Legislation to Improve Tax Administration

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Subcommittee on Oversight

Hearing on Legislation to Improve Tax Administration

Tuesday, January 30, 2018, 2:00 P.M.

By Michael G. Bindner

Center for Fiscal Equity

Chairwoman Jenkins and Ranking Member Lewis, thank you for the opportunity to submit these comments for the record to the Oversight Subcommittee.  Recent legislation has not met the Center’s policy goals, nor the goals of other advocates with similar proposals, for example the advocates of the FairTax, who were disappointedly silent in the last round of debate. Hopefully they will come back out of the woodwork for this member day.

As you know, we did raise our voices and will continue to, as the recent law will still have all of the flaws of the prior system as well as the asset inflation that will make another Great Recession inevitable. We withdraw none of our proposals. Therefore, as usual, we will preface our comments with our comprehensive four-part approach, which will provide context for our comments.

• A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
• Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25%.
• Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
• A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

The collection of the Employee Contribution to Social Security will be exactly as it is now. Like proposals for a FairTax, the Value Added Tax and NBRT/Subtraction VAT will be collected by the states. If the basic structure of reform is adopted in the states, the biggest change will be the need for a common base between federal and state consumption taxes. Shifting from retail sales taxes and gross receipts taxes to value added taxes and VAT-like net business receipts taxes will change the nature of most state taxation, while enabling ease of collection of taxes on online sales, since taxes would be levied at every stage of the production process. The IRS will assist states in this process, which will likely take the form of some federal-state compact commission to draft and approve the transitional rules.

If a common base agreement can be negotiated for these taxes, state treasurers can collect both their own taxes and the federal taxes, as well as analytical information on tax credit usage, which can then be shared with the U.S. Internal Revenue Service in order to track income accruing to payers of the federal high income surtax, as well as to recipients of the federal child tax credit, which would be paid to employees with wages under the NBRT and then verified by a mailing from both the employer and the Internal Revenue Service, with employees verifying that their employees paid every dollar to them reported as a credit. There will likely be problems to resolve in our proposed system, where the states collect by the Value Added Tax and the Net Business Receipts Tax and forward the money and records to the Internal Revenue Service. This will not impact most taxpayers, since once they have bought a product, no further action is necessary.

The IRS will likely supplement state-based auditing with reviews of their own, but this is a small price to pay for a reform that will reduce the income tax payment and audit workload by at least 80%. Indeed, income tax simplification (through the elimination of all but a few deductions), will further eliminate the workload generated by remaining income tax payers.

Employees with children will need to annually verify the information provided by employers and, if they received less than was reported to the government, notify the IRS who will send a refund and collect the difference from the employer. This may trigger a dispute, but likely most employers will simply pay if there was an error. Fraud is another matter, which is criminal not a dispute to be settled. Other disputes may involve parents double dipping on two jobs or two earners, but these will likely work out a payment plan or contact their divorce lawyers to negotiate who pays.

Whenever an employee or an heir is paid interest, a dividend, a capital gain or an heir sells an inherited asset, information will be transmitted to the IRS, as well as sales to a qualified Employee Stock Ownership Program (untaxed) and aggregated by Social Security Number. Verification will be accomplished to make sure that tax avoidance does not occur through use of multiple SSNs.

Individuals making over $50,000 per year and joint filers making over $100,000 will have their information stored to compare to tax filings, unless the Congress authorizes an automatic filing system where all income surtax payers will receive notification when all data should have arrived and what their refund or payment will be once they correct the information or certify it is correct already. Banking information should be on file, so authorization for payment, either at once or installments should be easy. Very little IRS Administration will be required to do this. Indeed, data management and mailing could be contracted out. All IRS employees could fit in a bathtub with room for Grover Norquist.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.

My Letter from the Speaker

January 7, 2018 |  Speaker Paul Ryan 



Dear Michael,

Thank you for contacting me with your thoughts about the important national security issues America faces at home and abroad. The importance of homeland security, a strong military, and prudent foreign policy, cannot be overstated, and the first job of the federal government is securing the safety and liberty of its citizens from threats at home and abroad. In my role as Speaker, I am committed to making sure that the House functions in an open and transparent way to ensure that the federal government fulfills this duty. 

Whether defeating the terrorists who attacked this country on September 11, 2001, deterring the proliferation of weapons of mass destruction, or battling insurgents who would harbor terrorist networks that threaten American lives, the men and women of the United States’ military have performed superbly. All Americans owe a debt of gratitude to our country’s bravest individuals who have served and given their lives in defense of freedom and liberty. The brave soldiers, sailors, airmen and marines who have served our country have made tremendous sacrifices on behalf of our nation. To honor the service of these heroes, and to ensure their success, Congress must provide our military with the necessary resources to accomplish the missions that they have to protect our nation from those who wish to do us harm. Further, Congress must never forget its promises to our troops, our veterans at home, and the families of all who serve, and we must also work to ensure our veterans and the families of all service members receive the care, and services they need in a timely, convenient, and efficient manner. Unfortunately, since President Obama entered office, his administration has switched from a strategy-driven budget—a budget that identifies the missions of the military and bases its funding request on the costs associated with accomplishing these missions—to a budget-driven strategy—a budget that sets funding levels and then asks the military to do what it can with the limited resources. Without military readiness or a strong defense posture, the United States will not be able to retain its leadership role in the world as a force for peace, freedom, and stability. 

