Tax Report
by Tom Herman
The Wall Street Journal
A SENATE PANEL approves expanded relief for victims' families and others.
An economic-stimulus package passed by the Finance Committee includes a provision benefiting those affected by the Sept. 11 attacks or the 1995 Oklahoma City bombing. It also says "qualified" payments by charities in the wake of Sept. 11 are tax-exempt, and it includes general relief for victims of disaster and terrorist or military actions. Prospects for the overall stimulus package remain unclear. But "it's a near certainty" that Congress will approve "substantial relief" for those affected by terrorism, says Clint Stretch of Deloitte & Touche.
The bill generally says estates of victims who died in the Sept. 11 attacks or the 1995 bombing will get refunds of income taxes and payroll taxes paid by victims for the year of death and the prior year, a Finance committee staffer says. The bill also includes estate-tax reductions. In addition, the committee voted to "clarify that disaster- relief payments are excludable" from income.
"I hope this eases at least some worry for the aggrieved," says Sen. Chuck Grassley, R-Iowa.
TERRORIST ATTACKS increase pressure on IRS to improve security.
Sept. 11 "changed the world that the IRS lives in, much as it changed the world for every other government agency, business organization and individual in this country," says Larry R. Levitan, chairman of the IRS Oversight Board, a nine-member panel created by a 1998 law. "The unthinkable has become the thinkable." The IRS "is vulnerable," he says. "Virtually all returns are received and processed at a very small number of massive sites. The mechanized tax records of this country, as antiquated as they are, are maintained at a few critical locations."
Since Sept. 11, "much has been done to redefine security and safety," Mr. Levitan says. "Dangers previously taken for granted are now being evaluated, and backup plans and security measures are being planned. This must and will happen at an accelerated pace." Electronic filing and payments can be "an important element" in safeguarding IRS facilities and improving safety of IRS workers, he says.
TREASURY AND IRS MOVES in the wake of Sept. 11 attacks draw applause.
Lawyers, accountants and corporate executives praise Treasury and IRS officials for moving quickly to untangle knotty questions, encourage more charitable giving and help businesses jolted by the attacks. Washington lawyers say the IRS occasionally needed behind-the-scenes nudging in a few areas. But they generally are impressed by the results, such as speedy IRS approvals of charitable groups' applications for tax-exempt status.
"I have to echo the praise of the IRS," says Andrew N. Berg of the Debevoise & Plimpton law firm in New York. "They have really gotten their act together here." Jay Gellert, chief executive of Health Net Inc., says, "we are delighted" the IRS and Treasury "moved so swiftly" on "charitable leave-based donation programs." In a typical program, an employee agrees to forgo vacation time, sick days or personal leaves. The employer then donates the value of that time to charity.
The IRS issued "interim guidance" saying any such "forgone" income wouldn't be taxable to employees.
NEW LIFE: The Finance Committee voted to extend tax-law provisions scheduled to expire Dec. 31. Among them is a popular provision that now protects many people from losing various tax credits because of the alternative minimum tax.
"THE STORM before the Calm" is the title of a Lehman Brothers report on congressional efforts to pass an economic-stimulus package. Because this is viewed as a "must-pass bill," lawmakers face "intense pressure to add provisions favored by lobbyists that have little or no bearing on stimulating the economy," says Kim N. Wallace of Lehman. Congressional approval "is likely to slip into the last week of November and could go into the middle of December."
THE RED TAPE may be thick, but more multinationals sign pacts with the IRS.
In a typical "advance pricing" agreement, a company agrees with the IRS, and often a foreign government as well, on how to price transactions among the company's units. Despite long-running concerns about how long it takes to reach agreements, executives say these pacts typically beat the time, expense and uncertainties of courtroom fights.
The IRS completed a record 62 agreements in the fiscal year ended Sept. 30, a spokesman says. The program appeals to companies as "a means of knowing upfront, faster and cheaper, what the IRS and foreign tax authorities will accept," says Timothy J. McCormally, general counsel of Tax Executives Institute.
Mr. McCormally will take over next year as executive director of the Washington-based group.
