Tax News

Tax Analysts report:

The Senate on May 11 approved by a narrow 54-44 vote a $70 billion package of tax cuts, wrapping up congressional action on the bill and sending it to the presidents desk for his signature. The House passed the bill easily the previous day.

This legislation prevents a $70 billion tax increase on the American people and ensures continued economic growth and job creation, said Senate Majority Leader William H. Frist, R-Tenn. These provisions have proven to strengthen our economy and help provide an environment conducive to small business investment and growth.

The final conference report to the reconciliation package (H.R. 4297) combined a two-year extension of the reduced tax rates on capital gains and dividends with a one-year extension of alternative minimum tax relief that would ensure that no additional families become subject to the AMT. The bill also extends for two years increased small-business expensing under section 179 and the subpart F exemption for active financing. Under Senate reconciliation rules, the bill was not subject to filibuster and could be passed with a simple majority vote.

Like the previous days House debate, the partisan Senate debate on the tax cut package revolved around senators perception of priorities. While Republicans argued that extension of the reduced capital gains and dividends rates would ensure continued economic growth, Democrats countered that other tax breaks left out of the bill would have been more beneficial to average Americans.

Senate taxwriter Rick Santorum, R-Pa., told reporters that increases in federal revenues since the investment tax cuts were enacted are proof that Democrats were wrong when they said in 2003 that the cuts would lead to deficits.

There cant be any conceivable reason [why Democrats will not support the bill] other than the fact that theyre not willing to admit they were wrong, Santorum said.

But Senate Finance Committee ranking minority member Max Baucus, D-Mont., said that while he and his fellow Democrats support extension of AMT relief, inclusion in the bill of the capital gains and dividends tax relief shows how Republicans put the wants of a few, based on ideology, ahead of the needs of Americans.

While arguing that the investment tax cuts help only the nations wealthiest taxpayers, Baucus and other Senate Democrats questioned why Republican leadership would choose to include those provisions instead of bipartisan tax breaks such as extension of the research credit and the deduction for qualified higher education expenses.

Those provisions, along with other business tax cut extensions and extension of the deduction for state and local sales taxes, are expected to be included in a forthcoming trailer bill that is likely to be attached to pension reform legislation currently in conference. But Democrats have been skeptical that the trailer bill will ever see the light of day.

Theres no agreement on the second bill, and its not a sure thing, said Senate taxwriter Charles E. Schumer, D-N.Y.

Senate Finance Committee Chair Chuck Grassley, R-Iowa, called those Democratic assertions political manipulation of the facts at its worst, saying that negotiations on the second bill are ongoing and that the Senate will get a chance to vote on all of those provisions very soon.

Grassley told reporters that it is his personal goal to complete action on the trailer bill, as well as the pension reform legislation, by the Memorial Day recess, which begins May 29.