Congress of the United States JOINT COMMITTEE ON TAXATION Washington, DC 20515-6453 Honorable Ron Packard Page 2 January 5, 1996 I believe that this appropriation request represents the minimum amount necessary to enable the Joint Committee to provide the level of services it now provides to Members of Congress. The 15-percent reduction in the Joint Committee's 1996 appropriation is seriously impeding the ability of the Joint Committee to fill authorized positions. If funding is not provided at the requested level, the Joint Committee will not be able to hire the professional staff necessary to provide the services demanded of the Joint Committee by the Congress If the Joint Committee's responsibilities are expanded in any way, for example, by expanding the revenue estimating services required or significantly modifying the revenue estimating process. I will find it necessary to request an additional increase in the Joint Committee's appropriation to reflect the additional personnel and equipment expenses attributable to such increased responsibilities. Additional details relating to this appropriation request are provided below. A. Review of Joint Committee on Taxation Operations During Calendar Year 1995 Attachments A through D provide a summary of the activity of the Joint Committee for calendar year 1995 During 1995, the Joint Committee staff drafted 11 Committee and Conference Reports (Statements of Managers) and worked on several other tax-related legislative initiatives requiring significant staff resources (see Attachment A) During 1995, the Congress considered two comprehensive pieces of tax legislation, the Contract with America, passed by the House, and the Balanced Budget Act of 1995, passed by the House and the Senate The Joint Committee staff was involved in the development of this legislation on both a technical and policy level, and prepared numerous revenue estimates and distribution analyses of the final legislation, as well as numerous alternative proposals. The legislation includes proposals in the following areas Simplification and technical corrections The Joint Committee was involved in a variety of other tax initiatives considered by the Congress, including miscellaneous tax reforms, repeal of special rules for FCC-certified sales of broadcast properties, an increase in the public debt limit, the Intercity Passenger Rail Act of 1995, and various health matters involving tax issues (such as medical savings accounts for Medicare beneficiaries and income-relating the Medicare part B premium). The Joint Committee also was involved in work in connection with the President's budget submission and various alternative budget proposals The Joint Committee staff prepared 6 hearing pamphlets for the Senate Committee on Foreign Relations in connection with proposed income tax treaties In addition, during 1995. the Congress began serious consideration of various flat tax and consumption tax proposals Because these proposals could result in a complete restructuring or replacement of the Federal income tax system, they involve significant legal and economic analysis, and present unique revenue estimating issues Proposals analyzed by the Joint Committee staff proposals introduced by Congressman Armey (R-TX) (H.R. 2060 and H.R. 4585 include the flat tax (103rd Cong )) and Senator Specter (R-PA) (S 1050 and S 488 (103rd Cong )), the "USA Tax Relief Act of 1995" introduced by Senators Nunn and Domenici (S. 722), and a number of other proposals which have not been introduced as legislation, including proposals to adopt a national sales tax. In addition to its work on Committee and Conference Reports, the Joint Committee staff published 80 documents during 1995, including pamphlets and testimony prepared at the request of the Committee on Ways and Means and the Senate Committee on Finance for hearings held by those committees and pamphlets prepared for the benefit of Members of Congress and their staffs in connection with tax issues of current interest (see Attachment B). Included in these other documents was a detailed study of issues relating to proposals to modify the tax treatment of expatriation, as Congress of the United States JOINT COMMITTEE ON TAXATION Washington, DC 20515-6453 Honorable Ron Packard Page 4 January 5, 1996 required by H.R. 831, enacted in 1995 This study required the full-time dedication of approximately 6 employees for 2 months During 1995, the Joint Committee received over 2,250 requests for revenue estimates (see Attachment C). The requests received in 1995 frequently involved complex proposals relating to alternative tax structures and budget reconciliation, which required significant time on the part of the Joint Committee's legal and economics staff. In addition, it is not uncommon for Members of Congress to include a number of alternative proposals, each of which requires a separate revenue estimate, as a single request. One of the statutorily mandated functions of the staff of the Joint Committee is the review of Internal Revenue Service refunds or credits of income tax, estate and gift tax, or any tax on public charities, foundations, pension plans, or real estate