BRIEFS: A reader offers a suggestions on how to focus congressional attention on tax-law simplification: "Pass a law requiring every member of Congress to prepare his or her own tax return." ... Deloitte & Touche's Web site (www.us.deloitte.com) features a free 2001 tax-planning guide.
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NOVEMBER 14, 17:24 EST
OECD Extends Deadline for Compliance
PARIS (AP) — Countries that maintain tax havens will have until early next year meet guidelines aimed at curbing harmful tax competition, the Organization for Economic Cooperation and Development decided.
It was the second time the deadline has been extended.
Originally set for July 31 this year, it was unofficially extended until the end of November, owing in part to differences between London and Madrid over the tax status of Gibraltar, a tiny British colony on Spain's southern tip that is now a major duty-free tourist destination and offshore financial center.
The initiative by the OECD targets havens that offer excessively low tax rates and encourage noncompliance with the tax laws of other countries.
The organization's 30 members maintain that harmful tax practices distort financial and, ultimately, real investment flows.
Jurisdictions that fail to conform and that persist in illegitimate practices will be blacklisted, and subject to "defensive measures" from OECD member countries and those that have adhered to the initiative.
The decision to extend the deadline is one of several changes made to the OECD's tax haven work, aimed at helping tax havens commit to change, the organization said.
The modifications were made after several so-called countries ons raised concerns about the process. The United States earlier this year criticized the OECD, saying its efforts were too broad.
Besides extending the deadline, the OECD decided to modify criteria, eliminating "no substantial activities" from its list of points used to determine whether a tax haven is listed as uncooperative.
OECD members also agreed that coordinated defensive measures won't apply to uncooperative tax havens before they apply to OECD member countries, the statement said.
"The OECD seeks to establish a framework within which all countries, large and small, rich and poor, OECD and non-OECD, can work together constructively to eliminate harmful tax practices with respect to highly mobile activities such as in the financial and service areas," the statement said.
To date, 11 offshore jurisdictions among the 35 identified by the OECD as tax havens have agreed to comply with the initiative to end harmful tax havens. In addition, Tonga "has taken measures ... and no longer meets the tax haven criteria," the statement said.
The nations include: Aruba, Bahrain, Bermuda, Cayman Islands, Cyprus, Isle of Man, Malta, Mauritius, Netherlands Antilles, San Marino and Seychelles.
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NOVEMBER 15, 07:23 EST
Steps Taken Now Can Save You Taxes
By EILEEN ALT POWELL
AP Business Writer
NEW YORK (AP) — The April tax season might seem far away, but now is the time to try to lower your tax bill. Steps to minimize your taxable income and maximize your deductions generally must be taken before year's end to count.
"There's nothing worse than going to your accountant in April and hearing, 'Well, you could have done this or that last year," said Brian R. Korb, a financial planner in Dayton, Ohio.
More than one-third of Americans with adjusted gross income of $30,000 to $50,000 itemized deductions last year, according to RIA, a New York provider of tax information and software to accounting professionals. The figure rose to more than two-thirds for those with income of $50,000 to $100,000, it said.
Here are suggestions from tax experts:
- Make the most of tax-sheltered accounts.
The dollars you put into 401(k) and other retirement accounts reduce your taxable income, "so it's a good idea to get as close as you can to maxing out on that," said Charles Enis, an associate professor of accounting with the Smeal College of Business Administration at Pennsylvania State University. The limit this year is $10,500.
If your company doesn't offer a retirement program, you can set up your own Individual Retirement Account, putting aside $2,000 a year tax deferred. The deadline for setting up IRAs is April 15.
"People should also look into flexible spending plans," Enis advised. "They're a great deal as long as you're conservative."
Flexible spending plans allow you to set aside pretax dollars — generally in amounts of $1,000 to $2,000 — to cover health care and child care expenses. The downside is that if you don't use the money, it reverts to the company fund.
- Convert credit card debt.
The interest you pay on credit cards is not tax deductible; the interest you pay on your mortgage is. So paying off credit card debt with a home equity loan or line of credit can get you a tax write-off.
"It boils down to: Would you rather pay 18 percent interest (on credit card balances) and not get a deduction or pay 9 percent on a line of credit and get a deduction," Enis said.
