No action on tax law puts IRS in a bind
Posted on Wednesday, December 5, 2007
WASHINGTON — Computer programmers and printers at the Internal Revenue Service have spent the past several weeks waiting for tax changes on Capitol Hill so they can send out properly updated income-tax forms.
Usually, it takes the agency 10 weeks to revise tax forms. Now, anticipating changes in the code, IRS managers say, they have a jump on things. They can reprogram their equipment in seven weeks.
But Congress has yet to act.
With the legislative calendar winding down, congressional Democrats and Republicans cannot agree on how to shield millions of middle-class taxpayers from a creeping tax formula originally designed to apply only to the ultra-rich.
“If Congress doesn’t act, millions of Americans will be hit with an unexpected tax bill,” President Bush warned at a Tuesday press conference. “Congress expects Americans to pay their taxes on time, and the least the Congress can do is make sure Americans get their refunds on time.” Arkansas’ Sen. Blanche Lincoln blames the impasse on what she views as a lack of cooperation from Senate Republicans.
Before the Thanksgiving recess, she said, Republicans rebuffed offers from Senate Majority Leader Harry Reid of Nevada to debate three different versions of a tax bill.
“What more do they want ?” Lincoln wondered.
While the two sides cast blame on each other, the IRS warns that the holdup on the Hill could delay the processing of tax returns for weeks.
“Don’t plan anything for your refund right away,” said Rep. John Boozman, an Arkansas Republican. The alternative minimum tax, which first applied during the 1970 filing year, was designed to make sure the ultrawealthy didn’t use a variety of deductions to lighten their tax liability. After several changes over the years, the law exempts a single filer’s first $ 42, 500 in income from the alternative tax. But because that exemption is not indexed to inflation, each year more taxpayers are subject to the tax. Last year, 4 million taxpayers filed according to the alternative formula.
Unless changes are made, 23 million will pay the alternative tax this year, according to Leonard Burman, director of the Tax Policy Center, a Washington research organization run jointly by the Urban Institute and the Brookings Institution. The disagreement in Congress centers on whether eliminating the tax would have to hew to the “paygo” requirement. Short for “pay-as-yougo,” House and Senate rules require new spending or the elimination of a tax to be revenue “neutral.” Lincoln, a Democrat who sits on the tax-writing Senate Finance Committee, said that while she supports the paygo rule, it should in this case be waived.
The fact that the tax wasn’t indexed to inflation, she said, calls for a “technical correction” that need not follow normal budget procedures.
But even if the Senate does pass a fix, Lincoln said, it would be met with resistance in the House if it didn’t comply with paygo.
In November, the House passed a one-year “patch” that would use tax increases on private-equity partnerships, such as hedge funds, to help make up for the roughly $ 50 billion in taxpayer money that the Treasury would have collected under the alternative minimum tax.
Calling a tax increase on hedge-fund managers unacceptable, Bush has threatened a veto.
Bush is playing “macho politics,” according to Stan Collender, a budget expert at Qorvis Communications, a Washington public-relations firm.
The White House, Collender said, risks increasing the deficit by insisting that other taxes aren’t raised to pay for changes in the alternative minimum tax. “This has nothing to do with good tax policy or good economic policy,” he said. “The White House doesn’t want to fix it, it just wants a win.” But the Democrats are also to blame, he said. Because they don’t have a forceful spokesman on fiscal issues, they are unable to present the elimination of the alternative tax as tax relief.
Boozman makes the point that the patch on the alternative tax passed by the House is for one year. The tax increases on hedge funds are “forever.” Boozman, who voted against the House bill, suggested that loss in revenue from the tax could be replaced by closing “loopholes” in the tax code or by tightening spending.
But, in an interview shortly after he had lunch Tuesday with Louisiana’s Rep. Jim McCrery, the ranking member of the House Ways and Means Committee, Boozman said, Republicans were hesitant to offer specific suggestions because they feel they weren’t given input in crafting the bill.
“There’s really no reason to do that, unless you’re going to be listened to,” he said.
The IRS said delays in refunds are possible for all filers, not just those who file the alternative tax. That’s because the IRS does not have procedures in place to distinguish tax returns that would be affected by changes in the law.
Boozman said, “It’s an interest-free loan to the government from the taxpayer.”
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