Bill to Cut Late-Tax Penalties Gets Unanimous OK in House

Turning the spotlight on tax policy as many Americans struggle with their 1040 forms this week, the House unanimously approved a bill Tuesday that would reduce the penalties levied on late tax payments.

Passage of the bill, which also would provide new privacy protections for all taxpayers, was a rare act of bipartisanship at a time when Republicans and Democrats are haggling over a range of other tax issues.

As the House approved the taxpayer rights bill, 424 to 0, the Senate killed efforts to roll back part of the gasoline tax. Senate Majority Leader Trent Lott (R-Miss.) pushed hard to drop the extra 4.3 cents per gallon tax added in 1993, but he pulled the bill Tuesday after the Senate failed to break a filibuster.

The battle over this and other tax measures underscored an underlying political reality: Even as the government has plunged into an era of huge budget surpluses, the two parties remain so far apart over tax cuts that few initiatives have any real chance of passing.

From Gas Tax to Marriage Penalty

After killing the gas tax rollback, the Senate took up a bill to reduce the “marriage penalty,” the quirk in the tax code that results in a larger tax burden for many married couples than if both spouses were to file as “single.” Despite wide support for the concept of ending the penalty, Democrats and Republicans are at odds over particulars.

Later this week, House Republicans will burnish their anti-tax credentials by bringing up two perennial proposals unlikely to become law: a constitutional amendment to require a three-fifths majority in congressional votes for tax increases and a bill to abolish the tax code and replace it with a simpler system.

Democrats denounced the measures as political theater and argued that Republican priorities are misplaced. “Instead of taking up . . . illusory tax plans, we ought to be taking up a prescription drug plan” to help Medicare beneficiaries, said House Minority Leader Richard A. Gephardt (D-Mo.).

The taxpayer “bill of rights” measure that passed Tuesday may buck the trend and actually become law this year. The bill now goes to the Senate, where its prospects look good.

The measure’s proposed reductions in penalties and interest charges for late filers represent an effort to encourage more taxpayers to set up installment plans with the Internal Revenue Service if they cannot afford to pay taxes on time.

Currently, delinquent taxpayers can be hit with interest charges and two penalties: one for failing to file and another for failing to pay owed taxes. Lawmakers fear that the stiff double-whammy deters people from approaching the IRS to set up an installment plan.

To encourage taxpayers to negotiate such plans rather than not file, the bill would waive the nonpayment penalty for four months to allow time to reach an agreement with the IRS. An estimated 13.5 million of the nation’s 127.5 million taxpayers would be affected.

The bill also would waive interest on back taxes in cases where the IRS makes mistakes or causes unreasonable delays. And it would let people avoid escalating interest costs while they try to resolve disputes with the IRS by letting them put money for disputed taxes aside in a special account.

For those whose refund checks are returned as undeliverable, the bill allows the IRS to use new means of communication, including the Internet, to try to notify taxpayers. The agency now relies on newspaper ads for this purpose.

Greater IRS Privacy Protections

Other provisions would establish new privacy protections for the confidentiality of taxpayer records against snooping by IRS employees, computer hackers and others.

On the gas tax repeal, Lott pulled the bill after the Senate voted, 56 to 43, against ending debate, 17 short of the 60 votes needed to halt the filibuster.

Although Republicans initially supported the repeal proposal, many backed away because they feared it would dry up revenues for highways and other transportation projects that the fuel taxes help finance. Support also ebbed amid new forecasts that pump prices will start to ease in the wake of a recent decision by oil-producing countries to increase output of crude oil.

Times staff writer Art Pine contributed to this story.