Senate leaders released an agreement crafted by the White House and Republicans to sustain Bush-era tax rates through 2012, set the estate tax at the lowest rate in 80 years, extend jobless aid and cut payroll taxes by 2 percentage points.
The legislation would add $857 billion to the federal debt over 10 years, government analysts said.
Senate Majority Leader Harry Reid introduced the legislation late yesterday after three days of lobbying by Democrats to include measures excluded from the framework announced Dec. 6 by President Barack Obama. The measure includes some provisions favored by Democrats such as renewed ethanol and commuter subsidies. Others, such as an extension of the Build America Bonds program, didn’t make the cut.
Reid scheduled a procedural vote on the bill for Dec. 13.
The congressional Joint Committee on Taxation, which estimates the revenue effects of tax legislation, said the provisions would cost the government $801.3 billion in forgone revenue over 10 years. Extending unemployment benefits for 13 months, another feature of the package, would cost $56 billion, the Obama administration has said.
The proposal would extend Bush-era tax cuts for all levels of income. A two-year extension of those rates would cost $407.6 billion, according to the Joint Committee on Taxation.
The measure would keep the reduced tax rates enacted in 2001 and 2003 on income, capital gains and dividends from expiring on Dec. 31. That would preserve the current 15 percent rate for most dividends and capital gains as well as the 10, 15, 25, 28, 33, and 35 percent income-tax rates.
The $1,000 child credit would avoid being cut in half, the abolishment of the so-called marriage penalty would be retained, and tax credits subsidizing adoption, higher education and child care would be extended.
The bill includes provisions from last year’s economic- stimulus law that Democrats favor, including a Treasury grant in lieu of tax credits for solar, wind and renewable energy conversion. The change helps companies that are unprofitable and couldn’t take advantage of the credits.
The bill would extend federal unemployment insurance for the long-term jobless for 13 months, covering all of 2011, and cut workers’ share of Social Security taxes to 4.2 percent. It would temporarily index the alternative-minimum tax, rolling back a $136.7 billion tax increase set to affect an estimated 21 million Americans this year and next.
“If this compromise passes, all taxpayers are going to win,” said Kathy Pickering, executive director of the Tax Institute at H&R Block in Kansas City, Missouri. “First, by being able to take advantage of the credits that were expiring and by not having the increase in the tax rate.”
A provision many Democrats call the most objectionable would create a 35 percent top tax rate on estates that would apply after a tax-free allowance of $10 million per couple is exhausted. The 2001 law temporarily abolished the estate tax for 2010 only, and the levy is scheduled to return in 2011 with a top 55 percent rate and a $2 million per-couple tax-free allowance.
House Democrats cited the provision, advocated by Arizona Republican Senator Jon Kyl, as one of the main reasons they yesterday approved a non-binding resolution to block consideration of the White House-Republican framework “in its current form.” House Speaker Nancy Pelosi, a California Democrat, said she may still bring a bill to the floor.
For businesses, the measure grants a one-year opportunity to deduct the cost of investments such as software, equipment and entire factories rather than depreciate those acquisitions over time as current rules require. The provision would be effective for purchases after Sept. 8, the day Obama first proposed the idea.
Businesses also would benefit from a retroactive two-year reinstatement of dozens of tax breaks, many of which expired a year ago. Among them: a research tax credit claimed by thousands of companies including Harley-Davidson Inc. and Microsoft Corp. Tax deferral on profits associated with foreign lending activities by companies such as General Electric Co. and JPMorgan Chase & Co. would again be allowed.
A 45-cent per gallon tax credit for ethanol production, due to expire at year’s end, would be extended for one year.
The measure doesn’t extend some features of the 2009 economic stimulus law that expire at year’s end. The legislation allows the Build America Bonds program to lapse, for example. The program has been the fastest-growing segment of the U.S. municipal bond business and has been a source of underwriting fees for companies including Goldman Sachs Group Inc. and Bank of America Corp.
Also excluded from the package was a renewal of a tax break sought by timber-state lawmakers. Established by the 2008 farm bill, it created a 15 percent capital-gains tax rate for corporate-owned timber sales. The provision, which would cost $339 million to renew through next year, lapsed in mid-2009.
The measure omits an extension of the advanced energy manufacturing program, which has provided tax credits to companies investing in battery technology. The administration has been seeking a $5 billion infusion into the program.
Companies including Dow Corning Corp., EI DuPont de Nemours & Co., GE and United Technologies Corp. took advantage of an initial $2.3 billion for the program in the stimulus law.
The tax agreement lacks revenue-raising offsets. It doesn’t include higher taxes on the carried interest earned by private- equity fund managers and certain real estate investors. Many Democrats had been seeking to tax this compensatory income as ordinary income, not capital gains.
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