February 2001

National

National Clinton Says Budget Surpluses May Run for Decades

Former President Clinton said in January before leaving office that the United States could see budget surpluses for decades and recommended these excess funds be used to pay off outstanding debt.

“The federal budget will remain in surplus for many decades to come, if a responsible fiscal policy prevails,” Clinton wrote in a letter attached to the Office of Management and Budget’s economic outlook.

The OMB’s outlook repeated earlier White House projections that the surplus for fiscal years 2001–2011 would reach about $4.997 trillion under Clinton’s tax and spending policies, or about $1.9 trillion excluding Social Security, according to a Reuters story.

After factoring in extensions of expiring tax breaks and other spending measures routinely renewed by Congress, the surplus for fiscal years 2002–2011 would be reduced to $1.6 trillion excluding Social Security, Reuters reported.

IRS Facilitates Withdrawal of Retirement Funds

The IRS has modified the rules for withdrawing funds from retirement plans.

The new regulations make it easier for retirement plan owners to determine their life expectancies by following one simple method of calculation and allow plan owners to switch beneficiaries, according to a story in USA Today in January.

“American families will do better under the new rules,” said IRA specialist Ed Slott. “If you can take out less, you will pay less in tax, and that leaves more money to build up in the estate for your beneficiaries.”

The regulation changes will be finalized in 2002 following public hearings.

Lawyers and Financial Advisors the Focus of Tax Shelter Crackdown

In one of his last bids before leaving office, former President Clinton pushed to complete a proposal that would tighten restrictions on lawyers writing letters that make legally questionable tax shelters sound legitimate.

Clinton targeted lawyers who writeopinion letters which aim to shield taxpayers using tax shelters from IRS underpayment penalties. Such letters, reports The Wall Street Journal, have been written by some top tier law firms in recent years.

Accountants and attorneys may eventually face greater restrictions and higher ethical standards when advising their clients on the use of tax shelters, as the Treasury Department has also proposed a ban on contingency fees awarded on the basis of whether a particular tax shelter meets IRS standards. The Treasury proposal also required that all consultants base their opinions as to whether or not a specific transaction will comply with IRS regulations on facts rather than assumptions, said the Associated Press. The Treasury Department has also proposed that firms be required to institute compliance procedures.

“Abusive tax shelters are the most serious compliance problem in the U.S. tax system,” said former Treasury Secretary Lawrence Summers. “The proposed measures would deter the purveyance of these shelters, protect the integrity of our tax system, and, ultimately, reduce the tax burdens of honest taxpayers.’’

The U.S. government loses billions of dollars to corporate tax shelters each year.

No Paperwork Required for E-Filers

The IRS will not require electronic filers to submit any additional paperwork when they file their taxes this spring.

According to a Wired News story, 2001 e-filers will not have to send in a hard copy signature form to confirm their identities as they did in 2000. Instead, they will be able to create their own individual personal identification number (PIN) online. However, in order to confirm the PIN, taxpayers will have to provide the figures of their adjusted gross income and 2000 return.

For IRS Commissioner Charles Rossotti, the new identification system is more logical than the previous one.

“People made fun of us: ‘You’ve got electronic filing, but then you’ve got to file a piece of paper.’ It didn’t make a lot of sense,” Rossotti said.

Rossotti also stated that he believes it would not be too much of an inconvenience for people to have to dig out their 2000 returns, since such information is supposed to be kept for a decade, and that there were advantages to e-filing, such as getting a faster refund and receiving confirmation that the return is in the IRS’s possession.

E-filers receive their tax refunds over twice as fast as those who file paper returns.

Ending Marriage Tax Priority for New Republicans in the House

Eliminating the marriage tax is at the top of the list for new House Republicans on Capitol Hill, according to published stories.

According to a CNN story, these new representatives believe that the marriage tax, which affects approximately 25 million couples, is patently unjust.

Rep. Rob Simmons (R-Conn.) asked reporters “why, when you get married, should your taxes be going up? It doesn’t generate enough revenue to be significant.”

Former President Clinton vetoed a bill backed by Republicans to eliminate the marriage tax last year on the basis that doing so would be too costly and would primarily benefit the wealthy.

State and Local

Pataki Backs County Tax Breaks

New York Gov. George Pataki announced his support of a $230 million property tax cut that would help farmers and older taxpayers, during his state of the state address in January.

Pataki’s proposal, known as Co-STAR, would save farmers an average of $200 and taxpayers age 65 and over an average of $300 in county taxes per annum.

“With Co-STAR, we can build on the tremendous success of our STAR program by providing county property-tax relief to those who need it most—seniors and farmers,”

Other states, however, are less optimistic about tax cuts, warning that they may become less plentiful in the coming fiscal year as compared with those of recent years, according to a report released in January by the National Conference of State Legislatures.

The report cited rising Medicaid costs, lower revenues from sales taxes, and the slowing national economy as reasons that some states may soon be forced to consider restricting spending and limiting tax cuts.

“Signaling a possible shift away from the tax cutting fever of the past six years, 20 states report that tax cuts are likely to be considered in 2001 legislative sessions (compared with 31 states that cut taxes in 2000).… A half dozen states also will consider tax increases for specific programs. Overall, tax cuts are expected to exceed any increases, so the net state tax change is likely to be a reduction, although not of the magnitude seen in recent years,” the NCSL report stated.