surplus, and a whole lot of money is being taken out of the flush Social Security trust fund to pay for current government services. This surplus has tremendously contributed to the declining unified deficit, the figure that gets most media attention. See this graph for a good representation.

But Social Security revenues are for, well, Social Security, and under current law they must be paid back to beneficiaries when Social Security is no longer in surplus. So in a way, the government has been borrowing all these new revenues from future Social Security beneficiaries- hence adding to the general fund deficit.

Another way to think about it is that we're adding to future responsibilities to pay for expenditures now. When the bill comes due, the government will probably have to borrow money, raise taxes, or squeeze money out of programs (including perhaps Social Security).

So what are we now buying with the Social Security trust fund? Well, about $200 billion for tax cuts for the rich, and about $170 billion for the wars in Iraq and Afghanistan. Without these expenses, the unified deficit would be in surplus, and the general fund deficit would be near 2001 levels.

Under the Bush fiscal policy, the rich have unquestionably gotten richer, and that has had opportunity costs for everyone else. But now we're seeing the first step towards a massive redistribution of wealth the old fashioned way- taking from the workers subject to the payroll tax and giving to rich people and the beneficiaries of the wars.

Per BNA, Senate Finance Committee chair Max Baucus (D-MT) indicated today that the Committee may move to a mark-up of a one-year AMT patch as early as next week. Baucus estimates the cost of the patch at $55 billion but added "It's difficult to come up with offsets that will pass."

Committee ranking member Charles Grassley (R-IA) has long said that he prefers forgoing offsets even for an AMT patch, but Baucus says that "my preference is not to waive" PAYGO. Such a waiver would require 60 votes in the Senate.

As for which offsets Baucus is considering, he specifically mentioned that closing the carried interest tax preference for fund managers and requiring publicly traded partnerships (PTPs) engaged in investment management services to pay the 35 percent corporate tax rate are "both on the table."

While neither of these potential offsets has been scored by the JCT -- indeed, neither has the AMT patch -- informal estimates put 10-year revenue figures for the carried interest proposal somewhere in the $50 billion ballpark while PTP reform is thought to add a small fraction of that figure.

This afternoon, the House passed H.R. 3678, a four-year extension of the moratorium on state and local internet access taxation. The vote was 405-2. Such opposition to the bill as was voiced came from those who sought a permanent moratorium.

From our perspective, the debate on this issue has been oddly one-sided.

Almost nowhere (outside the Center on Budget) is heard the case that the moratorium protects a now-thriving and robust industry that hardly needs or merits the protection and impinges on states' traditional authority to tax or regulate economic activity within their borders. After all, no one challenges the rights of those states whose internet access taxes have been grandfathered from continuing to impose these taxes.

Almost nowhere among those with the most to lose by a moratorium extension -- states and municipalities -- are arguments against the moratorium heard. So it is gratifying to see the editorial in today's Washington Post, "The Web Grows Up" address some of the aburdities in the pro-moratorium position adddressed head on:

The Internet is not in danger of being stifled by a few extra dollars tacked on to subscribers' monthly bills. The latest justifications for treating Internet services differently from clothing, food or numerous other goods and services that states and localities choose to tax is to spur the build-out of broadband access and reduce the "digital divide," the gap between the rich and poor when it comes to Internet access.

These arguments are bogus. The rates of broadband availability and household subscription to Internet services are no lower in the nine states that have Internet taxes than in those that don't... It is quite a stretch for providers that have fought the development of broadband networks by municipalities now to claim to be agitating on behalf of the underserved poor.

A voice of reason on this issue in the Senate, which will take up H.R. 3678 shortly, has been Sen. Lamar Alexander (R-TN), who cannot be tarred as an unreconstructed revenue raiser insensitive to the needs of American industry. Let's hope that Sen. Alexander's voice and reasoning can find a place in the public record, so that when the debate resumes in four years, it is not just another broken record.

The world may little note, nor long remember what the President's Advisory Panel on Federal Tax Reform proposed in its Final Report of November 2005.

That may be because the proposal was a mess, actually involving two sets of mutually exclusive, equally politically unpalatable reforms, even for the then-GOP-controlled Congress. It would have been DOA if it had ever formally arrived anywhere. In any event, the Bush administration has now quietly ended the existence of the Panel.

So, these questions:

• why even issue an executive order ending the life of the Panel?
• and why now? was any money expended on it (staff, e.g.) after the Report was issued almost two years ago?

Wall Street folk don't have much time for nonsense. Motley Fool ran an interview this week with private equity veteran Dan Primack of Thomson Financial entitled The Golden Age of Private Equity? Primack doesn't mince words:

Motley: What is the current political spat about carried interest all about?

Primack: Do you have a few hours? OK, here's the CliffsNotes version: Democrats want to raise taxes on private equity professionals. Republicans don't. The Democrats are right.

