CTJ's Tax Justice Digest, August 25, 2006

IRS Proceeds to Use Private Collection Agencies Despite Congressional Disapproval:
Commissioner Stated in March that Using the Agencies Would Cost More Than Using Federal Employees

IRS Commissioner Mark Everson stated in a letter to a Democratic Congressman on August 16 that the agency would go ahead with plans to hand over 12,500 delinquent tax cases to private collection agencies this month or next month. The three agencies will receive a commission between 21 and 24 percent of what they collect, a rate that Everson said was necessary in order to provide a sufficient incentive. His response was to a letter from 27 members of the House that asked the IRS to delay its plan. Such a delay, it was argued, would allow time for the Senate to respond to a provision included in an appropriation bill passed by the House that bans the IRS from using private collection agencies.

This all comes after Everson admitted in a hearing before the House Appropriations Committee in March that using the collection agencies will actually cost more than using federal employees. But the federal budget is biased towards the private collection agencies. Hiring more IRS staff to do the work would cost more money than has been appropriated to the agency — and the far greater amounts of money that these employees would collect from delinquent taxpayers is not considered under the budget process.

The Deficit, According to CBO

The non-partisan Congressional Budget Office recently released its own updated estimates of the budget deficit. The CBO estimates are even lower than those of the Administration's, but with a relatively good reason. CBO is, in August, better able to project Federal spending for the rest of the fiscal year, which ends September 30, than was the Administration in June and July. However, and most importantly, CBO uses the same practice as the Administration of not counting money borrowed from the Social Security trust fund as increasing the deficit. This is a pure bookkeeping fiction. Removing this mask, the CBO estimate for the actual, real deficit for this fiscal year is $437 billion. And there's more bad news: CBO estimates that the total of the new deficits for the next five years, not including this one, will be $2.5 trillion.

Foes of Senate Immigration Bill Point to Projected Gross Costs of Bill — and Fail to Mention Projected Net Revenue Gain

A Congressional Budget Office report issued August 18 found that the immigration reform bill passed in late May would likely increase federal revenues by a net $44 billion over ten years if enacted. The income taxes and payroll taxes paid by immigrants would make up most of the revenue increase, which would exceed the cost of providing social services to more immigrants and other costs under the bill by a net $44 billion from 2007 through 2016.

This did not stop foes of rationalizing the immigration process from citing figures selectively from the CBO report to slam the immigration bill. U.S. House of Representatives Majority Leader John Boehner (R-OH) and Judiciary Committee Chairman James Sensenbrenner (R-WI) cited the gross costs of $127 billion projected for the 2007-2016 period by the CBO without mentioning the increased revenue projections that exceeded this amount by $44 billion. The $127 billion in spending includes about $48 billion in entitlement spending like Social Security, Medicare, Medicaid and Food Stamps, as well as about $24.5 billion for the earned income tax credit and the child tax credit. Also included is about $78 billion in discretionary spending for increased personnel, enforcement and other expenses.

The CBO did have to make another cost projection that showed a net revenue loss because of an apparent mistake in the drafting of the bill. Drafters intended for the legislation to have a provision that exempts employers of undocumented immigrants from civil and criminal tax liability for employment up until the time the undocumented worker applies to adjust his or her status in order to encourage cooperation by employers. In an apparent oversight, they forgot to limit the exemption to the period before the application is made, thus giving a much larger tax break than intended. Senate aides say the limit could easily be added during conference if the House passes the bill.

New Organization Formed to Advocate Expanded Incentives for Hybrid Vehicles

A new non-profit organization called Hybrid Owners of America (HOA) has been formed to push for more policies to encourage the purchase and use of hybrid cars (cars using both gasoline and electricity). One of the measures advocated is an expansion of the tax credit for the purchase of hybrid cars, which the group says is too limited and confusing to be of any use. Currently, the credited amount varies widely by which vehicle is purchased. The full credit can be taken only until the manufacturer sells 60,000 hybrid vehicles, at which point the tax break is quickly phased out.

Other measures advocated by the group include additional incentives for vehicles that can be plugged in to an electric grid, incentives for employers and automobile manufacturers and annual goals for replacing a portion of federal government vehicles with hybrids.

Idaho Holds Special Property Tax "Reform" Session

In Idaho, anti-tax lawmakers are once again using fixed-income seniors as a political football to engineer across-the-board property tax reductions. Temporary Idaho Governor Jim Risch has called a one-day special session to debate his property tax reform plan, which would cut Idaho property taxes for all homeowners and businesses by about 20 percent and make up most of the money by hiking the sales tax rate. As the Idaho Center on Budget and Tax Policy has noted, this tax swap would benefit wealthier Idaho families at the expense of lower- and middle-income taxpayers. The plan is also attracting criticism from Democratic lawmakers who have proposed targeting property tax cuts only to homeowners, and from a former state Supreme Court judge who says it's probably unconstitutional for the governor to hold a special session at which only one bill (his own) can be discussed.
Read more on the Talking Taxes weblog here.

Ballot Initiative News from Oregon

A new report from the Oregon Center for Public Policy takes a hard look at Measure 41, a tax-related initiative on the November ballot. OCPP finds that the initiative, which would allow wealthier Oregonians the option of claiming the same personal exemptions allowed under federal tax rules, would bypass a majority of Oregon seniors and would offer little to most low-income Oregonians of all ages. In the wake of the recent revelation that several anti-government initiatives crowding Oregon's November ballot are being bankrolled by an out-of-state millionaire, the OCPP report offers hope that facts — rather than money — can shape electoral outcomes in that state.

Property Tax Assessment: Eye in the Sky or Head in the Sand?

The all-important first step towards an equitable property tax is figuring out how much each home and business is actually worth. To do this perfectly, a tax assessor would need to visually inspect the inside and outside of every home — which, of course, no one actually does. But as a recent New York Times article notes, governments from Philadelphia to Florida are now relying on computerized aerial images (taken from a small plane) to detect changes in the outside appearance of homes and businesses. A Philadelphia tax administrator notes that the computerized system, which costs the city about $100,000 a year, "probably paid for itself within about two weeks." Assessment by low-flying planes may seem intrusive, but at the end of the day this is how the property tax is supposed to work. This approach is in stark contrast to the head-in-the-sand approach to property tax administration proposed by Alabama Democratic gubernatorial candidate Lucy Baxley, who has proposed ending the annual reassessment of Alabama homes.

Cabela’s: Outdoors Store and....Museum?

Across the country, large retailers continue to extract huge subsidies from local governments desperate for jobs and corporate investment. In the latest example, a giant Cabela's outdoors store to be built in the suburbs of Chicago would save on its property taxes because 15% of the 185,000 square foot store would be designated a tax-exempt museum. Cabela’s stores contain several thousand square feet each of taxidermy, aquarium, and other displays that are open to the public, and this is the area that would be designated a “museum” under the proposed incentive package. The property tax break is projected to save the store $5.5 million over the next twenty years, in addition to the $18 million given in direct sales tax rebates, according to the Chicago Tribune. This policy of forcing local governments to bear the cost of their expansion is nothing new for Cabela’s. For more information on this subject, take at a look at this case study by Good Jobs First.

Cities Weigh In on Public Finance

The National League of Cities has just put out a new report, Taxing Problems: Municipalities and America's Flawed System of Public Finance. This report serves as a primer on the tax challenges facing municipal governments across the nation, and describes guiding principles for municipal tax reform. Interested readers should also check out ITEP's Guide to Fair State and Local Tax Policy. For a free copy of the Guide, email us at ctj@ctj.org or call (202) 299-1066 x 25

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