by | ARTICLES, BLOG, FREEDOM, OBAMA, POLITICS, TAXES
John Koskinen has failed the IRS and the American people. Should he resign?
IRS Commissioner John Koskinen testified last week about the missing emails lost forever due to computer failures. When questioned about any more crashes or computer issues recently, Koskinen told the House Oversight and Government Reform subcommittee that “Hard drive crashes continue as we speak.”
Can someone please buy the IRS reliable computers and a backup system?
Don’t forget, the IRS canceled the back-up contract service that they had for six years, shortly after Lois Lerner’s original hard drive went missing. Koskinen was forthcoming during the hearing that no backup system currently exists: “There is no system outside the IRS, government or otherwise, that the IRS uses to back up or store emails,”.
On the other hand, there was also no mention if the IRS is complying with the law that states it must keep copies of all data; it apparently hadn’t been routine practice during the time of the IRS scandal actions, so there are no assurances that it is being followed now. That is a travesty.
Koskinen also admitted that “if the agency destroyed records then ‘that was an act not consistent with the law’ but said, ‘There’s no evidence that there were records destroyed.'”.
Notice he didn’t state that “The IRS didn’t destroy records” because then it would logically follow by his own admission that the IRS would have engaged in an act “not consistent with the law”. However, Koskinen chose his words carefully when he stated “there’s no evidence that there were records destroyed” — of course there is no evidence, because it is all missing. He further reiterated this position of “non-destruction”, when he stated, “I never said they disappeared, I said they were recycled.” Because “recycling” equipment and information that is irretrievable isn’t “destruction”.
Lastly, “Koskinen also admitted that IRS employees routinely use personal email accounts to conduct agency business but maintained that ‘they do it inadvertently.'” But how can someone do something “routinely” but also “inadvertently”? Of course, it makes no sense. Don’t forget, the email game is the same practice seen with the former EPA chief Lisa Jackson last year; the IG report found that the personal email use for agency business was indeed rampant among EPA employees. Since the IRS clearly engages in the practice as well, one can only conclude that this probably not “inadvertent” from an agency of the “most transparent administration ever.”
John Koskinen was confirmed by the Senate to head the IRS on December 20, 2013. In the nine months that have followed, he has done virtually nothing to restore the trust of the agency to the American people. As the testimony above freely evidences, Koskinen is aware of many issues and irregularities — such as no backup system and use of personal emails — and yet he has yet to crack down on practices or implement stringent rules among his employees. His leadership has been derelict; his attitude abysmal. American deserves better.
by | ARTICLES, FREEDOM, GOVERNMENT, OBAMA, POLITICS, RETIREMENT, TAXES
Pension reform needs to begin in the public sector. it is clear that a wide gulf between funding and compensation exists. When pointing out the fact that the majority of federal and state public employees are overcompensated, the response is typically that “these amounts were promised”. But with most budgets now currently running severely in the red, addressing the compensation question is the key to solving major deficit dilemmas across the country. We need to analyze how we got here from two perspectives: 1) what was promised and 2) who promised it.
For localities that want to achieve solvency, it is essential to find out foremost exactly what was really and contractually promised to the public workers and for how long. An executive or union member works under a contract that exists for a specific time period. Their obligation is to provide their services in return for certain compensation and benefits during that time. But that’s it — they are only covered for the period of the current contract.
This point is important because there really can be no part of a negotiated contract that promises any compensation or benefits for services rendered after the end of the contract period; otherwise, the locality runs the risk of runaway financial obligations for which it cannot properly budget and it was not binding future governments not yet in office.
Therefore, if accruals to a defined benefit retirement program to a public service employee have been contracted for, the benefit accruals earned by that employee during the period of the contract can’t be taken away. However, unless a new contract specifically continues that same program into that next contract, the employee should not be entitled to any additional accruals.
Unfortunately, it is apparent that this simple concept has typically not been followed during the vast majority of contract negotiations in the public sector. If it had, negotiators for management would have long discontinued offering the out-of-control defined benefit plan.
