Tax News

CCH (cch.taxgroup.com) reports:

Senate and House negotiators on May 20 reached an agreement on a budget plan for fiscal year 2009 that includes $340 billion in tax cuts over the next five years. Both chambers are expected to vote on the budget blueprint before the Memorial Day recess, which begins on May 23. The budget agreement does not include any tax increase, according to House Budget Committee Chairman John M. Spratt, Jr., D-S.C. "It supports significant tax relief, including extension of marriage penalty relief, the child tax credit and the 10-percent bracket, as well as allowing for estate tax reform," he said. It also includes an additional year of alternative minimum tax (AMT) relief and provides for property tax relief, energy and education tax relief and extenders.
One of the significant differences between the House and Senate budgets that the conference needed to resolve was the reconciliation of revisions to the AMT. Spratt said it was unlikely that there would be enough votes to pass reconciliation in the Senate, so the conference agreement would drop the reconciliation instructions included in the House budget. However, House conferees said they were committed to patching the AMT for at least one year and offsetting any revenue loss. In the end, Spratt said the AMT revisions will go to the House floor with offsets and then will go from the House to the Senate with offsets. If there are no offsets to the AMT fix in the Senate, the bill will be subject to a point of order. Senate Budget Committee Chairman Kent Conrad, D-S.D., and Spratt agree that the point of order in the Senate will be mostly symbolic and the report is expected to pass.
The 10-percent tax bracket created in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (P.L. 107-16) allows the first $7,750 of every American's income to be taxed at a 10-percent rate --a cut from the 15-percent rate originally applied to that income. The Joint Committee on Taxation (JCT) estimates the average tax savings will be $498. EGTRRA
also modified tax requirements for married couples filing jointly, doubling the standard deduction and taxing more of the couple's income at the 15-percent rate. According to the JCT, the extension of these provisions will benefit 29.5 million married couples with an average savings of $686 per year. The JCT estimates that 31.3 million taxpayers will benefit from the extended child tax credit with an average savings of $1,025.
Office of Management and Budget Director Jim Nussle criticized the budget blueprint as fiscally irresponsible. "It contains the largest tax increase in history and nearly $25 billion in overspending, each penny of which drives the budget deficit higher," Nussle said in a written statement. He also cautioned that any bills that exceed President Bush's spending level will be vetoed.
By Jeff Carlson and Paul Cruickshank, CCH News Staff
Overview: FY 2009 Budget Conference Agreement, May 20, 2008