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TAXES AND THE PRESIDENT'S BUDGET

February 06, 2007

The President yesterday announced the details of his budget plan for the upcoming fiscal year. Like all presidential budget proposals, it's a mix of interesting proposals, pork-barrelling, playing to the crowd, and muddling through. Sadly, the pork-barrelling and muddling are the only parts likey to actually get enacted.

Perhaps most interesting is the health care proposal outlined in the State of the Union speech. The proposal has some more details. There's no chance it will pass this Congress, but it will help rally those who don't want a creeping federal takeover of the health-care sector.

The plan also proposes permanent extension of the administration's tax cuts. Expiring tax laws are a bad thing, but the plan doesn't address them honestly. It proposes a permanent cut in the regular tax rates while only including a one-year fix to the alternative minimum tax. This disguises the projected revenue loss from the rate cuts because millions of the millions of taxpayers projected to face AMT after the one-year fix expires. As the politicians aren't likely to let that happen, the proposal ducks the real revenue implications of the tax rate cuts. The AMT and permanent rate cuts can only really be addressed with comprehensive tax reform, but the President has abandoned that fight.

The proposal provides temporary extensions of the usual pork-barrel expiring provisions, chiefly the R&D credit. It would also make permanent a number of "temporary" breaks for contributions, including the tax break for pension and IRA gifts to charity.

The meatiest provisions likely to get enacted are "tax gap" closers. These include:

- Extending form 1099 requirements to payments to corporations.

- Requiring brokers to report basis information to IRS on sales of securities.

- Require credit-card issuers to report to the IRS the amounts received by merchants in credit card transactions - a compliance provision aimed at the e-bay economy.

- Require governments to report non-wage payments to contractors and service providers.

- Increase the failure to file timely 1099s from $50 to $100 per late or incorrect 1099, and to $250 from $100 for "intentional disregard" of the 1099 rules.

Finally, and long overdue, the budget would waive taxpayer privacy rules to allow the IRS to report inmate tax scammers to prison officials.

What will pass? The information reporting stuff, the charitable things, the expiring provision extensions, the one-year AMT fix, and maybe the prison thing.

The TaxProf has more:

NY Times: Democrats, Bush Spar Over Tax Gap

Bloomberg: Budget Plan Requires Reporting Stock Purchases to IRS

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