House of Representatives Holds Tax Reform Hearing Today

Is this a start to the changes we all know are so desperately needed? According to WaysAndMeans.house.gov, the committee will host the first in a series of hearings on fundamental tax reform today. The focus of the hearing is listed below.

The hearing will examine the economic and administrative burdens imposed by the current structure of the Federal income tax. It will explore the cost of complexity borne by American families, the cost of a corporate tax system that is increasingly out-of-step with the rest of the world, and the broader cost to the U.S. economy of a tax system that fails to maximize job creation and impedes economic growth.

The following witnesses are expected to testify:

• The Honorable Nina E. Olson, National Taxpayer Advocate

• Robert A. McDonald, Chairman of the Board, President and Chief Executive Officer, The Procter & Gamble Company

• Warren S. Hudak, President, Hudak & Company, LLC

• Kevin A. Hassett, Ph.D., Senior Fellow & Director of Economic Policy Studies, American Enterprise Institute

• Martin A. Sullivan, Ph.D., Contributing Editor, Tax Analysts

House Passes Legislation to Extend Only Some Tax Cuts

On Thursday the House of Representatives passed legislation to extend some of the expiring Bush-era tax cuts. 234 members voted for the bill, while 188 voted against it. The legislation now heads to the Senate, where it is expected to struggle. When are we going to see a final decision?!

The Hill.com reports:

Twenty Democrats broke with their party and voted against the bill after 33 had defected in a previous test vote. Most of those who voted with Republicans on the first ballot were members of the centrist Blue Dog Coalition, and many lost their bids to be reelected last month.

Speaker Pelosi gaveled the vote to a close herself, receiving a smattering of applause from Democratic members. The bill extends only the cuts for the middle-class, letting tax breaks end for families earning more than $250,000 per year and individuals making more than $200,000. Congress originally authorized the cuts in 2001 and 2003.

Three Republicans, Walter Jones (N.C.), Ron Paul (Texas) and John Duncan (Tenn.), voted with Democrats to renew only the middle-class cuts.

Read more here

Congress Presses IRS to Ease Tax Preparer Regulations

Thirty-one members of the House of Representatives have reportedly signed a letter urging Treasury Secretary Geithner to ease up on tax preparer regulations. The members of Congress, including nine members of the tax-writing House Ways and Means Committee, are hoping to exempt non-signing tax preparers at CPA firms from registration requirements. They have also requested a delay in the IRS’ plans to launch a nationwide examination of tax preparers.

Web CPA reports:

The group, led by Brad Sherman, D-Calif., and Michael Conaway, R- Texas, said the IRS should modify its proposal. “We believe that the IRS has neither demonstrated the need for extending the non-signing preparer requirements to CPA firms nor that its proposed testing program merits shifting IRS resources away from other mission-critical programs,” they wrote. “We believe that any testing program should be deferred until the IRS has performed an adequate study to determine the level of return preparation problems caused by a lack of preparer competence and whether testing would have a meaningful effect on reducing those problems.”

The letter argues that requiring IRS registration of non-signing preparers who work for CPA firms is unnecessary because state boards of accountancy already regulate CPA firms and individual CPAs, and because the IRS would be able to monitor the quality of the CPA firms’ work through the preparer tax identification numbers of the CPAs who sign the tax returns.

The PTIN numbers will be assigned by the IRS when the CPAs register and will have to be included on all the tax returns they sign. The IRS has already excluded CPAs from the proposal’s examination and continuing professional education requirements because they are regulated by the state accountancy boards and Treasury Circular 230, the rules governing practice before the IRS, so there is “strong justification for not expanding the PTIN requirement beyond signing preparers in CPA firms with no adverse effect to the public.”

Read more here

Highlights of House Tax and Spending Bill

On Friday, the House of Representatives passed a new tax and spending bill. Over the weekend the Associated Press published a list explaining the changes that would occur if the legislation were signed into law. You can find a few of the highlights below, or read the full article on Google News.

• Extends for one year about $32 billion in tax breaks that expired in January, including a property tax deduction for people who don't itemize, lucrative credits that help businesses finance research and develop new products, and a sales tax deduction that mainly helps people in states without income taxes.

• Increases taxes on investment and hedge fund managers, venture capitalists and many real estate investment partnerships by $18.7 billion.

• Increases taxes on oil companies by $11.8 billion by raising from 8 cents a barrel to 34 cents a barrel the tax they pay into the Oil Spill Liability Trust Fund.

