Taxable Talk

If I told you that you were going to get hit by a massive tax increase, you would rightly ask, "Why haven't I heard about it on television? Why haven't I read about it in the media?" But it really is coming...just in two years.

Congress passed, by a party-line vote, the Democrat's version of the budget. This budget lays the groundwork for the elimination of the Bush tax cuts. What happens when you eliminate a tax cut? In the Democrats' world, nothing. For you and me, it's a $200 billion tax increase.

I try hard in this blog not to single out one political party. Frankly, they're both quite capable of underhanded ways of budgeting. The Republicans had twelve years of running Congress, and are only now managing to understand the wisdom of being fiscally conservative. Unfortunately, it appears that the Democrats have no idea what that means.

President Bush is threatening to veto any appropriation bill that exceeds the amounts in his budget. I expect he'll be using that veto pen frequently.

As Congressman Paul Ryan (R-WI) stated, "But I’d hardly consider a $200 billion tax hike a 'win' for American workers." It's not. Democrats have claimed that the Bush tax cuts led to the budget deficits. That's not the case; federal government revenues increased by 46% since they were enacted. Unfortunately, spending increased by even more.

We have bloated government, bloated bureaucracies, and a Congress that wants more of the same. I suggest that anyone who cares about this issue—and it's a major one in my opinion—read the Porkbusters website. Join with me in trying to take the pork out of government.

And you thought that the Treaty of Paris (signed on December 10, 1898) ended the Spanish-American War. No! It ended today, May 25, 2006, when the Department of the Treasury announced that they will no longer fight for enforcement of the 3% telephone excise tax used to fund the Spanish-American War.

Refunds of tax for long-distance service paid over the past three years will be given as part of your 2006 tax returns filed in 2007. As to what documentation (if any) is required, this has not been announced. (From a tax preparers' viewpoint, I hope that preparers aren't the ones who will have to check that individuals requesting refunds meet the requirements....)

Additionally, the press release and the news stories do not reference mobile telephone service (e.g. cellular). However, the IRS notice does, stating,

"These cases [on the telephone excise tax] hold that a telephonic communication for which there is a toll charge that varies with elapsed transmission time and not distance (time-only service) is not taxable toll telephone service as defined in § 4252(b)(1) of the Internal Revenue Code. As a result, amounts paid for time-only service are not subject to the tax imposed by § 4251. Accordingly, the government will no longer litigate this issue and Notice 2005-79, 2005-46 I.R.B. 952, which states otherwise, is revoked."

So cellular phone service and long-distance service should be free of the excise tax.

Until the IRS and the Department of the Treasury announce the procedure for refunds, keep your old phone bills! The Treasury Department estimates that refunds will total $15 billion.

Links: Reuters News Story, Roth Tax Updates, and TaxProf Blog

...Or so I've been told.

But as I continue to age (a phenomenon that I've been assured will continue) I have begun to wonder if Mark Twain was correct, when he said, "Suppose you were an idiot and suppose you were a member of Congress. But I repeat myself." Congress has shown a complete lack of fortitude in regards to taxation.

I am getting ahead of myself a bit. First, we have the Kelo v. New London Supreme Court decision, where private property rights took a back seat to the long hand of legislatures everywhere. Then we have the California Legislature conforming with most of the changes in federal taxes, but ignoring HSAs.

2005 will long be remembered for the disastrous hurricanes, Katrina, Rita, and Wilma. Congress did some good by passing tax relief for those impacted by the disasters. However, Congress couldn't resist playing the morality card by excluding relief for "morally challenged" industries, such as gambling. It's not as if gambling has done anything for Mississippi's Gulf Coast region. I mean, back in the late 1970s the area was horribly poor, with few prospects for improvement. After the introduction of casinos, the area's economy grew tremendously. However, Congress can't be seen helping out the "sinners." (Please also read Professor Maule's excellent commentary on this issue.)

I would not want to forget the IRS as 2005 draws to a close. Indeed, the IRS attempted, in the name of "improving customer service" to close some taxpayer information offices. (Here, at least, Congress interceded to stop the closure.) More recently, the IRS wanted to cut three hours from their customer help lines; the recently passed defense appropriation bill contains language preventing such a closure. Of course, the quality of IRS telephone help remains at the usual, high level—only 25% of callers receive incorrect information.

And as 2005 drew to a close, Congress began debating extending AMT relief, extending the lower dividend tax rates, and other tax relief items. Any relief has been postponed until 2006. This one deserves watching, because the AMT is poised to strike millions if something isn't done.

Of course, no holiday year-in-review article would be complete without noting the positive things that have happened in 2005. Congress continues to monkey with adapt the tax code for changing times, making it easier to work with easier for professional tax preparers such as myself to get work, and have lifetime employment. State legislatures, such as California's, continue to lower tax rates and decrease regulations continue to pass more regulations forcing us to live in a nanny state. At least on the local level, things are different. It's not as if Irvine has any huge public works boondoggles in the future, things like a Great Park, that would undoubtedly need taxpayer funding at some later date. (At least this last item probably won't come home to roost for ten years or so.)

Finally, have a wonderful holiday season. Whether you celebrate Christmas, Hanukkah, or any other holiday, I wish you and yours a wonderful, safe and merry season. Merry Christmas and Happy New Year.

With President Bush proposing (and Congress passing) extensive relief for Hurricane Katrina, and the possibility of perhaps another deadly strike by Hurricane Rita in Texas, one obvious question is how do we pay for this. I've seen estimates that the final bill for Katrina could be as high as $200 billion.

This morning, courtesy of the InstaPundit, are two new websites highlighting Pork spending by Congress: PorkBusters and PorkReports. Here are some sample pork projects that could (and should) be cut (all from the recently passed highway bill):

CA $100,000 Tiger Woods Foundation, Los Alamitos, to offer programs to at-risk youth (Fund for the Improvement of Education - Department of Education) I'm all for private foundations that do charitable work. But there's no need for government funding here.

$2,320,000 for landscaping enhancements along the Ronald Reagan Freeway (Route 118), California. Unbelievably, the money is designated in the bill as “for aesthetic purpose.” This is particularly ironic considering that Reagan vetoed a highway bill containing “just” 152 earmarks. Need I say more?

This all harkens back to the days of Senator William Proxmire and his Golden Fleece Awards. A list of the "top ten" of the original Golden Fleece Awards can be found here.

As reported in Tax Analysts, the projected Federal deficit for 2005 has shrunk by nearly 25% from $424 billion to $333 billion. The reason? Tax collections (revenues) are up, across the board, by about 14%.

It can be both, of course; however, the National Taxpayers Union says of the Federal budget deficit, it's too much spending. While Nancy Pelosi states that President Bush and Congressional Republicans have, "completely abandoned fiscal responsibility," the National Taxpayers Union has a different view.

"Our review of the numbers shows that if Congress had exercised even very modest spending restraint over the past half dozen years, we would have no deficit problem today," said NTU President John Berthoud.

In this article, Berthoud is quoted that if spending growth had been limited to 3.2%, there would be a surplus.

Below, I comment on California's bankrupt budgeting process. According to this report from the Heritage Foundation, the Federal budgeting process is only slightly better. Among the points made in the report is that the budgeting process has a bias towards increased spending and increased taxes.

I didn't need a report to tell me that.