Daily Deduction

from the Tax Policy Center

Field of Tax Dreams: Budgets, Taxes, and Takeovers

By :: July 16th, 2014

If you cut it, will it do more? The IRS budget has been cut by $1 billion over the past four years, with a subsequent loss of 10,000 IRS jobs. Late Monday night, the House GOP by voice vote voted to cut $1.14 billion for the next fiscal year, or 13 percent below last year’s budget. The funding “pressure,” according to some House Republicans, sends a message about the importance of IRS accountability and the power of Congressional oversight. The Democratic-led Senate will reject the GOP spending plan.

Or maybe if you cut it, it will grow back? Kansas GOP Governor Sam Brownback believes tax cuts pay for themselves by yielding billions in new tax revenues. With his encouragement, the state legislature cut the state’s taxes twice, dramatically, presuming the changes would spur economic growth and tax revenues. This theory didn’t work in the past, and it’s not working now. It won’t ever work, as TPC’s Howard Gleckman explains: Math has a long-standing, solid commitment to reality.

Well, if you raise an obstacle, it won’t be as easy. Some bankers in Europe are seeing an uptick in European companies seeking to defend themselves against takeovers by US firms who want lower corporate tax rates. British Business Secretary Vince Cable wants to make it harder for an overseas interest to take over a British company, out of concern for the potential loss of UK jobs. Financial penalties, proposed by Cable, might not be high enough.

On the Hill: Yesterday the House voted to approve a permanent ban on internet access taxes, which could cost states and localities $500 million a year. It overwhelmingly passed an $11 billion 10-month patch to the Highway Trust Fund. The Senate may soon consider three separate highway funding bills. Today, the House Budget Committee will hear from CBO Director Douglas Elmendorf on the long-term budget outlook. The Senate Foreign Relations Committee will review treaties with Spain and Poland to avoid double taxation and tax evasion.

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1Comment

  1. Michael Bindner  ::  1:52 pm on July 16th, 2014:

    The IRS cus is a safe vote for Republicans. Hopefully the Senate will increase its budget by more than the cut so that briding the difference means a gain. Until the mission is cut, the budget should not be. If they really want to cut the mission, they should go with a VAT to replace all but the highest fifth of income tax payment – along with a net business receipts tax as a vehicle for tax subisides to families – both both administered by states.

    Governor Brownback should have left well enough alone with the capital gains tax collection boom of 2012 allowed his cuts of the same year to yeild a balanced budget. He did not and no amount of growth will help him or Kansas get out of what is a structural debt. Politico reports today that some Republicans are now aligning behind the Democratic candidate, which is what is not the matter with Kansas. Of course, Brownback is not alone. I see the work of the American Legislative Exchange Council behind the latest spate of tax cuts in GOP states.

    The European sitaution, especially in Britain, will test who is stronger – unaccountable capitalism or majority party dictatorship. I am sure the Tory donors in England have an opinion that will break the tie.

    The House bill on Internet Access has gone to the Senate to die (and if it did win, the States will shift the tax burden to telephone and cable usage – same customers). The highway bill was at least passed. Hopefully one Senate option will be bipartisan enough to sneak through the House on a revote – maybe a voice vote. The long term outlook shall be interesting – hopefullly he will continue to stress that net interest is the key driver for long term instability. The Foreign Relations work is hopefully mostly ministerial. At least the House won’t see it.