Tax News

CCH (cch.taxgroup.com) reports:

  A tax aide to a Republican member of the Senate Finance Committee (SFC) predicted that the new Congress will act quickly in January 2009 to pass stimulus legislation and have it ready for President Barack Obama to sign when he takes office. The SFC could see a markup scheduled for as early as January 8, even before the committee finishes organizing itself, although it would be unusual to have legislation ready for the new president to sign. The aide spoke to practitioners on December 17 at a BNA Tax Management Luncheon held at Buchanan, Ingersoll & Rooney in Washington, D.C.

  With the new president not yet in office, there is a void in leadership, the aide said. SFC Chairman Max Baucus, D-Mont., aims for the committee to have a role in stimulus legislation and wants a tax element in it. House Speaker Nancy Pelosi, D-Calif., has predicted a stimulus package of $600 billion, including $200 million in tax provisions. Both Republicans and Democrats support tax aid to the states, infrastructure help and food stamp increases.

  The aide believes that a second round of stimulus checks is unlikely. There are proposals for a payroll tax holiday, but that might not help people looking for work. The Republicans would prefer that bonus depreciation be extended.

  Sen. Orrin Hatch, R-Utah, is supporting expanded net operating loss (NOL) relief, such as an increase in the carryback period from two years to at least four years. Some may propose a 10- to 15-year carryback period, to move the proposal. An increased carryback period would help companies that have already maximized their carrybacks and cannot benefit from carryforwards since they are operating at a loss. Similarly, tax credits for wind and other renewable energy development do not help companies with losses. One company has called for a refundable credit, the aide noted.

  Hatch supports a permanent research credit, which he believes would have a stimulus effect. There is no discussion of a capital loss carryback for individuals, but there is some support for increasing the current $3,000 limit on deductible losses.

  Because a stimulus bill probably will not be governed by pay-as-you-go (PAYGO) requirements for offsets, Senate members may want to expand the bill's scope to include middle-class tax cuts or estate tax relief, for example. Unlike the Senate, the aide pointed out, the House may be more deferential to the new president, since it is generally governed by majority rule, without requiring the support of 60 members.

Subsequent Measures

  As soon as the economy starts to improve, Congress will shift its focus to reining in deficits, the aide predicted. The congressional Blue Dogs want a statutory requirement for PAYGO, rather than just an in-house rule. The aide expects Congress to impose some discipline on tax bills, but Republicans and Democrats may debate whether spending cuts or raising taxes is the appropriate solution. At some point, Congress will be looking for more revenue, which could come from tax increases, changes to the carried interest rules or codification of the economic substance doctrine.

  Both sides support estate tax reform, although they may differ on the exemption level and the rates. The aide believes that Congress will want to address the estate tax in 2009, and he expects action to be taken.

  Obama supports both tax cuts and increases. His chief of staff, Rahm Emanuel, initially said that the new administration does not want to wait but, since then, Obama has backed off on imposing new increases while economic stimulus is a concern. It is an open question whether Congress will take action on the 2001 tax cuts that are set to expire at the end of 2010.

  Congress is ready to talk about health care reform, the aide stated. Both Baucus and Sen. Edward M. Kennedy, D-Mass., are very interested. Reform could include changes to the health insurance exclusion. One proposal for a cap would raise $350 billion over 10 years. This is viewed as a health care issue, not as tax reform. Republicans will insist that any savings be plowed back into health reform, rather than used to support other spending measures, the aide said.

  It is not clear that Congress is ready to move on broader tax reform, the aide indicated, even with reform proposals from the House Ways and Means Committee. The president must take the lead, but Obama has not said much on this subject. More education is also needed. There has been no talk of 1986-type reform, involving a broadening of the tax base.

  By Brant Goldwyn, CCH News Staff