Here’s what went down this week:
- The House was out of session.
- The Senate was in session.
- During his confirmation hearing to be the next IRS Commissioner, Daniel Werfel seemed to suggest that the best way to catch a tax cheat is to hire a tax cheat to nab them.
- The Congressional Budget Office reported that the Federal Government may run out of credit this summer. Meanwhile, the deficit projection for fiscal year 2023 has increased $400 billion since the last projection from May of 2022.
- Senator Mike Crapo (R-Idaho) introduced legislation prohibiting the IRS from using the extra $80 billion to audit taxpayers earning less than $400,000 a year.
- Senators Ron Wyden (D-Ore.) and Sherrod Brown (D-Ohio) introduced legislation to up the stock buyback excise tax from 1% to 4%.
- Representative Vern Buchanan (R-Fla.) introduced legislation extending individual provisions in the 2017 tax reform bill.
(Pro Tip: There has recently been a lot of reporting from D.C.-based publications about the introduction of tax bills (some of them are mentioned above). When the introduction of legislation grabs headlines it’s a sign that very little is happening on Capitol Hill. In other words, articles on these bills do not mean they’re important or about to be enacted. It likely means that reporters don’t have another topic to cover.)
Let’s get to it:
Calendar stuff:
The House was on recess this week and it will be on recess next week as well. The reason for the break is to allow lawmakers to complete work in their districts.
The Senate was in session this week, but it will be out of session next week. The members will also be working in their respective states.
Senate Finance hearing:
Daniel Werfel appeared before the Senate Finance Committee on February 15th for his confirmation hearing to become the next IRS Commissioner.
As we previously reported, Werfel seemed to suggest that improving tax compliance among high earners could entail hiring the people skilled at hiding money from the tax agency.
“I think we want to hire and bring in experts – maybe bring in some of the same individuals that earlier in their careers prepared these very intricate returns and are ready to come back and actually serve their country,” he told the Committee.
Congressional Budget Office:
The federal government is spending more money than expected and running out of credit to cover it. The Congressional Budget Office, Congress’s official bookkeeper, produced two reports this week on these topics.
The first report shows that spending has increased beyond recent expectations. From the report:
CBO’s projection of the deficit for 2023 is now $0.4 trillion more than it was in May 2022; the projection of the cumulative deficit over the 2023–2032 period is now $3.1 trillion (or about 20 percent) more, largely because of newly enacted legislation and changes in CBO’s economic forecast, including higher projected inflation and interest rates…
Meanwhile, the Federal Government’s line of credit needs an upgrade. From the second report:
The Treasury has already reached the current debt limit of $31.4 trillion, so it has no room to borrow under its standard operating procedures, other than to replace maturing debt. To avoid breaching the limit, the Treasury has begun using the extraordinary measures…that allow it to continue to borrow additional amounts for a limited time.
What are “extraordinary measures”? They are government accounts that don’t need to be paid right away. For example, federal pension funds don’t need to be invested in until the debt ceiling is raised. However, pension payments still go to retirees (or whoever receives them).
Next steps in addressing the deficit and debt issue: Elected officials are discussing how to address these issues. Tax increases are not yet on the table, but over time they might be a part of the discussion. Addressing the deficit and debt issues will take months. Don’t expect quick action.
Hands-off Certain Earners:
Rep. Mike Crapo (R-Idaho) introduced legislation on February 14th that would prohibit the IRS from using the $80 billion it secured in the Inflation Reduction Act to audit taxpayers earning leas than $400,000 a year.
From the Senator’s website:
Estimates from the Congressional Budget Office confirmed increased audits would result in billions of dollars in additional revenue being collected from working Americans. Other estimates from the non-partisan Joint Committee on Taxation have shown a large portion of uncollected tax revenue comes from small businesses and sole proprietors, many of whom make less than $400,000 per year.
The bill is here.
Question: How does the IRS know a person's income without auditing them?
It is highly unlikely that this bill will pass the Democratically controlled Senate.
Stock Buyback Bill:
Fulfilling President Biden’s State of the Union promise, Senators Ron Wyden (D-Ore.) and Sherrod Brown (D-Ohio) introduced legislation to up the stock buyback excise tax from 1% to 4%.
From Senator Brown’s website:
This will help reinvest in the economy, while also preventing abuse and reducing tax avoidance, both of which are significant risks from stock buybacks.
The bill's text is here.
It is highly unlikely that this bill would pass the Republican controlled House.
Tax Cuts and Jobs Act redux:
Rep. Vern Buchanan (R-Fla.) introduced the TCJA Permanency Act that includes making the following individual tax cuts permanent.
From the Congressman’s website:
Key Provisions of Buchanan’s Bill:
- Permanently lowers tax rates for individuals and families, allowing Americans at every income level to keep more of their hard-earned money
- Preserves the 20 percent deduction for small businesses, ensuring taxes won’t go up on Main Street businesses, which employ nearly half of the U.S. workforce
- Maintains the higher standard deduction, increasing the amount of tax-free income a middle-class family can earn
- Locks in the doubled child tax credit, further encouraging workforce participation
- Permanently simplifies the tax filing process, allowing 9 out of 10 Americans to get the full benefit of tax deductions without the headache of tracking receipts or itemizing
Text of the legislation is here.
The bill has 76 co-sponsors, which is a good showing. But House Ways and Means Chairman Jason Smith (R-Mo) is not one of them. Without support from the head tax-writer, Buchanan’s bill has an uphill climb in passing the House. And if it does pass, it is highly unlikely that it would pass the Democratically controlled Senate unless members from both political parties become pro-tax cut, which has happened before.
In 2010, President Obama and Congressional Democrats supported extending the Bush tax cuts for two years. Before that happened, it was considered outlandish that lawmakers – who in November of 2010 ran for election opposing the extension of the Bush tax cuts – would suddenly back their extension roughly a month later.
Pardon if this recap missed a monumental moment, but we can recap it next time!
Adios amigos!
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