FY21 Treasury Appropriation
Finance, FY21 Budget, February 12, 2020
Ways & Means, March 3, 2020
As we all know, the appropriations process for the next fiscal year takes place within the context of the Bipartisan Budget Act of 2019. In an election year, staying within the current parameters is the best course. Early passage makes transition easier for the next administration and Senate, regardless of electoral outcomes. Even if the President is reelected, staff turnover is to be expected in the Department and the Committee. If changes are to be made due to changes in party, enactment before the election can always be supplemented with new legislation.
We see three issues of concern for the coming fiscal year. The first is to provide increased funding for the Office of Tax Policy. Whether tax cuts or comprehensive reform is on the horizon, having a full partner in the Department is essential for estimating support and a quick turnaround from enactment to the issuance of regulator guidance.
The second area of concern is tax administration. While a common refrain on this topic is the adequacy of software, this is a canard. SAS is the current programming language. It is constantly being updated on the vendor side and training is available, if funded. The problems are thus training and beta testing, not the age of the software. More important is the need for stronger audit resources, especially for complicated high-income and corporate returns. More auditing means more compliance, even among those who are not audited.
The IRS has lost resources to do this, both through retirement and underfunding. Using the A-76 process for both programming and auditing allows for the rehiring of revenue agents and an easier acquisition of new ones, particularly those with experience in finding loopholes in the current system. Creating or utilizing more than one firm will keep labor rates and profits lower. Comprehensive tax reform, which is discussed next, will also require massive retraining, although the reforms we propose will shift most such activity to the states. A cadre of agency and contract experts in more than one firm should be ready to migrate when this occurs.
Tax reform will reduce complication. Please find our current (and evolving) proposals for long-term reform in Attachment One. While they are a longer-term prospect than the 2021 appropriation for the Department, they still fall within the jurisdiction of the Committee. We do not expect action upon tax reform until the next Congress, but it is always good to highlight our proposals.
Shifting to a single system for all business taxation, particularly enacting invoice value added taxes to collect revenue and employer-based subtraction value added taxes to distribute benefits to workers will end the need for filing for most, if not all, households. Any remaining high salary surtax would be free of any deductions and credits and could as easily be collected by enacting higher tiers to a subtraction VAT. Note that a subtraction VAT collection will closely duplicate the collection of payroll and income taxes – as well as employment taxes – but without households having to file an annual reconciliation except to verify the number of dependents receiving benefits.
Creation of an Asset VAT to tax capital gains and returns would also greatly simplify taxation. Recent reforms to corporate, pass-through and dividend taxation with a consolidated rate of 21% will make agreement on a final number easier – especially if Affordable Care Act and Pease taxes are also eliminated. The current tax with these is in the neighborhood of 23%. It was 25% in the prior administration. If both parties agree to end the debate at 24% (or 20% of invoice), K Street can be converted to high-end condominiums.
There is no reason to fear consumption taxes, as they are implicit in the current system. These taxes are withheld by employers for the income and payroll taxes of their labor force. A VAT simply makes these taxes visible while subtraction value added taxes make them manageable, allowing employers to adjust pay more easily for larger families, pay for health care or insurance and fund public and non-public schools for dependents and college or technical training for workers, as well as retirement plans that give employees a stake and a say in the firm and a more secure retirement.
Tax reform will simplify tax administration on all levels. Firms will submit electronic receipts for I-VAT and C-VAT credit, leaving a compliance trail. S-VAT payments to providers, wages and child credits to verify that what is paid and what is claimed match and that children are not double credited from separate employers. A-VAT transactions are recorded by brokers, employers for option exercise and closing agents for real property. With ADP, reporting burdens are equal to those in any VAT system for I-VAT and A-VAT and current payroll and income tax re porting by employers.
Employees with children will annually verify information provided by employers and IRS, responding by a postcard if reports do not match, triggering collection actions. The cliché will thus be made real.
High salary employees who use corporations to reduce salary surtax and pay I-VAT & S-VAT for personal staff. Distributions from such corporations to owners are considered salary, not dividends.
Transaction based A-VAT payments end the complexity and tax avoidance experienced with income tax collection. Tax units with income under $75,000 or only one employer need not file high salary surtax returns. Separate gift and inheritance tax returns will no longer be required.
State governments will collect federal and state I-VAT, C-VAT, S-VAT payments, audit collection systems, real property A-VAT and conduct enforcement actions. IRS collects individual payroll and salary surtax payments, perform electronic data matching and receive payments and ADP data from states. SEC collects A-VAT receipts.
I-VAT gives all citizens the responsibility to fund government. C-VAT invoices encourage lower carbon consumption, mass transit, research and infrastructure development. A-VAT taxation will slow market volatility and encourage employee ownership, while preserving family businesses and farms. Very little IRS Administration will be required once reform is fully implemented. All IRS employees could fit in a bathtub with room for Grover Norquist.
Thank you again for the opportunity to add our comments to the debate. Please contact us if we can be of any assistance or contribute direct testimony.
