Here's an item that, unfortunately, won't get mentioned at the next Republican-sponsored "waste, fraud, and abuse in government" hearing on Capitol Hill. IRS Commissioner Mark Everson testified before Congress this week that it will cost significantly more money to use private companies to collect outstanding taxes than it would to hire additional IRS agents.

Perhaps part of the reason this is true is because those private companies will get to keep 22 - 24 percent of the taxes they collect whereas additional IRS collectors would get to keep none of it. It's hard to understand how this program, which was authorized by Congress in 2004, makes sense- unless of course you remember this Congress and president favor business interests - even at the expense of the government. It apparently does not matter if the government loses out - as long as somebody turns a profit!

IRS Says Private Debt Collectors More Costly

As the 2005 tax reconciliation conference continues to drag on, an interesting and puzzling rumor has emerged that will keep you scratching your head. Typical of three card monte games on the strip in Atlantic City, this most recent gem from Congress is the ultimate budget gimmickry.

The 2005 tax reconciliation bill is at a stand-still because House and Senate GOP leaders are trying to figure out how to squeeze capital gains and dividend tax cuts into the $70 billion filibuster-proof cap set out last year in the budget resolution. But they just can't make the numbers line up. There is this pesky Senate rule that prohibits reconciliation legislation from increasing the deficit outside of the budget window to which the legislation applies - and unfortunately, those capital gains and dividend cuts violate that rule by $31 billion.

Now, Republican leaders, especially in the House, do not want to have to offset that cost by - (gasp) - raising taxes. So what they are proposing is to offset the cost of the first tax cut with, unbelievably, another tax cut! Conferees are rumored to be considering lifting the income limits on conversions of traditional Individual Retirement Accounts (IRAs) to Roth IRAs. Such a change would allow taxpayers (most likely wealthy ones who would have the most to gain) to stock away huge sums of money that would grow tax free for years simply by paying a smaller amount of taxes during the temporary conversion period. This would result in a short-term boost in revenues for the government, but would be a big money-loser in the long run.

Yet that is all the conferees need - a short-term upswing in revenues caused by a tax change favoring the wealthy in the long run to cover the cost of giving away more taxes to the wealthy in the short run. See how everybody wins?

Kudos to the Center on Budget and Policy Priorities, the Committee for a Responsible Federal Budget, the Concord Coalition, and the Committee for Economic Development for highlighting this issue.

There have been scattered reports the last few days of hushed IRS decision to allow tax preparation companies or individual accountants sell part or all of your personal information from your tax returns to third party entities or marketers. (Your Tax Files For Sale? IRS Says Go For It.)

The revelation of this decision has sent consumer advocate and public interest groups running - and rightly so. A joint statement filed by the U.S. Public Interest Research Group (PIRG), the Consumer Federation of America (CFA), and the National Consumer Law Center (NCLC) to the IRS, they remarked:

The regulation creates exceptions to a law that is currently highly protective of taxpayer information and prohibits commercial preparers from disclosing a consumer’s tax return information or using it for any other purpose than preparing the taxpayer’s return

Share you thoughts on this rule change with Dillion Taylor, Office of Associate Chief Counsel (Procedure and Administration), Administrative Provisions and Judicial Practice Division at the IRS by dillon.j.taylor@irs.counsel.treas.gov or by phone at 202.622.7752.

After badly fumbling the first of his two major policy goals after being re-elected President last year (Social Security Reform), recently Mr. Bush dropped the ball again on the second of those goals - comprehensive tax reform. Despite an interesting report from his Presidential Tax Reform Commission released November 1 last year, the president seems to have long forgotten this issue was of any importance to him at all.

In order to help him out, the good folks over at the Center for American Progress have decided to host a timely (tax day is a little over two weeks away) and comprehensive event this Friday to explore the tax reform issue — both comprehensive reform options as well as smaller changes to the tax code that would improve the system.

A short blurb about their event:

A full-day conference with academic and policy experts from around the country who will highlight options for reforming the tax code. Many experts agree that the tax code is in need of repair. Yet it has been 20 years since the landmark 1986 reform. Given the growing complexity of the tax code, increased revenue pressures, and a changing economy; tax reform will likely be a central issue for 2006 and beyond. The conference will provide a forum for sharing proposals-both quick fixes and broad overhaul-and for open and engaged discussion.