investment trusts in excess of $1,000,000. The Joint Committee staff reports on each such refund case and makes comments or recommendations with respect to the proposed refund case to the IRS During 1995, the Joint Committee refund staff reviewed 579 proposed refunds The Joint Committee staff raised concerns in 67 cases (or approximately 12 percent of the cases) Errors identified by the Joint Committee staff produced a net reduction in refunds of $15,000,000 in 1995 A copy of the Joint Committee staff's 1995 Refund Review Operations Report (other than sections containing confidential taxpayer information) is included as Attachment D During 1995, there was some discussion of prohibiting the Joint Committee staff from using any of its appropnated budget for purposes of satisfying the review of large tax refunds mandated by the Internal Revenue Code It is estimated that adopting such a proposal would reduce fiscal year Federal budget receipts by at least $50 million over the 1996-2000 period B. Summary of Anticipated Workload of the Joint Committee on Taxation for Calendar Year 1996 1996 It is likely that there will be unprecedented demand for Joint Committee staff services during Congress of the United States JOINT COMMITTEE ON TAXATION Washington, DC 20515-6453 Honorable Ron Packard Page 5 It is expected that the Congress will return to consideration of various flat tax and consumption tax proposals that have been or will be introduced. Some work was done on restructuring proposals in 1995, and I expect that this work will be intensified in 1996, as new proposals are introduced and existing proposals are refined and modified. Because these proposals involve a complete restructuring or replacement of the current Federal tax system, the economic and legal analysis of such proposals can be extraordinarily complex, requiring substantial staff time. I expect that Congressional consideration of these initiatives will place critical and unique demands on the staff of the Joint Committee to provide revenue estimates and legal and economic analyses in connection with these proposals I expect the Joint Committee staff to continue to have an integral role in the ongoing budget negotiations. If a compromise on budget negotiations is reached, I expect that there will be continued interest in Members of Congress in addressing issues not resolved in the budget negotiations There is ongoing interest in various miscellaneous tax issues, which were the subject of Ways and Means Committee hearings during 1995 The Joint Committee devotes substantial resources to the preparation of revenue estimates, distribution analyses, and other economic analyses relating to proposed revenue legislation. During 1995. Members of Congress were increasingly interested in the revenue estimation process, particularly the possibility of incorporating macroeconomic effects in revenue estimates, and I expect that this interest will continue in 1996 Determining whether this can be done and, if so, how to do it, will require substantial resources Currently accepted estimation processes do not account for macroeconomic effects, and there is no consensus in the economic community about how, and whether to, account for such effects The Joint Committee has already taken steps to improve the estimating process and determine the feasibility of incorporating macroeconomic effects. These steps include providing more disclosure regarding the estimation process to Members, determining whether proposals are likely to have significant macroeconomic effects, establishing a revenue estimating advisory board (which will, among other things, address macroeconomic issues), and contracting with macroeconomic forecasting firms for the purpose of studying the feasibility of developing estimating models that incorporate macroeconomic effects. The ability of the Joint Committee to continue these efforts will be impaired if funding at the requested level is not provided 22-572 96-7 Honorable Ron Packard January 5, 1996 Congress of the United States JOINT COMMITTEE ON TAXATION Mashington, DC 20515-6453 C. Summary of Fiscal Year 1997 Budget Request The following summarizes the Joint Committee's budget request for fiscal year 1997: The fiscal year 1995 appropriation for the Joint Committee on Taxation was $6,019,000 The House-passed legislative branch funding bill for fiscal year 1996 froze the Joint Committee on Taxation appropriation at the fiscal year 1995 level ($6.019,000) The final version of this legislation reduced the Joint Committee's appropriation for fiscal year 1996 by 15 percent to $5,116,000 This reduction was the result of a provision in the Senate bill, adopted in conference, which generally reduced appropnations of all Senate committees. This was adopted despite the fact that the Joint Committee has always been funded through the House of Representatives Because of the continuing resolution enacted in November of 1995, the final Joint Committee appropriation for fiscal year 1996 is $5,152,000 (a 14 4 percent reduction in the fiscal year 1995 appropriation) This appropriation is lower than the Joint Committee's budget in each of the last 5 fiscal years. |