• Update: Tax Cut Measures in House and Senate
  • August 6, 2012 | Author: B. Jeffrey Brooks
  • Law Firm: Adams and Reese LLP - Washington Office
  • The battle in Congress over tax cuts began last week and is expected to continue as the parties sharpen their divide as they advance to the fall elections.

    Last week the Senate, in a 51-48 vote, passed a measure (S 3412) that would extend tax rates only for individuals earning up to $200,000 a year and households making up to $250,000.  The bill, which has a projected cost of $249.6 billion over ten years, would effectively allow upper-income rates enacted in 2001 and 2003 to expire as scheduled at the end of the year.  Since the estate tax is not addressed in this proposal, under current law, the estate tax would revert to a $1 million exemption level per decedent and a top tax rate of 55%.  According to the Joint Committee on Taxation, a one-year extension of just the middle-and lower-income tax cuts, which were first enacted during the Bush administration, would cost $129.5 billion in forgone revenue.

    Yesterday, in a 256-171 vote, the House passed a bill (HR 8) that would extend the full 2001 and 2003 tax cuts.  The measure maintains the maximum estate tax rate of 35% while retaining the exemption amount of $5 million, and provides a two-year “patch” to prevent the alternative minimum tax (AMT) from hitting 27 million taxpayers.  HR 8 is expected to cost $383.6 billion.  Senate Democratic leadership has vowed that the legislation would be dead on arrival and President Obama has issued a veto threat for any legislation that did not let the reduced rates for top earners expire. 

    Though the Senate bill officially costs $155.3 billion less than the Republican measure, the difference would shrink to roughly $50 billion if it contained the Democrats preferred policies to cap the estate tax at its 2009 levels and extend the AMT relief through next year.  Despite their many differences, both tax measures would continue the current tax rates on income up to $200,000 for single filers and $250,000 for joint filers.  They would also both keep the child tax credit at $1,000 and continue a variety of education tax breaks, such as an incentive for businesses to pay for the college and postgraduate expenses of employees.    

    Today, the Senate Finance Committee is expected to markup an entirely different piece of legislation titled “Family and Business Tax Cut Certainty Act of 2012”.  This legislation would continue dozens of expired and soon-to-expire tax breaks known as extenders, as well as a two-year fix to the alternative minimum tax to prevent it from hitting more middle-income earners.  Many of the targeted tax breaks have bipartisan support in the Senate and are expected to pass relatively easily if some of the more controversial differences, like the 2001 and 2003 tax cuts are left out of the legislation.  This Senate extenders package includes items such as business tax credits for research and development expenses and new market tax credits.  According to the draft text, some energy tax extenders such as credit for nonbusiness energy property, incentives for biodiesel and renewable diesel, and new energy efficient home credits will all be included.

    As always, we will continue to monitor this and update you accordingly.  Please do not hesitate to contact us if we can be of additional assistance.