Still, he cautioned, consumers should weigh such decisions carefully: "The important point is the fundamental economics of what you're doing. The tax benefit is the icing on the cake."
- "Harvest" stock losses.
Korb, who heads the LifePlan Financial Group, notes that an increasing number of Americans own stocks and stock mutual funds, and that gives them the opportunity "to make lemonade out of the lemons in their portfolios."
By that he means "they should look at their holdings to see what has lost value that they can sell."
Those losses can be used to offset the capital gains on other investments, dollar for dollar. In addition, losses can be used to offset up to $3,000 of income — with the surplus carried over for future years.
- "Bundle" deductions.
Some people, especially retirees who have paid off their mortgages, often don't have quite enough to itemize deductions. This year, the standard deduction is $4,550 for singles and $7,600 for a couple filing jointly.
"These people can benefit from 'bundling' deductions into one year and taking the standard deduction the next," said Tony Bardi, a tax specialist in Gresham, Ore., who is a spokesman for the National Association of Enrolled Agents.
This could involve prepaying next year's property taxes, making your estimated fourth-quarter state tax payment in December rather than waiting until Jan. 15 and doubling up on charitable contributions, he said. "Those with mortgages might make their January payment in December to bring the interest into 2001," he added.
- Charity comes in a variety of forms.
A lot of people made extensive charitable contributions to aid the survivors of the Sept. 11 terrorist attacks, and they can write these and other donations off on their taxes.
It's also increasingly popular to make non-cash contributions, including used clothing and household goods to organizations such as the Salvation Army or Goodwill, Bardi said.
"I have an older gentleman who went through one room in his house every year for several years and donated things he no longer needed or wanted," Bardi said. "He came out with several thousand dollars in deductions."
He suggested keeping a detailed list of contributions to make it easier to calculate the value.
The Internal Revenue Service requires an appraisal on donated cars and other high-value items.
On the Net:
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NOVEMBER 15, 12:49 EST
Airlines' Tax Deferral Extended
By BRAD FOSS
AP Business Writer
NEW YORK (AP) — The nation's airlines have been allowed to postpone roughly $2 billion in taxes until Jan. 15, giving them needed cash for daily operations while travel demand remains in a severe slump.
The due date on air transportation excise taxes was extended by two months by the Treasury Department, under the authority of a federal aid package approved by Congress soon after the Sept. 11 terror attacks.
"Treasury understands the need to allow the airline industry, which was greatly affected by the Sept. 11 attacks, more time in making deposits and payments of their federal excise taxes," Mark Weinberger, assistant secretary for tax policy, said in a statement released Wednesday.
The number of air travelers was down sharply in October, the first full month of travel since terrorists hijacked four airliners in U.S. air space and crashed them on American soil.
The number of passengers flying worldwide on U.S. airlines fell by 23 percent in October to about 38 million, according to the Air Transport Association.
Systemwide, planes were 63 percent full for the month, down 8 percentage points from a year ago even after carriers reduced the number of available seats by about 16 percent.
U.S. carriers had asked Treasury Secretary Paul O'Neill earlier this month to defer some $4 billion worth of taxes, half of which was made up of federal payroll taxes. However, the government maintained its Nov. 15 due date on the payroll taxes, which had already been extended by two months.
Since Sept. 11, 112 U.S. airlines have received about $2.4 billion in cash from the federal government, roughly half of what they're due under the terms of the Air Transportation Safety and System Stabilization Act.
An additional $10 billion in federal loan guarantees is available to the industry under the act.
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NOVEMBER 15, 14:00 EST
Justice Dept. Charges 3 for Tax Scheme
WASHINGTON (AP) — The Justice Department filed lawsuits in three states Thursday against men it alleges gave taxpayers bogus tax advice and charged large fees for filing tax returns.
The lawsuits charge Thurston Bell of Hanover, Penn., David Bosset of Clearwater, Fla., and Harold E. "Hal" Hearn of Atlanta with running bogus tax refund schemes. The suits were filed in Harrisburg, Penn., Tampa, Fla., and Atlanta, Ga.
