Tax News

CCH (cch.taxgroup.com) reports:

Reaction to sweeping tax overhaul legislation unveiled by House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., on October 25 was swift and critical from GOP lawmakers, who predicted the bill would never make it to the White House. Although Rangel's Tax Reduction and Reform Bill of 2007 (HR 3970) would cut corporate tax rates, eliminate the alternative minimum tax and lower the standard deduction, GOP lawmakers took issue with the revenue offsets for those tax breaks.
Republican lawmakers like ranking Ways and Means member Jim McCrery, R-La., agreed that the House will likely pass legislation patching the AMT for one year and extending a group of expiring tax provisions, like the research and development credit tax credit. However, Republicans drew the line at paying for that tax relief by imposing higher taxes on hedge fund managers, S corporations and a wide range of other businesses.
McCrery also faulted Democrats for not agreeing to extend the tax cuts signed into law by President Bush in 2001 and 2003, which expire in 2010. Instead, Democrats plan to use the tax revenue generated by letting those tax provisions expire, which will subject American taxpayers to the largest tax hike in American history, GOP lawmakers said.
Rangel down-played the criticism, noting that the tax code is littered with provisions that unnecessarily provide targeted benefits to corporations. "It has been more than 21 years since Congress and the administration rolled up their sleeves to discuss tax reform and during that time, the tax code has become a jumbled mess of outdated and inequitable provisions that cry out for simplification," Rangel said.
According to Rangel, passing a massive tax cut bill without paying for it would not help the economy but, instead, would force the country deeper into debt. He suggested that corporate taxpayers would be willing to forgo tax deductions and incentives in order to receive a lower corporate tax rate. Corporate support exists for the trade-off, Rangel said, unless a specific industry is currently benefiting from one of the tax loopholes being eliminated.
Dorothy Coleman, vice president for Tax and Domestic Economic Policy for the Washington-based National Association of Manufacturers, offered only guarded support for the lower corporate rates included in the tax package. "We are extremely concerned about the tax increases that will impact manufacturers of all sizes," she said in a written statement. "Based on our initial review, for many manufacturers, the proposed tax increases could well exceed the benefits of the proposed tax relief."
Rangel said he plans to remove the one-year AMT patch and the extenders provisions from HR 3970 and pass them as a separate tax bill before Congress adjourns in November. However, if Senate lawmakers insist on not raising revenues to pay for the cost of AMT relief, then he plans on passing a separate extenders bill and a separate AMT bill. Rangel said those bills would be paid for by provisions to tax carried interest as ordinary income and by preventing hedge fund managers from using offshore tax havens.
Treasury Secretary Henry M. Paulson, Jr., applauded Rangel's commitment to discussing tax reform, but urged the chairman to speedily pass a one-year AMT patch that does not raise taxes to pay for it. "The legislation unveiled today would dramatically raise taxes in ways that, in my judgment, would hinder America's ability to compete in the global economy," Paulson said.
House Majority Leader Steny Hoyer, D-Md., has pledged to bring AMT legislation to the House floor for a vote just as soon as the Ways and Means panel is ready. He said that Democrats are "determined to enact a fiscally responsible AMT bill that respects our pledge to follow pay-as-you-go rules."
Although Rangel has asked for assistance from GOP lawmakers to fine-tune the tax legislation, McCrery said Republicans are unlikely to offer their help in 2007.
Senate Response
Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, while cautiously praising Rangel for getting rid of the AMT, said the tax reform measure "looks like warmed-over AMT," if it is not indexed for inflation. "The replacement tax will still hit millions of families," he said. Regarding corporate tax reform, Grassley agreed on the need to lower the rate and broaden the tax base, but noted that most small businesses are not corporations. "They're sole proprietorships, subchapter S corporations, or partnerships... their rates won't go down. If that's the case, the "mother of all tax bills "could become a political orphan," he said.
By Jeff Carlson and Stephen K. Cooper, CCH News Staff
Tax Reduction and Reform Act of 2007, HR 3970
Ways and Means Summary of Tax Reduction and Reform Bill of 2007
Ways and Means Release: Chairman Rangel Introduces Tax Reduction and Reform Act of 2007
SFC Release: Grassley on Chairman Rangel's Tax Reform Proposal
Very Preliminary JCT Estimated Revenue Effects of Proposals Contained in the Tax Reduction and Reform Act of 2007
Treasury Department News Release, TDNR HP-646.