Tax Lawyer's Blog

On Wednesday the Senate passed the HIRE Act on a bipartisan vote of 68 to 29. Mike Godfrey of TaxNews.com reports on the key provisions (emphasis added):

The United States Senate has approved legislation providing new incentives for companies to hire unemployed workers and extending a measure allowing taxpayers to write off up to $250,000 in certain capital expenditures.

The Hiring Incentives to Restore Employment (HIRE) Act, (H.R. 2847) offers an exemption from Social Security payroll taxes for every worker hired after February 3, 2010, and before January 1, 2011, who has been unemployed for at least 60 days. The maximum value of the credit would be equal to 6.2% of wages up to $106,800, which is the Federal Insurance Contributions Act wage cap. There would also be an additional $1,000 income tax credit for every new employee retained for 52 weeks, to be taken on the employer’s 2011 income tax return.

The bill also extends 2008 and 2009 Section 179 expensing thresholds so that taxpayers may elect to write‐off up to $250,000 of certain capital expenditures – subject to a phase‐out once expenditures exceed $800,000 – in 2010 in lieu of depreciating those costs over time.

But how are these tax cuts being paid for? Here’s what Godfrey says (emphasis added):

The cost of these tax breaks is offset by a comprehensive set of measures to reduce offshore non-compliance by giving the Internal Revenue Service (IRS) new administrative tools to “detect, deter and discourage offshore tax abuses.”

I have no problem with the Act, especially if it works to create jobs and provides some tax relief for small business owners. But the paygo justification is comically bogus. Long before this bill was contemplated the IRS had announced that it intended to vigorously pursue offshore tax cheats.

If Congress can meet the paygo rules merely by authorizing the IRS to do what it is already required to do (i.e. enforce compliance), then there is nothing that cannot be deemed to be paid for.

I think it’s time that we admit that paygo is just for show. Capitol Hillers are addicted to spending money they don’t have and aren’t about to let a technical rule like paygo stop them.

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