The event is free and open to the public. A full agenda and invited speakers are available here and you can RSVP by clicking here.

Last night the Senate passed the budget resolution by a very close vote of 51-49. Vice President Dick Cheney was on hand in case he was needed to provide a tie-breaking vote. A series of amendments approved by a bipartisan majority added $16 billion in spending to the $2.77 trillion resolution for FY 2007 that came out of committee. The increased spending -- as well as deals made with Gulf Coast lawmakers for increased funding to their states -- helped ensure final passage. Budget caps on discretionary appropriations were raised by $3.3 billion to allow space for funding for low-income energy assistance programs. And, as we previously reported, $7 billion was added $7 billion to help fund education and health programs. This Washington Post article highlights the increased spending as being:

• $3 billion more for heating subsidies for the poor. It passed 51-49.
  
• $7 billion more for education, health and worker safety accounts. It passed 73-27.
  
• $3.7 billion more for military personnel costs.
  
• $1.2 billion more for aviation security and stopping Bush's proposed increase in airline ticket taxes. They advanced by voice vote.
  
• $1 billion more for benefits for military survivors.

Sen. Mary Landrieu (D-LA) was the sole Democrat to vote in favor of the budget, after being promised $10 billion from oil revenues to help rebuild levees and other hurricane-caused devastation her state. Five Republicans broke lines with their party to vote against the deficit-raising budget. These were Sens. Ensign (R-NV), Chafee (R-RI), Coleman (R-MN), Collins (R-ME), and DeWine (R-OH).

This massive budget egregiously includes tax breaks for the wealthy to the tune of $228 billion over five years. It also opens up the Arctic National Wildlife Refuge for oil drilling, a measure that is wildly unpopular with a number of GOP Senators. Notably the Inhofe amendment, which would have further increased discretionary cuts, was defeated 62-35. While Senate rejection of Bush spending caps in this budget is a good sign, the budget is still a fiscally irrepsonsible document that continues the trend of cutting taxes (mainly for the wealthy) while shrinking domestic programs in a time when more and more people are relying on them.

Wall Street Journal: Senate Republicans Break Ranks on Spending

New York Times: Senate Approves Budget, Breaking Spending Limits

As of 2:00 PM today the Senate had yet to vote on the Harkin-Specter amendment, which would provide an additional $7 billion over the President’s budget request — allowing Congress to fund the FY07 Labor-HHS bill at the level enacted two years ago, in FY05. A one-pager on the amendment, made available by Senator Harkin's office, is available here.Among many points made, the one-pager says:

The Senate budget resolution says it has more funding for health and education than the President’s budget does. Yet it includes the same total amount for discretionary spending. Therefore, there is no guarantee that the alleged health and education increases will ever materialize in the Labor-HHS appropriations bill. The only way to ensure more funding for Labor-HHS programs is to add money to the total spending level.

After completing 50 hours of debate on the budget resolution bill, the Senate started considering amendments yesterday. So far struck down they have struck down amendments offered by Sens. Kennedy (D-MA), Murray (D-WA), Conrad (D-ND), Bingaman (D-NM), and Akaka (D-HI). They unanimously adopted an amendment offered by Sen. Burns (R-MT) to provide increased funding for veterans health programs, and to negate the need for enrollment fees and increase in pharmacy co-payments.

The Senate will be considering amendments to the budget resolution that came out of committee today and likely voting on it tomorrow. Here is a good analysis of the effects this budget resolution would have:

Center on Budget and Policy Priorities: The Senate Budget Committee's Plan: A Brief Analysis

The pension legislation passed by the House would make some of the 2001 tax cuts permanent without offsetting their costs. These tax cuts include increases in IRA and 401(k) contribution limits and the creation of the “saver’s credit.

According to this report, this move would cost about $30 billion between 2006-2015. Most of the costs would occur from 2011 on. Not offsetting these costs, as the Center on Budget and Policy Priorities puts it,

would make it harder to reach eventual agreement on a fiscally responsible, comprehensive approach to the nation’s looming budget problems. A comprehensive approach will involve some “give” on both spending and revenues, but that is likely to be harder to achieve if the tax cuts already are locked in on a permanent basis.

