Will the New Congress Be Able to Make Any Progress on Tax Reform?

Tax Reform?  Really?
Tax Reform? Really?

After the November 4th elections this year, it was widely expected that Republicans would take a majority in the House and Senate. Republican leaders campaigned toward victories on promises of change, though it is unclear just how much change will actually be accomplished. While the Obama administration has for years been interested in tax reform, particularly concerning American companies using a technique called “inversion” to repatriate their profits, given the GOP’s track record, it is not surprising that many think major changes like a tax reform bill has little chance of reaching the President’s desk. Chances may be slim that real reform is going to get passed, but small-scale reform may still be possible.

The Tax Code’s Just Too Big

While many politicians have a lot to say about a “simplified tax code” on everything from foreign taxation to the Affordable Care Act, chances are slim that any reforms of substance will be passed by the new Congress. Why? Because any attempt to gut the President’s healthcare legislation through the tax code will most certainly be vetoed, and many Republicans quietly like what “Obamacare” has brought to the table.

Add to the threat of veto a general distaste among voters for re-arguing issues (like Roe V. Wade) that have already been settled, and it becomes clear that there will be no grandiose simplifications of the code that many have long clamored for. As a result, any type of innovation regarding the tax code will likely be more incremental reform.

There Isn’t Enough Time, But There Is Opposition

In order to have enough time to enact meaningful tax reform, the new Congress will have to begin almost immediately. Republicans will need to be very quick to lay out their key points for change, any of which could easily ignite Democratic opposition and lead to pushback.  However, many Republicans are eager to show voters that they can indeed govern, which could potentially lead to compromise on these types of issues.

In an ideal world, the subsequent debate would be enough to begin work on a bill that could take until the next election to craft. Before the bill could be passed, however, lobbies benefiting from the status quo would push to delay a vote, or even move political money to opponents to get the innovators out of office. This jockeying won’t affect the president during the final months of his second presidential term, but it would likely cast a pall over any incentive from Congress to proactively push for tax reform.

In short, unless the a President is committed to tax reform in partnership with a willing Congress and had a four-year term (at the least) to outlast entrenched lobbyists focused on keeping things as they are, meaningful tax reform remains a long shot.

So What Chance of Change is There?

Ultimately, it will be up to the Republican majority and the president to set the tone for any potential talk of tax reform. The real question is whether either sides is willing to consider their common ground and take a stand for the greater good, even when that stance might prove to be unpopular. When outgoing Representative Dave Camp (R-MI) brought up tax reform earlier this year, his attempts to bring the focus back to tax reform were dismissed by Speaker John Boehner, who was heard to say “blah blah blah” in response.

In short, if small reform measures can attract the attention span of the new Republican Congress, they might pass. Otherwise, the chances of real tax reform over the next two years are slim.

IRS Commissioner Fired Amid Scandal; Where’s My Refund!

IRS Commissioner Fired
IRS Commissioner Fired

By Benjamin K. Brenner, President

President Obama–through Treasury Secretary Jacob Lew–forced acting IRS commissioner Steven Miller to tender his resignation today following the recent disclosure that the IRS actively and unfairly targeted conservative and Tea Party groups applying for tax exempt status; a gross violation of a government body that is supposed to be above the political fray. 

The outrage has now reached a fevered pitch, with the FBI now getting involved with the investigation. While the President and his administration appears to be insulated from the fall out thus far, criminal charges may be forthcoming, with a key person of interest being Lois Lerner who is in charge of the Tax Exempt division of the IRS:

“Lois Lerner lied to me,” said Representative Jim Jordan, Republican of Ohio, who helped initiate the Congressional investigation of the I.R.S.

Ms. Lerner knew of the increased scrutiny given to Tea Party groups since 2010, but told reporters last Friday that she was not aware of any additional scrutiny given to any group and only heard about this through media reports.  She along with many other IRS employees are expected to be called in front of congress shortly:

The House Oversight Committee requested five senior I.R.S. officials be made available for interviews by May 20, including the director of rulings and agreements, Holly Paz; a former screening group manager in the exempt-organizations determinations division, John Shafer; and a former advocacy group manager, Joseph Herr.