Such dereliction is part of the reason that it’s necessary to examine the second point – “who promised it”. It is evident that serious research needs to be done in localities into who it was that negotiated such overgenerous contracts. Ultimately, negotiators have a fiduciary responsibility to the taxpayer not to pay more than fair compensation, thereby restricting compensation and benefits to amounts no greater than what those skills would command in the private sector. Valuable (and expensive) benefits such as job security must be factored in as an element of compensation paid to public sector employees.
Contrast how negotiations are performed in the private sector. The profit motive there keeps compensation at levels where economic forces show to be appropriate (i.e., the point where people generate results that justify its cost). This reflects economically rational “fair” compensation levels. But because the public sector does not have these economic forces to keep compensation levels in check, it is incumbent upon the public negotiators to do so properly. Failing to properly negotiate has created the soaring budget deficits we are experiencing.
There truly is a fundamental difference between private sector “management” and those doing the negotiating in the public sectors. In the private sector, the negotiator — either personally or the company who pays their merit based salary — will suffer serious financial damage if they offer their work force too much, because they will be unable to compete with their competitors in the marketplace.
On the other hand, there are no such competitive inhibitions in the public sector and therefore the negotiation routine lacks the incentive for restraint. Even worse, in most cases, the self-interest of the public sector negotiator is more directly aligned with the union that can get him elected rather than the taxpayer whom he is representing. This is a true case of the fox in charge of the hen house.
Examining the contract process in the public sector will provide an opportunity for fiscal reform. This will ensure that no public sector worker be paid more in any new contract then what those services warrant, without regard to what the prior contract provided. Most importantly, once a contract ends there is nothing on the table. There is nothing to prevent any new contract from offering less that the prior contract, especially where pay and benefits of the prior contract were out of line.
Even though it may be politically difficult and unpalatable, anybody representing the taxpayers has an obligation to those taxpayers. Those who breached the public trust with mismanagement should be held accountable. Budget reform and deficit reduction will naturally follow once compensation levels have been stabilized and brought in line with their private counterparts.
by | ARTICLES, BUSINESS, ECONOMY, GOVERNMENT, OBAMA, POLITICS, TAXES
The government is still running more than a half-trillion dollar deficit right now, with one month left to go in the fiscal year, despite record revenue being hauled in.
CNSNews reports that “Inflation-adjusted federal tax revenues hit a record $2,663,426,000,000 for the first 11 months of the fiscal year this August, but the federal government still ran a $589,185,000,000 deficit during that time, according to the latest Monthly Treasury Statement.”
Thus, the government is still over-spending, to the tune of $3,252,611,000,000 in total expenses so far this year.
Here’s the breakdown of revenue:
Individual income taxes: $1,233,274,000,000
Corporate income taxes: $247,200,000,000
Employment and general retirement (off-budget): $674,338,000,000
Employment and general retirement (on-budget): $209,281,000,000
Unemployment insurance: $54,591,000,000
Other retirement receipts: $3,155,000,000
Excise taxes: $73,051,000,000
Estate and gift taxes: $17,702,000,000
Customs duties: $30,902,000,000
Miscellaneous receipts: $119,933,000,000
So just remember, the problem isn’t enough tax revenue or underfunded programs — it’s that the government can’t seems to stay on budget or within its revenue receipts. All this overspending does is just continue to add to the growing deficit.
by | ARTICLES, CONSTITUTION, GOVERNMENT, OBAMA, OBAMACARE, POLITICS, TAXES
Thanks to the folks over at CATO, we have a video of the current IRS Commissioner John Koskinen, speaking before the Ways and Means Health Subcommittee early this week. He was being questioned about taxes and Obamacare, and asked about subsidies being repaid.
Chairman Brady said, “The law in that case is that there is not a cap. Subsidies must be repaid. Will you be following the law in that recapture?”
Koskinen replied, “Yes, wherever we can, we follow the law.”
In other words, following the law is a “can”, not a “must”.
With regard to Koskinen’s remarks, Forbes had an interesting observation:
“Numerous Treasury and IRS staffers have told investigators from the House Committee on Oversight and Government Reform that they knew back in 2011 that the Patient Protection and Affordable Care Act didn’t authorize them to issue health-insurance subsidies through Exchanges established by the federal government. But they did so anyway. (And now they’re in court.) The Wall Street Journal‘s Kim Strassel writes about it here.
