Daily Tax Update - June 08, 2005

WAYS AND MEANS HOLDS TAX REFORM HEARING:
Today, the House Ways and Means Committee held the first in a series of hearings on recommendations to overhaul the tax code. Committee Chairman Bill Thomas (R-CA) said, "[B]efore the release of the Advisory Panel report and subsequently the Treasury Secretary's recommendations, this Committee, as the tax-writers in the House of Representatives, really needs to lay the groundwork and provide some degree of uniformity of comparison between approaches as we examine suggested changes in the tax code." Thomas continued, "We have seen significant changes since the last major restructuring of the tax code in 1986 and one of our witnesses will mention in his testimony that the complexity of the current system has caused taxpayers to spend 3.2 billion hours preparing their taxes in 2000.  Or we paid someone else to add to that 3.2 billion hours to prepare our taxes.  I think most people can find a more productive use of their time.  Of course, the compliance cost is very expensive - estimated as high as $135 billion.  If that's the truth, what we're saying is that it costs $1 in compliance costs for every $7 in Federal income taxes paid."

  • Thomas added, "A second priority that will be discussed is fairness.  Clearly, from an objective versus subjective point of view, this is as much as any in the ‘eye of the beholder.’  However, there are some metrics by which you can at least decide to judge the question of fairness.  I think this panel can be very helpful in providing choices even though you may choose from among those choices, at least we have a common knowledge base as we discuss what we mean by fairness.  I guess a fundamental one would be that similarly situated taxpayers should bear similar tax burdens.  Of course, the code is littered with preferences and disincentives, credits and deductions which make it difficult to truly compare in terms of fairness. And then although all of us would agree that it makes no sense to use taxes to fund the government raised in a way that discourages economic growth, there will be some discussion over whether or not certain types of taxes encourage economic growth or, in fact, don't have much effect. "
  • Thomas concluded, "I hope Members will listen to these discussions because once again although some people feel very strongly about a particular approach, it may be that the difference between different approaches, in terms of economic growth, aren't that much.  In some instances, I think there may be significant differences and we need to be aware of that as we take a look at something in the area of a trillion dollars that may be affected by particular options that we might choose that would be raised or not raised that would stimulate the economy or not stimulate the economy."
  • Additional testimony from the hearing can be accessed here.

TAX BILLS INTRODUCED JUNE 7:

  • H.R. 2755 sponsored by Rep. Robert Andrews (D-NJ) would provide for the income tax treatment of legal fees awarded or received in connection with nonphysical personal injury cases.
  • H.R. 2756 sponsored by Rep. Robert Andrews (D-NJ) would require the Secretary of the Treasury and the Commissioner of Social Security to disclose certain taxpayer returns and return information upon written request by an order from a State or local court in a family law proceeding.
  • H.R. 2757 sponsored by Rep. Robert Andrews (D-NJ) would provide an inflation adjustment of the dollar limitation on the exclusion of gain on the sale of a principal residence.
  • H.R. 2786 sponsored by Rep. Thomas Reynolds (R-NY) would provide the same capital gains treatment for art and collectibles as for other investment property and provide that a deduction equal to fair market value shall be allowed for charitable contributions of literary, musical, artistic, or scholarly compositions created by the donor.
  • S. 1178 sponsored by Sen. Mel Martinez (R-FL) would allow individuals a refundable credit against income tax for the purchase of private health insurance.
  • S. 1186 sponsored by Sen. Pete Domenici (R-NM) would provide the same capital gains treatment for art and collectibles as for other investment property and provide that a deduction equal to fair market value shall be allowed for charitable contributions of literary, musical, artistic, or scholarly compositions created by the donor.
  • S. 1192 sponsored by Sen. Ken Salazar (D-CO) would amend section 51 of the Internal Revenue Code of 1986 to expand the eligibility for the work opportunity tax credit to all disabled veterans.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE
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