OMB Watch has joined with the American Federation of State, County and Municipal Employees (AFSCME), Citizens for Tax Justice, and the National Treasury Employees Union (NTEU) to urge that Congress pass H.R. 695 and S. 335, bills that would end the IRS private tax collection program.

Take a look at the letters we sent to the House and the Senate, where we make the case that this wasteful and dangerous program should be terminated immediately.

And let your representative know what you think about tax bounty hunters - take part in Citizens for Tax Justice's email campaign!

As Adam notes below, the Blue Dog Coalition has endorsed the House Budget Committee's FY 2008 budget resolution. In fact, the Coalition considered but decided against offering an alternative to it. The alternative's author, Budget Committee member Rep. Jim Cooper (D-TN), could not convince the House Rules Committee to allow him to offer the alternative as an amendment, because the Blue Dogs had agreed to endorse the Budget Committee plan.

But the Cooper "reality" budget initative merits a moment's consideration. It assumes the extension of about half of the 2001/03 Bush tax cuts -- principally middle-class and small business tax cuts -- calling concretely for a "phase in [of] any tax increases" in regular rate adjustments over a period of three years.

Finally, a specific policy proposal with details involving a phase out of major portions of the 2001 and 2003 tax cuts is circulating in the House. Whether Rep. Cooper's "reality" budget can move forward from here remains to be seen. But for those worried about how to provide a "soft landing" for the econony while rolling back the the 2001 and 2003 tax cuts, there is now a specific policy proposal with a three-year schedule of rate adjustments to hang your hat on.

The saga of the supplemental continues, as the Senate rejected an amendment by Sen. Thad Cochran (R-MS) this afternoon, by a 48-50 vote, to strip language requiring the U.S. to start withdrawing troops from Iraq within four month, with the goal of removing all troops by March 31, 2008.

War policy implications, constitutional conflicts, the record size of the supplemental, and veto threats all obscure developments this week in the Senate-passed $8.3 billion small business tax package in the bill's minimum wage provision. While the House-passed supplemental included that chamber's $1.3 billion version of the tax package, Senate Finance chair Max Baucus (D-MT) ranking Finance member Charles Grassley (R-IA) are looking at changes that could bring the size of Senate tax package up $10 billion.

Accorinding to Congressional Quarterly, Baucus wants to extend depreciation of improvements to leased property through the end of 2008, beyond the March 31, 2008 date in the $8.3 billion versions. And Grassley is looking at tweaking the controversial deferred compensation cap of $1 million or five-year average compensation.

In other words, compromise with the House on the tax package may take still longer and minimum wager earners continue to wait for their raise.

ADDENDUM:

In fact, the Senate has now adopted the Baucus-Grassley amendment to extend the depreciation tax benefits described above, bringing the total cost of the tax cuts to $12.2 billion, fully offset (see preliminary scoring). It adds a provision similar to one passed by the House to tighten a loophole parents have used to pay a lower capital gains tax by shifting assets to their childrens' names. Other offsets are tax gap closure measures including increased penalties for failures to file information returns and erroneous refund claims, and using a national database that tracks new hires.

Good news on the IRS privatization front- Chairman of the House Ways and Means Committee Charles Rangel (D-NY) has stated his intention to repeal the IRS privatization program and in the meantime has asked that IRS not issue any more contracts to private debt collectors.

Rep. Rangel's interest is most likely in moving forward with H.R. 695, a bill co-sponsored by Reps. Chris Van Hollen (D-MD) and Steve Rothman (D-NJ) with bipartisan support that would end the privatization program once and for all. Again, this is great news, and we hope that Rep. Rangel moves forward on this issue soon.

Rep. Rangel said his immediate concerns over the program stem from a suspicious refusal by the IRS not to renew one of the debt collector's contracts. The contractor -Linebarger Goggan Blair & Sampson- is a debt collector based in Texas that has had its employees convicted of bribing public officials and is being sued for doing the same now, as the New York Times reported last August.

But problems with these contractors don't end there. One of other three companies awarded contracts -Pioneer Credit Recovery, Inc.- just so happens to be based in the district of Rep. Tom Reynolds (R-NY), as confirmed by FedSpending.Org data. Rep. Reynolds is the author of the bill language that established the program in the 2004 Job Creation Act.

Pioneer's CEO also happens to be a major donor to the Republican Party and Rep. Reynolds' campaigns. See this Unbossed post for details.

Now, this program is not an earmark- Congress did not pass a bill that directed these contracts to particular companies. IRS ran a competition over which company got the contracts. So one would assume that Pioneer and Linebarger won the contracts fair and square.

