Tax News

CCH (cch.taxgroup.com) reports:

  Preliminary negotiations over a $775 billion, tax-laden stimulus package are near completion and the tax-writing panels in both chambers plan to mark up portions within their authority during the week beginning January 19. Members reiterated that they are on track to have a bill completed and ready for President-elect Obama's signature by February 13.

  Lawmakers have jettisoned a proposed $3,000 tax credit for employers to hire and retain workers during the current economic downturn, arguing that the $50 billion the provision would cost could be put to better use. Negotiators say they remain undecided on how to utilize the funds but have more than enough options to choose from."Every member has five ideas" for what they would like to see replace the credit, Senate Finance Committee Chairman Max Baucus, D-Mont., recently told reporters.

  Senate Finance Committee member Charles E. Schumer, D-N.Y., told reporters on January 14 that adding a one-year patch for the alternative minimum tax (AMT) to the stimulus package is still under consideration. "Some people have proposed it be in the bill because, as you know, it's something that has to be done. And it's been difficult to pass in the past," he said. Baucus acknowledged the same a day earlier, telling reporters that the AMT patch is "still on the table."

  According to Schumer, the energy incentives portion of the measure has been expanded, reportedly up to $25 billion from the $10 billion initially proposed. Education tax credits will also get a boost, with a doubling and possibly quadrupling of the current $1,000 college tuition tax credit. Still posing problems is a provision that would allow companies to write off losses (NOLs) beyond the two years currently on the books. Aside from its questionable stimulative benefits, lawmakers are uneasy with the idea that banks receiving federal funds under Troubled Assets Relief Program (TARP) may also benefit from the tax deduction. Some have said that a smaller expansion beyond the proposed five years may still be possible because, despite their reluctance to include the provision, the deduction remains a popular means to provide tax relief for small businesses.

  House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., told reporters on January 14 that the economic stimulus package now under consideration by lawmakers and the incoming Obama administration would likely include a one-year AMT patch. Rangel said that both Senate and House lawmakers are interested in including an AMT provision, and he predicted that Congress would never let the AMT affect unintended taxpayers. He said his committee would have jurisdiction over $300 billion in tax cuts as part of the stimulus bill, but he would approach Obama for a larger amount if the committee believes it is necessary.

  The Ways and Means Committee is likely to mark up the economic stimulus bill during the week of January 19, according to House Majority Leader Steny H. Hoyer, D-Md. Hoyer told reporters that the tax components of the legislation will be targeted to middle-class working Americans, who will spend cash and boost the economy. Although he was not specific, Hoyer said the bill would also include energy tax credits.

  Meanwhile, members of the House Republican Study Committee released their own plan for economic stimulus on January 14, calling for lowering corporate tax rates, expanding child tax credits, lowering and indexing capital gains tax rates for inflation and allowing greater business expensing. The provisions are included in the Economic Recovery and Middle-Class Tax Relief Bill, sponsored by Rep. Scott Garrett, R-N.J., and Rep. Jim Jordan, R-Ohio.

Obama Administration View

  Separately, Office of Management and Budget Director Nominee, Peter Orszag, said Congress must take dramatic action to stimulate the U.S. economy. Orszag, at a nomination hearing before the Senate Committee on Homeland Security and Government Affairs on January 14, stressed the importance of maintaining a balanced mix of spending and tax-cut proposals in the economic recovery package.

  The key impediment to economic growth is the $1 trillion gross domestic product (GDP) gap between U.S. goods and services produced and the demand for them, Orszag noted. Public infrastructure projects are the fastest way to add to aggregate demand followed by assistance to states to maintain necessary social services, he said.

  "The economy lost more than 2.5 million jobs in 2008 and without policy interventions to bolster aggregate demand, it could lose another 3-to-4 million jobs over the coming year," Orszag warned. The former head of the Congressional Budget Office said the most pressing challenge in the short run is to jump-start the U.S. economy "out of the worst crisis since the Great Depression." A key challenge in the long run is putting the budget on a more sustainable course, but that will not be possible without controlling health care costs, he said.

Ways and Means Meeting

  After an organizational meeting of the Ways and Means committee, Rangel and ranking member Dave Camp, R-Mich., agreed to continue the cordial working relationship started by Rangel and former ranking member Jim McCrery, R-La., who retired. In reference to the committee's agenda, Rangel said he hopes to work with Camp and other GOP lawmakers on legislation to lower corporate tax rates and close outdated tax loopholes.

  Oversight Subcommittee Chairman John Lewis, D-Ga., said once his subcommittee meets in February, it will likely begin work on the issue of using private debt collectors to collect unpaid taxes. Lewis said his subcommittee would actively provide oversight of charitable organizations and nonprofits.

  By Jeff Carlson, Stephen K. Cooper and Paula Cruickshank, CCH News Staff