The Wall Street Journal reported yesterday ($) on a plan in Congress to require private brokerage and financial companies to report the "basis" amount of securities that were sold in a given year. This plan was released last week by the Senate Finance committee and it is estimated that it will bring in $11 billion in unpaid capital gains taxes each year - a small, but substantial portion of the overall tax gap related to non-wage income.

This is a straight-forward commons sense idea that would help to equalize the treatment of work and wealth in the U.S., at least within the IRS. Currently, payroll taxes (and to a large extent income taxes) are easily calculated directly by the IRS because employers are required to report the amount of income they pay their employees to the IRS. Because of this system, it is very difficult to cheat or make a mistake on your payroll or income taxes and easy for the IRS to catch you if you do (unless you are self-employed, in which case you are reporting your own income to the IRS).

But there is no similar requirement for reporting of capital gains taxes (or loses). When individuals report their capital gains or losses, say, from selling shares of stock in a company, they need to calculate the difference between what they paid for the stock, and what they sold it for. The amount they paid for the stock is called the basis. It is much more difficult for the IRS to verify the individual has calculated their tax liability correctly because it does not receive confirmation of the basis for sales of stock and other securities. This plan would help prevent individuals from intentionally cheating or making a mistake in their capital gains and loses by providing the IRS with a way to check individual returns. It would require reporting requirements for income made from wealth to match the reporting requirements for income made from work.

While the $11 billion per year brought into the government is actually a small amount compared to the overall tax gap, this proposal would collect sufficient revenues to pay for the entire SCHIP reauthoization bill being debated this year. There are no details on how soon the plan would be introduced as legislation, but with both Finance Committee Chair Max Baucus (D-MT) and Ranking Member Charles Grassley (R-IA) supporting the plan, it is likely it will be broadly supported in the Senate.

House Ways and Means Committee chair Charles B. Rangel (D-NY) has long and loudly said that he "wants to "rearrange" the Bush tax cuts, shifting tax relief from the wealthiest beneficiaries to the middle-class victims of the AMT. Rangel reminds us frequently that he's 76 (remember, green bananas?) and serious-minded about solving the AMT promblem promptly and simply -- sans Rube Goldberg extranea.

Query whether Rangel's colleague devising a clever but complex AMT reform package, Rep. Richard Neal (D-MA), is entirely eye-to-eye with Rangel. Based on an interview with BNA ($) on the relative merits of his package and the plan offered this week by the Tax Policy Center (TPC), Neal seems to have dismissed the TPC plan out of hand:

That's not our plan ... that's the game plan and we're not going to retreat on it. [A JCT study that was the basis for the TPC plan] shows that the AMT is really hitting the middle class and it reinforces my position.

Press reports indicate that Rangel seriously is weighing the TPC plan, perhaps on the grounds of simplicity and saleability. Architect of the TPC plan Len Burman points out:

Representative Neal has worked long and hard to spare the middle class from the AMT. I admire him greatly for that. My plan would achieve his objective in an extremely simple and progressive way.

May the best plan win!

OMB Watch contributed this statement to a hearing on the IRS private debt collection program.

At the hearing, which was held by the full House Ways and Means Committee, Rep. Charlie Rangel asked acting commissioner of the IRS Kevin Brown to not issue any more contracts to private debt collectors. Commissioner Brown did give a clear response, but Rep. Rangel seemed intent on reaching a compromise with IRS that contained the size of the program, making it unnecessary to immediately pass legislation that would end it.

The Tax Policy Center has just issued research results and recommendations regarding repeal of the AMT that merit serious attention. As the New York Times reports today in Group Offers a Simple Fix for Alternative Minimum Tax, TPC's proposal features a reversion back to pre-Bush earned and investment tax rates on couples earning over $200,000 and singles earning half that.

• Simple: The elegance of the proposal is the absence of Rube Goldberg whistles and bells, phase outs, trade-offs, sweeteners, etc. -- complexity often loses as many votes as it gains.
• Equitable: Per the Times, "the center's proposal would have an equal impact on Americans with million-dollar-plus salaries and no investments."
• Politically Appealing: The proposal involves no spending cuts, no deficit financing, and taxpayers with incomes below $500,000 would, on average, actually receive a tax cut from the proposal.

Details behind the Center's AMT reform proposal are available here.

American Enterprise Institute's Director of Economic Policy Studies Kevin "Dow 36,000" Hasset believes that democracy poses a threat to the economy(emphasis mine):

But being unfree may be an economic advantage. Dictatorships are not hamstrung by the preferences of voters for, say, a pervasive welfare state.

So the future may look something like the 20th century in reverse. The unfree nations will grow so quickly that they will overwhelm free nations with their economic might. The unfree will see no reason to transition to democracy.

Meanwhile, democracies may copy many of the market-friendly policies of the dictatorships, but it seems unlikely that free citizens will choose to reduce their own political freedoms.

