WASHINGTON – Tax Day, said Senate Republican leader Mitch McConnell, is viewed by many as "sort of a national anti-holiday" and Tuesday's debate in Congress on tax policy was more confrontation than celebration.
House Democrats, shrugging off a presidential veto threat and GOP opposition, pushed through legislation that would kill an IRS program under which private debt collectors are used to dun scofflaws and would crack down on the misuse of tax-free health savings accounts.
Republicans on both sides of the Capitol assailed Democratic plans to let some of the massive tax cuts passed in 2001 and 2003 expire, saying that would amount to the largest tax hike in U.S. history.
The disputes occurred as Internal Revenue Service Commissioner Douglas Shulman told a House Appropriations subcommittee that this tax-filing season has gone relatively smoothly. He said the agency, which expects to process almost 140 million individual returns this year, has already issued 75 million refunds worth an average $2,436. Payments from the economic stimulus package, going out to almost everyone filing a return, will be sent electronically or by mail from early May.
In a Senate Finance Committee hearing, chairman Max Baucus, D-Mont., said it was way past time to simplify a system that, according to a National Taxpayers Union estimate, consumes 3.6 billion hours of individual taxpayer time every tax-filing year. Baucus quoted Albert Einstein as saying that "the hardest thing in the world to understand is the income tax."
The House voted 238-179 in favor of a bill that takes incremental steps to make the system simpler and fairer. It would eliminate the requirement that people keep detailed records of calls made on employer-provided cell phones, would stop federal contractors from using foreign subsidiaries to evade Social Security and other employment taxes and would require that the IRS notify taxpayers if it suspects identity theft.
It also requires the IRS to do more to ensure that lower-income people entitled to the Earned Income Tax Credit apply for and receive that credit. The legislation now must be considered by the Senate.
But the White House said two provisions in the bill could subject it to a presidential veto. One would require people to provide proof that any withdrawals from tax-free health savings accounts, strongly backed by the Bush administration, are used for medical expenses. The other would kill another administration priority, a program under which smaller-scale delinquency cases that the IRS would normally ignore are farmed out to two private debt collection companies. Those companies can receive up to 24 percent of the back taxes they retrieve.
The White House cited estimates that the program would bring in $578 million in revenues over the next 10 years. Critics said that, with startup costs, the program lost $50 million in its first year. They also cited concerns about possible misuse of confidential taxpayer information.
"It's a wonderful idea for a 'Sopranos' episode," Rep. Jose Serrano, D-N.Y., told IRS chief Shulman, referring to the TV drama about a mob family.
Shulman, in office only three weeks, said it was too early in his tenure to express opinions on the issue, but noted that the private collectors go after money the tax agency wouldn't otherwise get. The agency "only has so many resources. It can't pursue every single case."
National Treasury Employees Union president Colleen Kelley said in a statement that the answer to better enforcement and closing the tax gap was in hiring more tax agents. She said that the IRS staff has fallen from 114,000 in 1995 to less than 87,000 in 2007. The tax gap, estimated at $290 billion a year, is the difference between what is owed in taxes and what is actually collected.
House Republicans tried unsuccessfully to force action on a measure making permanent the 2001 and 2003 tax cuts, some of which will expire in two years. They argued that the measure would forestall $684 billion in tax increases, but the resolution was defeated largely along party lines, 220-196.
Democrats say they are prepared to extend some elements of those tax cuts that help middle-class families, including child tax credits and marriage penalty relief, but argue that the cuts mainly benefit the wealthy. They say that in 2007, one-third of the total benefits of the tax cuts went to the top 1 percent of households.