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Bush's Budget Proposes Permanent Tax Reliefs

by Mike Godfrey, Tax-News.com, Washington

07 February 2007


President George W. Bush has asked Congress to extend tax relief passed under his presidency on a permanent basis in his budget budget presentation for fiscal year 2008.

The Administration's FY 2008 Budget includes measures to permanently extend the tax relief enacted in 2001 and 2003, which includes the cuts in capital gains and dividend taxes to 15% that are set to expire at the end of 2010 under current legislation, and proposes to extend for one year through 2007 provisions that address the rapid rise in the number of taxpayers affected by the alternative minimum tax in the near term. However, on the latter point, the White House is looking to Congress to eventually create a "longer term solution" to the problems associated with the individual AMT.

The AMT proposal would increase exemption levels for 2007 to $43,900 for single and head of household filers, $65,350 for married taxpayers filing joint returns, and $32,675 for married taxpayers filing separate returns. In addition, the proposal would allow an individual to reduce 2007 tax liability by the full amount of nonrefundable personal credits even if tax liability is reduced to an amount that is less than the individual's tentative minimum tax.

Without long-term changes, an estimated 25 million Americans will fall subject to the AMT, the US Treasury estimates.

The 2008 budget also contains the President's plan for a tax overhaul of the US healthcare system outlined in his State of the Union address last month, the central plank of which rests on a proposed standard deduction for healthcare costs designed to encourage a higher take-up of health insurance.

Other proposals include measures to promote savings for all Americans and encourage investment by entrepreneurs, and the Treasury Department said that in the coming months it will engage in a public dialogue on how the tax system can be improved to make the US more competitive in the global economy.

Despite the heavy emphasis on maintaining lower taxes, Bush claimed that his budget would balance the books within five year's time without the need for raising other taxes.

"By keeping taxes down, we actually generate strong revenues to the Treasury," Bush said at a meeting with his Cabinet.

"I strongly believe Congress needs to listen to a budget which has no tax increase, and a budget, because of fiscal discipline, that can be balanced in five years," he added.

One way that Bush hopes to exercise fiscal discipline is through the curbing of earmarks, or narrowly-targeted tax breaks tacked onto legislation which benefit only a small number of firms or individuals.

"In order to make sure that we're fiscally responsible with the people's money, Congress needs to make sure that when they spend the people's money, there's transparency and an up or down vote for each item," Bush stated.

The Treasury also hopes to claw back lost revenues by improving tax compliance and making a dent in the so-called tax gap.

The Treasury has put forward 16 proposals in the budget to help improve compliance, with an emphasis on additional reporting without creating excessive burdens on compliant taxpayers. The Department also asked for $409 million for the IRS to step up compliance efforts. Additional funding is also provided for more research to study the sources of non-compliance.


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