While Congress has been able to mitigate some of the damage President Obama’s agenda has inflicted on our military preparedness, there is ultimately no substitute for a commander in chief who takes America’s critical role in the world as a force for good seriously and provides the strategic leadership and moral clarity that is required of our nation in this role. Whether it is the so-called, “reset” with Russia or his, “redline,” in Syria, President Obama has time and time again undermined his own credibility, that of his office, and that of our country be refusing to honor his word, stand up to America’s adversaries, and stand up for our allies. The President continues to underestimate both the scope and the nature of the threat posed by ISIS, and he has failed to produce a coherent strategy for defeating this enemy and restoring order in Syria, Iraq, and the broader region. Instead of working to ensure that the world’s largest state sponsor of terrorism, never obtains a nuclear weapon, President Obama and his administration turned their backs on Israel and other Middle-East nations and negotiated from a position of unconditional weakness with Iran. The result was an astonishingly weak deal that makes a nuclear Iran more likely, not less, and destabilizes the whole region. 

American leadership in the world often comes at a high price. But as the last seven years have demonstrated, our nation—and the whole world—pay an even higher price when America fails to lead. The fact is, we live in complex and dangerous world, and we face many serious threats. Moving forward, I remain committed to holding President Obama accountable and demanding that his administration reevaluate its failed foreign policy—particularly as it relates to ISIS and the threat of radical Islamic terrorism at home and abroad, and to ensuring that Iran is held accountable for its continued illegal acts of hostility, hatred, and human rights abuse. I am also committed to providing the resources that are necessary to deter Russia’s aggression against its regional neighbors and to protect the freedom of sovereign nations in Europe. Lastly, I remain committed to deterring further North Korean aggression and to increasing pressure on the rogue regime that imprisons the people of that country and threatens global security to alter its course, respect human rights, and comply with international law. 

In addition to demanding better policies in the face of our nation’s current challenges, Congress must continue the work of laying out plans and providing the resources required to modernize our military’s technological capabilities in the face of new and emerging threats like cyber-terrorism and cyber warfare. We must make the investments necessary to ensure that our air and naval fleets are adequate in size and strength to defend the homeland, guarantee stability in the global commons, deter aggression against our friends and allies, and promote and protect America’s security, our interests, and our most treasured values whenever and wherever they are threatened or under attack. To be sure, in every area of government, we must be good stewards of tax payer dollars, and there is no question that we should continue to demand transparency and efficiency from the Department of Defense. That said, in order to accomplish our most vital national security and foreign policy goals, we will have to tackle our most pressing fiscal challenges before they tackle us. That means we must lay out a vision to bring true drivers our debt, automatic spending on health and retirement programs, under control set sound priorities as we make decisions each year about discretionary spending on non-defense programs. I look forward to working with my colleagues in the 114th Congress to ensure that these goals are fully met. 

This year, the House is turning a new page. To solve more problems, we are improving the way we seek solutions. To serve the People all members are elected to represent, the People’s House has to function the way the Founders intended. I approach my role as Speaker from the perspective of a two-time committee chair, and so I believe the committees should retake the lead in drafting major legislation. If you are interested in learning more about the work being done in the House to rebuild and modernize America’s military, please feel free to visit the House Committee on Armed Services website: https://armedservices.house.gov/ . Additionally, for information about issues related to diplomacy and foreign policy, please visit the House Committee on Foreign Affairs website: http://foreignaffairs.house.gov/ . For information about domestic security issues, visit the House Committee on Homeland Security website: https://homeland.house.gov/ . 

For information about the important work being done to bring much needed accountability and reform to the VA, visit the House Committee on Veterans Affairs website: http://veterans.house.gov/ . These pages are substantive and reliable sources of information about issues important to our national security and the military, and each provides regular updates about the work the important work of these committees. I hope you find this information useful and informative. 

We have more to do to get our country back on track, and so my top priority is to work with my colleagues to assemble a bold, pro-growth agenda for the country. We will make clear where we stand and how we would apply America’s founding principles to today’s problems. To accomplish this goal, I have worked with my colleagues to define six key areas of focus for restoring a more confident America, and we have formed six committee-led task forces charged with developing a bold, pro-growth agenda. The task forces, comprised of committee chairs of jurisdiction, will seek input from all members to ensure their ideas and perspectives are reflected in this agenda. For updates, please visit:  http://www.speaker.gov/confidentamerica 

Here is an overview of our six areas of focus for building a more confident America: 

National Security 
Goal: Develop an overarching strategy and the military capabilities required to confront the national security threats of the 21st century. 

Tax Reform 
Goal: Create jobs, grow the economy, and raise wages by reducing rates, removing special interest carve-outs, and making our broken tax code simpler and fairer. 

Reducing Regulatory Burdens 
Goal: Make it easier to invest, produce, and build things in America with a regulatory system that reduces bureaucracy and eases the burden on small businesses and job creators, while still protecting the environment, public safety, and consumer interests. 

Health Care Reform 
Goal: Repeal and replace Obamacare with a patient-centered system that gives patients more choice and control, increases quality, and reduces costs. 

Poverty, Opportunity, and Upward Mobility 
Goal: Strengthen our safety net and reform educational programs to make them more effective and accountable, help people move from welfare to work, and empower productive lives. 

Restoring Constitutional Authority 
Goal: Reclaim power ceded to the executive branch over the years by reforming the rulemaking process, checking agency authority, exercising the power of the purse, and conducting more robust oversight. 

Thank you again for contacting me. If you would like to find information about the lawmaker who represents your congressional district in the House or about how to contact that person, you are welcome to visit www.house.gov, where you will find this and other useful information about the work of the House.

Sincerely,


     Speaker Ryan’s Press Office | H-232 The Capitol | 202-225-0600