Daily Deduction

from the Tax Policy Center

Spending, Rules, and Revenues

By :: May 23rd, 2014

What if we counted tax expenditures as “spending,” and not “tax cuts?” Characterizing tax subsidies as tax cuts rather than spending leads to bigger government, higher taxes, larger deficits, and a misallocation of resources, according to a new paper by TPC’s Len Burman and George Washington University’s Marvin Phaup. Their new National Bureau of Economic Research paper shows the dangers of mischaracterizing tax expenditures as tax cuts instead of spending, which is what most of them really are.

Speaking of allocating resources… The IRS should collect delinquent taxes, not turn the job over to private debt collectors, says TPC’s Howard Gleckman. Government contractors do some things well, but when it comes to tax collection, the IRS offers clear authority and necessary nuance in its approach to recovering funds. And doing the job in-house is likely to return more than privatizing it.

The IRS will revise proposed rules for nonprofits’ political involvement. The draft regs, released last year, were met with broad resistance, and congressional Republicans told the IRS and Treasury to drop the project. Instead, the IRS will go back to the drawing board. It’s not clear when the new proposed rules will be published or when they’ll take effect, but today the IRS stated it would hold a public hearing upon their release.

Some tax preparers want more from the IRS. CPAs are not fans of the IRS’ expected move to impose voluntary education standards on preparers. The American Institute of Certified Public Accountants worries the standards may be inadequate and not weed out bad actors. Exacerbating the issue, the group says, “The proposed voluntary system would undoubtedly leave the impression among most taxpayers that certain tax return preparers are endorsed by the Internal Revenue Service.”

One player in the sharing economy might end up paying more taxes. Airbnb, a short-term home rental service that competes against regulated and highly-taxed hotels, says the majority of its hosts are “regular people, renting out their own home to travelers” for extra income. But, it will comply with a New York State probe of its activities aimed at determining whether they violate occupancy or tax codes. Airbnb will now inform its hosts about occupancy laws and the New York City occupancy tax of 14.75 percent.

Tax dodgers, s’il vous plait, come clean.” The French government will ease interest payments due on taxes owed by any firms that disclose their previously undeclared taxable funds. It expects to recover 1 billion euros. France has been in gentle pursuit of lost revenues: It has already recovered 764 million euros after cutting fines and penalties on individual taxpayers if they declared assets abroad.

The Daily Deduction will return to its regular schedule on Tuesday, May 27.

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  1. 2014 TAX DAY CALIFORNIA  ::  10:18 am on May 23rd, 2014:

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  2. Michael Bindner  ::  3:48 am on May 24th, 2014:

    Tax expenditures are spending – but in the form of privatized government. They exist so that a government program can be dispensed with. Without the EITC and Child Tax Credit, more people would need some kind of direct welfare, even if they were working. Unless we want to set up an alternative program to aid the working poor, at least the Child Tax Credit is staying. Frankly, I would expand tax expenditures on the state level as a way to fund non-traditional schools, such as Charter and Religious Charter Schools.

    On the tax privatization effort, perhaps it is necessary to deal with big cuts in the budget or to more easily search out people who owe on taxes who have moved – as they have an incentive to not build up a backlog – an incentive that civil servants do not have.

    The non-profit IRS hearing looks juicy, but the Congress will fight anything that really works – which is why this is regulatory rather than a bill. Of course, in the face of regulations the Congress may act to do something more to there liking.

    I can see how CPAs would not want anything but being a CPA allowed to do taxes. Indeed, they would love such a monopoly – although poorer taxpayers could not afford them.

    AirBnB is looking like it will cooperate in the effort (likely spurred by hotels) to crack down on the private hotel market. Such a market usually occurs when there are no hotels available or when they are just too expensive. I hope the little guy wins this one.

    France is using an American tactic – a tax amnesty – to take the money now rather than fighting for every penny later. If they need the money now, this is probably a good thing – although going to an EU-wide income tax and debt scheme could take this off their plates totally and make Europe stronger (which is why the US blanches at such ideas).

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