Democracies will stay in the game, but, as Arrow showed long ago, their victory is not assured.

The first tentative steps were taken today toward bipartisan, if not quite bicameral, discussion of AMT reform.

An initial meeting was held among members of the House Ways and Means Committee -- "an information session, not a strategy session," according to Rep. Thomas Reynolds (R-NY). That's more encouraging language than committee ranking Republcan Jim McCreary's (R-LA) take yesterday on the Democratics' draft AMT reform package: "Scary."

Committee chair Charles Rangel (D-NY) has long said that a bipartisan solution to AMT is his highest legislative priority for this Congress. Today's meeting was a signal step toward achieving that goal.

The difference between an AMT reform package used as 'message' material, perhaps for use by both parties in next year's presidential election campaign, and a package with (thus far lacking) bicameral support and a shot at becoming landmark tax law starts with what McCreary described as "kind of the beginning of our committee's discussion on the subject, so we'll see where that takes us."

Maybe it will ultimately take Rangel and McCreary to where they ended up on the minimum wage increase tax package -- no daylight between them. That's was a scary feat of bipartisanship. The stakes are higher here.

Recent remarks by ranking Senate Finance Republican Charles Grassley (R-IA) about an AMT reform package that won't be announced for weeks makes us all wonder if those weary old tax scare lines still work regardless of the facts.

Many important elements of the reform package remain to be decided, but one thing House Democrats are clear about is that under the AMT reform measure taxpayers with incomes between $250,000 and $500,000 would to continue paying the AMT, but at lower rates. And, all-in, the bill's fiscal consequence is net-zero, revenue neutral -- all spending is paid for. But Americans earning over $500,000 a year might pay a little more.

Grassley is incensed. He calls the tax increase he forecasts on this small fraction of the richest Americans "shocking."

Sen. Grassley, Iowans and Americans facing AMT liability for the first time this year want to know, what is your point?

Did you know that families that make less than $11,750 are not eligible for the child tax credit? That workers who aren't raising children get only a marginal Earned Income Tax Credit?

These tax credits do much to alleviate poverty and strengthen the middle class, but some of their aspects are unfair. Now the ECAP coalition wants to take out these inequities to help more people and families. We're going to send this letter to Congress urging action soon.

It's easy to sign on your organization to this letter. Just go to this website and do it online.

A common misconception about the Baucus amendment to the budget resolution, which calls for making permanent a handful of the Bush tax cuts, is that it's progressive, that it's a "middle class" tax cut. Indeed, many of the tax cuts it calls for are progressive, including the child tax credit. And it calls for an expansion the State Children's Health Insurance Program (SCHIP), which could be a big boost for low to modest income-earning families.

But some particularly large tax cuts here are very regressive. The amendment calls for making permanent the marriage penalty tax cut, which has been doing away with the marriage penalty for everyone except low income people (See this CBPP brief for more). The Tax Policy Center calculated that 72 percent of the benefits of the marriage penalty break now go to families in the highest 20 percent of the income distribution.

Further, the child tax credit isn't even available for people who make a very low income. And the estate tax measure is regressive, even if it is a better deal than was hoped for prior to the November '06 election.

I don't think anyone's done the math to find if the Baucus amendment, since it's so vague, calls for reducing tax rates more for richer people or for everyone else. But it isn't just a "middle class" tax cut, and there's no reason why almost the entire Senate should have supported it.

Details are emerging regarding the AMT reform package gestating in Rep. Richard Neal's (D-MA) House Select Revenue Measures Subcommittee and to be announced in June by Ways and Means chair Charles Rangle (D-NY). The draft package is said to include tax benefits aimed at low-income people: increasing the standard income-tax deduction, expanding the reach of the refundable child tax credit and making the earned income tax credit available to more people without children.

As these details emerge, two questions arise: "Is it Bipartisan?" and, maybe prior to that: "Is it Bicameral?" Comments yesterday by senior Senate Democrats suggest answers to both questions.

Yesterday, Senate Finance Committee chair Max Baucus (D-MT), told the National Press Club that he sees little "possibility of enactment this year of sweeping tax reform legislation beyond a one-year [hold harmless] 'patch'" for the AMT.

BNA reported today:

Senate Budget Committee Chairman Kent Conrad (D-ND) reacted coolly May 8 to the House Democrats' plan to permanently fix the alternative minimum tax... When asked about the House plan being drafted by House Ways and Means Committee Chairman Charles Rangel and expected on the floor in June, Conrad said, "I'm not wild about it"... Conrad said the fiscal year 2008 budget resolution likely would accommodate a one-year patch. "I think that's probably the most realistic thing at this point."

Baucus' standard of reform appears to be low: "AMT [reform] is an imminent imperative... It has to be dealt with now," then going on to add that he is currently looking at a "one-year patch."

