More About Chuck Marr

Chuck Marr

Chuck Marr is the Director of Federal Tax Policy at the Center on Budget and Policy Priorities.

Full bio and recent public appearances | Research archive at CBPP.org


A Double Standard on Tax Compliance

February 13, 2015 at 1:23 pm

House Ways and Means Committee Chairman Paul Ryan suggested recently that Congress should expand the Earned Income Tax Credit (EITC) for childless adults and non-custodial parents and fully offset the cost by reducing EITC overpayments.  But he and other House Republicans voted today to permanently extend an expensive small-business tax break without offsetting the cost, such as by requiring any improved compliance in that part of the tax code — where the rates of error and loss to the Treasury far outstrip those for the EITC.  The IRS estimates that a stunning 56 percent of business income that individual returns should have reported went unreported in 2006, the latest year for which these data are available.

These developments highlight an egregious double standard in how lawmakers view tax compliance, depending on whether low-income working families or small businesses are at issue.

During a Ways and Means Committee hearing, Ryan praised the EITC’s proven effectiveness in promoting work and reducing poverty and alluded to his proposal to expand the tiny EITC for childless workers — the lone group that the federal tax code actually taxes into (or deeper into) poverty and a group that needs the EITC’s pro-work income boost and incentives.  Ryan’s proposal to expand the childless workers’ EITC is nearly identical to one from the President, which would seem to make it ripe for bipartisan legislative action.

But Chairman Ryan seemed to suggest the need to generate offsetting savings within the EITC to pay, on a dollar-for-dollar basis, for the EITC change.  To be sure, Congress can and should take important steps to reduce EITC errors, including:  1) providing the IRS more adequate funding for enforcement; 2) giving the IRS the authority to regulate paid tax preparers to ensure they meet basic competency standards (a majority of EITC errors occur on commercially prepared returns); and 3) enacting a battery of measures the Treasury has proposed to reduce EITC errors.  Yet Congress has cut IRS enforcement funding heavily since 2010.  It also has failed to approve the Administration’s request to empower the IRS to take steps to significantly reduce errors by commercial tax preparers.

Further, the Joint Tax Committee is understandably cautious about “scoring” various measures to reduce errors on tax returns, whether they concern the EITC or other parts of the tax code.  The combined scored savings from all known legislative proposals to lower EITC errors fall well short of the costs of expanding the EITC for childless workers.  This raises a concern that lawmakers could propose measures to cut the EITC for honest low-income working families and misleadingly promote them as cutting “fraud, waste and abuse” when that’s not what they would do.  Sadly, some members of Congress have done just that in the past.

The small-business legislation that the House approved today would make permanent a generous tax break (known as “Section 179” expensing) for certain small-business investments.  Business income on individual tax returns is, by far, the largest source of tax non-compliance with, as noted above, an estimated 56 percent of this income unreported in 2006.  This resulted in an estimated tax gap of $122 billion, more than four times the gap due to all individual income tax credits (including the EITC).

A dollar is a dollar, whether it’s spent subsidizing small businesses or supplementing the wages of a low-wage worker striving to get a toehold in the economy.  Policymakers should work to improve compliance throughout the tax code.  And they should stop applying double standards to the effort.

House GOP Restarts Effort to Make “Tax Extenders” Permanent

February 11, 2015 at 4:08 pm

The House is scheduled to vote tomorrow on the first of an expected series of bills to make permanent many large “tax extenders” — tax breaks, mostly for corporations, that policymakers routinely extend a year at a time — without offsetting the cost.  Tomorrow’s bill would make popular charitable-related tax provisions permanent, which many lawmakers support on policy grounds.  But, as our paper explains, doing so now without offsetting the costs would open the door for making other, costlier extenders permanent.  Making all of the extenders permanent would cost $473 billion over the next decade (see graph).

Ways and Means Committee Chairman Paul Ryan has made clear that House Republican leaders are simply “picking up where we left off last year,” when the House passed a series of permanent tax-extender bills, along with a bill to expand and permanently extend the “bonus depreciation” tax break, without offsetting any of the cost.  The President and many House members opposed that effort, and the President has properly threatened to veto tomorrow’s bill to make permanent the charitable provisions that Ways and Means approved last week.

Making the extenders permanent without paying for them would:

  • Undo most of the savings from recent deficit-reduction legislation. Together, last year’s House-passed measures would have given back nearly three-quarters of the revenue raised by the 2012 “fiscal cliff” legislation.  The seven bills that Ways and Means has already approved in 2015 begin the same process anew, costing $85 billion over 2016-2025.
  • Bias tax reform against reducing deficits.  Policymakers are expected to attempt corporate tax reform this year.  If they make the extenders permanent in advance of tax reform, a reform plan wouldn’t have to offset the extenders’ cost to be considered revenue neutral.  This would free up hundreds of billions of dollars over the decade that policymakers could use to lower the corporate tax rate more sharply or close fewer dubious corporate tax breaks, while still claiming revenue neutrality.  The result would be much larger deficits than under revenue-neutral corporate tax reform that pays for any extenders it keeps.
  • Place corporate tax extenders ahead of other, more critical tax provisions slated to expire. Most notably, if key elements of the Earned Income Tax Credit and Child Tax Credit for low-income working families expire as scheduled at the end of 2017, more than 16 million people in low-income working families, including 8 million children, would fall into — or deeper into — poverty.  Some 50 million Americans would lose part or all of their credits.  A growing body of evidence links income from these credits to improvements in children’s health, educational attainment, and employment and earnings later in life.

