The House Ways and Means Committee, falling back on a device used frequently in the last few years by frustrated budget-balancers, yesterday adopted a series of measures to improve tax collections and penalize delinquent taxpayers.
One of the changes -- which are part of the massive tax-overhaul bill the panel has been constructing for the last week -- would forbid the award of government contracts or licenses to companies and individuals that owe back taxes to the government. It would apply only to taxpayers who have exhausted their appeals to the Internal Revenue Service or the courts, not those with pending tax cases.
Over the next five years, the changes would raise $8.3 billion, which would be used, along with revenue gained from wiping out numerous tax deductions and credits, to help pay for tax revenue lost by reducing tax rates.
In the past, however, congressional efforts to tighten tax compliance often have run into taxpayer resistance, and the measures approved yesterday include some that individuals may find onerous.
The committee decided, for example, to increase the penalty applied to the amount of back taxes due. It would rise from 0.5 percent per month of the amount owed to 1 percent per month, with the total penalty limited to 25 percent of the amount of taxes owed. After the taxpayer is notified that his assets could be seized by the IRS, he would have to reimburse the service for its cost of collection in addition to paying the penalty.
Legislators also voted to stiffen the requirements on taxpayers who pay taxes four times per year based on how much they think they owe. Taxpayers who meet their obligations by quarterly payments rather than having taxes withheld from their paychecks would be required to pay 90 percent of the amount they expect to owe that year, or an amount equal to 100 percent of what they owed the previous year, whichever is smaller. Under existing law, they are required to pay 80 percent of the amount they expect to owe or an amount equal to 100 percent of what they owed the previous year.
The original proposal, developed by the committee staff and proposed by Chairman Dan Rostenkowski (D-Ill.), would have used 110 percent of the previous year's tax payment as the standard, but the committee voted to retain the 100 percent standard.
A series of amendments offered by Rep. J. J. Pickle (D-Tex.) would make life a little easier for taxpayers who have had difficulty with the IRS. Some of the changes would require the service to pay any bank charges incurred when the IRS erroneously seizes a taxpayer's bank account. Another would specify the point at which the IRS stops charging interest on back taxes, so that the service does not levy interest charges on the interest itself.
The amendment denying government contracts to taxpayers who owe back taxes was proposed by Rep. Brian J. Donnelly (D-Mass.). Donnelly aides said the measure would increase revenue by about $100 million but did not know how many companies might be affected.
In other action, the committee agreed to repeal the tax credit for contributions to political campaigns, as proposed by Rostenkowski.