These first two months of 2006 promise to be action packed with budget and tax issues. Below are some short updates of current news and events:
New Tax Cuts Quietly Go Into Effect
January 1 was not only the first day of the new year, but it was also the day in which two new tax cuts, called "PEP" and "Pease" went into effect. These tax cuts were originally tax increases enacted in the 1990's that are now being phased out through 2010. Almost ninety-eight percent of these tax cuts will go to households with annual incomes over $200,000. Along with these cuts, President Bush has been continuing to push to make his 2001 and 2003 tax cuts permanent. This would cost $2.1 trillion through 2015 according to this Center on Budget and Policy Priorities report.
Legislative Work from 2005 Remains UnfinishedEarly February also brings important Congressional votes on the tax and budget reconciliation conference bills. The House will vote on the final version of the budget bill February 1 and there is still time to urge your Representative to oppose these harmful budget cuts.
The second part of the trio of reconciliation bills, the tax cut package, is still not finished and negotiations are expected to get into full swing beginning in early February. For more on these issues see the latest OMB Watcher articles:
New Budget To Be Released In Early February
Despite there being a few budget bills lingering from last year, the President's FY 2007 budget proposal will be released on February 6. Treasury Secretary John Snow said yesterday the budget will "call for sacrifices, no doubt about it." It is almost assured that many important government programs helping low- and moderate-income families will be targeted to make a significant portion of those sacrifices.
IRS Incorrectly Denies Tax Refunds To The Poor
Also in the news is a report released to Congress yesterday from the Internal Revenue Service's taxpayer advocate, Nina Olson. The reported said that tax refunds sought by hundreds of thousands of poor Americans were incorrectly frozen by the IRS and, in many cases, blocked for years to come. The IRS froze the funds due to the suspicion of fraud. However when Olson's office looked into the details, they found 80 percent of the filers were owed either full or partial tax refunds. The IRS criminal investigation unit froze these funds without notifying taxpayers their refund claims were under review. The average income of these filers was $13,330, and the median refund they were supposed to receive was $3,519. On average, the refunds sought by these taxpayers, which were almost entirely through the Earned Income Tax Credit, amounted to about 26 percent of their adjust gross income.
Perhaps most disturbing, Olson reported to Congress that the IRS is devoting many more resources toward looking into the questionable refunds pursued by the poor -- a $9 billion problem at most -- and far fewer resources towards the $100 billion problem of unreported incomes from many small businesses who deal only in cash or the approximately $75 billion in unpaid corporate taxes. For more on this issue, read yesterday's New York Times article I.R.S. Limited Tax Refunds of Poor, Congress is Told, or today's Washington Post article IRS Froze Refunds, Study Says.
For further updates on these issues and more, be sure to regularly check the OMB Watch budget blog.