Congress Rebukes Trump on Border Emergency Again

Congress Rebukes Trump on Border Emergency Again

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Plus, what tax cheats (and mistakes) cost the IRS
Friday, September 27, 2019

Congress Again Rebukes Trump on Border Emergency, Setting Up Another Veto

The House on Friday voted to terminate President Trump’s declaration of a national emergency at the southern border, rebuking the president on the issue for a second time this year, but again falling short of the margin needed to override another expected veto.

The resolution, approved by the Senate on Wednesday, passed the House 236 to 174, with 11 Republicans and one independent joining all Democrats in supporting the measure. It would block the president from bypassing Congress and shifting Pentagon funds for construction of barriers along the border. Democrats say that Trump is undermining national security priorities to build an expensive and ineffective wall. Republicans counter that Democrats forced Trump to act by refusing to fund his border security priorities.

Congress passed the same measure earlier this year, but Trump vetoed it in March and the House failed to override his veto. Since that vote, the Pentagon put out a list of the $3.6 billion worth of military projects that were being canceled or put on hold as a result of Trump’s shifting of funds. That added some pressure on lawmakers who back Trump’s declaration even as their districts lose money because of it, but it failed to make much difference in the vote tallies.

Under the national emergencies law, Congress can bring up a vote on Trump’s declaration every six months.

What Tax Cheats (and Mistakes) Cost the IRS

The Internal Revenue Service on Thursday said that the annual “tax gap,” the difference between federal taxes owed and the amount actually collected, averaged $441 billion from 2011 to 2013. Of that amount, an estimated $60 billion a year is eventually collected, leaving a net shortfall of $381 billion a year — or about 14% of total taxes owed.

The agency estimated that $352 billion of the gross tax gap was the result of underreporting income, while $50 billion was due to underpayment and $39 billion was due to taxpayers not filing returns.

The latest figures are not markedly different from the agency’s revised estimates for 2008 through 2010, showing that the gross tax gap for those years was $394 billion and the net gap was $344 billion. Factoring in collections after enforcement efforts, the estimated share of taxes eventually paid is about 86% for both three-year periods, which is roughly in line with earlier estimates as well.

"Voluntary compliance is the bedrock of our tax system, and it's important it is holding steady," IRS Commissioner Chuck Rettig said in a statement. "Tax gap estimates help policy makers and the IRS in identifying where noncompliance is most prevalent. The results also underscore that both solid taxpayer service and effective enforcement are needed for the best possible tax administration."

Where the gap is largest: Third-party reporting and tax withholding are major drivers of voluntary tax compliance, the IRS says. The W-2 forms employers provide to the agency on wage earners make it harder for individuals to cheat and easier for the IRS to catch taxpayer mistakes. The IRS says that just 1% of income amounts subject to “substantial information reporting and withholding” is misreported. But for income subject to little or no reporting — such as that earned by proprietors of cash businesses — the rate of misreporting is 55%.

Putting the gap in perspective: The federal budget deficits in the years covered by the latest IRS report, 2011 through 2013, were $1.3 trillion, $1.1 trillion and $680 billion, so shrinking the $381 billion tax gap — it’s unrealistic to expect it to be eliminated completely — would have still left sizable deficits in at least two of the years. Even so, the net tax gap represents a sizable chunk of the $808 billion spent on Social Security in fiscal year 2013 or the $626 billion spent on defense and $492 billion spent on Medicare that year. And it’s larger than the $265 billion spent on Medicaid and the $221 billion paid in net interest costs.

Projecting the 2011-2013 numbers out — accounting for growth in the tax base and assuming all underlying ratios remain constant — Bobby Kogan, a Senate Budget Committee staffer, calculates that the tax gap for 2020 would be $615 billion and the total over the next decade will reach $7.8 trillion.

Boosting the IRS budget: The agency has seen its funding cut in recent years, with 2018 appropriations about 20% lower in inflation-adjusted dollars than the peak reached in 2010, and it has reduced both its workforce and audit rate over that time. It’s not yet clear how those cuts might have affected the tax gap in the years since 2013. More recently, lawmakers from both parties have sought to increase IRS funding and shrink the tax gap. The Senate Appropriations Committee this month advanced a proposal to boost IRS enforcement funding by $200 million.

For more details, check out the tax gap map on the IRS website.

4 Lessons from the Tax Cuts and Jobs Act So Far

Most tax experts agree that it’s too soon to make any final conclusions about the Tax Cuts and Jobs Act, which has been in effect for less than two years and contains provisions that seek to influence business investment over a fairly long time horizon. Nonetheless, a handful of recent analyses suggests the law has been something of a disappointment so far and that many of the claims made about it by Republican lawmakers and the Trump administration were overblown.