Obama Budget Would Restore Much-Needed IRS Funding

February 3, 2015 at 1:22 pm

The President’s fiscal year 2016 budget would reverse a large share of the Internal Revenue Service (IRS) funding cuts of recent years, which have shrunk overall IRS funding as well as funding to enforce the nation’s tax laws by nearly one-fifth.  While the boost would still leave IRS funding 5 percent below 2010 levels, after adjusting for inflation, it would restore cuts to taxpayer services and bolster efforts to go after tax cheats.

The IRS performs a vital function — collecting the revenue that pays soldiers’ salaries, provides medical care for the elderly, and meets the many other financial commitments Congress has made.  Repeated funding cuts undermine its ability to do its job.

The early signs of how funding cuts have weakened the agency this filing season are disturbing.  To cite just one example:  over half of taxpayer calls to the IRS this year will go unanswered, National Taxpayer Advocate Nina Olson estimates, and those who get through will wait an average of 30 minutes.

Also, reports from the Treasury Department Inspector General for Tax Administration and Government Accountability Office have made it clear that underfunding the IRS hurts honest taxpayers.

Because the U.S tax system relies on taxpayers to report their income and pay the appropriate tax, it depends on a high degree of trust between taxpayers and government that has lasted many, many decades.  The declines in taxpayer services and enforcement resulting from budget cuts weaken that trust and could corrode compliance over time.  An example of how the cuts are beginning to seep into mainstream culture is a recent Bloomberg story headlined “2015 Is the Best Year Yet to Cheat on Your Taxes:  Budget cuts at the IRS mean longer phone waits — and fewer audits.”

The President’s budget recognizes the serious stakes at hand and restores a significant share of those cuts.

Paul-Boxer Repatriation Tax Holiday Can’t Pay for Highways

January 29, 2015 at 4:48 pm

Senators Rand Paul (R-KY) and Barbara Boxer (D-CA) just proposed a “repatriation tax holiday,” which would allow U.S.-based multinational corporations to bring profits they hold overseas back to the United States at a temporary, vastly reduced tax rate.  They claim it would not only “boost economic growth and create jobs” but also raise revenues to pay for extending the Highway Trust Fund.  In reality, it wouldn’t do either.

A repatriation holiday enacted a decade ago proved a dismal economic failure.  As our paper explains, a wide range of studies — by the National Bureau for Economic Research, Congressional Research Service, Treasury Department, and outside analysts — found no evidence that it produced any of the promised economic benefits, such as boosting jobs or domestic investment.

Moreover, a repatriation holiday would lose billions of dollars after the first two years, so it can’t “pay for” highway construction or anything else.  A new repatriation holiday would lose $96 billion over 11 years, the Joint Committee on Taxation (JCT) estimated last year (see graph).  The Paul-Boxer proposal has a somewhat higher “holiday” tax rate on those overseas profits than the one JCT analyzed (6.5 percent versus 5.25 percent) so it might lose less revenue.  But it wouldn’t raise money.  And it would make our long-term fiscal challenges harder.

A repatriation tax holiday would boost revenues in the first couple of years, as companies rushed to take advantage of the temporary low rate.  But it would bleed revenues for years and decades after that.  As JCT explained, the biggest reason is that a second holiday would encourage companies to shift more profits and investments overseas in anticipation of more tax holidays, thus avoiding taxes in the meantime:

A second repatriation holiday may be interpreted by firms as a signal that such holidays will become a regular part of the tax system, thereby increasing the incentives to retain earnings overseas rather than repatriating those earnings and to locate more income and investment overseas.

To be clear, a repatriation holiday is very different from a transition tax on overseas profits, such as the proposal from former House Ways and Means Chairman Dave Camp.  Any future corporate tax reform package would likely include a transition tax on existing foreign profits to clean the slate of existing tax liabilities.  But a transition tax would be mandatory:  multinationals would have to pay U.S. taxes on their foreign profits whether they repatriate them or not.  By contrast, under a repatriation tax holiday, companies choose whether to repatriate their earnings, and the tax rate would be set extremely low to incentivize them to do so.

Also, a transition tax would be coupled with reforms to reduce or eliminate companies’ incentive to stockpile profits overseas — whereas another repatriation holiday would encourage firms to stockpile profits offshore, as noted above.

For these reasons, a well-designed transition tax — unlike a repatriation holiday — would reduce deficits, not raise them.

Working-Family Tax Credit Essentials, Part 5: The Impact in Your State

January 27, 2015 at 4:08 pm

Previous posts in this series on our new chart book have explained that the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC):

Our chart book also includes fact sheets with by-state data on how the EITC and CTC reduce poverty, who benefits, and how state EITCs can supplement the federal credit.  The fact sheets also give state-specific data on the impact of making the key EITC and CTC provisions permanent and of strengthening the EITC for childless adults.  Click on a state below for its fact sheet.