Daily Tax Update - August 28, 2014: CBO Releases Update to Budget and Economic Outlook

CBO Releases Update to Budget and Economic Outlook – Forecast Reduction in Corporate Tax Receipts Partially Due to Inversions and Increased Use of Passthroughs:  The Congressional Budget Office (CBO) released yesterday an update to its budget and economic forecasts for fiscal year 2014 and for the coming decade.  Although corporate income tax collections for 2014 were still expected to increase by 15% this year as compared to 2013 (primarily due to the expiration of bonus depreciation and other tax benefits at the end of 2013), estimates of collections were down from prior forecasts released in April.  According to the report, corporate income tax receipts are also projected to decline relative to the size of the economy after 2017 largely because of an expected drop in domestic economic profits relative to GDP as a result of growing labor costs, rising interest payments on businesses’ debt, and increasing depreciation deductions from a changing composition of business capital.  CBO Director Douglas Elmendorf added, in a press briefing on the update, that corporate base erosion, caused by inversions and increased reliance on S corporations, would also be responsible for the decline.  The CBO report also forecasted the cost of passing tax extender legislation, which it pegged at $897 billion dollars over the course of a decade.

The report may be accessed here.

IRS Releases EITC Compliance Report:  The IRS released yesterday a study on taxpayer compliance when claiming the Earned Income Tax Credit (EITC) in tax years 2006 through 2008.  The IRS found no discernible change in the overall tendency for noncompliance between 1999, when a similar study was last carried out, and 2006–2008.  Nevertheless, estimates of noncompliance were still quite significant, with an estimated 28.5–39.1% total dollars overclaimed as a percent of total dollars initially claimed for EITC on taxpayer returns, amounting to $14 billion to $19.3 billion in total dollars overclaimed. Misidentification of qualifying children accounted for the largest dollar amount of overclaims, while misreporting income was the most common error.

The report may be accessed here.