• Raises taxes on multinational companies some $14.5 billion by limiting their ability to use credits for paying foreign taxes to lower their U.S. tax liability.

• Imposes $11.2 billion in new Medicare taxes on lawyers, doctors and other service providers.

House Holds Hearing Today on Tax and Internet Gambling

As I mentioned yesterday, the concept of taxing internet gambling, and online transactions has been getting attention in Congress. It should come as no surprise that the House Ways & Means Committee announced a hearing on “Tax Proposals Related to Legislation to Legalize Internet Gambling.”

According to the announcement (via TaxProf), the Committee will discuss the current tax laws and reporting requirements applicable to wagering in the United States. The Committee will consider tax and other proposals in the Committee’s jurisdiction related to legislation pending in the Congress to license and regulate Internet gambling activities.

Additionally, the Joint Committee on Taxation has released Overview of Federal Tax Laws and Reporting Requirements Relating to Gambling in the United States:

The United States gambling industry generated more than $92 billion in revenue in 2007. This includes commercial casinos operating in 12 States, casinos operating on Indian tribal lands in 28 States, State lotteries operating in 42 States, and racetrack casinos operating in 12 States.

Part I provides a general overview of legal gambling operations in the United States, State taxation of gambling, and Internet gambling. The legal gambling market includes revenues from commercial casinos, Indian tribal casinos, State lotteries, pari-mutuel wagering, and other types of gambling which are discussed in this part.

Continue reading at TaxProf.Typepad.com…

20 Ways House, Senate Financial Reforms Differ

When the U.S Senate resumes this month they plan on getting right to work on financial regulation reform. However, according this Reuters.com article the legislation they are going to be considering will differ greatly from the bill that was approved by the House of Representatives. Reuters identified a list of the top 20 differences, which you can view below.

Resolution Fund

House bill creates $200-billion fund to help pay for Federal Deposit Insurance Corp (FDIC) actions to dismantle insolvent, non-bank financial firms.

The fund gets $150 billion from fees paid by firms with more than $50 billion in assets. Fee threshold for hedge funds is $10 billion. The fund can get $50 billion more if needed from Treasury borrowings.

Senate Banking Committee Chairman Christopher Dodd's bill, main vehicle for reform in Senate, covers FDIC actions with after-the-fact fees on firms with assets topping $10 billion.

Secured Creditor Haircut

In House bill, secured creditors in FDIC resolution actions may have up to 10 percent of their claims treated as unsecured claims. Dodd bill does not contain this so-called "haircut" provision.

FDIC Emergency Action

House bill allows FDIC to guarantee debts of solvent firms up to $500 billion, with approval of new systemic risk council, Treasury, president.

Dodd bill allows FDIC to guarantee debts of firms in receivership, with approvals from senior officials.

Continue reading at Reuters.com…

Congress Grapples with Estate Tax

Next week, the United States House of Representatives will vote on whether or not to extend the current estate tax rates or allow them to expire at the end of 2009. While members of Congress support the extension, the biggest roadblock will be getting legislation through the Senate, who will need to account for spending. The 10-year extension is estimated to cost $234 billion since the rate was due to increase in 2011.

"We believe that a permanent extension of the existing law is the best policy," Steny Hoyer, the chamber's majority leader, told reporters.

Preserving the current rates will be harder in the U.S. Senate because that body's rules require a way to pay for it.

A 10-year extension of the tax would cost an estimated $234 billion versus allowing the tax to revert to a higher rate in 2011, as currently scheduled, according to congressional aides.

Senate Finance Committee Chairman Max Baucus has proposed extending the current 2009 law and indexing it to inflation, but the Senate's intense focus on healthcare and limited days in the legislative calendar add further hurdles.

"We need to take the time to deal with it," said Senator Kent Conrad, a Democrat on the finance panel charged with tax issues. But he acknowledged the challenges in getting it done before the end of the year.

Continue reading at Reuters.com…

Improper US Government Payments Hit $98 Billion

As the nation continues to debate the House of Representatives health care reform bill, new statistics have emerged showing that improper payments made by the federal government to people, firms, and contractors rose to $98 billion this year. Over half of the errors were reportedly made in the Medicare and Medicaid programs, which according to Budget Director Peter Orszag, shows the need for some type of health care reform.

Improper payments in the Medicare and Medicaid programs totaled $55 billion in fiscal 2009, according to documents provided by OMB.

Medicare covers healthcare for the elderly and some disabled, while Medicaid does the same for the poor.