Here's how a typical private equity firm operates: It raises a fund (i.e., blind investment pool) from limited partners like university endowments and state pension plans. These are just commitments, with the fund able to call down capital as needed. The limited partners pay an annual management fee on the committed capital -- typically 2% -- which is used to pay salaries, lease office space, etc. -- and it generally ratchets down over time. All of that management fee income is taxed at ordinary income rates.

But there is a second way private equity pros make money, and it's called carried interest. For every dollar in profit that a fund makes off of its investment, only about 80% (sometimes less) actually gets distributed to the limited partners. The rest gets kept by the general partner, as a sort of incentive bonus. This gets taxed as capital gains, which currently stands at 15%. So if a buyout pro made $4 million last year with $3.5 million of it coming from carried interest, he only paid around $700,000 in taxes.

This is a great deal for private equity pros, but is fundamentally unfair to everyone else. It really does border on corporate welfare, and the only decent counter-argument is that a change in tax treatment would be the first step toward an overall abolition of capital gains benefits (which limited partners do, and would continue to, receive). But wrong is wrong.

Per the New York Times, "a spokesman for the Senate majority leader, Harry Reid, told The [Washington] Post that time appeared to have run out to act this year and that, in any event, the issue needs more study."

Reid thinks the issue needs more study. One thing is clear: he's no Fool. That's a shame.

The House Judiciary Committee voted 38-0 yesterday to approve a bill extending the moratorium on the taxation of Internet access, due to expire Nov. 1, for four years, through November 2011.

In an OMBW Watcher on the issue published yesterday, Internet Access Tax: The Immodest Moratorium, we noted House hyperbole about the impact of such a tax. The Judiciary Committee's ranking member, Rep. Lamar Smith (R-TX) offered his own yesterday:

If Congress allows the tax moratorium to expire, Americans could face taxes of up to 20 percent for simply accessing the Internet. That's the equivalent of taxing a shopper at the local mall 20 percent for just walking through the door.

Surely the Congressman is aware that the internet access tax is not a sales tax, and that no state's current internet access tax exceeds nine percent.

The bill would also:

• extend grandfather provisions, preserving taxes imposed prior to 1998
• phase out states that claim to be grandfathered in as a result of the Internet Tax Nondiscrimination Act of 2004
• create an exemption for states that have enacted laws structuring their gross receipt taxes to be a substitute for state corporate income taxes that are not taxes on Internet access
• define "Internet access" to ensure that related services such as e-mail and instant messaging are free of state and local taxes; internet video and phone services, however, would be open to taxation

Despite the Committee's unanimous vote, the future of the bill remains uncertain. 240 House members back another bill by Rep. Anna G. Eshoo (D-CA), H.R. 743, to establish a permanent moratorium. Meanwhile, Senate leaders have offered a bill, S. 1453 sponsored by Sen. Tom Carper (D-DE), providing a six-year extension of the ban.

Great news- the House just passed HR 3056, which would repeal the program that privatizes tax collection. It won approval by 232-173 (roll call).

The Bush administration says it will veto the bill. And the Senate has not begun serious work on a counterpart. But this is a necessary and big step forward nonetheless!

Per this afternoon's Congress Daily ($) House Ways and Means chair Rangel (D-NY) spoke out about yesterday press reports (see our comment) that Senate Majority Leader Harry Reid (D-NV) has told industry officials that carried interest will not come before the Senate this year:

I don't see how he could say that. ... It would be wrong to say that we're not looking at the discrepancy that exists between partnerships and corporations on the management of equity funds.

Reid has caused confusion with similar comments in the past, failing to address the far greater likelihood that carried interest legislation would come in the form of a pay-for for AMT legislation than as a stand-alone bill. Does anyone, Reid included, think he would block a pay-for attached to bipartisan AMT legislation from coming to the Senate floor this year... or any year?

Since we don't see how Reid could say that, we're more willing to believe that the press reports are based on a reporter regurgitating industry talking points and quoting selectively to create the impression that the issue as conclusory headlines such as Buyout Firms to Avoid a Tax Hike imply.

Why not? It's happened before.

This Thursday, the House is scheduled to take a floor vote on a bill to repeal the IRS private tax collection program.

This is great news, and we urge support of the bill (HR 3056). The bill that'll be voted on, which was shepherded by Rep. Charles Rangel (D-NY), would allow companies who currently have contracts under the program to complete them, and its cost is fully offset. A nearly identical version of the bill, HR 695 sponsored by Rep. Chris Van Hollen (D-MD) and Rep. Steve Rothman (D-NJ), has 156 cosponsors, including 16 Republicans.

Update: The vote will take place on Wednesday, not Thursday.

The front page of today's WaPo has another Jeff Birnbaum job with "news" that Senate Majority Leader Harry Reid (D-NV) has privately told lobbyists he does not plan to bring a carried interest bill to the Senate floor this calendar year.