Given that context, Koskinen’s remark seems like an admission that the IRS sees the law more as a set of guidelines”.
Indeed. I wonder if anyone was to get audited by the IRS, that they could use the phrase “Wherever we can, we follow the law” successfully in their defense.
by | ARTICLES, BLOG, ECONOMY, OBAMA, POLITICS, TAXES
At least you can say Bernie Sanders is ideologically consistent. The self-proclaimed socialist unabashedly declared on Saturday that “we need a tax system which asks the billionaire class to pay its fair share of taxes and which reduces the obscene degree of wealth inequality in America.” It was particularly fitting that the speech was at an AFL-CIO convention.
Over on his Senate page, Sander’s posted his proposal — “a progressive estate tax on the wealthiest Americans”:
“For those who would pay more, the tax rate on estates valued from $3.5 million to $10 million would be 40 percent. There would be a 50 percent tax on estates worth $10 million to $50 million and a 55 percent levy on estates worth more than $50 million. A 10 percent surtax would be applied on estates worth more than $1 billion, a category that today includes fewer than 500 American families. The bill also would close estate tax loopholes that have allowed the wealthy to avoid an estimated $100 billion since 2000.
His rationale? Sanders said that this is “the fairest way to reduce wealth inequality, lower the $17 trillion national debt and pay for investments in infrastructure, education and other neglected national priorities.”
Notice he said fairest — not most efficacious — way to reduce wealth inequality. Because the actual amount raised on such a tax will be negligible for any real deficit reduction, hopefully such a foolish proposal will never be implemented.
Unfortunately, with any sort of supertax, the truest and most invisible effects will be felt in the economy. The confiscatory nature of a high estate tax is among the worst offenders. “The economic incidence of the death tax is far broader, because it causes many wealthy individuals to save less, choosing instead to retire early or, as Milton Friedman put it, “dissipate their wealth on high living.” This reduction in savings means a concomitant reduction in investment, lessening the flow of capital to businesses and organizations where countless ordinary Americans are employed.”
And yet, Sanders sees nothing “obscene” about the another kind of wealth inequality: the salary and benefits of Congress, which, at $286K, is about 95% greater than what average Americans earn. Or still yet, another kind of wealth inequality: the $17 trillion government debt and spending problem that he is purporting to fix by his punitive tax proposal.
by | ARTICLES, ELECTIONS, GOVERNMENT, OBAMA, POLITICS, TAXES
The idea of “disparate impact” is a cancer that has taken root in the business world. If we do not focus on substantially curbing or ending it, it will continue to grow, extorting huge sums from innocent companies, creating an enormous economic burden on society, and allowing the tort bar to run amok.
There are many areas in business where charges of “discrimination”, often regarding race, could and are being made every day. Employment and mortgage origination are two of the most prevalent. The law requires – as it should -that for a company to be guilty of such discrimination, there must be an intent to discriminate.
But government agencies have found a way to overrule that requirement by developing the idea of “disparate impact”. Disparate impact is the concept which allows if a protected class of citizens has a statistically lesser representation with respect to a business (hiring, mortgages origination, etc) it may be implied that the business has intentionally discriminated — because there is an adverse impact as a result. This is clearly irrational, since there may be many economic, societal, and local reasons for the particular statistical representation. Unfortunately, disparate impact puts the burden to show lack of discrimination on the employer, meaning he is guilty until proven innocent. In fact, in order for an employer to defend himself against such a charge, he would have to show that the “offending rule or practice” was a “business necessity”.
Though I find this concept outrageous, the federal and state governments and their agencies seem to love it lately. I therefore believe that they should be equally adamant in applying the concept of disparate impact in the public sector.
The IRS scandal has shown the clear practice of targeting conservative groups applying for 501c4 status (despite the subsequent cover up). By applying disparate impact theory to this situation, the charge of intentional discrimination would most certainly apply because there is no “business necessity” in the policy the IRS employed.
