Majority Leader Hoyer issued a statement pledging a vote on extending the middle-income tax cuts. He indicated that the bill he will present does not provide for extension of the top 33% and 35% tax brackets. Rep. Hoyer noted, “We cannot afford to add $700 billion to the deficit to benefit the wealthiest Americans with almost no economic benefit as Republicans want to do.”
The Democratic plan is also supported by President Obama. It would extend tax cuts for single persons with incomes below $200,000 and married couples with incomes under $250,000.
Majority Leader Harry Reid (D-NV) also published a statement showing support for extending the tax cuts. He indicated that he will continue to seek “a permanent extension of tax cuts for the middle-class and small businesses.”
The incoming Ranking Member for the Senate Finance Committee will be Sen. Orrin Hatch (R-UT). Sen. Hatch indicated that he would not permit a tax bill to pass unless it also extended the upper-income rates. He stated, “If we allow this critical tax relief to expire on January 1, my home state of Utah would not be spared. The beehive state would lose an average of 6,200 jobs each year and household disposable income would drop by $2,200.”
Sen. Hatch indicated that he would be open to a two-year extension of all of the tax rates. If the tax rates could not be extended for the two-year period, he suggested that it may be prudent to wait until 2011 and then pass a retroactive tax act.
Two centrist Democrats, Sen. Ben Nelson (D-NE) and Sen. Evan Bayh (D-IN), suggested that it would be an appropriate compromise to extend the middle-class tax cuts permanently and the upper income tax rates for two years.
The Congress will be in recess from November 19 to November 29. Following their return to Washington, the President and leaders of both parties will meet to negotiate a tax provision on November 30.
Editor’s Note: Congressional aides are discussing the possibility of a comprehensive tax bill. There are so many different tax provisions that need action before the end of the year that individual bills in all areas cannot be passed by the Senate. If a comprehensive tax bill were the subject of a bipartisan compromise, it could address the alternative minimum tax, extension of income tax and capital gains rates, the 40 tax extenders and estate taxes. The hope of many in Washington is that the comprehensive bill would have a sufficient number of benefits for senators and representatives that it could be passed by the middle of December. However, Senate Finance Chair Max Baucus (D-MT) stated this week that members of Congress should “get your snow boots on.” It is quite possible that Congress will be in Washington until December 25.
Broad Support for Tax Extenders
A fairly diverse coalition of organizations is advocating various types of tax extender bills. With respect to the extenders, Senate Finance Chair Max Baucus has stated, “One way or another, we will get this done.”
The Independent Community Bankers of America published a press release and urged “Congress to extend tax rates and expiring tax measures” this year. Jim MacPhee is ICBA Chairman and he indicated that it is critical to provide “tax certainty and allow community banks and other small businesses to better support job growth and greater economic activity.”
A coalition of business groups also urged Congress “to extend critical tax provisions that, while temporary in nature, are critical to our economy.” The fragile economy is still vulnerable and the extension of the tax provisions would potentially assist in reducing unemployment.
A third call was issued by Enterprise Community Partners, Inc. a nonprofit developer of affordable housing. One of the provisions in the Job Creations and Tax Cut Act of 2010 (S. 3793), introduced in September by Senate Finance Chair Max Baucus, would provide support for nonprofits that are building affordable housing. Enterprise Partners stated, “At a time when the American economy faces a future of uncertainty and citizens across the country are out of work, we cannot afford to miss the opportunity to create hundred of thousands of jobs and thousands of affordable homes for those in dire need.”
Fiscal Commission Grapples with Tax Expenditures
Following the release of a preliminary draft by the bipartisan National Commission on Fiscal Responsibility and Reform, there was debate this week on tax expenditures.
Commission Co-Chairs Erskine Bowles and Alan Simpson encouraged a discussion on tax expenditures. Bowles indicated that there will be changes in the tax earmarks section of the draft plan, but that, “It won’t be a watered-down thing that happens in Washington all the time.”
Both Bowles and Simpson have emphasized that the principal goal of their discussions will be to stabilize the national debt and reduce it to 40% of Gross Domestic Product (GDP) by 2037.
Commission Member Rep. Janice Schakowsky (D-IL) published her own proposal on tax expenditures. She proposed limiting some of the credits and deductions for businesses and raising the Social Security taxable income limit for both employers and employees.
Rep. Xavier Becera (D-CA) indicated that he was not yet willing to support the commission draft, but he acknowledged, “If you’re not willing to admit that you’ve got tax earmarks that are driving us down a ditch, then you are never going to solve the problem.”
Fiscal Commission Member Alice Rivlin, a former Director of the White House Office of Management and Budget, is also a participant in another bipartisan effort to address the deficit. The Bipartisan Policy Center on Debt Reduction Taskforce is co-chaired by Rivlin and former Senate Budget Committee Chair Pete Domenici.
The Debt Reduction Taskforce published their proposal this week to address the deficit. They would create a payroll tax holiday for 2011 in order to stimulate hiring and new employment. The Taskforce would reform income taxes with two rates of 15% and 27%. However, mortgage and charitable deductions would become a 15% credit. In addition, the Taskforce proposed a 6.5% national sales tax.
Fiscal Commission Member Sen. Judd Gregg expressed opposition to the national sales tax. He stated, “A national sales tax isn’t going to solve the problem. It’s basically saying were going to accept a massive expansion of government, well over what the historic size of government has been in this country.”
Editor’s Note: It appears that Co-Chairs Erskine Bowles and Alan Simpson still have not attained their goal of a favorable vote from 14 of the 18 members. However, members of both parties are now clearly engaged in the effort to find a bipartisan solution to the deficit challenge.
Applicable Federal Rate of 1.8% for December – Rev. Rul. 2010-29; 2010-50 IRB 1 (16 Nov 2010)
The IRS has announced the Applicable Federal Rate (AFR) for December of 2010. The AFR under Section 7520 for the month of December will be 1.8%. The rates for November of 2.0% or October of 2.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2010, pooled income funds in existence less than three tax years must use a 4.6% deemed rate of return. Federal rates are available by clicking here.
Filed under: Washington Hotline Tagged: | Income Tax Planning