First of all, this qualifies as news, let alone front-page above-the-fold news? Reid has been saying repeatedly for three months that he did not intend to bring such a bill to the full Senate in 2007.

Second, consider this sentence from the Birbaum piece: "Rather than citing the lobbying push, Reid implied that the reason had to do with the lack of time on the jammed Senate schedule." Exactly, as Reid has been implying all along, if the Senate Finance Commmittee is talking about a stand-alone carried interest bill, that wasn't going to happen. It would be attached to something else like AMT as an offset, and that decision is up to Senator Baucus and the Finance Committee.

"News" to the contrary, Senate Finance Commmittee chair Max Baucus (D-MT) has said he is "very interested" in moving carried interest legislation this fall. Given the sorts of things it might be attached to (like an AMT patch, which everyone wants to do) there are plenty of reasons to think a lot of Senators would support it."

That's really the news on the carried interest front from over the summer. Now that it's fall, let's hope WaPo carries the real news.

Not much to disagree with in E.J. Dionne's column on the war tax today. I wanted to highlight this passage, though:

Would conservatives and Republicans support the war in Iraq if they had to pay for it?

That is the immensely useful question that Rep. David Obey (D-Wis.), chairman of the House Appropriations Committee, put on the table this week by calling for a temporary war tax to cover President Bush's request for $145 billion in supplemental spending for Iraq.

The proposal is a magnificent way to test the seriousness of those who claim that the Iraq war is an essential part of the "global war on terror." If the war's backers believe in it so much, it should be easy for them to ask taxpayers to put up the money for such an important endeavor.

This is fiscal responsibility at a pretty basic level. If we want something, we ought to pay for it.

Now, things get much more complicated when you turn that principle into policy. For instance I think PAYGO is useful but in practice it sometimes doesn't make any sense. I mean, when the Bush tax cuts lapse, should we seriously not consider it a tax increase? PAYGO says we shouldn't.

But acting according to this basic principle shows that we have the courage of our fiscal convictions. If we really believe in increasing government's role in the economy, we shouldn't be afraid to pay for it. Sure, conservatives have made the political environment inhospitable to tax increases. We can recognize that, but we shouldn't whine about it. They need to be challenged, debated and faced down. Otherwise, we'll always be afraid, and I find it hard to imagine any major changes ever happening.

Please help me out here. See, there's a $100 billion dollar industry in the United States that has enjoyed a federally-mandated moratorium on sales taxes for over a decade, arguing that unless the moratorium is made permanent, small retailers will have a hard time competing against the big, bad guys. As Brian Bieron, the senior director of government relations at eBay, said, fewer small businesses and customers would use the Internet if the ban expires: "That means fewer sales and less opportunity to compete with the mega-retailers."

EBay's eagerness to be the fall guy for the small guy is touching. Similar expressions of sympathy abounded at yesterday's House Committee on Small Business hearing on "The Internet Tax Moratorium: The Potential Negative Impacts on Small Businesses of Allowing Moratorium to Expire."

Little guy CEO and hearing witness Brett Dewey owns "a small online company called WickedCoolStuff.com that sells toys, t-shirts and other small gifts that we think are wicked cool... A new tax now would be the equivalent of changing the rules in the middle of a game we're currently losing." See why I'm so confused?

So, OK, a few questions:

• how is the internet access provider industry so different from all others that states and localities should be barred from collecting sales taxes on services that it provides?
• why should Washington be involved in restricting state and local sales tax policy?
• how would including this industry among all others subject to sales tax constitute discriminatory and predatory taxes on America's small businesses?
• If their concern is truly about limited internet access in rural or disadvantaged communities, why is industry opposing state efforts to close the digital divide? The Center on Budget provides an answer:

Expressions of concern by telecommunications industry representatives about the availability of broadband to currently under-served segments of the population — such as low-income and rural households — should be viewed skeptically in light of other policy positions and actions of the industry. The major telephone companies have, for example, vociferously fought the direct deployment of broadband networks by municipal governments. They have also opposed requirements that the companies build-out broadband networks to low-income and high-income neighborhoods alike in jurisdictions in which it they have been granted a franchise to provide service. Verizon is currently seeking to shed all of its telephone and broadband lines in the predominantly rural states of Vermont, New Hampshire, and Maine so that it can concentrate on deploying its expensive new fiber-optic "FiOS" network in affluent suburban neighborhoods in other states.

Let's lift the moratorium on rational and cogent answers from industry. And maybe hold a hearing at which the public can get access to state and local officials' perspectives on the issue.

Sen. Carl Levin (D-MI) has introduced a bill to roll back tax deductions companies claim for executive stock options. The bill would eliminate the favored tax treatment of corporate stock option deductions, which currently allows companies to deduct the value of stock options for executive at a later date when they are exercised rather than when they are offered. Companies would still be able to deduct the value in the year the options are offered.