The Obama administration, having complete control and responsibility for the Department of the Treasury and its Internal Revenue Service is therefore guilty of such intentional discrimination. In particular, President Obama’s specific response, that there has been no evidence that anyone directed anyone to intentionally target conservatives, does not insulate him from being actually guilty.
The current administration has been keen on applying disparate impact theory to a number of private companies, and appears intent on ramping up the practice. For example, Obama’s labor secretary pick, Thomas Perez, has been particularly lucrative in this regard. Last summer, National Review Online (NRO) covered some of Perez’s cases in recent years, noting that Perez “has applied that theory vigorously to force large settlements from financial companies even in cases where there was no evidence of actual racial discrimination”. In other words, employers can be sought after for violating the law whether or not they intended to do wrong.
The White House in general, and Perez in particular, like disparate impact theory because it, as NRO notes, it “sets a very low bar for proving discrimination. Under it, prosecutors need not prove intent, merely that minorities have suffered a disparate impact from some action”. And this is a person Obama added to his Presidential Cabinet.
If disparate impact can be applied to the private sector, it should also — in the spirit of fairness and equality, of course — be applied to the IRS. Particular groups were adversely singled out and subject to excessive, burdensome, and overreaching scrutiny; of this we are certain. The targeting of conservatives was a concerted effort to slow down or dissuade the creation of their tax-exempt groups. Even if we no longer have tangible evidence of a White House link because of lost, missing, or destroyed emails and Blackberrys, it doesn’t really matter anyway under disparate impact theory. Intent needs not to be proved in court; merely the act of discrimination is enough.
Based on the White House’s unmitigated belief of their ability to use disparate impact against companies for questionable practices, the rule should be applied to the IRS for its questionable practices as well. Since the IRS falls directly under the purview of the Executive Branch, why is the President of the United States therefore not directly responsible and culpable for the IRS abuse?
by | BLOG, ECONOMY, GOVERNMENT, OBAMA, POLITICS, TAXES
In a moment of recent hand-wringing, the Fed examined the question of why inflation has stayed extremely low in the United States despite all the efforts of quantitative easing money pumping. Their answer: American consumers are mainly to blame.
Yes indeed. In a paper released this week by the St. Louis Federal Reserve, the Fed cites “low level of money movement in large part on consumers and their “willingness to hoard money.”. To be fair, the paper also criticized its own policies as well, suggesting that the has they have “reinforced the recession” with their “excessively low interest rate policy”.
However, “hoarding money” is seen as the main culprit and attributable to two factors:
A (gloomy) economy after the financial crisis.
The dramatic decrease in interest rates that has forced investors to readjust their portfolios toward liquid money and away from interest-bearing assets such as government bonds
The use of the word hoarding is key to understanding the contempt here. They didn’t say “willingness to save money”, they said “willingness to hoard money”. Saving would imply prudence while hoarding implies selfishness, carefully guarded. It’s like a petulant temper tantrum: why won’t you spend your money for the good of the economy?!
Equally stunning is the lack of discussion with regard to investors. They point out that investors aren’t investing in interest-bearing assets “such as government bonds” but completely omit the reality that investors aren’t investing in businesses either. This is a result of the anti-business climate which is displayed by the current administration.
People used to spend their money investing in or even starting small businesses. That was the backbone of America. It’s not so much anymore. This administration has been exceedingly heavy-handed in its efforts to demonize businesses, while promising that businesses will be highly taxed and regulated. Additionally there have been huge increases in both criminal rules and regulations about what businesses are allowed and not allowed to do, along with a litigation-friendly environment.
All anyone ever reads in the paper is that the government is spending their time and money going after businesses and penalizing them, so much that we are truly becoming dissuaded from going into business.
A few months ago, I wrote about the liberty of risk after the WSJ posted an article by Ben Casselman, who noted the very real decline of risk-taking in business ventures. It is this downward trend which is a major contributor to the fact that the recovery from the recent recession is so painfully slow and anemic. The people’s appetite for investing has been totally decimated by the war on businesses being waged.
