WASHINGTON Abusive tax shelters, inflated deductions and other misdeeds cost the U.S. Treasury little when compared with money lost because some employee benefits and wages escape taxation.
The government could collect $164 billion more in tax revenue over the coming decade if it changed laws that exempt some employee benefits from the taxes that pay for Social Security and Medicare, according to a study released Thursday by the congressional Joint Committee on Taxation.
The panel, which provides technical expertise to tax committees, detailed six dozen changes that could increase the amount of money flowing into the U.S. Treasury, including ways to close the gap between taxes owed and taxes collected.
Changes to employment taxes have the potential to raise the most revenue, the study showed. Taxing various types of health coverage, dependent care assistance, transportation and other employee fringe benefits topped the list.
Another $57 billion could be gained if Congress made it harder for self-employed people to organize their businesses in ways that allow them to avoid paying Social Security and Medicare taxes.
The list gives lawmakers some options to weigh as they contemplate major changes to government tax and spending policies during a time of increasing federal budget deficits. Some may not prove politically feasible.
Sen. Max Baucus of Montana, the top Democrat on the tax panel that requested the study, said some of the proposals "are simply common sense ideas, others may be more controversial and will have to be examined carefully."
Others suggestions include the following:
Congress could eliminate a benefit that lets homeowners deduct interest payments on up to $100,000 in home equity loans. The committee said the benefit "acts as a disincentive to savings and is unrelated to the purpose of encouraging homeownership." The U.S. Treasury would take in $23 billion more over a decade if it's eliminated.
The tax system for corporations that earn income in foreign countries could be revamped to bring in roughly $55 billion.
Lawmakers could expand telecommunications taxes to all voice and data communications, including cellular and satellite telephones, cable and satellite television, broadband, VOIP and other communications services, to raise $11 billion.
Tax writers could adjust laws that crackdown on corporate transactions that shelter income from taxation by exploiting technical rules for no real business purpose, increasing revenue $8 billion.
Rules could be applied to prevent individuals from inflating their tax deductions by overvaluing donated property, clothing, household items and conservation easements for a combined revenue increase of about $5.5 billion.
Senate Finance Committee Chair Charles Grassley, R-Iowa, said in a statement that he "noted with interest" the suggestions to change laws governing nonprofit groups and charitable donations.
"While we won't embrace every recommendation, we'll give the report a close look," he said.
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