Orszag said the error rate for payments under Medicare Advantage, where private insurers offer coverage to Medicare beneficiaries, jumped to 15 percent, or to $12 billion, in fiscal 2009. The error rate was 10 percent in fiscal 2008.

"This was not the result of methodological changes. This is one of the reasons why, as part of health reform, we believe there are crucial changes necessary to the Medicare Advantage program," he said on a telephone conference call.

Continued at CNBC.com…

Understanding The House Democrats’ Health Care Bill

Political blog KeithHennessey.com recently published an in-depth analysis on understanding the House Democrats’ new health care bill. I’ve included a clip from the article below, but be sure to check out his full post here.

Yesterday I posted and described the draft Kennedy-Dodd health care bill. Today I would like to do the same for an outline produced by House Democrats.

Here is a three-page outline of “Key Features of the Tri-Committee Health Reform Draft Proposal in the House of Representatives,” dated yesterday (June 8, 2009).

The three committees are:

The House Ways & Means Committee, chaired by Rep. Charlie Rangel (D-NY). The Health Subcommittee is chaired by Rep. Pete Stark (D-CA).

The House Energy & Commerce Committee, chaired by Rep. Henry Waxman (D-CA). The Health Subcommittee is chaired by Rep. Frank Pallone, Jr. (D-NJ).

The House Committee on Education & Labor, chaired by Rep. George Miller (D-CA). The Health, Employment, Labor and Pensions Subcommittee is chaired by Rep. Robert Andrews (D-NJ).

The document suggests this is a joint product of the three committees and/or their subcommittees. My sense, however, is that it is Speaker Pelosi who is driving the bus. This is in contrast to the Senate, where the committee chairmen (Kennedy/Dodd and Baucus) appear to have the pen, in less well-coordinated efforts.

Kennedy-Dodd and the House bill outline are remarkably similar. Whether this represents House-Senate coordination or parallel thought processes is unclear.

I think the easiest way for me to present the House bill outline is in comparison with the Kennedy-Dodd bill. So here my description from yesterday of the Kennedy-Dodd bill, with today’s comparison to the House bill outline in red. I hope it’s comprehensible and useful this way. If you read yesterday’s post, you can skim the text in black and focus on the new text in blue.

Here are 15 things to know about the draft Kennedy-Dodd health bill and the House bill outline.

1. The Kennedy-Dodd bill would create an individual mandate requiring you to buy a “qualified” health insurance plan, as defined by the government. If you don’t have “qualified” health insurance for a given month, you will pay a new Federal tax. Incredibly, the amount and structure of this new tax is left to the discretion of the Secretaries of Treasury and Health and Human Services (HHS), whose only guidance is “to establish the minimum practicable amount that can accomplish the goal of enhancing participation in qualifying coverage (as so defined).” The new Medical Advisory Council (see #3D) could exempt classes of people from this new tax. To avoid this tax, you would have to report your health insurance information for each month of the prior year to the Secretary of HHS, along with “any such other information as the Secretary may prescribe.”

The House bill also contains an individual mandate. The outline is less specific but parallel: “Once market reforms and affordability credits are in effect to ensure access and affordability, individuals are responsible for having health insurance with an exception in cases of hardship.”

2. The Kennedy-Dodd bill would also create an employer mandate. Employers would have to offer insurance to their employees. Employers would have to pay at least a certain percentage (TBD) of the premium, and at least a certain dollar amount (TBD). Any employer that did not would pay a new tax. Again, the amount and structure of the tax is left to the discretion of the Secretaries of Treasury and HHS. Small employers (TBD) would be exempt.

The House bill outline also contains an employer mandate that appears to parallel that in Kennedy-Dodd: “Employers choose between providing coverage for their workers or contributing funds on behalf of their uncovered workers.”

Continued here…

US Lawmakers Debating Obama's Energy Tax Breaks

From Reuters:

The U.S. House Ways and Means Committee on Thursday began debating $20 billion in energy tax credits and related financial incentives that are in the Obama administration's plan to revive the American economy.

The legislation's energy tax breaks would benefit the wind and solar energy industries, encourage energy-efficiency improvements to existing homes and help service stations recoup their costs for installing alternative energy pumps.

The economic stimulus package would extend by three years, to the end of 2012, the date that wind facilities would have to be in place to be eligible for the federal renewable energy production tax credit.

Other qualifying facilities that generate electricity from renewable energy sources, such as biomass, geothermal, small irrigation, hydropower, landfill gas and ocean currents, would also have an extra three years through the end of 2013 to be in service to get the same production tax credit.

