The IRS is one of the more maligned government agencies in the country, and while there isn't much sympathy for the IRS among taxpayers or lawmakers, the agency is really just carrying out the demands of Congress. And those demands are getting harder and harder to fulfill. As the National Taxpayer Advocate, Nina Olsen, pointed out in her latest report to Congress "the IRS no longer is just a revenue collection agency but is also a benefits administrator."
A perfect example of this is the Earned Income Tax Credit (EITC). The EITC is a tax credit available to low- and moderate-income working individuals and families. It is one of the federal government's largest anti-poverty programs, paying out $55 billion in 2009. The value of the credit depends on, among other things, a taxpayer's income level and number of children. This sounds simple enough, but improper EITC payments, defined as either over-payments or under-payments, are a big problem. Verifying income, family, age, and household eligibility requirements for the 25 million EITC recipients is a difficult and time consuming task even for an organization designed to handle the task, which the IRS is not. The improper payment rate for the EITC was estimated at somewhere between 23% and 28% in a recent report from the Treasury Inspector General for Tax Administration, costing the government around $12 billion annually.
But the President's Office of Management and Budget (OMB) has a proposal that it thinks will help bring down the error rate. They propose a pilot program to cross-check federal EITC information with databases linked to state benefits programs, such as Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and state tax credit programs. In this way they hope gather relevant information that will help reduce erroneous payments to those who are ineligible and also identify those who are eligible but currently not receiving the EITC. The pilot program, estimated to cost between $300,000 and $550,000 per state, will initially only include a few states in order to assess its potential. According to the proposal,
[O]n average a one percent reduction in the improper EITC payments to individuals in one State equates to $2.4 million annually. Therefore, the pilot has the potential to save significant amounts if it indicates that State data can improve the accuracy of EITC claims even marginally. [emphasis original]
Go to the original author's site:Montana Governor Brian Schweitzer (D) delivered his State of the State Speech on January 26, in which he praised his state's efforts to keep taxes low in order to foster business development in his state. Beshear noted that "the Tax Foundation has rated us the sixth most business friendly tax state."
Beshear argued that low taxes, fiscal discipline, and a well-educated workforce led to a 65% increase in Montana's Gross Domestic Product during the past decade.
More on Montana here.
Go to the original author's site:If you formed a corporation in a previous year and you have decided you want to elect S Corporation status for 2011, you must do so no later than two months and 15 days after the beginning of the tax year (that's March 15).
...
Read Full Post
Go to the original author's site:Vermont state legislators affiliated with the Progressive Party last week introduced a bill to raise the state's top two income tax rates, with the highest to be 10.45% on income over $373,650 (up from 8.95%). This would give Vermont the third highest top state income tax rate in the country. A Progressive Party release quotes one of the sponsors:
"People have received significant tax cuts on the federal level," Pollina said. "We’re not increasing taxes. We’re asking the wealthy to take slightly less of the Bush tax cuts."
The bill will be introduced just one day before the final cutoff for new legislation.
Pollina described the increase as "slight." Wealthy Vermonters will still be able to buy yachts, he said. "It’s not a broad-based tax," Pollina said.
The current perception already is that high-income Vermonters shoulder more than their fair share of the tax burden. (The recent Vermont Tax Reform Commission report sought to address this perception while maintaining progressivity; presentation version here (PDF).)
About half of high-income earners are in that category for just one year and another quarter for just two or three years, rather than the lifelong idle rich that Sen. Pollina seems to envision. Tax flight from tax increases is modest but exists, although the bigger problem is signalling that job-creating investors are to be punished, leading to them not to show up in the first place. There are also equity and sustainability concerns with funding broadly-available state services through a tax on a very small group of people.
Gov. Peter Shumlin (D) has already dismissed such a proposed increase (subscription req'd):
He said at a February 23 news conference that high-income Vermonters are taxed enough.[...]
"Anyone that tells me that we are not close to the precipice in terms of what we can ask Vermonters to pay in income tax isn't really looking at the facts," Shumlin said. "I can introduce you to many of my neighbors who no longer are Vermont residents. There is a point where we lose more than we gain, and I think we're there."
More on Vermont here.
Go to the original author's site:
