Congressional Tax Panel Seeks To Raise $400 Billion In Extra Tax

by Mike Godfrey, Tax-News.com, Washington

31 January 2005

A new report by the Congressional Joint Committee on Taxation has recommended the tightening up of several areas of tax law, including payroll taxes and foreign income, in order to increase revenues by up to $400 billion over the next ten years.

While much of the extra revenue will come from tackling non compliance, more than half the total will come from changes in treatment of certain types of income and expenses to close off otherwise legal loopholes.

One of the main recommendations of the report involves changes to employment taxes in a bid to recoup more revenue from various types of health coverage, dependent care assistance, transportation and other employee fringe benefits, which according to the study could yield an additional $164 billion in tax revenues over 10 years.

A summary of the other key measures that could result from the report include:

• Changing the taxation of income earned overseas by US companies to raise $54.8 billion.
• Repealing the deduction for interest on home equity loans, raising $22.6 billion.
• Writing the ‘economic substance’ doctrine into law for certain transactions that could be considered tax shelters, raising $7.8 billion.
• Expanding telecommunications taxes to all voice and data communications, including cellular and satellite telephones, cable and satellite television, broadband, VOIP and other communications services, to raise $11 billion.
• Tougher rules to prevent taxpayers inflating their tax deductions by overvaluing charitable donations and conservation easements, raising an additional $5.5 billion.

The study was written in response to a request by Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) and ranking Democrat Max Baucus (D-Mont.), who have both expressed alarm over the size of the $400 billion ‘tax gap’ between what the government is owed and what it received in taxes.

Welcoming the report, Grassley remarked: “High-priced lobbyists won’t be able to eat their eggs Benedict when they see this.”

He added: “While we won’t embrace every recommendation, we’ll give the report a close look. It’s a matter of credibility. Law-abiding taxpayers shouldn’t have to carry those who skirt the rules.”

Meanwhile, Baucus commented: “Many of JCT's proposals are simply common sense ideas. Others may be more controversial and will have to be examined carefully."

"Nevertheless, I am glad to have their input. I intend to work with Chairman Grassley in a serious effort to restore the integrity of our tax system,” Baucus stated.

Recommended