President Obama released his budget plan on Tuesday, with proposals for expanding a number of tax breaks along with the budget of the Internal Revenue Service.
The President’s budget, set at $3.9 trillion for fiscal year 2015, includes proposals that would invest $12.5 billion in the IRS to improve service to taxpayers and reduce the deficit through more effective enforcement; double the maximum value of the Earned Income Tax Credit for childless workers; improve tax benefits that help middle-class and working families pay for child care and college and save for retirement; and tax reform that will “curb tax breaks that benefit the wealthiest, and ensure that everyone is paying their fair share.”
Specifically, the budget aims for additional IRS customer service improvements, including increasing the toll-free telephone level of service from about 60 percent to 80 percent, driving responsiveness to taxpayers through correspondence inventory reduction, and bolstering resources to help tackle more resource-intensive identity theft and refund fraud cases.
The budget overview noted that the IRS is responsible for securing over 90 percent of the revenue that funds the federal government and ensuring the integrity of U.S. tax laws. The budget provides $12 billion in base funding for the IRS, an increase of 6.3 percent over the 2014 enacted level. It also proposes a $480 million program integrity cap adjustment to support efforts aimed at improving enforcement of current tax laws and reducing the tax gap.
Among the areas slated for increases are initiatives to expand the coverage of high-wealth individuals and enterprises; to prevent identity theft and refund fraud; expand audit coverage; enhance collection coverage; improve coverage of partnerships and flow-through entities; and build tax return preparer compliance and professional responsibility activities.
The EITC would be broadened by making the credit available to young adult workers ages 21 to 24 “to provide added support and reward for work during the crucial years at the beginning of a young person’s career, and to older workers up to the Social Security full retirement age.” The EITC expansion would be paid for by closing high-income tax loopholes.
To encourage new savers, the budget creates “a new way for working Americans to start saving for retirement: the MyRA savings bond.” Separately, the budget also proposes to establish automatic enrollment IRAs.
House Way and Means Committee chairman Dave Camp, R-Mich., issued this statement in response to the proposal: “Last week, I offered a tax reform plan that would make our broken tax code simpler and fairer for businesses and hardworking taxpayers. Our plan to close loopholes and lower rates for all Americans would add $3.4 trillion to the economy, create nearly 2 million jobs and put $1,300 more per year in the pockets of middle-class Americans. Unfortunately, the President’s budget adds more complexity to the tax code and increases taxes for more Washington spending. That is the wrong direction.”
The general feeling is that the budget is a way of positioning the Obama Administration going into the elections, according to Loren Duggan, director of legislative analysis at Bloomberg Government.
“It’s largely a political document,” he said. “In the next eight months, the Administration will try to hammer the differences between Republicans and themselves going into the elections. These include the minimum wage, immigration reform and pre-K programs. It makes up a list of perennial ideas that have appeared in one form or another in previous budget requests.”
At the same time, he noted, some of the ideas that have proven controversial in the past have been dropped. For example, a change in the calculation of the cost of living adjustment that had been in past budgets as an offer to Republicans has fallen out.
“The Buffett Rule [requiring that millionaires pay no less than 30 percent of income—after charitable contributions—in taxes] is another idea put forth in the past that hasn’t gained traction,” said Duggan.
The budget still assumes some business tax changes will take place, Duggan pointed out. “They want to use the money this will bring in to pay for a major surface transportation bill,” he said. “But if reactions to the Camp tax reform plan are an indication of what’s happening, it will be hard to get a business tax bill done this year.”
“The budget also calls for $650 billion in revenue from provisions they say will make the tax code more efficient and fair,” Duggan added. “The two big components of this are the Buffett Rule and a cap on the value of itemized deductions and other tax preferences to 28 percent for wealthier people.”