As the U.S. economy nears the end of the fourth quarter, every taxpayer in America knows what comes next.
It means the first quarter of the New Year is just around the corner. As the holiday season draws to a close, the tax season begins.
During the first three months of the year, taxpayers across the country will clock many hours preparing their tax returns. Many will shell out hard-earned money for professional tax preparers to help coach them through the process.
Earlier this year, the IRS estimated that between $312 billion and $353 billion in U.S. taxes went uncollected in the 2001 tax year. The tax gap reflects the difference between what taxpayers owe and what they actually pay. Regrettably, there's no magic solution to fix the problem.
Some is a result of tax dodging. Some is a result of taxpayers underreporting of income or failing to file altogether.
My chairmanship of the Senate Finance Committee lends me considerable opportunity and responsibility to write federal tax laws and conduct oversight of the Internal Revenue Service.
I agree with the overwhelming majority of Americans who say the tax code is too doggone complicated. With so many tax breaks tied to income and others phasing out or expiring, it's hard to keep track.
The good news is that tax simplification and fairness are on Washington's radar screen. A bipartisan advisory panel appointed by the president issued recommendations this fall to address systemic complexities in the federal tax code.
As the leading Senate lawmaker with jurisdiction over the nation's tax laws, I am weighing carefully these recommendations and look forward to working in Congress to help make life easier for taxpayers.
Regrettably, we won't have an opportunity to score a win for taxpayers on sweeping simplification changes to the tax code for the 2005 tax year.
However, the U.S. Senate did reach the end zone for millions of middle-income families, small business owners, college students, low-income savers, charitable donors and teachers in a $60 billion bill that also provides relief to help rebuild Gulf Coast regions destroyed by hurricanes.
The lion's share of the Senate-passed tax relief bill would benefit 14 million middle-income families who otherwise would get sacked by the Alternative Minimum Tax for the 2005 tax year. Without this exemption, roughly 132,000 Iowa families would be hard hit by this tax.
The AMT was enacted back in 1969. It created a two-tier tax system that cobbled together a back-up tax to make sure the wealthiest taxpayers among us didn't evade income taxes altogether through legitimate use of tax shelters, loopholes and deductions.
However, the AMT is not indexed to inflation. And recently, this parallel tax has been sticking it to millions of middle class taxpayers who were never intended to pay it.
Although it is only a temporary fix, a band-aid certainly beats the alternative in this case. In the meantime, I will continue working on a more sweeping solution to this overwhelmingly unpopular stealth tax.
In other good news, the Senate bill extends for four more years a popular tuition tax break set to expire at year's end. Four years ago I led the charge for the college tuition deduction that was enacted by the landmark 2001 tax laws. It allows lower- and middle-income parents to deduct up to $4,000 annually for qualified higher education expenses. Currently, 37,364 Iowa taxpayers benefit from this pro-family, pro-education and pro-productivity provision in the tax code.
The Senate bill also recognizes the out-of-pocket expenses so many elementary and secondary school teachers absorb to stock their classroom with supplies to help meet the needs of their students. The $250 deduction for eligible teaching materials used in the classroom is scheduled to expire at the end of the year. In Iowa, 33,812 teachers benefit from the school supplies tax deduction. The Senate bill would extend this provision for another year.
As Iowans gather together with family and friends this holiday season, please know I will keep my eyes locked on the ball in Washington.
Hopefully by the end of the fourth quarter, Congress will gain a victory for taxpayers that will take a little bit of the pain out of the coming tax season.