The department said the three men show clients how to use the "Section 861 argument" to falsely claim that they owe no payroll or income taxes. It said the men told clients that Section 861 exempts from taxation all domestic income earned by U.S. citizens. The Internal Revenue Service, however, has said the Section 861 argument is frivolous.
The suits alleged that Bell, Bosset and Hearn have ignored IRS warnings and continue to solicit clients, collect fees for bogus advise and hamper IRS efforts to collect taxes.
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NOVEMBER 15, 16:59 EST
Tax-Cut Dispute Stalls Stimulus Plan
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — A dispute over spending and tax cuts is preventing Republicans and Democrats from sitting down to negotiate a compromise economic stimulus package.
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House and Senate Republicans said Thursday they want the negotiations to focus exclusively on tax relief for businesses and individuals as well as assistance to the unemployed. Bargainers should be limited to senior members of the congressional tax-writing committees, they say.
"This is not the time to hold us hostage to additional spending that has not been requested or reviewed," said Senate Minority Leader Trent Lott, R- Miss.
President Bush also continues to oppose any spending above agreed-to levels in the stimulus bill, White House spokesman Ari Fleischer said.
Democrats are just as adamant that no deal is possible unless a list of homeland security spending items are part of the mix. A 10-year, $15 billion package sponsored by Senate Appropriations Committee Chairman Robert Byrd, R-W.Va., was blocked Wednesday on a party-line Senate vote.
"We have an opportunity to help those who are hurting, lift our economy and secure our nation," said Senate Majority Leader Tom Daschle, D-S.D.
The ice could break if a deal were struck to guarantee separate House and Senate votes on the Byrd spending proposals. But Senate Minority Whip Harry Reid, D-Nev., said so far the GOP-led House has shown no inclination to agree.
"We're not going to walk away from Senator Byrd," Reid said.
The stalemate likely means there will be little progress on the issue until after Congress returns from a one-week Thanksgiving break, if then. But if the homeland security spending versus tax cut dispute can be resolved, there does appear to be room for compromise.
Both sides generally agree on a 13-week extension of unemployment benefits and on $14 billion in checks for workers who were left out of this summer's rebates. Both sides include somewhat different provisions that would boost expensing tax write-offs and depreciation for business investment and that extend expiring tax breaks for at least another year.
"There are so many things that are common to all of the proposals," said Sen. John Breaux, D-La.
There are two main sticking points:
- Health insurance. Democrats want a new 75 percent federal
match for the costly COBRA policies available to the jobless and to
enable more laid-off workers to qualify for insurance benefits.
Republicans call that an unnecessary new government entitlement,
favoring Bush's proposal for grants to states that could be used to
help the unemployed maintain health insurance.
- Income tax cuts. Republicans say any deal must include
acceleration of some or all of the income tax rate cuts now scheduled
to take effect in 2004 and 2006. Democrats have derided this as
primarily benefitting wealthier taxpayers, but some Democrats
have proposed as a compromise moving forward to 2002 a cut in only the
27 percent rate.
Sen. Pete Domenici, R-N.M., said the tax dispute could be settled by replacing the rate cuts and the rebate checks with a one-month payroll tax holiday.
Workers and employers would each temporarily save 6.2 percent in taxes, giving them a combined $40 billion to be spent or invested. The money would come out of the Social Security account but would be replaced by general government cash.
"It is the fastest, fairest, easiest, simplest way to put money into people's pockets," said Sen. Kit Bond, R-Mo.
In place of a COBRA match, the moderates' plan would create a 50 percent tax credit for health insurance costs that people could get even if they paid no income taxes. On income tax cuts, the plan would enlarge the bottom 10 percent tax bracket paid by all workers and cut the 27 percent rate to 26 percent in 2002.
That approach drew praise Thursday from Treasury Secretary Paul O'Neill, who noted that it "moves away from a spending-only idea ... and that's a hopeful sign that there is a bipartisan basis for responding in a constructive way to the president's call for action."
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NOVEMBER 15, 21:04 EST
Senate Internet Tax Roll Call
By The Associated Press
The 57-43 roll call by which the Senate voted to kill an amendment that could have allowed states to collect Internet-related taxes in the future.
On this vote, a "yes" vote was a vote to table, or kill, the amendment. A "no" vote was a vote to include the amendment in an Internet moratorium bill.