And don’t forget, we apparently have lost our appetite for spending too, because we “hoard money” these days (whatever is leftover in a paycheck to actually be able to hoard, that is) in this “gloomy economy”.
by | ARTICLES, ECONOMY, FREEDOM, GOVERNMENT, HYPOCRISY, OBAMA, POLITICS, TAXES
Just like the recent rise of business inversions — moving business HQ abroad — the United States has seen an uptick (up 221%) in Americans renouncing their citizenship. The elephant in the room in both these cases is taxes: both high taxes and burdensome tax compliance in foreign jurisdictions.
Instead of facing the problems directly, the Obama Administration has resorted to punitive measures. The shame and blame tactic of calling out businesses who wish to relocate as “unpatriotic” was undignified. Perhaps realizing that using the same strategy with individuals would be even less well received, they went the more quiet, direct route: yesterday, the State Department announced their interim final rule that raises the fee for renouncing citizenship from $450 to $2,350.
Their justification for raising the fee is the time and labor involved in the process; that is, the bureaucratic red tape that they created, and then decide to charge exhorbitant fees for:
“The CoSM demonstrated that documenting a U.S. citizen’s renunciation of citizenship is extremely costly, requiring American consular officers overseas to spend substantial amounts of time to accept, process, and adjudicate cases. For example, consular officers must confirm that the potential renunciant fully understands the consequences of renunciation, including losing the right to reside in the United States without documentation as an alien. Other steps include verifying that the renunciant is a U.S. citizen, conducting a minimum of two intensive interviews with the potential renunciant, and reviewing at least three consular systems before administering the oath of renunciation. The final approval of the loss of nationality must be done by law within the Directorate of Overseas Citizens Services in Washington, DC, after which the case is returned to the consular officer overseas for final delivery of the Certificate of Loss of Nationality to the renunciant. These steps further add to the time and labor that must be involved in the process. Accordingly, the Department is increasing the fee for processing such requests from $450 to $2,350. As noted in the interim final rule dated June 28, 2010 (77 FR 36522), the fee of $450 was set substantially below the cost to the U.S. government of providing this service (less than one quarter of the cost). Since that time, demand for the service has increased dramatically, consuming far more consular officer time and resources, as reflected in the 2012 Overseas Time Survey and increased workload data. Because the Department believes there is no public benefit or other reason for setting this fee below cost, the Department is increasing this fee to reflect the full cost of providing the service. Therefore the increased fee reflects both the increased cost of the provision of service as well as the determination to now charge the full cost.
Interestingly enough, if you compare the cost of renunciation in the United States to the cost of renunciation in other countries, the new fee puts the United States way above others. You can check out this handy chart here. The next two highest are Jamaica ($1,010 in US dollars), and Sierre Leone ($663 in US dollars).
So those who wish to renounce their citizenship get to buy their freedom by paying a 422% fee increase for the express privilege of dealing with United States bureaucracy one final time.
This is considered an administrative fee, issued by the State Department, but it is essentially an unofficial “exit tax” for regular citizens. But there is a real one too. As Forbes notes, “To leave America, you generally must prove 5 years of U.S. tax compliance. If you have a net worth greater than $2 million or average annual net income tax for the 5 previous years of $157,000 or more for 2014 (that’s tax, not income), you pay an exit tax”.
So for those who have done well in the United States, besides the higher administrative fee/exit tax, you get to pay that real “exit tax” knows as the 877A.
Alas, this isn’t the first time those wishing to leave have been targeted. A bigger, punitive measure was attempted in 2012 by Senators Chuck Schumer and Bob Casey. When the co-founder of Facebook, Eduardo Saverin, renounced his U.S. citizenship as a means to save millions in taxes before Facebook went public, the Senators reacted by proposing the “Ex-PATRIOT Act” of 2012 that essentially doubled the exit tax for high worth individuals. “People who could not prove another reason for renouncing citizenship would face a 30% tax on future capital gains on U.S. investments – twice the current 15% rate – and be barred from receiving a visa to enter the country.” Thankfully the bill died in committee the first year, and did not advance out of the Senate in 2013.
