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.

We tend not to venture over into monetary policy all that much, but it and fiscal policy are closely enough related that we thought we'd try. The non-news of the Fed's Free Market Open Committee's decision this week to hold the target Fed interest rate at 5.25 percent -- where it's been for the last year -- reflects some factors below, with a fiscal consequence noted further below.

The Economists' View identifies these factors and notes behind the FMOC decision:

• The statement on economic growth has changed from "Recent indicators have been mixed" to "Economic growth has slowed in the first part of the year" indicating that uncertainty over slowing has been resolved by new data
• The statement about inflation changed slightly, with the opening sentence changed from "Recent readings on core inflation have been somewhat elevated" to "Core inflation remains somewhat elevated," and they continue to expect moderation of inflation in the future. However, the statement notes the potential for high levels of resource utilization to sustain inflation pressures
• The balance of risks is still tilted toward inflation. There is no signal that a rate cut is contemplated anytime soon
• There was no dissent

And how is this most relevant to fiscal policy? Most immediately, it means no big changes to federal debt interest expense are expected.

Some important economic barometers and commentary, mostly pointing to a slowdown in the overall economy, below.

• L. Josh Bevins, Economic Policy Institute -- GDP growth continues deceleration
• John Irons, Center for American Progress -- April Job Growth Disappoints

• CBO -- Federal Fiscal Performance: Monthly Budget Review
• Bureau of Economic Analysis -- 1Q07 GDP growth factors summarized:

The deceleration in real GDP growth in the first quarter primarily reflected a downturn in exports, an upturn in imports, a deceleration for nondurable goods, and a downturn in federal government spending that were partly offset by a smaller decrease in private inventory investment, an upturn in equipment and software, a smaller decrease in residential fixed investment, and an acceleration for durable goods.

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