Contempt, Audits, Health Care, and Highways

On the Hill yesterday… The House voted 231 to 187 to hold former IRS official Lois Lerner in contempt of Congress. She is the third government official to be held in contempt in the past seven years. Lerner refused to cooperate with the Congressional investigation of IRS treatment of organizations seeking tax-exempt status. Last year she had admitted that the IRS had targeted groups based on their political leanings. She retired after the issue took on a life of its own.

On the Hill this morning: Federal Reserve Chair Janet Yellen appears before the Senate Budget Committee this morning, to discuss the economic outlook.

The revenue outlook is a little cloudy, given fewer audits. That’s the takeaway from IRS commissioner John Koskinen at yesterday’s Congressional hearing. The IRS will conduct 100,000 fewer audits this fiscal year than the last, resulting in lost revenue of approximately $3 billion. Its current budget is $11.29 billion, more than $850 million less than its fiscal year 2010 budget. The agency also has 10,000 fewer full-time permanent employees.

Slower health care spending won’t solve the nation’s fiscal problem. If the excess cost growth in health care (controlling for demographic and economic changes) sticks at a historically consistent 2.5 percent over the next 75 years, deficits would still “shoot up to 15 percent of GDP by 2040 and public debt [would] skyrocket to 187 percent of GDP.” That’s the latest according to economic modeling from TPC’s Bill Gale and UC-Berkeley’s Alan Auerbach. The model assumes that the nation will not impose higher taxes or substantially cut other spending.

The DC Council wants to tax health plans to fund its online exchange. With too few customers to tax and cover the operating costs of its exchange, the DC Council unanimously approved an emergency measure which will instead levy a 1 percent tax on health insurance premiums for products largely unavailable on the exchange. The premiums amount to more than $250 million paid annually by those who work and live in the District. The measure awaits Congressional approval.

Is there no way for the highway? A long-term solution to shore up the Highway Trust Fund seems less than likely. The CBO estimates that as a stand-alone fix, a 10-15 cents per gallon increase could save the fund in the near term. Unfortunately, it’s an election year: Both Congress and the White House say “no” to a gas tax increase, even though the trucking industry and US Chamber of Commerce say “yes.” Short-term extensions of the fund seem more likely, but such uncertainty threatens infrastructure projects or could increase costs.

Corporate tax leaders think the OECD needs more time for BEPS. The Organization for Economic Cooperation and Development has a plan to address base erosion and profit shifting (BEPS), or tax strategies that make the most of tax rules to reduce corporate tax rates and taxes paid. The two-year plan focuses on the digital economy and preventing double non-taxation. A new survey of corporate tax executives shows that most of them think the OECD’s timeline is too short.

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