|  Home   |  Site Search   |  Tax News & Views  |

Clinton Cuts Taxes in Short Term, Raises Them in Long Term, Congressional Estimators Say

Thursday, February 27, 1997

OnLine

The Joint Committee on Taxation issued preliminary revenue estimates Feb. 27 showing the President’s budget proposal produces a tax hike over a 10-year time frame, but a tax cut over a five-year window.

Congressional estimators concur with administration estimators that a cut would result from the proposal over fiscal 1997 through 2002. Congressional estimators say an $18 billion tax cut would result from the President’s proposal over the period, while the administration says a $22 billion tax cut would result over the same period.

10-year snapshot differs

Congressional estimates show a $23 billion tax hike, however, over the fiscal 1997 through fiscal 2007 period, if the President’s plan were enacted. The administration has not produced detailed estimates for 1997 through 2007, but claims its plan cuts taxes.

The President’s budget would increase taxes, rather than reduce them, because several proposals that the White House earlier said would be permanent, now appear to expire after Dec. 31, 2000, House Ways and Means Committee Chairman Bill Archer, R-Texas, said at a press conference.

The proposed tax credit for children, education incentives, Individual Retirement Account changes, and the "Brownfields" plan would expire after fiscal 2001, according to information the administration provided Congress this week. The supplementary information was requested because congressional estimators said they could not do an estimate based solely on the Feb. 6 budget document.

IRS Shuts Down REIT Planning Device: The Internal Revenue Service Feb. 27 issued Notice 97-21 shutting down certain transactions designed to reduce a business’s tax liability by engaging in a multiple-party financing transaction.

The Treasury Department decided to close off these deals administratively, rather than legislatively, because it wanted its policy to take effect immediately, an administration official said.

The transactions in question used preferred stock issued to a conduit entity to artificially allocate income to participants in the multiple-party transaction who are not subject to federal income tax, thus avoiding tax liability, IRS said.

To attack the transactions, Treasury and IRS announced they will propose regulations with a Feb. 27, 1997, effective date that treat the parties engaged in the transaction as dealing with one another directly, rather than through a REIT or other conduit.

The regulations to be issued under Internal Revenue Code Section 7701 will be applicable to taxable years ending on or after Feb. 27, 1997, the Notice said.

All amounts accrued or paid on or after Feb. 27 will be subject to the regulations, regardless of when a particular share of stock or a particular debt instrument was issued or acquired, IRS said.