Demanding a federal budget that is fair, responsible, and meets our nation's priorities

Wednesday, October 17, 2007

Invoice for AMT, R&D, WOTC, etc.

With must-pass a one-year AMT patch (cost estimate: $55 billion) and a two-year tax extenders bill ($30 billion) coming down the pike in the next month or two in Congress, fiscally responsible members are searching high and low for the roughly $85 billion in offsets needed under PAYGO for these two bills alone.

Closing the carried interest tax loophole can probably pay for one but not both of these measures. Some little-noted but timely and resourceful proposals -- all in the Senate Finance Committee hopper right now -- can help raise the rest of the revenue needed for PAYGO compliance. Three of the most promising of these are summarized below:

• S. 681: The Stop Tax Haven Abuse Act

  Tax cheats make it harder to maintain America's highways, protect our borders, advance medical research, and inspect our food. They make it difficult to give needed tax relief to small businesses and middle-income victims of the alternative minimum tax. S. 681 would strengthen federal regulators' ability to combat offshore tax haven and tax shelter abuses via a set of practical enforcement tools that would begin to reduce the $100 billion offshore tax gap that forces honest taxpayers to shoulder a greater tax burden than they would otherwise have to bear. Estimated savings to taxpayers: $5 billion a year.

• S. 1124: The Tax Lien Simplification Act
  Outdated federal tax lien laws and procedures force the IRS to waste taxpayer dollars on an old-fashioned, inefficient, and burdensome paper tax lien filing system that should be replaced by a modernized electronic filing system capable of operating at a fraction of the cost. S.1124 -- which has bipartican support -- would bring the federal tax lien system into the 21st century. Currently, the IRS service center staff is charged with filing tax liens nationwide and complying with the myriad filing rules in effect in the 4,100 recording offices across the country. Amending the law to streamline the tax lien filing system, moving it from a paper-based to an electronic-based system, would not only advance the more efficient, cost-effective tax system we all want, it would also save $570 million in taxpayer money over ten years.

• S. 2116: The Ending Corporate Tax Favors for Stock Options Act
  Right now, U.S. accounting rules require companies to report their stock option expenses one way on the corporate books, while Federal tax rules require them to report them a completely different way on their tax returns. In most cases, the resulting book expense is far smaller than the resulting tax deduction. So, under current U.S. accounting and tax rules, stock option tax deductions often far exceed the stock option expenses recorded by the companies. In 2004, corporations took $43 billion more in deductions on their tax returns for stock option compensation expenses than the stock option expenses actually shown on their financial statements for the same year. This disparity enabled corporations, as a whole, to reduce their taxes for the year by $10, perhaps as much as $15, billion.