But the competition was fishy, too. IRS set the compensation rates at 21 to 24 percent of the backtaxes the companies brought in- an incredibly high number, given that IRS employees could do the same work for 3 cents for every collected tax dollar. IRS to my knowledge has not explained why it did not put these terms up for competition.

Some of the companies that competed for the contract filed complaints with GAO that the competition wasn't fair. GAO also issued a report that found that IRS proceeded with the program hastily, failing to first set up a way to correct errors in program management or evaluate its cost-effectiveness. You'd think IRS would pay special attention to managing this program, because a similar program in 1996 was found to have cost more money than it brought in and involved contractors who harrassed and abused taxpayers.

Despite all these realized and potential problems with the program, IRS keeps charging ahead, with the blessing of the Bush administration and many senior congressional Republicans. It's a welcome sign that Rep. Rangel intends to stop this program by pushing through the bipartisan-supported H.R. 695.

Dean Baker makes an interesting point on how the debate over the long-term budget imbalance is very one-sided. There are many experts who think that the problem really is that the health care system is broken and that the solution is to fix it, but they rarely get public attention.

What could people who want to promote this view do? I think we need to draw up a plan to fix the health care system with an eye towards cost-containment. That'd give us a) something new to say and b) a policy position that's more appealing than the opposition's (which is to basically to shift costs by cutting programs and raising taxes- not a hard package to beat).

The only thing the David Walker's of the world have to sell is fear. We should try selling some hope.

The Center on Budget and Policy Priorities is arguing that repealing the tax cuts would be good for the economy.

Bush & Co. like to claim that the tax cuts are magic, and that failing to extend them will be a disaster for the economy. They're wrong, and it's great that CBPP is pointing this out.

But this new paper seems to suggest that the repealed tax cuts should be devoted entirely to deficit reduction because reducing the long-term budget imbalance would be good for "the economy." But what if we repealed the tax cuts not only to reduce the long-term imbalance, but to pay for new programs that counteracted the trend toward greater inequality?

I mean, who would a more sound "economy" be good for? Growth these days doesn't seem to be too evenly distributed, as CBPP has documented so well. Any marginal increase in economic growth due to the repealed tax cuts would probably go to the same people that have done well the last 30 years- the top 10 percent of earners, particularly the top 1 percent.

One final thought- the subtext here is that increased revenues are somehow the solution to the long-term budget imbalance. More revenues may be necessary- but what matters more is what they're paying for. The cause of the long-term budget problem is our overpriced and inhumane health care system. What we need to pay for is a fundamental restructuring of the health care system that addresses long-term costs.

According to Congressional Quarterly ($), Senate Finance Committee ranking member Charles Grassley (R-IA) has dropped his earlier insistence on pre-conferencing the differences between the House ($1.3 billion) and the Senate ($8.3 billion) minimum wage bill small business tax cuts.

Grassley and Committee chair Sen. Max Baucus (D-MT) apparently plan to offer an amendment to the supplemental appropriations bill on the Senate floor that would pull the Senate-passed wage measure from the supplemental and push it into a conference with the House.

(Robert Novak missed this one, by the way.)

Posted by Dana Chasin, 01:24:46 PM



NYT: Medicare Turns Blind Eye To Tax Debt

Some 21,000 health professional who participate in Medicare owe more than $1.3 billion in backtaxes, the NYT reports today.

All the money would have been recovered if Medicare officials had decided to participate in a program that withholds government payments to contractors who owe backtaxes. The Defense Department and many civilian agencies take part in the program.

So instead of simply withholding some money from wealthy doctors who benefit from government programs- one of whom reportedly owes $3 million in backtaxes- this administration is hiring well-connected private debt collectors who get to make enormous profits at taxpayer expense to go after low-income elderly people who owe small tax debts.

This administration's priorities for tax enforcement are just as perverse and preferential to the wealthy as anything else it does- kudos to the New York Times for taking notice.

Your voice is needed now to support a budget with the right priorities for all Americans. The ECAP coalition (read this Watcher article for more on ECAP) is mobilizing to promote a FY08 budget resolution that doesn't allow tax cuts for the wealthy and that makes enough room to fund programs for children, workers, education, and nutrition and housing issues.

Let your representative know what you think about these programs and policies. They need to hear that their constituents will support them if they make the right decisions on the budget.

Dial (toll-free) 1-800-459-1887 to reach your representative.

ECAP is trying to focus its support for certain programs on different days. The schedule is as follows (click on the links for more information on the programs at issue):

• Thursday, March 15 — Children and Youth Issues
  
  
• Friday, March 16 -- Worker's Issues
  
  
• Monday, March 19 — Education Issues
  
  
• Tuesday, March 20 — Nutrition and Housing Issues
  
  

The contractor at Walter Reed who's taken much blame for the wretched conditions there is tangled up in IRS privatization, too. Unbossed has the story.

