Legislation to Amend the Internal Revenue Code of 1986 to Provide for Offsetting Certain Past-Due Local Tax Debts Against Income Tax Overpayments

Floor Speech

Mr. MORAN. Mr. Speaker, today I am proposing legislation to establish a program that would mirror the existing law for states. The legislation would allow certain types of delinquent local tax debt to be collected through the reduction of federal tax refunds. Providing local governments access to these needed and due funds is important both in principle and for budgetary purposes. In this challenging and uncertain economic environment, it is especially important to assist cities and counties to collect the taxes they are owed. The alternatives would be a reduction in vital services and jobs at a time when the government safety net for poor families and the unemployed has weakened significantly and increases in poverty in these hard economic times. Failure to collect what is due will impose significantly higher demands on local governments for police, housing and shelter, food, and other vital services. This bill offers a unique opportunity not just to provide hundreds of millions of dollars of desperately needed assistance at no cost to federal taxpayers but also to protect honest taxpayers from an increase in local property taxes. Under this legislation, the only cost is to the delinquent taxpayer, who would finally be made to pay his or her outstanding tax obligation.

This proposed program would have no additional cost to the federal government. Local governments would pay the federal government the fee of $25 for each offset refund. It would alleviate the administrative burden to Department of the Treasury by requiring the state taxing authority to act as the clearinghouse. Therefore, the client base for the Department of the Treasury would not increase.

This concept of an offset originated as a way to assist states with securing child support arrearages. It was expanded to allow states to submit other delinquent claims against an individual's federal tax return. This program has been very successful for the states. This bill would expand its successful idea and concept to local governments in all states. Doing so could potentially result in several billion dollars annually for local governments by effecting the collection of delinquent taxes. Under this legislation, the following order of priority for payment of an offset would be: (1) past-due federal income tax, (2) past-due state child support, (3) past-due federal government agency debt, (4) past-due state income tax, and (5) local government tax. The state taxing authority for each state would act as the clearinghouse for the local government tax debts, so this will not be an additional burden to Financial Management Services (which is a division of the United States Department of the Treasury and administers the Federal Offset Program). Doing so could potentially result in several billion dollars annually for local governments by improving the collection of delinquent taxes.

The bill would instruct the Secretary of the Treasury, upon receiving notice from any eligible state on behalf of a local government, that a named person owes such local government a past-due, legally enforceable tax obligation and provide, consequently, for the reduction of the federal tax refunds payable to such person by the amount of such debt. That amount would be remitted to the state for payment to the affected local government, provide for notification to the state of the taxpayer's name, taxpayer identification number, address, and the amount collected; and notification of the person due the refund that it has been reduced by an amount necessary to satisfy a past-due, legally enforceable tax obligation.

This bill offers a unique opportunity to provide hundreds of millions of dollars of desperately needed assistance at no cost to federal taxpayers. For Virginia localities, it is estimated that this bill will bring in between 65-70 million dollars in revenue during the first year in the program. From its participation in the Federal Offset Program, for FY 2008 the Commonwealth of Virginia received over $17 million dollars in offsets of federal income tax refunds and an additional $5 million in offsets of the tax stimulus checks. This legislation earned the official support of the National Association of Counties, the Government Finance Officers Association, the National League of Cities, the Treasurers' Association of Virginia, the United States Conference of Mayors, the Association of Public Treasurers of the United States and Canada, and the Conference of State Court Administrators.

This is a good-government bill. If the legislation is passed, it would allow federal, state and local government to work together. Good citizens, who pay their taxes, will appreciate that the federal government and the state government are assisting localities to help local government collect from the delinquents. Each citizen should share in paying his fair share of taxes.

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