Don't Mess With Taxes

Those are just a couple of things that Senators and Representatives fiddled with when they returned to Washington, D.C. last week after a brief break.

Many of us, however, were focusing on our personal taxes, so the lawmakers' efforts escaped close scrutiny, at least from this blog.

Time to remedy that.

Here's a quick chronological look at some of the tax measures that moved, at least a little, through the lawmaking maze last week.

True, it will take a while for any of these measures to have a practical effect on us. And truer still that some proposals might not survive the legislative sausage making process at all.

But when it comes to those folks in D.C., a little advance warning never hurts.

April 16: Jon Kyl, Arizona Republican and chairman of the Senate Republican Conference, introduced the Invest in America Bill (read the Senator's introductory statement here; click "next page" in the bottom window to get it all).

This measure would, in part, make permanent the 2001 and 2003 income tax cuts, including the capital gains and dividend rate reductions; repeal the estate tax and the alternative minimum tax; and retain the child tax credit and adoption tax credits at their current levels.

A nice, comprehensive package of GOP favorites that isn't likely to move, given the Democratic control of the Senate and wishes of lawmakers in both parties to come up with ways to pay for future/continuing tax cuts.

April 17: As millions of us were filing our 1040s, the House approved the Taxpayer Protection Bill of 2007. Don't get dizzy rolling your eyes at the timing.

This bill (HR 1677) received bipartisan support, passing 407 to 7. The seven "no" voters, FYI, were Bachmann, Blackburn, Flake, McHenry, Paul, Tancredo and Westmoreland; 19 didn't make it to the House floor to vote. If one of those folks represents you, be sure to find out why he or she doesn't love you as much as their colleagues love their constituents.

The 407 supporters say the bill will help protect taxpayers from identity theft and stop the use of predatory lending practices by refund anticipation loan providers.

It also contains provisions to expand outreach efforts for the earned income tax credit program, help taxpayers who face wrongful IRS levies and prohibit the misuse of IRS and Treasury symbols (a concern blogged about here a couple of weeks ago).

All laudable goals. And I understand the power of timing in getting a message out to the public.

But that tiny cynical part of me cringes every time I see cutely names bills (see April 16 entry) or legislative efforts postponed (this was discussed pre-recess but held until tax deadline week) primarily for effect. C'est la politics.

Now we'll just wait and see whether the Senate also wants to protect us taxpayers and whether either body can come up with the money to implement these safeguards.

April 19: The House approved the Estimated Tax Safe Harbor Bill as a way to come up with $14 million over the next 10 years to pay for two new Congressional seats approved as part of the District of Columbia House Voting Rights Bill.

The money would come from some taxpayers who use the safe harbor method of making sure they don't underpay their estimated taxes.

Currently, many such taxpayers won't owe an underpayment penalty if the money they remit to the IRS via 1040ES vouchers and any payroll withholdings comes to 100 percent of their prior year's tax bill.

Under the new proposal, the percentage threshold would be bumped up to 110.1 percent.

The good news for most of us: This hike would apply only to taxpayers with adjusted gross incomes of more than $2.5 million for single filers, $5 million for those who file joint returns.

Not every lawmaker was happy with the payment provision. Ways and Means member Phil English, R-Pa., charged that the provision "makes a mockery" of the House's rules requiring all pay-as-you-go rules balancing tax cuts with income from somewhere else.

"The majority is exploiting a statistical quirk in the way the Joint Tax Committee does its revenue estimates, and will have accountants, not normally known for their humor, roaring with laughter all over the country," English sad. "Perhaps, in the aggregate, there are enough people in America making more than $5 million who will pay an extra $2,000 in estimated taxes to raise revenues as much as anticipated, but this seems more likely to be an instance where the Joint Tax Committee's scoring rules and common sense have parted ways."

The estimated tax/D.C. voting bills were combined and sent to the Senate. On that side of the Hill, expect lawmakers to raise constitutionality questions about granting a Congressional seat to the residents of the nation's capital.

Also last Thursday, the House Ways and Means Select Revenue Measures Subcommittee heard pleas from alternative energy representatives to expand energy tax incentives as a way to further spur the creation of alternative energy technologies.

Most of the current homeowner energy-saving tax breaks expire at the end of this year; the more expensive solar power projects were extended through 2008.

The Select Revenue panel will hear from other members of Congress tomorrow, April 24, on specific legislative proposals for alternative tax incentives.

April 20: Finally, last week closed with the chairmen of the House and Senate tax-writing committees agreeing on a $4.84 billion small business tax relief package. It will be included in the war supplemental spending bill now in conference.

Owners would get, in part, an extension of the Work Opportunity Tax Credit and an increase to $125,000 in Section 179 expensing.

Workers, some at least, would get a pay raise thanks to the increase in the federal minimum wage, from the current $5.15 per hour to $7.25 an hour over the next two years, that's part of the bill.

To pay for the business tax relief, part of the money would come permanently extending user fees (exactly which ones were not included in conference documents, so I'm going with the worst-case guess that it's all of them), as well as from once again hiking the kiddie tax age threshold.

The age limit for the kiddie tax, under which a child's unearned income is taxed at the parents' regular income tax rate, was raised last year to apply to the earnings of youths younger than 18. Under this agreement, it would apply to earnings of those up to age 19, or up to age 24 if the child is a student.

Of course, since this is tacked onto the Iraq war funding bill that W says he'll veto, this agreement might be, at least temporarily, for naught.