Attachment - Tax Reform, Center for Fiscal Equity, November 13, 2019
Ways & Means, March 3, 2020
As we all know, the appropriations process for the next fiscal year takes place within the context of the Bipartisan Budget Act of 2019. In an election year, staying within the current parameters is the best course. Early passage makes transition easier for the next administration and Senate, regardless of electoral outcomes. Even if the President is reelected, staff turnover is to be expected in the Department and the Committee. If changes are to be made due to changes in party, enactment before the election can always be supplemented with new legislation.
We see three issues of concern for the coming fiscal year. The first is to provide increased funding for the Office of Tax Policy. Whether tax cuts or comprehensive reform is on the horizon, having a full partner in the Department is essential for estimating support and a quick turnaround from enactment to the issuance of regulator guidance.
The second area of concern is tax administration. While a common refrain on this topic is the adequacy of software, this is a canard. SAS is the current programming language. It is constantly being updated on the vendor side and training is available, if funded. The problems are thus training and beta testing, not the age of the software. More important is the need for stronger audit resources, especially for complicated high-income and corporate returns. More auditing means more compliance, even among those who are not audited.
The IRS has lost resources to do this, both through retirement and underfunding. Using the A-76 process for both programming and auditing allows for the rehiring of revenue agents and an easier acquisition of new ones, particularly those with experience in finding loopholes in the current system. Creating or utilizing more than one firm will keep labor rates and profits lower. Comprehensive tax reform, which is discussed next, will also require massive retraining, although the reforms we propose will shift most such activity to the states. A cadre of agency and contract experts in more than one firm should be ready to migrate when this occurs.
Tax reform will reduce complication. Please find our current (and evolving) proposals for long-term reform in Attachment One. While they are a longer-term prospect than the 2021 appropriation for the Department, they still fall within the jurisdiction of the Committee. We do not expect action upon tax reform until the next Congress, but it is always good to highlight our proposals.
Shifting to a single system for all business taxation, particularly enacting invoice value added taxes to collect revenue and employer-based subtraction value added taxes to distribute benefits to workers will end the need for filing for most, if not all, households. Any remaining high salary surtax would be free of any deductions and credits and could as easily be collected by enacting higher tiers to a subtraction VAT. Note that a subtraction VAT collection will closely duplicate the collection of payroll and income taxes – as well as employment taxes – but without households having to file an annual reconciliation except to verify the number of dependents receiving benefits.
Creation of an Asset VAT to tax capital gains and returns would also greatly simplify taxation. Recent reforms to corporate, pass-through and dividend taxation with a consolidated rate of 21% will make agreement on a final number easier – especially if Affordable Care Act and Pease taxes are also eliminated. The current tax with these is in the neighborhood of 23%. It was 25% in the prior administration. If both parties agree to end the debate at 24% (or 20% of invoice), K Street can be converted to high-end condominiums.
There is no reason to fear consumption taxes, as they are implicit in the current system. These taxes are withheld by employers for the income and payroll taxes of their labor force. A VAT simply makes these taxes visible while subtraction value added taxes make them manageable, allowing employers to adjust pay more easily for larger families, pay for health care or insurance and fund public and non-public schools for dependents and college or technical training for workers, as well as retirement plans that give employees a stake and a say in the firm and a more secure retirement.
Tax reform will simplify tax administration on all levels. Firms will submit electronic receipts for I-VAT and C-VAT credit, leaving a compliance trail. S-VAT payments to providers, wages and child credits to verify that what is paid and what is claimed match and that children are not double credited from separate employers. A-VAT transactions are recorded by brokers, employers for option exercise and closing agents for real property. With ADP, reporting burdens are equal to those in any VAT system for I-VAT and A-VAT and current payroll and income tax re porting by employers.
Employees with children will annually verify information provided by employers and IRS, responding by a postcard if reports do not match, triggering collection actions. The cliché will thus be made real.
High salary employees who use corporations to reduce salary surtax and pay I-VAT & S-VAT for personal staff. Distributions from such corporations to owners are considered salary, not dividends.
Transaction based A-VAT payments end the complexity and tax avoidance experienced with income tax collection. Tax units with income under $75,000 or only one employer need not file high salary surtax returns. Separate gift and inheritance tax returns will no longer be required.
State governments will collect federal and state I-VAT, C-VAT, S-VAT payments, audit collection systems, real property A-VAT and conduct enforcement actions. IRS collects individual payroll and salary surtax payments, perform electronic data matching and receive payments and ADP data from states. SEC collects A-VAT receipts.
I-VAT gives all citizens the responsibility to fund government. C-VAT invoices encourage lower carbon consumption, mass transit, research and infrastructure development. A-VAT taxation will slow market volatility and encourage employee ownership, while preserving family businesses and farms. Very little IRS Administration will be required once reform is fully implemented. All IRS employees could fit in a bathtub with room for Grover Norquist.
Thank you again for the opportunity to add our comments to the debate. Please contact us if we can be of any assistance or contribute direct testimony.
Attachment - Tax Reform, Center for Fiscal Equity, November 13, 2019
posted by Michael Bindner at 9:00 AM
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