Though this new fee hike is different than the standard exit tax, and on a much smaller scale (dollars-wise), it speaks the same language: punish. All this fee hike does is prove that that current administration would rather squeeze U.S. citizens for more revenue, thus likely reiterating to those renouncing their citizenship that being a U.S. citizen lacks much of the value that it once did. And that is a very sad thing.
by | ARTICLES, BLOG, FREEDOM, HYPOCRISY, POLITICS
This would be really funny if it wasn’t so sad.
Brad Woodhouse is President of American Bridge 21st Century, a SuperPAC that “monitors what Republican politicians say and fights back when their rhetoric doesn’t match their records.” This is a PAC well known to be funded by billionaire George Soros.
So when Mr. Woodhouse pushed out a news story entitled, “GOP Senate Candidates Bow at Koch Throne”, someone else noticed the irony in attacking the conservative billionaire Koch Brothers, while simultaneously receiving PAC funding from liberal billionaire George Soros.
Andrew Kaczynski, who writes over at the popular BuzzFeed took to twitter to call out Mr. Woodhouse: “It’s almost pathetic how weak the Democrats ‘run against the Koch brothers’ strategy is.”, he wrote.
One might say this falls squarely under the “fights back when their rhetoric doesn’t match their records” mantra proudly proclaimed on the American Bridge website — except that Mr. Woodhouse clearly did not approve of this particular instance of holding people “accountable for their words and actions”. This only applies to Republicans, according to the PAC website.
Mr. Woodhouse huffily replied to Kaczynski: “it’s a shame you have no idea what you are talking about”, to which Mr. Kaczynski bluntly asked, “Since you’re outraged by billionaires influencing politics @woodhouseb will American Bridge be refunding largest-donor George Soros?”
Pointing out that American Bridge takes money from certain billionaires (approved by the Left) while attacking other billionaires (not approved by the Left) did not sit well with Mr. Woodhouse, as he retorted, “That’s a stupid question”, to which Kaczynski confirmed, “So that’s a no?”.
Mr. Woodhouse then began to rationalize the hypocrisy by applying logic Animal Farm: some billionaires are more equal than others.
“Since you don’t understand the difference I don’t think there is any reason to continue this discussion,” wrote Mr. Woodhouse, to which Kaczynski replied, “I guess @woodhouseb your billionaires are better than their billionaires,”.
Mr. Woodhouse clarified that observation by writing, “well, they’re not looking to screw the middle class to enrich themselves – so yeah – maybe you do get it.”
Kaczynski confirmed the duplicity by pointing out, “So you dislike big money @woodhouseb only when it isn’t your ideology. I understand now.”
Mr. Woodhouse’s reply (and final tweet) continued using the leftist playbook by a) casting the Koch Brothers as anti-middle class and b) his opponent as stupid, by responding, “I dislike people who want to stack the deck against the middle class and am irritated by people who don’t get the difference.” You can view the twitter exchange here:
So, American Bridge is okay with taking good billionaire money while attacking bad billionaire money. Because American Bridge “understands” and “feels” and “believes”.
Its website describes how, “We understand the frustration you feel with elected officials who campaign on one set of principles but govern by another, because we feel it too. We believe you deserve better than that. We think our elected officials should have one set of principles, not one for each set of special interests they represent.”
Can we substitute “PAC” for “elected officials” above?
Nope — apparently this sentiment only applies to Republicans, not liberals or PACs. If you check out American Bridge’s opening description, it states that American Bridge “is a progressive research and communications organization committed to holding Republicans accountable for their words and actions and helping you ascertain when Republican candidates are pretending to be something they’re not.”
Therefore, according American Bridge, only Republicans should be accountable for their words and actions, and only Republicans can pretend to be something they are not. Certainly not Mr. Woodhouse, who became irritated when Mr. Kacyznski “helped him ascertain” that American Bridge was “pretending to be something they’re not” by taking (liberal) billionaire money in politics while attacking (conservative) billionaire money in politics.
That rule does not apply to Woodhouse at all. Not one bit. Because Mr. Woodhouse is not a Republican. So Mr. Woodhouse “gets the difference.” (He “understands” and “feels” and “believes”.)
