As House and Senate leaders struggle to design their health reform bills, they remain at loggerheads over how to pay for broader access to insurance. The Senate Finance Committee’s plan to tax insurance companies that sell high-cost medical policies would generate over $200 billion in revenue over the next decade. But the excise tax is hugely controversial, mostly because influential unions oppose it.    more »

President Obama is under attack for breaking his campaign promise to leave the middle class unscathed by future tax increases. The complaint: The requirement to purchase insurance is tantamount to a tax, because failure to buy incurs a fine. Since many families with incomes below $250,000 would be affected by the penalty, this appears to violate his campaign promise.    more »

The early returns are coming in on the First-Time Homebuyer Tax Credit. And it appears to be a bigger boondoggle than even I thought it would be. At a House Ways & Means Oversight subcommittee hearing today, the Internal Revenue Service inspector general reported that the IRS is auditing more than 100,000 of the roughly 1.4 million returns that included a claim for the credit. This is a staggering audit rate for an agency that usually reviews only about 1 percent of returns.    more »

The estate tax is only a faint shadow of its former self. In 2009, less than one-quarter of one percent of deaths—just 5,500 decedents—will leave taxable estates, the smallest percentage since at least the Great Depression. In part, that tiny fraction reflects the current recession’s devastation of assets—the Fed estimates that the total value of household and nonprofit assets fell by about one-sixth between 2007 and the first quarter of 2009. But changes in estate tax rules over the past decade have played a much larger role than economic swings.    more »

Suppose that a taxpayer earns an additional dollar of income. How much tax would she owe on that dollar? A natural way to answer this question would be to look up the taxpayer’s statutory tax rate – the rate corresponding to her tax bracket and filing status. But that approach often gives the wrong answer and can mislead not only taxpayers but policymakers. Many tax preferences are phased in or out according to income, and as a result, those who earn extra income may face either a hidden tax or a subsidy as their tax benefits change in value. For example, for those in the phase-in range of the earned income credit earning an extra dollar increases the credit and reduces their tax liability, driving their actual rate below their statutory rate. But once they make enough so the EITC begins to phase out, the opposite happens and the rate they actually pay climbs.   more »

Congress is absolutely right to end the decade-old fantasy that it wants to trim Medicare payments to doctors. This law has been on the books for 12 years and is annually ignored. Lawmakers should stop pretending. But I fear they will make this change without paying for it--adding $250 billion to the national debt over the next decade.    more »

Federal taxes in fiscal year 2009 claimed the smallest share of GDP since 1950—14.9 percent according to the Congressional Budget Office (see top figure). The revenue drop has many causes: tax reductions in this year’s economic stimulus, the collapse of the economy, and the Bush tax cuts from earlier in the decade.    more »

If we may be permitted a small bit of self-indulgence, TaxVox would like to wish itself a happy second birthday.    more »

Last week the Congressional Budget Office quietly released its October Monthly Budget Review showing preliminary 2009 budget numbers. The $1.4 trillion deficit more than tripled the previous record of $459 billion set just last year (see top table). More than half of the increase was due to a $530 billion jump in outlays but 44 percent came from a 17 percent drop in revenues. That decline resulted in the federal government collecting a smaller share of taxes than at any time in the last half century.    more »

The congressional fog is slowly parting and the fundamental issues of health reform are coming clear. And perhaps most controversial is the question of how Congress will pay for it all. Somebody’s taxes are going to be raised. But whose? And by how much? Despite the whining about 1000-page bills, there are only a few big moving parts to health insurance reform. It will require insurance companies to sell to all, regardless of their health. It will mandate that everyone purchase coverage (a trade-off rightly insisted upon by the insurers). It will create exchanges to make it easier for people to buy in the non-employer market. And it will create subsidies to help make those policies affordable. Finally, Congress has to pay for those subsidies.    more »

Just abut every conversation I’ve had with a Democratic elected official or staffer in the past few weeks came around to the same urgent question. And, no, it was not about health reform. It was about jobs. When, they ask with more than a hint of panic in their voices, will the jobs come back?   more »

Tax experts will argue about nearly anything. But on one issue, there is something approaching a consensus: Corporate tax rates in the U.S. are too high. Where all that harmony turns dissonant, however, is over the matter of what to do about it. Cutting the corporate rate, it turns out, raises all sorts of complex technical problems, to say nothing of being a political nightmare.    more »

In a posting last week, I discussed the tools under existing law for curbing bad tax return preparers and suggested that these tools may not adequately address the problem. Too many returns are poorly done. Many taxpayers are victims, not only of incompetence, but fraud. The other victim is the government, which likely loses substantial tax revenue from those whose returns are poorly—or dishonestly—prepared.   more »

I’ve just spent 90 minutes listening to five Washington hands discuss “the financial and economic consequences of an exploding debt.” The prognosis, they agree, is grim. The chances of policymakers acting any time soon to address the looming fiscal crisis are remote. As one audience member asked the panelists during the Urban Institute discussion, “Which anti-depressant should I take?”   more »

In a blog post earlier this week, I concluded that whether a payment to government service is classified as a tax or a user fee is sometimes arbitrary and that how the payment is labeled is of secondary importance. Mike Udell of Ernst and Young, a former staffer on the Joint Committee on Taxation, reminds me, however, that labeling could have real consequences. Mike raises another example from the health reform legislation – the proposed “fee” on sales of pharmaceutical and medical device products. If the fee were an excise tax, it would be deductible and not included in the gross revenue of manufacturers of these products. But as a fee, it is not deductible, so income tax collections from these firms are higher than if they could exclude the payments from taxable income.    more »