Nathan Newman at TPM Cafe has a good post on health care costs.

His most topical point is that the Bush health care tax package, which is ostensibly intended to reduce health care costs through financial incentives for health care consumers, is hopelessly misguided and beyond repair. Most health care spending occurs among a small minority of spenders who receive very expensive, intensive care that they likely see as not being optional. Incentives one way or the other probably won't make much of a difference.

And people getting expensive treatment probably don't have time to shop around for the best deal. We're most likely dealing with sick, frightened people who don't have much time to spare. And would they recognize a deal when they saw one? Probably only a highly trained physician would- what non physicians know enough about health care to make that call? So giving health care consumers the incentive to shop around will probably not increase competition among health care providers. No savings there, either.

Increasing deductibles would most likely not impact the cost of the treatment that very sick people get. Informed, streamlined management of the health care delivery system that puts the patient before profits might, though. After all, it's worked in every other industrialized country- all of which don't really have long-term health care spending problems like we do.

During the long pause between introduction of the minimum wage hike legislation in Congress and its (presumed) eventual passage, we have time to reflect on its efficiency vs. tax credits as a means of increasing the income of low-wage workers. The issue has arisen as some policymakers have wondered if expanding the Earned-Income Tax Credit might not be a more efficient means to this end.

A recent treatment of the subject by Max Sawicky of the Economic Policy Institute, A Fish is Not a Fowl, walks us through almost every aspect of the trade-off, reaching this conclusion:

There is a case for expanding refundable credits in the individual income tax... but they are not plausible substitutes for an increase in the minimum wage. Boosting incomes with a higher minimum wage avoids the dangers of reduced work incentives and larger marriage penalties in the income tax, escapes the burden of offsetting the cost of an expanded credit under the pay-as-you-go rules, foregoes the complexity of redesigning the tax system, and provides a benefit in plain view of the worker.

In the end, it's a matter of defining efficiency, in fiscal or in free market terms.

Ace investigative tax reporter David Cay Johnston has tracked down another ridiculous IRS proposal: outsource the writing of IRS regulations to the people they regulate.

Check out the story in today's New York Times. Money quote (from our executive director):

Looking at the issue in its broadest terms, Gary D. Bass, executive director of OMB Watch, a nonprofit research and advocacy organization that tracks the Office of Management and Budget, warned that the Bush administration was turning over too much government responsibility to those it is supposed to be keeping an eye on.

"Why don't we just privatize Congress and outsource the development of our laws?" he asked.

"People would chuckle at letting the U.S. Chamber of Commerce or OMB Watch write the laws," he went on, "but that is what is being done by this administration, which keeps outsourcing more and more regulation work."

House Ways and Means chair Charlie Rangel (D-NY) may be figuring that a public airing of the Senate's $8.3 billion tax package will break the impassse on the minimum wage bill now tied up in conference. Rangel has announced a March 14 hearing that will focus on Senate bill provisions he and Committee ranking member Jim McCrery (R-LA) have long objected to, specifically, those which:

• change the tax treatment of certain leases entered into before March 12, 2004, i.e., very retroactively
• deny deductions for certain government-required payments and punitive damages in civil actions
• enact new limitations on deferred compensation plans
• change the tax treatment of certain financial instruments

Other shortcomings of the Senate bill are examined in an op-ed piece in today's New York Times, echoing Max Sawicky's question, Does a minimum wage increase require new business tax cuts? The op-ed asks:

why should the bill extend the Work Opportunity Tax credit for five years, when "small businesses... have never taken advantage of the Work Opportunity Tax Credit in large numbers, but are the most likely to suffer under the proposed minimum wage increase"? [And] "if we don't think that people with low incomes are getting what they need, [why] look to ineffective employer tax credits to try to create jobs [and] burden employers with the costs of a higher minimum wage, most of which won't even go to low-income families"?

These questions deserve the hearing they may get on March 14.

On Mar. 2, Senate Finance Committee chair Max Baucus (D-MT) and ranking member Charles Grassley (R-IA) submitted a Committee "Budget Views and Estimates" ($) letter to the Senate Budget Committee that conveys very few specific views, with these notable exceptions:

• AMT Relief: the AMT hold-harmless provisions "will require an extension for calandar years 2007 and 2008" -- a development we recently noted
• Expiring Tax Provisions: due to the "unnecessary" cost and complication arising from extension of tax provisions that expired last year (on the final day of the 109th Congress) "an extension of expiring tax provisions should be enacted in a timely manner, and extended through calandar year 2009"
• Pay-Go Language: the Committee recommends "that any pay-go language included in the Budget Resolution pertain to multi-year periods as specified in the recently adopted House rules" creating a point of order against proposals increasing the deficit or reducing the surplus five years and ten years out

Nothing wrong in principle with the first two items, in view of the third -- so long as a Budget Resolution redressing last year's Senate Pay-Go regime, which applied to mandatory spending increases but not against revenues cuts, is adopted this year. And the Finance Committee's language here leaves room for such a Pay-Go regime change by the Budget Committee.