The long-term extension of the renewable energy production tax credits, which would cost the government $13.1 billion over 10 years, accounts for more than half of the stimulus package's $20 billion in energy tax breaks and financial incentives being considered by the committee.

Because many renewable energy projects are having a difficult time finding financing in current market conditions, the legislation would allow such facilities in place in 2009 and 2010 to temporarily claim a 30 percent investment tax credit instead of the production tax credit that is normally payable over a 10-year period.

Obama Says the Economy is “Getting Worse”

From BreitBart.com:

President-elect Barack Obama describes the economy as "bad and getting worse."

He's been on Capitol Hill today, meeting with House and Senate leaders to talk about an economic stimulus plan.

Before meeting with Senate Majority Leader Harry Reid, Obama told reporters, "We have to act and act now," in order to break what he called the "momentum of this recession."

Obama earlier met with House Speaker Nancy Pelosi. He said he went to Capitol Hill ahead of his inauguration because "the people's business cannot wait."

Ethics Panel Expands Rangel Investigation

From the Associated Press:

The House ethics committee is expanding an investigation of Rep. Charles Rangel, chairman of the tax-writing Ways and Means Committee. The ethics panel issued a statement Tuesday saying it had voted to expand an already far-ranging probe into the New York Democrat to examine whether he protected an oil drilling company from a big tax bill when the head of that company pledged a $1 million donation to a college center named after the congressman.

The move means the Rangel inquiry will likely stretch well past early January, when House Speaker Nancy Pelosi, D-Calif., had previously said she expected the matter to be resolved.

Republicans have called for Rangel to step down from his chairmanship of the powerful Ways and Means panel during the investigation. The expanding investigation means the ethics cloud hanging over Rangel is likely to follow him and Democratic leaders into the next Congress as they seek to pass major stimulus legislation and buoy the sinking economy.

The committee will now investigate contributions or pledges of money made to the Charles B. Rangel Center for Public Service at the City College of New York, particularly one made by Eugene M. Isenberg, CEO of Nabors Industries, Ltd.

Rangel, 78, reportedly helped preserve a tax loophole that saved the company tens of millions of dollars a year.

The congressman, who has been in office for 40 years, maintains he has done nothing improper, and he says he has always opposed the kind of change to tax law that would have cost Nabors dearly.

The ethics committee said it was expanding the probe after Rangel asked them to do so.

The committee has already been probing Rangel's failure to pay taxes on about $75,000 in rental income from a beach house he owns in the Dominican Republic. They are also eyeing his use of three rent-stabilized apartments in Harlem, including one for a campaign office. Also under scrutiny are letters Rangel wrote on congressional stationery looking to drum up donors for the college center.

College officials have refused to say who donated to the Rangel center, citing the ongoing investigation.

Rangel has insisted that whatever he did wrong, they were honest mistakes, not intentional deceptions.

Another Tax Issue Surfaces for Rangel

From NY Times.com:

Representative Charles B. Rangel’s legal team is reviewing his tax records to determine whether the congressman received a homestead exemption on a house he owned in Washington while living in several rent-stabilized apartments in New York City.

The situation is potentially troublesome for Mr. Rangel, a Harlem Democrat who is already the subject of a wide-ranging internal House investigation stemming from an assortment of ethical concerns.

Rent laws in New York City and the state require that tenants occupying rent-stabilized apartments use those units as their primary residences. At the same time, the District of Columbia’s Office of Tax and Revenue extends the homestead tax deduction only to properties that are primary residences.

The internal review by Mr. Rangel’s legal team was prompted by a report in Sunday’s edition of The New York Post quoting a District of Columbia tax official as saying that Mr. Rangel received a homestead tax exemption for a four-bedroom home he owned in Washington. The official told the newspaper that the congressman received the tax exemptions from 1995 through 2000, when he also had the use of rent-stabilized apartments in his district in Harlem.

In a statement released on Sunday night, Emile Milne, a Rangel spokesman, said: “The New York Post has raised a question about the tax treatment of a property the Rangels once owned. The property was sold more than eight years ago and we have asked Congressman Rangel’s accountant to retrieve the records about it.”

Charles Rangel Uses Campaign Funds for Legal Muscle in Tax Mess

From the Boston Herald:

A newspaper says New York Rep. Charles Rangel paid more than $100,000 in campaign funds to a law firm to represent him as he continues to face ethical questions over his tax records.

The New York Post reported Sunday that the powerful chairman of the tax-writing House Ways and Means Committee had hired the law firm though his Rangel for Congress fund.

