The Joint Committee on Taxation has put out a 435-page report listing "OPTIONS TO IMPROVE TAX COMPLIANCE AND REFORM TAX EXPENDITURES" (JCS 02-05), and some of them are worth peeking at before the Congress starts talking about them.

The bean counters have figured that "tax compliance for wage earners whose income is subject to withholding is approximately 99 percent, while compliance for individuals with income not subject to withholding is significantly less." What to do? This:

The proposal requires withholding on payments for goods and services made by all branches of the Federal government and its agencies and all units of State and local governments, including counties and parishes. Local governments with less than $100 million of annual expenditures are excluded from the withholding requirement. The rate of withholding is three percent on all payments, regardless of whether the payments are for goods or services.

Estimated take over fiscal years 2006 through 2014: $6.4 billion.

One law which has been much derided in recent months has been the Section 179 depreciation deduction enacted in 2003, which grants sport-utility vehicles with a Gross Vehicle Weight Rating over 6000 lb (which includes all the really Big Boys) an immediate writeoff as an expense instead of the usual five-to-seven-year depreciation. But what the Feds give, they can also take away:

Under the proposal, all vehicles subject to either the present-law luxury automobile depreciation limitation or to the present-law section 179 expensing limitation for certain sport utility vehicles are made subject to the luxury automobile limitation. Because the luxury automobile depreciation limitation is more restrictive than the treatment under the present-law section 179 expensing limitation for sport utility vehicles, the expensing limitation is repealed.

For vehicles put into service in 2004 — 2005 figures are not out at this writing — the maximum amount of allowable depreciation is $2960 for the first year, $4800 for the second year, $2850 for the third year, and $1675 for the fourth and later years. The guys at Hummer must be tearing out their hair. Estimated take over fiscal years 2006 through 2014: $1.1 billion.

And one more I'd like to note: the excise tax on "communications services," enacted as a means of raising money during the Spanish-American War, repealed thereafter, but reinstated permanently in 1941, is being reexamined, and the committee recommended three options, the most drastic of which would expand the base for this tax to include all data communications services to end-users. The taxable base [if this option is adopted] includes local and long distance voice services, VOIP, analog and digital cellular and satellite telephone services, cable and satellite television services (to the extent the charge is for communications), broadband and dial-up Internet access services, paging services, and other data communications services.

Cable and satellite companies would be expected to spell out how much of their billing is for content, which would not be taxable under this proposal, and how much is for delivery, which would be. The committee is honest about its intentions here:

There is no compelling policy argument for imposing taxes on communications services. Indeed, in 1987 the Department of the Treasury recommended letting the tax expire. Any excise tax distorts consumer decisions, and taxing new services and new technologies makes them more expensive, and, therefore, may slow their development. The last significant revision of the tax occurred in 1965. Consequently, many of the rules are now so obsolete due to intervening developments in technology and marketing that, in many cases, they either fail to capture many services that traditionally were seen as within the scope of the communications tax or they capture those services unevenly. On the other hand, the excise tax on communications services raises a significant amount of revenue.

$5.8 billion in 2003, in fact. Over and above that, the estimated take over fiscal years 2006 through 2014: $11.2 billion.

There are, of course, a lot more ideas being put forth: you can get the entire document here [link requires Adobe Reader]. The Congress may say it wants to cut your taxes, but clearly the Congress doesn't mean all your taxes.

The Vent

  1 February 2005

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 Copyright © 2005 by Charles G. Hill