President George W. Bush has proposed that temporary tax cuts enacted in 2001 and 2003 should be made permanent to allow businesses and families to plan properly for their futures.
The President's Fiscal Year 2007 budget also proposes to address the growing reach of the alternative minimum tax, and calls for the establishment of a new Treasury unit to study the effects of major changes in tax policy.
"All taxpayers should have the certainty of knowing that the provisions of EGTRRA (the Economic Growth and Tax Relief Reconciliation Act of 2001) will extend beyond 2010," the Bush administration declared in the Treasury Department's General Explanations of the Administration's Fiscal Year 2007 Revenue Proposals, otherwise known as the Blue Book.
"Taxpayers require the certainty that can be provided today by permanently extending the provisions of EGTRRA and JGTRRA (the Jobs and Growth Tax Relief Reconciliation Act of 2003. Permanent extension of the provisions is essential for promoting growth and higher levels of income in the future," the administration added.
The Treasury has calculated that permanently extending the dividend and capital gains tax cuts, both of which are due to expire at the end of 2008, would cost the government $7.74 billion in 2008 and $37.02 billion in 2009. However, short term revenues losses are likely to be offset in the longer term by higher economic growth as a result of the tax cuts, according to the Treasury.
In addition to permanent extension of the President's tax relief enacted in 2001 and 2003, the President's FY 2007 Budget includes several new initiatives, including: increased expensing for small businesses; a set of proposals to improve access to health care and expand Health Savings Accounts (HSAs); proposals to increase compliance, simplify the tax laws and reduce taxpayer burden; and a proposal to create a new 'Dynamic Analysis Division' within the Treasury Department's Office of Tax Policy.
The additional expensing measure would build on the lower marginal tax rates and the provision allowing up to $100,000 of section 179 expensing, which would be permanently extended by the President's FY 2007 Budget.
The new proposals on health insurance coverage meanwhile, are designed to make the system more accessible and affordable to more Americans. The Treasury Department estimates that these proposals would increase the projected number of Americans with HSA's by 50 percent. In 2010, the Treasury Department projects an increase in the number of HSAs from 14 million to 21 million.
The budget also advocates a further one-year 'fix' to address the rapid rise in the number of taxpayers affected by the alternative minimum tax in the near term.
A temporary provision, effective through 2005, increased the AMT exemption amounts to $40,250 for a single taxpayer, and $58,000 for a married couple filing a joint return.
Beginning in 2006, the AMT exemption amounts decline to $33,750 for a single taxpayer, and $45,000 for a married couple filing a joint return. Another temporary provision effective through 2005, permits nonrefundable personal tax credits to offset both regular tax and the AMT.
Without any change in the tax law, the number of taxpayers subject to the AMT would increase by 20.4 million (from 5.5 million in 2005 to 25.9 million in 2006). However, the Administration has stated its intention to find a longer-term solution to the AMT problem within the context of "fundamental tax reform".
The proposal to create the new Dynamic Analysis Division of the Treasury, which will prepare dynamic analyses of major tax policy changes on the economy, is one of the first concrete steps that the administration has taken in the direction of tax reform since the presidential advisory panel on tax reform published its report in November.
The Treasury Department has said that it will likely be in a position to conduct a dynamic analysis of the President's tax proposals in the FY 2007 Mid-Session Review, to be released in mid-July.
The budget also proposes new measures to reduce the $300 billion annual 'tax gap.' These measures will: clarify the circumstances in which employee leasing companies and their clients can be held jointly liable for Federal employment taxes; require debit and credit card issuers to report to the IRS gross reimbursements paid to certain businesses; require increased information reporting for certain non-wage payments made by Federal, State and local governments to procure property and services; amend collections due process procedures applicable to Federal employment taxes; and expand return preparer identification and penalty provisions.
To aid enforcement of the tax laws, the 2007 Budget proposes an IRS operating budget of more than $10.7 billion, a 1.4 percent increase from the current year's budget.
The full text of the Fiscal Year 2007 Budget can be found in the Tax News Resources section.
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