Here’s a roundup of reviews and comments from this week:

Possible improvements for multinational corporations, but a lot of hype, too: Writing as part of a series sponsored by the American Enterprise Institute, Kyle Pomerleau of the conservative Tax Foundation says that while the TCJA took some much-needed steps toward improving the international provisions of the tax code, the economic results aren’t in yet, so it’s hard to say what impact those changes are having.

The TCJA may have reduced the motivation of U.S. corporations to invert, or move their headquarters out of the country, Pomerleau says, but the law is somewhat contradictory in that regard, and includes features that may push some firms to move elsewhere. Similarly, the law included provisions that may reduce the gains for firms that shift profits to overseas subsidiaries, but other provisions may make such a move more attractive.

One thing that is clear, according to Pomerleau, is that one of the biggest promised payoffs touted by the bill’s supporters — a massive influx of job-creating money held by U.S. firms abroad — was almost certainly oversold. Pomerleau writes: 

“President Trump argued that the repatriation provision would encourage companies to bring back trillions of dollars that were locked overseas to invest in the United States and create jobs. Unfortunately, there was no reason to expect that repatriation would lead to increased domestic investment. Deemed repatriation represented a retroactive change in policy and didn’t change investment incentives going forward.”

Moving to the new international tax system “is unlikely to boost investment” domestically, Pomerleau adds.

Few benefits for workers: The GOP tax cuts are “not trickling down” to ordinary workers, according to Galen Hendricks, Seth Hanlon and Michael Madowitz of the liberal Center for American Progress. The Trump administration promised wage increases of at least $4,000 a year, and as much $9,000, but that bonanza is nowhere to be seen, they say, and few expect to see it any time soon. In addition, the much-ballyhooed bonus payments given to workers after the tax bill was signed in late 2017 were largely illusory, they argue, citing an analysis by the non-partisan Tax Policy Center.

“While the effects of a very large tax overhaul will take years to fully develop and analyze, the evidence from the first two years suggests that corporate tax cuts are draining revenue from the U.S. Treasury while doing little that would ultimately benefit U.S. workers,” the authors write. “Instead of trickling down to workers, the 2017 tax cuts have largely served to line the pockets of already wealthy investors—further increasing inequality—with little to show for it.”

Tax cuts don’t reduce the deficit: The liberal advocacy group Americans for Tax Fairness tweaks Treasury Secretary Steven Mnuchin for his claim back in 2017 that the TCJA would “cut down the deficits by a trillion dollars.” Rather than falling, deficits are rising rapidly and are expected to top $1 trillion next year, with the tax cuts playing a significant role in the revenue shortfall.

“Mnuchin’s prediction was off by $1 trillion,” says Frank Clemente, executive director of Americans for Tax Fairness.

But the TCJA sure was good for corporate profits: Aaron Sojourner, an economist at the University of Minnesota who served on the Council of Economic Advisers for Presidents Obama and Trump, says after-tax corporate profits rose 8.8% in the wake of the TCJA, and have remained at roughly that level ever since. Pre-tax profits rose by less than half that amount, Sojourner says, indicating that the TCJA provided an enormous windfall to company owners, without requiring any change in their behaviors.

Is Infrastructure Week Finally Over?

There’s little hope of passing an infrastructure package before 2021 given the lack of leadership on the issue, says Rep. Rodney Davis, a Republican from Illinois who serves as the ranking member on the House Transportation and Infrastructure Subcommittee on Highway and Transit.

“We’re already past the point of doing a separate infrastructure bill,” Davis told The Hill Thursday. “If folks were serious about that at the leadership levels, and the White House levels, that would have had to be done by August.”

There may be hope for a smaller and less ambitious bill addressing highways and other surface transportation, Davis said, but this week’s impeachment developments may make even that hard to accomplish.

“So as we move into the surface transportation debate, I hope it doesn’t get sidetracked,” Davis said, “but history shows us that impeachment will suck the energy and the air out of everything out here in Washington.”

Your Prize for Making It Through the Week

From a graveyard for discontinued Ben and Jerry’s ice cream flavors to an octopus that changes colors while sleeping, the Twitter feed 41 Strange (@41Strange) has been proving a nice distraction from the news lately, if for some crazy reason you should be interested in that.

A programming note: We’ll be off Monday and back in your inboxes Tuesday. Have a great weekend and a happy and healthy Jewish New Year!

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