End of year scramble on money matters: Congress dealing with government funding, tax reform

Hardware Retailing, Nov, 2007

Taxes and budgeting were coming to the forefront as Congress went into the last weeks of the 2007 session. No appropriations bills for 2008 had been enacted when the government's fiscal year ended on Sept. 30 and the Treasury Department was running out of borrowing authority.

To keep the government functioning, Congress passed legislation extending 2007 spending levels through the middle of November (when lawmakers intend to adjourn for the year) and a separate bill to raise the federal debt ceiling to $9.815 trillion.

Taxes were being debated in both houses, with most urgent attention being paid to the individual alternative minimum tax (AMT). Each year Congress frets about the increasing number of middle-income taxpayers who could fall victim to the AMT, and each year lawmakers pass legislation to keep the level of exempted income high enough to protect most taxpayers. These patches are temporary and, as usual, will have to be reauthorized this year. If not, as many as 23 million taxpayers could find themselves paying the AMT next April.

House Ways & Means Committee Chairman Charles Rangel (D-NY) wants to take advantage of this opportunity to repeal the AMT and make broad changes in the tax code. His counterpart in the Senate, Finance Committee Chairman Max Baucus (D-MT), prefers to deal with the AMT alone, for now, with a one- or two-year patch and address broader tax issues separately. So, apparently would the House leadership. Majority Leader Steny Hoyer (D-MD) said Democrats were looking at both a temporary patch and permanent reform.

Rangel has mentioned increasing the child tax credit and the standard deduction, expanding the earned income tax credit, extending expiring tax provisions such as the research and development credit and changing the corporate tax structure.

The changes would be paid for, he has suggested, by closing loopholes, simplifying tax provisions, raising rates for wealthier taxpayers and reducing or repealing the 2001 and 2003 tax breaks. Rangel has also talked about redirecting Bush administration tax cuts to other purposes.

Court Slows New No-Match Rule

Last month, we advised you of a new rule issued by the Department of Homeland Security (DHS) telling employers it would use no-match letters sent to employers by the Social Security Administration (SSA) as evidence in criminal proceedings that an employer knew certain workers were in the U.S. illegally. SSA was to begin sending letters on Sept. 4 and DHS was going to begin enforcing the no-match rule on Sept. 14.

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As soon as the rule was announced, the AFL-CIO, the National Immigration Law Center and the American Civil Liberties Union filed a lawsuit contending that the rule expanded liability under the Immigration Reform & Control Act beyond what Congress intended and that the SSA has no authority to require employers to respond to no-match letters.

The U.S. District Court for Northern California agreed that there were legal questions about the DHS policy, put the Sept. 14 implementation date on hold and issued a temporary restraining order stopping SSA from sending out the no-match letters. A hearing on a preliminary injunction to stop implementation of the DHS rule was set for Oct. 1. Judge Maxine Chesney said the plaintiffs had "raised serious questions as to whether the new Department of Homeland Security rule is ... beyond the statutory authority of the Department of Homeland Security and the Social Security Administration."

During a hearing in early October, at which the temporary restraining order was extended, Judge Charles Breyer said that it seemed to him the rule was "not an accurate statement of what the law is" and that it would cause the plaintiffs "irreparable harm, serious irreparable injury."

A group of more than 40 business organizations joined the lawsuit and the Small Business Administration's (SBA) Office of Advocacy added its voice to the objections saying that DHS failed to meet requirements of the Regulatory Flexibility Act (RFA). This law requires agencies to consider the cost of a rule to small businesses. SBA said the rule "requires employers to take certain actions in response to receiving 'no match' letters that they were previously not required to take. Those requirements represent costs that should have been quantified by the agency in compliance with the RFA."