Voting "yes" were 22 Democrats and 35 Republicans.
Voting "no" were 28 Democrats, 14 Republicans and one independent.
Alabama
Sessions (R) Yes; Shelby (R) No.
Alaska
Murkowski (R) Yes; Stevens (R) Yes.
Arizona
Kyl (R) Yes; McCain (R) Yes.
Arkansas
Hutchinson (R) No; Lincoln (D) No.
California
Boxer (D) Yes; Feinstein (D) Yes.
Colorado
Allard (R) Yes; Campbell (R) Yes.
Connecticut
Dodd (D) Yes; Lieberman (D) Yes.
Delaware
Biden (D) Yes; Carper (D) No.
Florida
Graham (D) No; Nelson (D) Yes.
Georgia
Cleland (D) No; Miller (D) Yes.
Hawaii
Akaka (D) No; Inouye (D) Yes.
Idaho
Craig (R) Yes; Crapo (R) Yes.
Illinois
Durbin (D) No; Fitzgerald (R) No.
Indiana
Bayh (D) No; Lugar (R) Yes.
Iowa
Grassley (R) No; Harkin (D) No.
Kansas
Brownback (R) Yes; Roberts (R) Yes.
Kentucky
Bunning (R) Yes; McConnell (R) Yes.
Louisiana
Breaux (D) No; Landrieu (D) Yes.
Maine
Collins (R) No; Snowe (R) Yes.
Maryland
Mikulski (D) No; Sarbanes (D) No.
Massachusetts
Kennedy (D) Yes; Kerry (D) No.
Michigan
Levin (D) No; Stabenow (D) No.
Minnesota
Dayton (D) No; Wellstone (D) No.
Mississippi
Cochran (R) Yes; Lott (R) Yes.
Missouri
Bond (R) Yes; Carnahan (D) No.
Montana
Baucus (D) Yes; Burns (R) Yes.
Nebraska
Hagel (R) Yes; Nelson (D) No.
Nevada
Ensign (R) Yes; Reid (D) Yes.
New Hampshire
Gregg (R) Yes; Smith (R) Yes.
New Jersey
Corzine (D) Yes; Torricelli (D) Yes.
New Mexico
Bingaman (D) No; Domenici (R) Yes.
New York
Clinton (D) No; Schumer (D) Yes.
North Carolina
Edwards (D) Yes; Helms (R) No.
North Dakota
Conrad (D) No; Dorgan (D) No.
Ohio
DeWine (R) No; Voinovich (R) No.
Oklahoma
Inhofe (R) Yes; Nickles (R) Yes.
Oregon
Smith (R) Yes; Wyden (D) Yes.
Pennsylvania
Santorum (R) No; Specter (R) No.
Rhode Island
Chafee (R) No; Reed (D) No.
South Carolina
Hollings (D) No; Thurmond (R) Yes.
South Dakota
Daschle (D) No; Johnson (D) No.
Tennessee
Frist (R) Yes; Thompson (R) Yes.
Texas
Gramm (R) Yes; Hutchison (R) No.
Utah
Bennett (R) Yes; Hatch (R) Yes.
Vermont
Jeffords (I) No; Leahy (D) Yes.
Virginia
Allen (R) Yes; Warner (R) Yes.
Washington
Cantwell (D) Yes; Murray (D) Yes.
West Virginia
Byrd (D) Yes; Rockefeller (D) No.
Wisconsin
Feingold (D) No; Kohl (D) Yes.
Wyoming
Enzi (R) No; Thomas (R) No.
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NOVEMBER 16, 03:01 EST
Congress Extends Internet Tax Ban
By LARRY MARGASAK
Associated Press Writer
WASHINGTON (AP) — President Bush will sign legislation that extends a moratorium on Internet-related taxes for two years, although he preferred a longer period of tax relief.
A voice vote in the Senate on Thursday renewed the tax ban that was enacted three years ago but expired Oct. 21.
Senators rejected an amendment that could have led to future collection of state taxes on Internet sales and even Internet access. The proposal would have required a congressional vote to allow sales tax collections after 20 states agreed to collect for each other.
