The past two weeks have seen some action and attention by Congress on tax legislation. Congress is about to recess for the “district work” period; many major issues are in play but in suspended animation.
The first piece of news is not directly related to taxes but does impact the federal fisc and the federal deficit. Congressional leadership in the Senate and the House has decided to consider a Continuing Resolution (CR) in September to fund the government until March 2013. This is a good news and bad news. It means Congress will avoid the rancor of funding the government but it also means Congress has abdicated and walked away from it responsibility of passing appropriation bills. Many of the details of the CR still have to be worked out, although the overall spending level has been agreed. The next Congress will have to deal with spending issues. Considered it can kicked down the road.
The House and Senate have both passed legislation dealing with the expiring tax provision enacted in 2001 and 2003, the so called Bush tax cuts. Unless Congress acts, a number of individual tax rates, investment preferences and other matters will revert to 2000 levels. The Senate passed legislation to extend the current law for taxpayers with incomes less than $200,000 while the House provisions extend the entire Bush cut for all incomes.
The line has been set on the different approach between the conservatives and the liberals. The differences are irreconcilable and each side has dug in, hunkered down and ready for battle. There will be not further action until after the election and then it is unpredictable on what will happen.
Other tax news involves certain “temporary provisions” that have already have expired or will expired at the end of this year. This includes an array of worthy and not worthy provisions and special provisions, many of which have been it the law for some times. They are grouped each year into what is knows as the “extenders”. (Sounds like a bad music group)
Included in the extenders are items such as the prized boondoggle research and development tax credit, political sop to teacher unions in the form of a special deduction and heavily subsidized energy provisions. It also includes addressing the Alternative Minimum Tax (ATM), which unless fixed every year would subject millions of taxpayers (mostly in high state income and property tax states) to its wrath. It is idiotic the AMT has to be patched every year but the budget rules give it huge revenue cost that Congress in order to make the budget deficit look better addresses it only a year-by-year basis.
The Senate Finance Committee is considering all the extenders today. The Chairman-Senator Max Baucus (D-MT)-is trying to do the right thing by putting forth a mark for the Committee to consider. Unfortunately, his suggestions more or less give a blanket extension to most of the provisions and result in a revenue loss of more than $150 billion dollars. A lot of tax money for a Democrat to part with when his party is the party of higher taxes and more taxes. I would have been a bit more selective in which provisions are worthy
Of course, the whole concept of extenders is wrong, constantly distracting, and dishonest in the budget process but it is understandable why Mr. Baucus is proceeding. He has the tacit support of his Republican. The question becomes what happens next?
Assuming the Senate Finance Committee reports out a bill, when will it be considered in the Senate? Before the election? Doubtful. After the election? Maybe but bringing a tax bill to the Senate floor is a recipe for mischief. Have to have an agreement to vote or subject a bill to endless amendment and if Republicans take control, what is the incentive to do this at all when it can be push back to the next Congress.
What about the House? Not much interest in passing the extenders there on their own. Too much money involved, not going to follow the Senate, can use as bargaining chip on other matters.
It is unpredictable at this point. Senator Baucus is exercising his position as Chairman of the tax writing committee to address this situation. Many of these provisions will be extended eventually but must be dealt with in an overhaul of the tax code.
By the way, the federal deficit will increase an additional $4 billion today, tomorrow and the next day. Extend the expiring tax breaks for special provisions, I find ironic.
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