The president's advisory commission on tax reform could hold a hearing in mid-July that may offer a more detailed glimpse at the changes the panel will recommend in September, a senior Treasury Department official said June 29 at a tax roundtable sponsored by the District of Columbia Bar Association Tax Section.

Also speaking at the roundtable event was the Commissioner of the Internal Revenue Service Mark Everson, who reiterated five points that he believes are significant as the panel works to produce its recommendations. The five points the panel's proposals should reflect include:

• the increasinly global nature of many tax transactions
  
• retaining "adequate progressivity"
  
• being administrable
  
• being simple for taxpayers to comply with, and
  
• providing for a smooth transition
  

For more information on the tax panel's work to date, see OMB Watch's Tax Panel Webpage

Congressional observers and Wall Street analysts have once again projected down the U.S. fiscal deficit for 2005, with some believing the deficit could be almost $100 billion smaller than the White House's initial projection from January of $427 billion. Increased tax receipts and stronger than projected economic growth have contributed to the smaller deficit projection. Through May, receipts have increased 15.5 percent as compared to the same period in 2003, outpacing a 7.1 percent increase on the spending side, and the economy grew at a rate of 3.8 percent in the first quarter of 2005.

Yet the lower deficit projection is hardly news for celebrating. Even $325 billion - the low mark for projections - would be the third largest deficit in history (the two others, incidentally, were in 2003 and 2004). And despite the better economic numbers, deficits are projected to remain for decades.

The Bush administration has hailed the smaller projections as good news and says it is part of the plan to cut the deficit in half by 2009. What the administration does not say, however, is that after 2009, if current policies stay in place, the deficit will start to rise again. The government is currently running a structural deficit, meaning that no matter how larger our economic growth becomes, the current tax code will not be able to bring in enough revenue to pay for current programs, policies, and priorities. This is due to a lack of a long-term outlook for fiscal planning in the government and lack of discipline among the GOP in Congress to resist yet another round of unpaid-for tax cuts. This trend continues to be troubling.

This is an excellent op-ed in today's New York Times by Nicholas Kristof, focused on the debt and the lack of fiscal responsibility which has permeated White House economic policy for the last five years. As Kristof points out, "More than two centuries of American government produced a cumulative national debt of $5.7 trillion when Mr. Bush was elected in 2000. And now that is expected to almost double by 2010, to $10.8 trillion."

There are reasons why we are now so far into debt that three-fourths of the debt have to be purchased by foreigners -- many of them are related to the economic policies passed by the administration and Congress over the last five years. Bush was able to pass his tax cuts of 2001 based on projections of future levels of revenue that proved to be false; yet the tax cuts are still in place, and Congress is calling for more (i.e., repeal of the Alternative Minimum Tax and the Estate Tax).

As the article points out, in a speech Bush gave after presenting his first budget in 2001, he said, "I hope you will join me to pay down $2 trillion in debt during the next 10 years. That is more debt, repaid more quickly, than has ever been repaid by any nation at any time in history." He stated that the U.S. would be "on a glide path toward zero debt." This has turned out to be almost ludicrously false. The debt held by the public is $4.5 trillion today. And each time Bush and Congress pass expensive legislation without figuring out how they are going to pay for it (as they are trying to do with Social Security right now), it only increases this amount. In one of the richest countries in the world, every baby is born tens of thousands of dollars in debt. There is a reason why GAO Comptroller David Walker calls our fiscal irresponsibility "the greatest threat to our future." We are currently on an unsustainable path.

The President's Advisory Panel on Tax Reform was scheduled to make recommendations to the Treasury Department concerning the tax code on July 31st. The panel announced today that they will be pushing this deadline back to September 30th. Many believe that Congress won't take up reforming the tax code until 2006 (if at all), so the panel feels it has more time to explore specific reforms. Check the panel's website for more information.

From today's TaxAnalysts:

An amendment proposing permanent repeal of the estate tax has been added to an energy bill - the Energy Policy Tax Incentives Act - going to the Senate Finance Committee today, June 16, for markup. The amendment was one of five added by Senate Majority Leader William Frist (R-TN) to the $16 billion energy tax title including 56 total amendments. Although many of the amendments will be withdrawn and others added before reaching the Senate floor, some suspect that Senator Frist will keep the estate tax amendment to obligate Democrats to vote on the contentious issue. Before becoming law, the amendment would have to be approved by the Finance Committee and full Senate as well as survive conference negotiations with the House of Representatives.

A number of important hearings have taken place this week. Yesterday, the House Ways and Means subcommittee on Social Security held a hearing examining the impact of the American population’s increasing longevity on Social Security’s finances and exploring ways to encourage work at older ages. Members of the panel heard a range of proposals to address the impact of longer-living individuals on solvency. Witness testimonies can be read here.

Also, this morning the Senate Budget committee held a hearing on the solvency of the Pension Benefit Guaranty Corp., which we wrote about in our last issue of the Watcher. The committee heard from Bradley Belt, Director of the PBGC, and CBO head Douglas Holtz-Eakin. The hearing was held because it is clear the defined-pension benefit system needs to be reformed. Rep. Boehner has offered a bill (HR 2830) to overhaul the pension system; however his bill has been criticized by both Republicans and Democrats. Boehner's bill raises pension insurance premiums that companies pay from $19 to $30 to ensure that the PBGC does not need a taxpayer bailout.

This June 7 editorial in the New York Times - The Bush Economy - is extremely pertinent to some of the tax reform legislation being considered by Congress right now. The article points out that if all of Bush's tax cuts are made permanent, in ten years people making between $100,000 and $200,000 will pay five to nine percentage points more of their income in federal taxes than those making over $1 million per year. Those making less than $80,000 per year will see their share of taxes rise slightly or stay the same.

As the article says, at this level the tax cuts are about "giving more money to those who have nothing to do with it except amass enormous estates for their heirs." And some of the current legislation being considered by Congress is unfortunately not helping us move in the other direction.

Many Senators, from both sides of the aisle, are currently focusing a good deal of time to discussions on reforming both the estate tax and the alternative minimum tax (AMT). Repeal of the estate tax, which passed the House but most likely doesn't have the 60 votes needed in the Senate, would cost close to a trillion dollars in lost revenue over ten years. (Irresponsible reform could be almost as damaging.) Repeal of the AMT - rather than reform to make the tax more fair - would add nearly $1.2 trillion to deficits and the federal debt over the next ten years, assuming the tax cuts are made permanent.

Lawmakers seem to be jumping at the chance to "fix" fairness issues in our tax system by looking to repeal the estate tax and the AMT. However, these reforms would only further protect the super-wealthy in our society from paying their fair share of taxes, and would leave more of the tax burden on everybody else. Congress should be looking for ways, instead, to raise revenues and constrain spending in order to bring down these unsustainable deficits; which, in the long term, will not only worsen our fiscal situation, but will worsen it disproportionately for the bottom 90 percent of taxpaying Americans.



Posted by Becky Lewis, 11:14:19 AM

Wednesday, June 08, 2005

Tuesday, June 07, 2005

Monday, June 06, 2005