“Potentially dozens of I.R.S. employees are involved with the original targeting, the failure to correct the problem and the failure to promptly report the truth to Congress and the American people,” said Meghan Snyder, a spokeswoman for Mr. Jordan.

While Mr. Miller–and what is sure to be others–has taken the fall for this scandal, one can’t help but think what involvement if any the previous IRS Commissioner Douglas Shulman had.  Mr. Shulman had been commissioner since May 2008, and just recently stepped down last November.  He oversaw an aggressive agenda that made some of biggest changes the IRS has seen in decades.  While initially lauded, many of these changes have been riddled with delays, errors and met with contempt.

Mr. Shulman was integral in developing and integrating a universal licensing and annual continuing education requirements for professional paid tax preparers.  But these requirements were halted by a federal judge right before the 2013 tax season began citing that the IRS did not have the authority to implement these requirements.  The IRS appealed part of the decision, but again were overruled.  With millions of dollars already spent and industries spawned to provide these paid preparer requirements, it seems like a foregone conclusion that eventually they will go into effect; either by appealing the decision or by going through a body that does have the authority to regulate the industry.  Nevertheless, this new scandal will only serve to divert more time & energy away from this project, ultimately leaving the consumer to suffer the most.

Furthermore, Mr. Shulman led the charge in “modernizing” the IRS; particularly the Modernized E-File Program (MeP).  With the new MeP, taxpayers would get their refunds in a matter of days, not weeks; all while being kept abreast of their entire filing process with faster updates.  The only problem was that it didn’t work.  The MeP was put into effect for the 2012 tax season.  When it became clear that the MeP was not functioning, it was scrapped, and the IRS was forced to go back to their old E-File program for the remainder of the 2012 tax season.  This year (2013) the IRS fully replaced the old program with the MeP, but the tax season was already riddled by delays, due to the last minute fiscal cliff negotiations. At first, the MeP was working as advertised: refunds were being released quicker, and the IRS even claimed you could get updates on refund statuses every 24 hours. But since then its been glitch after glitch, culminating in what has been dubbed the “Education Credit Debacle“, where the IRS allowed hundreds of thousands of tax returns with IRS form 8863 to be filed early causing serious delays.  Some of the affected taxpayers could not even get verification that their returns were filed!  And the problems haven’t stopped yet.  As of the writing of this post, many taxpayers who filed in February & March still have not received their refunds and the IRS is offering no explanation.  Last but not least, the new MeP has done next to nothing to combat the explosion of Identity Theft and Fraud that plagued the IRS is recent years.  

Once again, it is the hardworking taxpayer that is getting the short end of the stick.  If we don’t file our taxes on time, penalties, interest, garnishments, liens, levies, etc. can be and are assessed.  But what happens when the IRS does not live up to it’s end of the bargain?  As of now, it appears nothing. Supposedly the IRS must pay interest after a certain date if they do not release refunds, but that date is not static.  All the IRS has to do (and has done) is send a “document request” like requesting a copy of your W-2s…EVEN THOUGH THE IRS ALREADY HAS ACCESS TO THAT INFORMATION.  I have yet to see a taxpayer actually receive interest from the IRS.  And the interest rate they supposedly give is far less than what IRS charges us if we are late.

While there is sure to be more to come out from this story, the politicization of it is not good news for anyone.  Some politicians have been searching for a scandal ever since Obama took office.  So now that they have one, how will it play out to a public so tired of other “scandals”?  It’s the “Boy Who Cried Wolf” syndrome.  And that is the crux of the problem.  While our elected officials have their hearings, while IRS employees start losing their jobs, and the midterm campaign season heats up, average American taxpayers of all stripes, creeds and political affiliations are ultimately the ones that are being ignored. 

Do you have an IRS horror story?  Share it with us in the comments section.

Source: NY Times

Romney Vs. Obama: Who’s Tax Plan Is Better?

President Obama & the republican nominee Mitt Romney have clear differences regarding their proposed tax changes.  However, there are a lot of open questions on how they actually intend to implement these changes.  Who’s plan do you favor, and who’s plan is more realistic in accomplishing their stated goals?


Source:  The Economist