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Chris Hayes of The Nation writes that state politicians are "taxing and spending," and being rewarded for it. Will their success encourage Washington to do likewise?

People seem ready to accept higher taxes, but only if those taxes are sold to them as paying for services they want the government to provide. "The notion that [social programs] are what Democrats want and what Republicans abhor may have been true thirty years ago," Carona told me. "But I feel like there's been a shift. Now everybody wants the programs, but one group is unwilling to pay for them and the other group is unable to pay for them."

Over the past six years, Republicans have succeeded in de-linking taxes from the public services and social programs they pay for. It is the job of Democrats, particularly the presidential candidates who will have the largest platform, to re-establish that connection in voters' minds. John Edwards has the right idea on this score. He has proposed a fairly ambitious universal healthcare plan and says he'll push to raise taxes in order to help pay for it. "We're asking everybody to share in the responsibility of making healthcare work in this country," he says.

Hayes doesn't mention PAYGO in this piece, and I'd imagine that's because most people think that PAYGO rules are either the conceptual opposite of or a procedural obstacle to "tax and spend" policies. I don't think that's true. PAYGO and deficit reduction are not synonymous. In fact, Hayes is suggesting that new spending proposals abide by the PAYGO principle- that is, you have to increase taxes when you create large mandatory spending programs.

PAYGO also makes the connection between taxes and services- that taxes do indeed pay for something that people want. I sometimes wonder if this really is a problem. I mean, where's the evidence that people don't understand what taxes do? But it seems beyond question that raising taxes to pay for programs that make a visible difference in ordinary people's lives could very well be a political winner. It's also responsible policymaking.

A spokesman at the IRS announced yesterday that Deputy Commissioner Kevin Brown will become acting IRS commissioner May 4. Current Commissioner Mark Everson has accepted a position heading up the American Red Cross (see here and here for more on Everson's departure).

In much the way a senior in college decided to go to graduate school to put off a decision about what to do with their life, the IRS said Brown would only be the acting commissioner for 25 days. For him to continue beyond that time would require White House approval.

I don't know much about Kevin Brown (other than that I believe he pitched for a time for the Rangers and Dodgers and had a wicked sinker), but he has previously served as both counsel and then commissioner of the Small Business/Self-Employed Division at the IRS, which employs almost 44,000 workers and oversees the compliance programs for all individuals and small businesses. It serves 45 million taxpayers.

Brown has also served as chief of staff to Everson, and joined the IRS in 1998 as Assistant to the Commissioner. He also participated in advising the agency during the Restructuring and Reform Act of 1998.

At this point, there is no reason to believe that the White House will not approve of Brown's permanent appointment to be the IRS commissioner.

In a column published in The Hill today, House Ways and Means chair Charles Rangel (D-NY) reprises the case for AMT reform. He points out that, without reform or another set of hold harmless "patches":

...working families making under $100,000 are increasingly more likely to pay the tax than those making more than a million dollars. This amounts to an average $3,600 tax increase that will hit one out of every three taxpayers. This would amount to one of the biggest tax increases on the middle class in the history of our country.

What he didn't write, and didn't revealed to reporters until later today, is that the time line on his planned AMT reform legislation has slipped into June, instead of his previous and oft-stated goal of around Memorial Day.

This despite these remarks by subcommittee on Select Revenue Measures chair Rep. Richard E. Neal (D-MA) last week: "We've reached consensus. We're ready to go." Neal indicated that no couple with annual income below $250,000, $125,000 for singles, would pay the AMT again and that he would also index the tax for inflation, going forward.

But the details beyond that make the scale and complexity of the Rangel/Neal bill staggering.

Rangel expresses his belief -- in the final sentence of the article -- "that a bipartisan consensus can be reached that is both revenue-neutral and provides tax relief for millions of American families." 'Revenue neutrality' is a laudable goal but hard to hold to: he and Neal will need to find hundreds of billions of dollars in new revenue. And Neal's note that the forthcoming proposal is "going to be more encompassing than just addressing the issue of the AMT; it will be a bit more ambitious," hinting that it may involve EITC and the child care tax credit expansion, suggests exponentially increased complexity.

So coming soon means June. For now.

Sens. Byron Dorgan (D-SD) and Patty Murray (D-WA) released a "Dear Colleague" letter, or a message between representatives, in favor of S. 335, a bill that would end the IRS private debt collection program.

The letter is part of the congressional war of words over the bills that would end the IRS program. Sen. Chuck Grassley (R-IA) and Rep. Bart Gordon (D-TN) have sent letters defending the program. Here's Grassley's letter, and here's the first and second part of Gordon's letter.

It doesn't seem random that these two legislators are taking up the charge to support this wasteful, risky program. One of the two private debt collectors whose contract has been renewed -the CBE Group- is based in Iowa. And Rep. Gordon's 2006 campaign received $2,000 in contributions from employees of Pioneer Credit, Inc- the other private debt collector whose contract has been renewed.