Tax News

CCH (cch.taxgroup.com) reports:

  As the Senate on September 18 remained deadlocked on a motion to proceed to an approximately $150- billion tax extenders bill, a White House spokesman said that President Bush would veto tax extenders legislation that is funded by tax increases. Tax breaks for oil and gas companies would be eliminated or frozen to pay for more than a dozen expiring tax provisions contained in the Senate tax extension proposal. Since the beginning of the president's first term, Bush made clear he will not support tax increases and that the last thing taxpayers need to sustain a healthy U.S. economy is higher taxes, noted White House Deputy Press Secretary Scott Stanzel.

  White House Press Secretary Dana Perino declined to characterize current economic conditions when asked if they were in the worst shape since the Great Depression. A Wall Street Journal headline on September 17 declared the U.S. economy was in the "worst crisis since '30s with no end in sight." When asked about the financial newspaper's front-page headline, Perino told reporters at the daily press briefing she is "not in a position to be able to assess it. I would leave it to economists and historians and analysts ... to do that."

  In addition, when asked whether the U.S. is in a recession, Perino referred to the definition used by the National Bureau of Economic Research (NBER). Most of the recessions identified by NBER procedures consist of "two or more quarters of declining real GDP, but not all of them," according to the research bureau.

Senate Progress

  Meanwhile, two Texas senators blocked a unanimous consent agreement as the Senate remained deadlocked on a motion to proceed on extenders legislation. Sens. John Cornyn, R-Tex., and Kay Bailey Hutchison, R-Tex., are unhappy with the disaster relief provisions, which exclude hurricane-devastated parts of their home state. Senate Finance Committee leaders and staff are in the process of negotiating with the two senators with the intent of breaking the deadlock.

  The measure faces an uncertain future nonetheless. As Senate Majority Leader Harry Reid, D-Nev., plans to break up the package into three pieces and offer them as amendments to a larger, House-approved measure, the Renewable Energy and Job Creation Bill (HR 6049), House Democrats have reiterated their insistence on paying for all approved measures with corresponding offsets. Only the $18.3-billion energy tax incentives portion of the package is fully offset, while the alternative minimum tax patch and most of the other tax extenders and disaster relief portions of the Senate package are not offset. If the House, which would likely make minor changes, were to pass the energy tax incentives as a stand-alone measure, many Senate Republicans said they would vote against it when it returns to their chamber because they believe the tax extenders should be approved as a single package.

  Adding to the troubles with the Senate package are two revenue provisions that impact the oil industry and would undoubtedly lead to a presidential veto. Both of the proposals are compromises hammered out by Senate leaders that would affect the tax treatment of oil companies' profits. One provision would impact tax breaks for oil and gas companies' overseas operations by modifying the tax treatment of offshore nonqualified deferred compensation, raising $25 billion. The other provision would freeze at six percent the Code Sec. 199 deduction for income attributable to domestic production of oil and gas, raising nearly $5 billion in revenue.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC Release: Baucus Floor Statement Regarding Energy Tax and Tax Extenders

JCT Estimated Revenue Effects of Title VIII of HR 6899, the Energy Tax Incentives Act of 2008, As Passed by the House, JCX-68-08

JCT Estimated Budget Effects of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, JCX-69-08

JCT Estimated Budget Effects of the Energy Improvement and Extension Act of 2008, JCX-70-08