Finance

The Tax Relief and Health Care Act of 2006 passed Congress on Dec. 9, 2006, and was signed by President Bush on December 20. Most of the provisions are good news for taxpayers - extending popular tax breaks, many of which had expired at the end of 2005.Still, the timing could have been better.

A domestic focus of President Bush’s State of the Union address was a proposal aimed at expanding access to affordable health insurance that faces a tough political road to becoming reality.

The federal government will run a deficit of $172 billion in fiscal 2007, the Congressional Budget Office said yesterday.The projected deficit will drop to $98 billion in 2008 and flatten out by 2012/ The deficit for the 2006 fiscal year, which ended Sept. 30, was $248 billion.

In response to requests from Congress, the Government Accountability Office has released a new report outlining a trio of approaches that would reduce the tax gap.

More than a dozen senators have signed on to sponsor a bill that would stop the Internal Revenue Service from using private debt collectors to collect unpaid taxes.

With just about every politician in Washington in agreement that some permanent fix needs to be made to the alternative minimum tax, the Tax Policy Center has released a report outlining a number of possibilities.Created as a parallel tax structure in 1969 that was aimed at preventing the super-rich from using deductions and shelters to avoid paying taxes, inflation has turned the AMT into a different monster. The center’s report notes that fewer than 400,000 families were affected by the tax in 1985, this year, about 3.8 million households will see their tax bills rise by an average of $6,813.

My first experience with the minimum wage was in 1972 as a movie usher for the old Century Theater chain on Long Island.

On a voice vote, the Senate Finance Committee approved a bill that would curb one element -- deferred compensation -- of the sometimes exorbitant pay packages awarded to corporate executives.The committee agreed to change rules that allow some executives to collect millions of dollars in tax-deferred accounts. According to congressional estimates, limiting that perk would raise upwards of $800 million over the next decade.

Last week, it was again time for National Taxpayer Advocate Nina Olson to roll out yet another congressionally-mandated report detailing 20 of the biggest problems facing taxpayers.What’s impressive is that, for yet another year, her beefs were so fresh.

The Internal Revenue Service will begin processing both e-file and paper tax returns that include claims for the major “extender” provisions enacted by Congress on Feb. 3.

Joining an increasingly loud chorus, National Taxpayer Advocate Nina E. Olson released her annual report to Congress, designating the alternative minimum tax and the federal tax gap as the most serious problems facing taxpayers.Olson also reserved a healthy dose of the 80-page-report’s scorn for concerns about the Internal Revenue Service’s collection policies and the transparency of IRS information to the tax-paying public.

Senators Max Baucus, D-Mont., and Chuck Grassley, R-Iowa, introduced legislation on the first day of the 110th Congress to repeal the individual alternative minimum tax beginning in the 2007 tax year.It’s just the most recent attempt the men have made to get the legislation passed. Congress has taken to patching the AMT one year at a time -- six years in a row -- usually by increasing the exemption amount. According to the Joint Committee on Taxation, in 2007 the patch will cost about $50 billion and hold the number of affected taxpayers at close to the 4 million taxpayers affected this year. Without a patch, about 23 million households would have been affected by the AMT.

Rep. Barney Frank said that wage inequality among U.S. workers is his No. 1 priority as he prepares to take over chairmanship of the House Financial Services Committee this week.In a speech at the National Press Club, Frank, D-Mass., said that he will hold hearings about wages over the next two years in an attempt to address the gap between economic growth and workers' wages.

After four months, the Securities and Exchange Commission has already revisited its rule on disclosing executive compensation.In a statement issued Dec. 22, SEC Chairman Christopher Cox said that the new requirements will make it easier for companies to prepare statements and for investors to understand the cost of stock options.

With the Tax Relief and Health Care Act of 2006 now signed into law, the Internal Revenue Service has rolled out guidance to help taxpayers filing in 2007 claim the extended deductions and other tax advantages contained in the act.

As expected, President Bush signed a massive bill that would extend expiring tax, health and trade legislation.

Once again Congress has amazed me in how it handles tax legislation. It should come as no surprise because I have been reporting on tax legislation for over 30 years, but Congress still makes it much more difficult for taxpayers, practitioners, and tax prep software providers than it has to be. Congress, rather than passing the “Tax Relief and Health Care Act of 2006” just before it adjourned last week, could have done so at the beginning of 2006. But in reported attempts to pass other unrelated legislation, the tax provisions supported by both sides of the aisle were tacked onto controversial legislation. When those proved unsuccessful, the tax provisions eventually were separated from any controversial legislation and the “Tax Relief and Health Care Act of 2006” was passed last week. Here is explanation of the ramifications of the delay by Senator Baucus on the floor of the Senate: “Congress's delay in extending these tax provisions caused uncertainty. And the delay until now will have real consequences for taxpayers. Just this week, I received a report of the contingency plan at the IRS for the 2007 filing season. The IRS identified about 60 tax forms and products that will be affected by this delay. “The Form 1040 has already gone to the printer. That happened back in November. More than 120 million taxpayers use that form. The IRS will not reprint those forms. “The IRS expects taxpayer confusion. The IRS expects more phone calls to the IRS with questions. The IRS expects delays in filing. The IRS expects incorrect returns. And the IRS expects more amended returns. “Further, the IRS will need at least six weeks to reprogram its systems to accommodate the changes. It is simply too late for the IRS to implement the 2007 filing season on time. This means delays in starting to process and issue refunds. And it means money. It may cost the IRS millions in additional costs because of our delay. And the cost to taxpayers could be even greater. “In September, I brought a display of the draft Form 1040 for next year. Already, the classroom teachers' deduction and the college tuition deduction were gone. Millions of families that normally take those deductions, and other popular incentives like the state sales tax deduction, will wonder why those lines no longer appear on the Form 1040. And, unless taxpayers are willing to get on the Internet and search, they may never know that we extended these incentives in the nick of time.” Tax prep software providers will face similar problems in rushing modifications to the programs for the 2006 tax year. This reminded me of tax legislation that came down many years ago right after Christmas. Tax practitioners had only to end of the year to advise some of their clients of what to do to take advantage of a tax benefit added by the legislation. This time of the year is hard enough for those with a vested interest in the tax season, whether it be the IRS, tax practitioners, tax prep software providers, or taxpayers, Congress seems to have no qualms about making it more difficult, expensive, and frustrating for those interested parties or adding greatly to the possibility that taxpayers will not take advantages of tax benefits because they aren’t listed on tax returns where they are supposed to be and could easily have been put. Will Congress act any differently in the future? I think you know my answer based on 30-plus years of observation.

Though revenues from the U.S. Government rose 12 percent over fiscal 2006, to $2.4 trillion, the future costs for social insurance programs such as Medicare and Social Security will be trillions more than initially projected.

Five Treasury nominees were sworn in this week, including a new assistant secretary for tax policy, whose appointment has been held up by a senator for nearly five full months.Last week, Sen. Max Baucus, D-Mont., the ranking member of the Senate Finance Committee, agreed to release his block on Eric Solomon’s nomination. After approving the appointment of Treasury Secretary Henry Paulson in July, Baucus said that he would refuse to allow the committee to vote on any other nominations until he was satisfied with the agency’s plans to close the tax gap -- the difference between taxes paid and taxes owed in the country, which his estimates put at some $300 billion annually.

Retroactive beneficial tax legislation, such as the just-passed “Tax Relief and Health Care Act,” is always welcome.The legislation, which President Bush is expected to sign shortly, contains numerous tax provisions, including a slew of tax benefit extenders, energy tax incentives, health savings account changes, tax administration modifications and technical corrections to earlier tax legislation.