The state compact plan failed when senators voted 57-43 for a procedural motion to kill the measure.
"The administration believes that government should be promoting Internet usage and availability, not discouraging it with access taxes and discriminatory taxes," the White House said in a statement supporting the legislature.
"While a five-year extension would be preferable, a two-year extension will provide additional time to analyze the impact of e-commerce on local and state tax receipts."
Senators favoring a simple extension said they would continue to negotiate with senators backing the state compact. They argued that more study was needed before a system was put in place that could allow a state to impose a direct tax on residents of another state.
Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, said a simple extension was the best course for now, because "The devil is always in the details." One problem would be to ensure that state tax rates would remain uniform, he said.
Sen. Byron Dorgan, D-N.D., a co-sponsor of the rejected amendment, said, "State and local governments are concerned about funding for schools and fairness for Main Street retailers."
He said states would have been required to dramatically simplify their sales tax systems and then submit the proposal to Congress. He said the issue would not go away.
Uncollected state sales taxes on electronic commerce were estimated at nearly $26 billion in 2000.
States favoring taxes on Internet-related sales are backed by most traditional retailers, including many of the nation's largest chains, who say Internet competitors have an unfair advantage. Companies that rely on Internet sales oppose the taxes.
Unlike brick-and-mortar competitors, businesses engaged in e-commerce have benefited from not having to pay state and federal taxes on money earned from online transactions. The moratorium also has prevented online buyers from possibly paying taxes on their Internet access accounts.
Anti-tax lawmakers said tax collections would drag down a key economic engine when the economy already is suffering.
Sen. Ron Wyden, D-Ore., who favored the simple extension, said Americans don't want to be taxed when they log on the Internet for their news, weather and sports.
He said there was danger in a "crazy quilt" tax system that would "chew up a vast amount of time for compliance."
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NOVEMBER 16, 09:11 EST
States Consider Tax Increases
By ROBERT TANNER
AP National Writer
With their finances rapidly souring, several states are considering reversing course and raising taxes after a seven-year run of tax cuts.
On Thursday, Indiana Gov. Frank O'Bannon went on statewide television to call for budget cuts and increased taxes to overcome a fiscal crisis that "threatens our very way of life." Virginia Gov. Jim Gilmore announced he won't be able to fulfill a campaign promise and eliminate a much-hated tax on cars and trucks.
So far, North Carolina is the only state to pass a significant tax hike. But the idea has top support in Indiana and Ohio, while cuts passed or promised last year are now looking shakier in Massachusetts, New York and elsewhere, besides Virginia.
Even those opposed say the question, at least, can't be avoided.
"We really have no option," said South Carolina Rep. Bobby Harrell, the Republican chair of the House budget-writing committee. "We're either going to have to cut the budgets or raise taxes. ... There are going to be problems like this all across the country."
Emergency budget-cutting continued this week with special legislative sessions in Arizona and Connecticut, following emergency actions by Florida, Hawaii, Iowa and beyond. Since all states except for Vermont must balance their budgets, state lawmakers can't approve deficit spending like their congressional counterparts.
Forty-four states saw revenue growth fall from August through October, according to a Nov. 1 report from the National Conference of State Legislatures. Budget cuts were passed or on the table in 28 states, the report said.
Now, with the states' already weak economies worsening after Sept. 11, these tax issues have emerged:
- Ohio Gov. Bob Taft, a Republican facing a $1.5 billion deficit,
wants $465 million in targeted business tax increases.
- North Carolina, with the encouragement of Democratic Gov. Mike Easley, raised taxes by $620 million in the new budget passed in September.
There are also proposals for new taxes in Alabama, Wyoming, Tennessee, and Washington state.
"We just concluded there's only so much you can cut," said North Carolina Rep. Paul Luebke, a Democrat who sits on the House finance committee. "We're one of the few (states) that have the courage to bite the cliched bullet," said Luebke.
If the economy continues to slide, the pressure will build to increase revenue to pay for government services, economists say. But tax proposals — almost always unpopular with voters — face bruising tests in legislatures. Many leaders remain adamantly opposed.