At 2 p.m. today, Rep. Richard Neal (D-MA), chair of the House Ways and Means Suncommittee on Select Revenue Measures, holds the first hearing (webcast here) of the 110th Congress on AMT reform, meaning repeal. Currently, the debate about how to keep AMT liability from engulfing the middle class seems to vaccilate between between:

• the temporary solution -- the hold-harmless-via-patches strategy favored by leading Senate Democrats, who have endorsed a $115 billion, two-year patch for 2007 and 2008
• the permanent solution -- full repeal, supported by Neal, Ways and Means chair Charles Rangel (D-NY), Sen. Charles Grassley (R-IA), and the Bush administration, at a (possibly un-offset) 10-year cost of about $1 trillion

But this has been a limited debate with little serious about permanent AMT reform short of repeal, a theme we've sounded. Here are two general approaches that would re-direct the debate toward efficiency and the equity issues:

• increasing, capping, and indexing the current exemption levels (part of an intriguing solution offered by Citizens for Tax Justice) to address the inefficency of patches: roughly 25 percent of the current 2007 patch benefits households with over $100,000 in annual income
• allowing AMT taxpayers to re-claim a regular income tax deduction to restore equity and remove arbitary penalties, such as state and local taxes deduction or the dependents exemption. For costs of making each of the major deductions available to AMT payers, see this Tax Policy Center table.

At today's hearing, we'll be watching out for fiscally responsible, targeted, prgressive solutions ensuring that the very rich pay a reasonable amount in taxes and that the middle class bears no additional tax burden.

The Joint Committee on Taxation released a report on the AMT yesterday describing how the AMT works, a brief legislative history, and why it's affecting more and more middle-class tax payers every year. It's really a good primer on the tax.

In a previous post, Dana notes Table 2 in the report as a stark reminder of how deep the AMT would reach into the middle class without yearly legislative fixes.

I, however, would like to draw your attention to figures 3 and 4. These charts do a nice job of illustrating the extent to which EGTRRA (the 2001-2003 Bush tax cuts, which are set to expire in 2010) exacerbates the AMT problem.

Figure 3 compares the number AMT taxpayers under current law and under extension of EGTRRA (removal of the expiration date of the Bush tax cuts)

(click to enlarge)

Figure 4 compares projected AMT liability under current law and extension of EGTRRA

>
(click to enlarge)

The rest of the report is chock-full of informative charts and tables of the AMT. Thumb through it if popular media coverage of AMT is not detailed enough for you.

Senate Finance Committee chair Max Baucus (D-MT) has abandoned his support of full AMT repeal and joined with Senate Budget chair Kent Conrad (D-ND) in favor of a two-year AMT patch.

Their position is already part of a Senate bill (S. 619) introduced by Sen. Charles Schumer (D-NY) along with nine co-sponsors. The proposal would cost more than $90 billion over 10 years, but nobody has said yet how or even if it would be offset.

Such a proposal might give the Democrats a winning position on an increasingly salient issue by shielding upward of 20 million mostly upper-middle class taxpayers from AMT liability through the 2008 elections.

According to a JCT report released today, only 1.6 percent of those earning $75-100,000 a year would continue paying the AMT; without the patch, 49 percent of them would have to pay it (see Table 2).

But in the House, Ways and Means Committee chair Charles Rangel (D-NY) and Select Revenue Measures Subcommittee chair Richard Neal (D-MA) have other ideas: permanent repeal of the AMT, which would cost roughly $1 trillion over 10 years, a price no one has begun to propose paying for.

Full repeal would throw the baby out with the bathwater. On the other hand, as David Cay Johnston pointed out in yesterday's New York Times Week-in-Review, the original goal of the AMT is further than ever from being met:

A far greater number of well-off families still pay only small amounts of tax. More than 41,000 taxpayers with incomes of $200,000 or more in 2003, the last year for which figures are available, paid less than 10 percent of their income in individual income taxes. And the number of untaxed high-income families — once 155 [when the AMT was introduced in 1969] — grew to 2,824.

Given that the AMT now brings in more revenue than the regular income tax, replacing that revenue presents an almost insuperable political challenge. A two-year patch seems politically appealing enough, and affordable by comparison.

Posted by Dana Chasin, 11:36:23 PM

Thursday, March 01, 2007