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Wednesday, April 22, 2015

Revenue magic (that should be avoided)

Revenue magic!
H.R. 1891 (114th Congress), the African Growth and Opportunity Act Extension and Enhancement Act of 2015, sponsored by Congressman Paul Ryan, extends the "African Growth and Opportunity Act, the Generalized System of Preferences, the preferential duty treatment program for Haiti, and for other purposes." It is a revenue loser, but has a supposed revenue offset. That offset is really a fake in that it doesn't raise any revenue, it just accelerates revenue into an earlier year that falls within the 5-year budget measurement period for the bill.

The shifting of tax revenues is accomplished by accelerating corporate estimated tax payments. H.R. 1891 proposes to modify IRC Section 6655 as follows:

"Notwithstanding section 6655 of the Internal Revenue Code of 1986, in the case of a corporation with assets of not less than $1,000,000,000 (determined as of the end of the preceding taxable year)—

   (1) the amount of any required installment of corporate estimated tax which is otherwise due in July, August, or September of 2020 shall be increased by 5.25 percent of such amount (determined without regard to any increase in such amount not contained in such Code); and

   (2) the amount of the next required installment after an installment referred to in paragraph (1) shall be appropriately reduced to reflect the amount of the increase by reason of such paragraph."

A revenue estimate by the Joint Committee on Taxation (JCX-82-15) shows the estimated tax payment shift as raising about $2 billion in fiscal year 2020, but that is then made up in FY2021. But, since FY2020 is in the five-year budget window, it is a revenue raiser for that time period.

There is though, a real revenue raiser in the bill, but is is small - $293 million over 10 years. This proposal denies the refundable aspect of the child tax credit to individuals who exclude foreign earned income. That makes sense.   (See JCT explanation (JCX-81-15) for details.

A mark-up hearing is scheduled for April 23, 2015, for this and related bills. If they are looking for true revenue raisers, here are a few suggestions:
  • Perhaps the entire child tax credit and a few other tax preferences should be denied for individuals claiming the foreign earned income exclusion or the foreign income exclusion amount should be reduced.
  • Address a spending problem documented by the GAO in their series of reports on duplication, fragmentation and overlap in government programs that result in excess spending (click here for the report released in March 2015).
One more issue - the one year change in calculating estimated tax payments adds complexity and confusion to the law.

What do you think?

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