"Asking Arkansas families who are already wounded from a hurting economy to pay even more in taxes — that would be like asking a bleeding friend to donate a pint of blood," Gov. Mike Huckabee said in a statewide television address Wednesday.
Tax cuts, on the other hand, have proven popular. Since 1995, states cut an aggregate $36 billion in taxes, the NCSL said. That includes $1.8 billion cut last year, when forecasters already predicted the economy would slow.
Those cuts followed several years of tax increases, with a high of $15.4 billion in 1991 during the height of the early '90s recession.
"Politically it is very difficult" to raise taxes, said Harley Duncan, executive director of the Federation of Tax Administrators, a group that monitors state economies. "Many of these elected officials ran on a very firm no-tax-increase platform. But the sands really shifted beneath them."
While the pressure for new or increased taxes might be building, it depends on how long the hard times last, economists said.
"Ask me the question two months from now," said Arturo Perez, a fiscal analyst with NCSL. "We know it's getting worse. But have we seen the worst times behind us, or is there a continuing slide?"
In a fiscal crisis, state budget writers say, the first steps are to cut spending, delay big projects and dip into cash reserves that were built up over the years.
Some already have: Wisconsin froze hiring, Connecticut warns it will lay off workers, North Carolina has put off a $1.5 million renovation of the governor's mansion.
Some say previous tax cuts set states up for an economic stumble. Harrell, in South Carolina, rejects that argument. The problem is that budget forecasters didn't accurately prepare for the slowing economy, he said.
But forecasters were warning things eventually would slow down, and were quick to note the drop in tax collections, Sept. 11 and its economic aftershocks have caused an even steeper downturn.
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On the Net:
National Conference of State Legislatures: http://www.ncsl.org
Rockefeller Institute of Government: http://www.rockinst.org
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NOVEMBER 16, 20:39 EST
Victims' Families Get Tax Breaks
By CURT ANDERSON
AP Tax Writer
WASHINGTON (AP) — Families of the victims of the Sept. 11 terror attacks would get tax breaks under legislation approved Friday by the Senate.
"This is not all we could do. It is only the beginning of what we should do," said Sen. Robert Torricelli, D-N.J., a prime sponsor of the 10-year, $430 million bill. "But it is something we can do."
The bill, which passed on a voice vote, heads back to the House, where a less expansive version was approved shortly after the attacks. House leaders were unsure Friday whether the Senate bill would be acceptable or if a conference would be necessary to work out a final agreement.
Under the Senate bill, people who died in the attacks on the World Trade Center and the Pentagon and those killed when a hijacked plane crashed in rural Pennsylvania would not owe income taxes in the year of death and at least one previous year.
Any income taxes paid during those years would be refunded. Also refunded would be two years' worth of the payroll taxes that fund Social Security and Medicare.
"The terrorist attacks left thousands of wives, husbands and children suffering," said Sen. Charles Grassley of Iowa, senior Republican on the Senate Finance Committee. "I hope this eases at least some of the hardship and worry for the aggrieved."
At last count, 4,376 people were listed as dead or missing as a result of the attacks. Sen. Don Nickles, R-Okla., attached language that would make many of the tax breaks apply to victims of the April 1995 Oklahoma City bombing; 168 died in that attack. Anthrax victims and their families are also included.
There was also help Friday from the Internal Revenue Service, which issued a notice that said charities are free to provide money to victims of the terrorist attacks without fear of losing their tax- exempt status. Legal questions were raised about payments made to families of rescuers by the Twin Towers Fund in New York because they are not necessarily in dire financial need.
"Groups who act in a reasonable, good-faith manner to get help to victims will not endanger their tax-exempt status," said IRS Commissioner Charles Rossotti.
For the victims and their families, Senate bill would also:
- Make workers' compensation benefits, death benefits and payments
from government retirement plans untaxable. Disability
benefits for people injured in the attacks also would not be taxed.
- Shield the first $8.5 million in assets from federal estate tax in
2001 only.
- Exempt from taxation payments to employees from employers for
"personal, living, family or funeral expenses" as well as
government aid, such as disaster payments, and payments made by
airlines to victims.
- Give the Treasury Department flexibility to postpone tax filing deadlines for up to one year in cases related to declared disasters, terrorism or military action.
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