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Waiting on Werfel

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Feb 27, 2023 View in browser
 
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By Bernie Becker

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CONFIRMATION GOES MARCHING ON: Senate Finance Chair Ron Wyden (D-Ore.) hasn’t said when he’ll hold a vote on Danny Werfel’s nomination to be IRS commissioner.

But people close to the committee certainly wouldn’t be surprised if the Finance cleared Werfel’s nomination as soon as this week.

Werfel widely is expected to be confirmed by the full Senate, and two Republicans have already said they’d vote for his nomination. But how many GOP senators he’ll get in all is still up in the air.

For his part, Wyden certainly made it clear before the Senate’s recess that he wanted to move quickly on the matter, and Democrats have every reason to press ahead without delay and get the IRS a Senate-confirmed commissioner in this key period for the agency.

The IRS did just blow past a deadline to get the Treasury Department an implementation plan for the $80 billion in funding that Democrats gave to the agency last summer. But just in general, Democrats are also going to want a long-term chief in place to steer the agency as it tries to use that money to better enforcement and taxpayer services, among other things.

Looking ahead: Late last week, Werfel returned written answers to a slew of questions that Senate tax writers weren’t able to get to during his confirmation hearing — some 75 pages in all.

Werfel’s answers weren’t always the most illuminating — he frequently said he’d make sure to take a deeper look at an issue if he’s confirmed.

But it can be interesting to see what kind of information senators from both parties are seeking. For instance, Sen. Mike Crapo of Idaho, the Finance panel’s top Republican, cast some doubt on a recent report that said that the IRS had answered close to 90 percent of calls this filing season.

Several Republicans also expressed a variety of concerns about the IRS’s handling of private taxpayer information, particularly given the lack of answers about how ProPublica obtained tax returns of the super-rich.

Meanwhile, multiple senators from both parties also lodged their concerns about a backlog of Employee Retention Tax Credit claims, while Wyden sought answers on the IRS’s efforts to sniff out wealthy tax cheats.

MORE ON THIS IN A BIT, but first thanks for coming back for more Weekly Tax. And, honestly: Let the human who hasn't gotten tangled up in a hammock throw the first stone.

Trying to keep it semi-upright: Today marks 59 years since the Italian government announced it was accepting input on how to keep the Leaning Tower of Pisa from falling down. (Still, it took another 35 years for work to actually begin on better securing the tower.)

We will definitely lean on you for more scoops.

Email: bbecker@politico.com, bfaler@politico.com, bguggenheim@politico.com and teckert@politico.com.

You can also reach us on Twitter at @berniebecker3, @tobyeckert, @brian_faler, @ben_guggenheim, @POLITICOPro and @Morning_Tax.

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Intuit TurboTax Live Tax Experts are advocates for taxpayers. They're the skilled tax professionals here to give each taxpayer personal attention and professional service. Located across the country, our proven tax experts help Americans better understand their unique tax situations so they can maximize their refunds and file confidently. This week, we interviewed members of our TurboTax Live Tax Expert team to find out why they love what they do. Here's what they said.

 

LET’S THINK BIG PICTURE: Most tax people around D.C. believe the biggest debate over the next three years could end up being, essentially, whether to extend the individual tax cuts from the GOP tax law for everyone or just for those making under $400,000 a year.

And with good reason: In all, that debate covers trillions of dollars worth of tax relief. But on some level, it’s also a pretty narrow discussion, because any talk of more fundamentally revamping the U.S. tax system has become secondary since Republicans passed the Tax Cuts and Jobs Act in 2017.

Within that context, the conservative-leaning Tax Foundation has released a fully fleshed out tax overhaul based on the system in Estonia, which the group consistently has found to have the most competitive tax code in the industrialized world.

The plan would install flat taxes of 20 percent for individuals and the distributed profits of businesses, while scrapping a wide range of tax breaks — including the incentives for mortgage interest and charitable contributions.

The Tax Foundation’s revamped system would keep the Child Tax Credit, and the group says the new system would be roughly revenue-neutral, boost long-run economic growth by quite a bit and dramatically reduce the costs of complying with the tax code.

William McBride, the Tax Foundation’s vice president of federal tax policy, spoke to Weekly Tax about the plan. The interview has been edited for length and clarity.

Why release this now?

We’ve seen it ourselves — there’s not nearly the level of emergency in tax that there was in the last Congress, because there was real legislative potential there.

It’s also why we’re doing it now, because this is more abstract than the congressional process. This is not likely to be taken up in this Congress. But it’s a way to step outside the day-to-day congressional process, and look at the bigger picture, which includes what worked in other countries.

Why is Estonia a good template for the U.S.? It’s much smaller, for instance, and doesn’t have the same size of government to fund.

Estonian officials have been told that over the years that this doesn’t translate to bigger economies. And when they ask why not, they’ve never gotten a good answer.

There’s no good reason that this doesn’t scale to bigger countries. Estonia has more than a million taxpayers, plus big companies, small companies, all kinds of industries, gig workers. They’re dealing with all the same kinds of things.

They’ve got people looking for tax advantages, loopholes. They’ve found that this is a very copacetic system. Much less controversy, much less confusion. It’s a picture of relative peace in tax.

Is it realistic to think that Congress would get rid of so many major tax breaks?

That’s the hard part — the peas you have to eat.

With state and local tax deductions, there was a half measure in 2017. That’s why this stuff is challenging — it was challenging for us to put forward this vision, to create enough benefits to offset those costs.

The state and local tax deduction — if it fully goes away, it hurts states with higher income taxes. But the economy is growing at a much higher clip overall and that redounds to all the states. It’s all those benefits that we highlight in the paper.

What would you say to critics who’d say this plan doesn’t concern itself enough with tax fairness?

I absolutely agree with those who say that fairness should be a very important criteria, if not the most important one in a tax system.

The question is, how do you define fairness? Distributionally, we looked at it both in static and dynamically — after economic growth, it does show that the top 1 percent really score big with this tax plan, in part because rates come down to 20 percent.

But that’s not the only measure of fairness. Another indicator of fairness is how comprehensible and understandable are our tax laws for the people without the time or resources to deal with the complications in the tax system.

Couldn’t you get a lot of the benefits of this plan without going to a full flat tax? 

The reason that Estonia chose the single rate is because they chose simplicity first. And they wanted, related to that, to avoid gaming of the system — the relabeling of income to get the preferential rate, and to make it fully integrated between the business side and the individual side.

The basic issue is you open up Pandora’s box for tax planning opportunities, and then this cat-and-mouse game of administrators trying to close it down.

 

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Around the World

Reuters: "Debate grows among Lula's team over Brazil fuel tax policy."

Reuters, also: "With eye on deficit, Malaysia's Anwar tightens spending, taxes the rich."

Financial Times: "Wind farm developers demand UK tax breaks to offset rising costs."

 

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Around the Nation

West Virginia Public Broadcasting: "Governor, Legislature Coming To Agreement On Tax Cuts."

Oregon Public Broadcasting: "Democratic lawmakers in Pacific Northwest steer pay-per-mile into slow lane to replace gas tax, eventually."

NJ.com: "More property tax relief, big N.J. public worker pension payment expected in new Murphy budget."

 

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Also Worth Your Time

Insider: "Inflation has cut the value of Americans' tax refunds by nearly $27 billion."

New York Times: "They Went Viral and Made Money. Now They Owe Taxes."

Tax Notes: "Proposed Regs on Crypto Brokers Could Be Issued Soon."

Did you know?

The Capital Gate in Abu Dhabi holds the world record for "farthest manmade leaning building."

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