All billionaires are billionaires. But some billionaires are more equal than others. A classical abuse of logic by the Left.
by | ARTICLES, BUSINESS, ECONOMY, GOVERNMENT, OBAMA, OBAMACARE, POLITICS, TAXES
According to the Treasury Inspector General for Tax Admininstration (TIGTA), the 2.3% medical device excise tax enacted to help pay for Obamacare is not meeting targets.
The tax went into affect January 1, 2013. The TIGTA report analyzed the returns for the first two quarters (6 months) of 2013, and found that the “excise tax revenue being reported are lower than estimated” for a total of $913.4 million. The IRS expected to have received “excise tax revenue of $1.2 billion for this same period.”
The report also states that the “Joint Committee on Taxation estimated revenues from the medical device excise tax of $20 billion for Fiscal Years 2013 through 2019.”. And yet, in the first six months alone, the estimate amounts are off by 25%. That does not bode well.
Many of the problems originate in the IRS. In fact, the report is aptly named “An Improved Strategy Is Needed to Ensure Accurate Reporting and Payment of the Medical Device Excise Tax”. Some of the key findings:
“The IRS is attempting to develop a compliance strategy to ensure that businesses are compliant with medical device excise tax filing and payment requirements and has taken several measures to advise medical device manufacturers of the new excise tax. However, the IRS cannot identify the population of medical device manufacturers registered with the Food and Drug Administration that are required to file a Form 720 and pay the excise tax.”
“In addition, processing controls do not ensure the accuracy of medical device excise tax figures reported on paper-filed Forms 720. Our analysis of 5,107 Forms 720 processed for the quarters ending March 31 and June 30, 2013, identified discrepancies in the amount of the medical device excise tax and/or taxable sales amount captured from 276 paper‑filed tax returns. TIGTA identified medical device excise tax discrepancies totaling almost $117.8 million when comparing the excise tax amount captured by the IRS from the Form 720 to the excise tax amount TIGTA calculated.”
And the most interesting:
“Finally, the IRS erroneously assessed 219 failure to deposit penalties totaling $706,753 against businesses filing a Form 720 for the quarters ending March 31 and June 30, 2013, which was designated a penalty relief period. The IRS had reversed 133 of the 219 penalty assessments. When TIGTA alerted the IRS of the remaining 86 penalties, IRS management reversed the penalties and issued apology letters to the affected taxpayers.”
The IRS, it seems, was unprepared to handle the collection of excise tax, and furthermore, did not seems to understand basic reporting and penalty relief periods of which it was put in charge.
Think about this: we are now in August of 2014. That means that the second half of 2013 and the first half of 2014 went by before the TIGTA report was released with its findings. If the first 6 months of revenue were found to be about 25% under estimate, it is likely the trend continued for the next full year.
The IRS did agree to the findings of the TIGTA report. However, the summary does not leave one feeling confident that there will be swift resolution now that the problems have been discovered and dissected. Note the ambiguity and qualifiers:
The IRS agreed with our recommendations and plans to consider alternative strategies for identifying noncompliant manufacturers, identify programming changes needed to improve the math verification for paper-filed Forms 720, and implement procedures for corresponding with taxpayers if the changes can be accomplished within budgetary constraints.
Never mind the fact that the Affordable Care Act passed in March 2010 with the excise tax being a key, but controversial, revenue-raiser. The IRS had nearly three years to come up with a) a system to identify companies who owed the tax and b) a system to process the associated forms. And it couldn’t do it.
With the tax being so controversial from the get-go, there have been measures in Congress calling for its repeal because of its impact on the cost of devices and well as jobs in the medical device field.
“The medical device industry has been lobbying hard to get the tax repealed, and there has been movement in Congress. Both the House and the Senate have passed separate pieces of legislation calling for the tax to be repealed, though the Senate vote was on a nonbinding resolution.”
The problem at this point with excise tax repeal is the question of how to make up for even more lost revenue to pay for Obamacare. Taxpayers should be indeed be nervous that the tax collection is showing to be only 75% and we actually have no idea if it improved or worsened at all over the following year because data is not available for it.
The only thing we do know is that we are certain to see a premium rate increases this coming year because the projections have been so off-estimate.
