By: Brian Faler
Owe back taxes?
Lawmakers want to cancel your passport.
They want to give the
IRS more power to investigate you. And enlist private debt collectors to help track down your old debts. If you’re a doctor, they want to seize your Medicare payments. They’d also like a bit more information about the mortgage interest tax deduction you’re claiming.
Congress may be deadlocked over tax increases, but lawmakers are finding lots of agreement on another way to raise revenue: throwing the book at tax dodgers.
“Making cheaters pay their taxes is way more attractive than making honest taxpayers pay more,” said Len Burman, head of the nonpartisan Tax Policy Center.
What’s prompting the quiet outbreak of bipartisanship?
They need money. Lawmakers are scrambling to find almost $10 billion just to keep a roads maintenance program running through the end of this year, and another $3 billion for new tax cuts promised to start-up companies and other small businesses, bike-sharing programs and theatrical productions, among others.
Going after tax scofflaws also allows both parties to claim victory. Democrats can say they’re raising revenue, heading off more cuts in funding for government programs, while Republicans can say they held the line on tax increases.
Though the proposals increase tax revenues, Republicans say they’re hardly tax hikes.
“We’re not anarchists,” said Ryan Ellis, tax policy director at antitax advocate Grover Norquist’s Americans for Tax Reform. “We do believe that if the law imposes a tax liability on somebody, until you can change the law, it’s your responsibility to pay it.” He said, “that’s not a tax increase just because it results in extra money coming in because the extra money should have been coming in all along.”
At least one of the proposals is nevertheless drawing protests. National Taxpayer Advocate Nina Olson, an IRS watchdog, warns that one proposal, to tap private debt collectors, means the public will face much more aggressive efforts to recover unpaid taxes. “Outsourcing the collection of federal tax debts is a bad idea,” she said in a 21-page letter to lawmakers urging them to drop the idea.
The push to empower the tax man comes even as House Republicans continue to complain about an overly zealous IRS harassing tea party groups, and as House appropriators slash the agency’s annual budget — making it harder to recover unpaid taxes.
A highway budget bill now before the Senate Finance Committee includes almost a half-dozen compliance measures, including one ordering the State Department to deny passports to people owing more than $50,000 in back taxes.
It demands more information about taxpayers’ mortgages, including how much is still left on their loans and whether they’ve refinanced. Currently, only the interest paid is required to be reported. The additional information would make it easier for the IRS to determine when people no longer qualify for the hugely popular mortgage interest deduction, which is limited to interest paid on $1.1 million
in mortgage and home equity debt. That’s likely to be no small thing in places like the East and West coasts where mortgages topping $1 million are increasingly commonplace.
Another provision would give the IRS, which generally has three years to assess taxes before statutes of limitations kick in, more time to investigate people low-balling how much they made selling property and stock. Under the measure, the IRS would get twice as long — six years — to examine such cases.
One would slap $500 fines on tax preparers who don’t take certain steps to ensure their clients aren’t wrongly claiming the American Opportunity Tax Credit, which subsidizes college expenses.
All of that is in addition to tax compliance provisions included in a tax “extender” measure approved in April by the Finance panel. That bill revives a raft of expired tax breaks Congress routinely renews, and lawmakers are not paying for those with tax cuts. But the legislation also includes several new tax breaks, such as one that will allow start-up companies to claim a corporate research credit even if they are unprofitable and therefore don’t pay income taxes, that lawmakers would have to offset.
They mostly want to do it though a proposal by Sens. Chuck Schumer (D-N.Y.) and Pat Roberts (R-Kan.) to have the IRS farm out uncollected debts to private collectors, which the Joint Committee on Taxation say would raise more than $2 billion.
“This program would create hundreds of jobs in two of the poorest areas of New York, all while increasing federal revenues and not costing a single government job,” said Schumer.
Olson complains that many of those who don’t pay their taxes can’t, pointing to statistics showing the IRS had 1.8 million cases in March where debts were not considered collectable because of the financial hardship that would impose. The IRS has the power to cut people slack when they can’t afford to pay, said Olson, something private collectors needing to earn a profit are less likely to grant.
Other provisions would allow the IRS to seize 100 percent of doctors’ Medicare payments, up from the current 15 percent — a move that comes after the Government Accountability Office reported Medicare providers owed $2 billion in unpaid taxes. The bill would also impose similar $500 fines on tax preparers who don’t attempt to ferret out fraudulent child tax credit claims and index all tax penalties for inflation.
Lawmakers have taken many of the ideas from House Ways and Means Committee Chairman Dave Camp and former Senate Finance Committee Chairman Max Baucus, who proposed them as part of their calls to overhaul the Tax Code.
Each of the proposals is aimed at reducing the roughly $400 billion in taxes that go uncollected annually. While that may look like a fat target for savings, there are practical limits as to how much can actually be recovered. That’s because it’s hard to crack down on scofflaws without inconveniencing everyone else with more burdensome tax rules, said Floyd Williams, a former director of legislative affairs at the IRS.
“Do you want an IRS agent in every house?” he said. “Sure, you could get to 100 percent compliance, but do you want to live in a society” where the agency is that intrusive? In 2011, Congress was forced to repeal provisions in the Affordable Care Act aimed at preventing businesses from under-reporting their incomes. The expanded reporting requirements were widely criticized by business groups as too burdensome.
Democrats such as Sen.
Ben Cardin (Md.), meanwhile, are pushing to kill the private debt collector plan.
But if anything, more such proposals are likely to be in the offing. Lawmakers still need more savings, some of Camp’s and Baucus’ compliance proposals haven’t been tapped and new Senate Finance Chairman Ron Wyden says he wants uncontroversial payfors.
And Republicans who typically take a hard line on tax increases are sounding a conciliatory note when it comes to these sorts of revenue raisers.
“We should all realize that finding a bipartisan agreement is going to take compromise on both sides,” Sen. John Thune (R-S.D.) said last week at a hearing on the highway measure. “It’s unlikely that it’s going to be a package of 100 percent revenues, as the chairman’s proposed, or 100 percent spending reforms as some of us on the Republican side have proposed.”
One way to do that?
“Smart tax compliance measures,” said Thune.
Senate Majority Leader Schumer is moving forward with plans to hold a procedural vote Wednesday on legislation that will be the vehicle for a bipartisan infrastructure deal. Details of the deal, however, have not been worked out, and Republicans say they will not agree to move forward until the details have been finalized.Read More