Federal election rules prohibit elected officials from using campaign funds for personal legal expenses.

Rangel spokesman George Dalley said the congressman had a "prior ruling" from the Federal Election Commission that "this is a legitimate campaign expense."

But the chairman of an ethics-watchdog group was skeptical. National Legal and Policy Center chairman Ken Boehm said the questions Rangel faces over his taxes appear to be personal in nature.

House Holds Hearing on Economy

According to their announcement, the U.S. House of Representatives Ways and Means Committee will hold a hearing “focusing on economic recovery and job creation through investment.”

In announcing the hearing, Chairman Rangel said, “American families are hurting and they are looking to Congress for solutions to help our economy recover and create new jobs. This hearing will examine the growing challenges facing working families as well as State and local governments to determine how we can best restore economic security throughout our nation.”

FOCUS OF THE HEARING:

The hearing will focus on challenges facing American families and State and local governments during the economic downturn and solutions to improve economic security, create new jobs and invest in America’s infrastructure.

House Votes Down Bail-Out Package

The House voted down a $700 billion plan aimed at bailing out Wall Street.

The rescue plan, a result of tense talks between the government and lawmakers, was rejected by 228 “nea” to 205 “yea” votes. About two-thirds of Republican lawmakers refused to back the rescue package, as well as 95 Democrats.

Shares on Wall Street plunged within seconds of the announcement, after earlier falls on global markets.

President George W. Bush was "very disappointed" by the result. He would meet members of his team in the coming days to "determine next steps", spokesman Tony Fratto said.

The BBC's Adam Brookes, in Washington, said Democratic leaders in the House were likely to try and convince a number of their members who voted against the bill to change their minds in coming days.

Speaking after the vote, Republican leaders suggested the Democrats were to blame, accusing them of failing to mobilize their majority in the chamber.

Democratic presidential candidate Barack Obama spoke shortly after the vote, saying it was an outrage that ordinary people were being asked to clean up Wall Street's mess.

Massachusetts Likely to Implement Sales Tax Holiday

Earlier in the day, the Massachusetts’ House of Representatives voted 139-15 to approve a sales tax holiday August 16^th and 17^th. Supporters of the bill expect that it will boost retail sales during a historically slow month. However, critics claim that it will not likely increase overall sales but encourage taxpayers to do all of their shopping for the month at one time.

If the bill is passed by the Senate, during the two days in August consumers will not have to pay the state's 5 percent sales tax on any item worth less then $2,500.

Ways & Means Committee Passes AMT Patch

Earlier in the day, the House of Representatives Ways & Means committee passed a new patch to the Alternative Minimum Tax (AMT). The final vote was 22-16, with mostly Democrats in favor of the patch designed to protect taxpayers from the unpopular tax.

"The measure would deliver this tax relief to middle-class families," claims committee chairman Charles Rangel, "without adding to the deficit and without forcing future generations to pay for the decisions we make today."

If the bill is fortunate enough to become legislation, it would provide $61.5 billion in AMT relief. The lost revenue would be made up in part by taxing carried interest at standard income rates instead of the 15% capital gains tax rate. For more information, check out House panel approves a paid-for AMT relief bill on Google news.

US House Votes to Extend Internet Tax Ban

On October 23, the United States House of Representatives voted with a massive 405 – 2 majority to extend the current ban on Internet taxes for the next four years. This is a small victory, as many from the tech industry lobbied to extend the ban indefinitely. First enacted by Congress in 1998, the Tax Freedom Act Amendments Act was set to expire on November 1, 2007.

Although the legislation passed through the House with flying colors, it stalled in the Senate. In order to extend the ban the act would need to pass the Senate and be signed by the President.
"Every day, broadband technology changes the way Americans live, from how they do business to how they learn and communicate to how they access medical treatment," claims Walter McCormick Jr., president and CEO of the United States Telecom Association. "An Internet access tax penalizes that way of life. In essence, we're talking about a tax on economic opportunity, on knowledge, and on finding one's voice in the democratic process."

For more information check out this article on PC World, or this editorial in the Washington Post.

Bid To End Private Collection Dies

According to CBS News the United States House of Representatives attempted to essentially eliminate the IRS’s program that outsourcers part of its debt collection to private agencies by lower the programs fiscal budget to only $1 million. However defenders of the private debt collection program were able to use a procedural move remove the provision in the Treasury Department spending bill. Since the program began, the private agencies have worked on nearly 38,000 cases and have collected almost $20 million.