Independent Contractor Compliance Blog

The Congressional Budget Office (CBO) has just submitted its report: “The Budget and Economic Outlook: Fiscal Years 2009 to 2019″ to Congress this year. This is a legal requirement under section 202(e) of the Congressional Budget Act of 1974. The CBO is mandated to be independent and nonpartisan in producing this report on the state of the budget and the economy. The CBO issued its report earlier than normal this year (published this week) to help the new Congress and incoming President with the economy.

What did the report say?

The Short Answer:  CBO report stated, “…the current recession, which started in December 2007, will last until the second half of 2009, when the…(economy) will begin a slow recovery and grow by a modest 1.5 percent in 2010.”

The CBO expects inflation to continue to decline, including energy prices and food prices. However, prices on consumer goods and services are expected to increase slightly (.5 to 1 %) through 2010.

The CBO’s estimates the Gross Domestic Product (GDP) in the U.S. will increase a modest 4% by 2011.

CBO estimates the unemployment rate will exceed 9 % early in 2010. However, by 2011 the UI rate will fall to around 6%.

What about IC compliance and taxes?

In preparing the report the CBO assumed that current laws and policies governing federal spending and taxes would not change. This forecast, therefore, does not include the effects of a possible fiscal stimulus package or the several IC compliance and tax bills waiting for the new Congress and President that I’ve reported on over the past several months.

However, CBO did insert a footnote in the report saying the unemployment compensation to individuals will increase expenditures by $9 billion in 2009…”Over 10 years, the effect of higher unemployment compensation on the budget is largely offset by higher revenues.”  The footnote continues, “States are assumed to replenish their depleted trust fund balances by increasing unemployment taxes…”

What does this mean?

I believe the business climate will begin to improve by mid 2009. However, because it is easier to increase tax enforcement efforts (including IC compliance) than overtly increasing tax rates, we will see enforcement grow to a greater level than seen since the 1970′s and 1980′s when the IRS and some other tax agencies became so aggressive, lawmakers were forced to pass laws to hold them back. Be prepared for this increased enforcement by ensuring you can prove you are in compliance if challenged.