Tax Extenders Pass Senate, Head to House
According to the National Small Business Association, before adjourning for the elections and possibly the year, Congress plans to wrap-up consideration of a nearly $150 billion package of tax-cut extensions, including a fix for the alternative minimum tax (AMT); renewal of the expired research and development credit and state and local sales tax deduction; and renewable energy tax breaks. It is expected that the final package also will include Mental Health Parity legislation.
On September 23, the Senate agreed to the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 by a vote of 93-2. The Senate used the previous House-passed tax extender bill (H.R. 6049) as a shell, amending it in two pieces, first with the energy tax provisions and then the AMT patch and other tax extenders.
An amendment to add a fully offset $17 billion package in energy tax extenders to the bill passed 93-2. Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Charles Grassley (R-Iowa) negotiated a scaled-back version of their original package of energy-related extensions. This portion of the bill features new tax incentives for investment in solar and wind technology, qualifies marine and hydrokinetic energy as an energy resource, allows biomass units to qualify for credit and extends the federal renewable energy investment and production tax credits for two years—through 2011.
The Senators agreed not to offset the $62 billion AMT with new revenue raisers, however. To keep the number of taxpayers affected by the AMT at the estimated 4.2 million level from 2007, the hold-harmless patch would increase the exemption levels to $46,200 for individuals and $69,950 for married couples filing jointly. In 2007, the exemption levels were $44,350 and $66,250, respectively. The bill also would allow personal credits to be used against the AMT.
The legislation extends nearly three dozen expiring tax cuts, including the research and development credit, and a provision allowing individuals to deduct their state and local taxes on their federal tax returns. Additionally, the measure will extend the 15-year straight-line cost recovery for qualified leasehold, restaurant and retail improvements because of the frequent equipment upgrades needed in those businesses.
After Senate Republicans opposed the original bill, saying they do not support paying for temporary tax provisions with permanent tax increases, Senate Democratic leaders have agreed to drop some proposed offsets, including a provision to offset the costs of the mental health parity language with another delay in the implementation date of the worldwide interest allocation tax benefit for multinational companies until 2018.
Also on Sept. 23--the same day the House passed (376-47 vote) a mental health parity stand-alone bill--the Senate incorporated language into their extenders package that would require health plans offering mental health coverage to provide the same benefits for mental illness as they do for other medical conditions. Employers with fewer than 50 employees would be exempted from the parity requirement.
In order to garner the necessary 60 votes, the compromise agreement will only be offset by a $25 billion provision eliminating a tax benefit on deferred compensation used by hedge fund managers and other executives, and a long-expected provision to require securities brokers to report the cost basis for transactions to the Internal Revenue Service. This requirement will apply to transactions of all stocks, debt, and commodities and is expected to raise $6.7 billion over ten years.
Meanwhile, in a statement of Administration Policy, the administration wrote that it "supports prompt passage" of the Senate bill. The White House said it supports the bill "despite the inclusion of several provisions the administration opposes," such as revenue-raising offsets that would target a manufacturing deduction for oil and gas producers and refiners and crack down on hedge-fund managers' offshore deferred compensation plans.
The bill is only partially offset, which is to the administration's liking. "For this reason, the administration supports the provisions in the Senate amendments that provide individual and business tax relief without subjecting Americans to offsetting tax increases," the statement said.
Even with the administration’s endorsement, final passage will likely prove to be a hurdle in the House, where Democrats are insisting that the tax extenders package be fully paid-for. Rather than use the conference committee reconciliation process, the House intends to call up the Senate passed bill (H.R. 6049) and offer an amendment to it that would strike the Senate’s partially paid-for extenders package and insert new House language.