Senate Budget Committee Chair Judd Gregg (R-NH) unvelied the 2007 budget resolution mark yesterday. Notably it did not contain any reconciliation instructions for tax cuts, which may get in the way of efforts to cut taxes outside of the left-over tax reconciliation bill from last year that Congress is still negotiating. Additionally, it drops Bush's proposal for Medicare cuts and health savings accounts.

The mark sets discretionary spending at $873 billion for FY 2007, and does include revenue reductions. According to the committee summary "[the bill] assumes a modest reduction in revenues, relative to the baseline, that balances the need for fiscal responsibility with the need to continue modest tax rates necessary to continue economic growth and job creation."

House and Senate negotiators are still trying to work out the details of the 2005 tax reconciliation bill, which calls for $70 billion in tax cuts that are protected from filibuster. The summary of the mark states, "Since the Tax Relief Act of 2005 (pursuant to the reconciliation instruction in the FY 2006 budget resolution) has not yet been enacted, the tax relief assumed in the Mark is sufficient to accommodate extensions of current capital gains and dividend tax rates and existing provisions for small business expensing through the five year budget window."

The House Budget Committee was supposed to hold its markup session this week, but has postponed it to a date yet to be determined. April 15 is the internal budget resolution deadline used by Congress, but they often fail to complete it by that date.

The Congressional Budget Office released the Monthly Budget Review yesterday, reporting that the government incurred a $219 billion deficit in the first five months of FY 2006. The CBO is estimating a total deficit for FY2006 to be $371 billion. The deficit in February was $121 billion, which is $7 billion more than the deficit recorded in February 2005.

It was reported today the Rep. Bill Thomas (R-CA), Chair of the House Ways and Means Committee, will retire as opposed to seeking reelection in November. This makes him the 24th member of the House who is retiring or seeking higher office instead of running for reelection. His resignation is not a big surprise because under House Republicans' self-imposed term limits for committee chairmen, Thomas can no longer serve as Ways and Means Chair after this year.Thomas, who has held the powerful position since 2001, was a key figure in helping to pass the 2001 and 2003 tax cuts.

Washington Post: House Ways and Means Chair Thomas Retiring

The Congressional Budget Office has completed a preliminary analysis of the President's FY07 Budget.

• Analysis
  
• Supplemental Data

The report found that the President's proposal will:

• Spend about $925 billion on discretionary programs in FY07;
  
• Add $35 billion to the CBO's current deficit projections, putting the deficit projection at $371 billion;
  
• Reduce revenues by nearly $9 billion for FY07;
  
• Reduce revenues by $282 billion from 2007-2011 if some of the President's expiring 2001 and 2003 tax provisions are extended;
  
• Increase outlays by $27 billion (mostly in military spending in Iraq and Afghanistan);
  
• Increase defense funding by an average of 2.8 percent per year through 2011; and
  
• Reduce Medicare outlays by $138 billion from 2007-2016.

The report also states the deficit will decline as a share of GDP, going from 1.6 percent in 2008 to 1.3 pecent in 2009, and finally stabilizing at approximately 1 percent annually through 2016. These deficit projections, however, exclude the costs of supplemental emergency appropriations, the President's proposal for private Social Security Accounts, as well as the cost of fixing the Alternative Minimum Tax.

The Treasury Department sent a report to Congress in December, reporting the FY05 federal deficit on an accrual basis as being $760 billion, a far higher number than $319 billion, which is what is generally accepted as the deficit level for FY05.

The $319 billion number uses the government's accepted barometer of cash outlays versus revenues, while the $760 billion number takes into account accrued benefits owed to veterans and federal employees. Rep. Jim Cooper (D-TN), a member of the Blue Dog Coalition, said:

"Businesses are required by law to use accrual accounting. If you want Congress to be run like a business, you need accrual accounting."

This Treasury report is garnering increasing attention from lawmakers who are worried about the nation's budget books, and there was a hearing yesterday about the matter. GAO Comptroller David Walker said the $760 billion net figure as well as the $8 trillion debt through the end of FY05 left out the costs of unfunded Social Security, Medicare, veterans' and other liabilities. He said:

"Given these and other factors, a fundamental re-examination of major spending programs, tax policies and government priorities will be important and necessary to put us on a prudent and sustainable fiscal path. This will likely require a national discussion about what Americans want from their government and how much they are willing to pay for those things."