Tax Quote of the Week
"Any tax is a discouragement and therefore a regulation so far as it goes."
-- Oliver Wendell Holmes Jr.
Senate Passes AMT/Disaster Relief/Tax Extenders Bill
In the continuing effort to pass AMT relief, disaster relief and tax extenders, on September 23 the Senate passed the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (H.R. 6049).
Majority Leader Harry Reid (D-NV) was very pleased with the vote. He noted, "By protecting millions of Americans from the AMT, we are also giving tax cuts to those who need it most -- the middle class and private sector innovators, not multibillion-dollar oil companies."
The bill combined the wind, sun, geothermal and other energy provisions of the Energy Improvement and Extension Act of 2008 with AMT relief, tax extenders and the Mental Health Parity Bill. The $131.4 billion cost is offset in part by a $25.2 billion provision designed to increase tax payments from hedge fund managers.
On numerous prior occasions, Sen. Max Baucus (D-MT) and Sen. Charles Grassley (R-IA) presented bills on both AMT and the tax extenders to the Senate. The two senators were clearly gratified that the combination of four existing bills finally received overwhelming approval in the 93-2 vote by the Senate.
However, Sen. Grassley did warn the House by cautioning, "The Senate compromise is the only package that the White House has indicated the President will sign. It's time to focus on making law on these time-sensitive issues."
House Splits AMT, Disaster and Extenders Bills
Despite the warning by Sen. Grassley, House leaders decided not to vote on the Senate version of H.R. 6049. Instead, the House "uncoupled" the bill and created the Disaster Tax Relief Act of 2008, The Alternative Minimum Tax Relief Act of 2008 and separate bills on mental health parity and tax extenders. The Disaster and AMT Tax Relief Acts passed mid-week. At publication time, the House was preparing to pass its version of the tax extenders bill, the Renewable Energy and Job Creation Tax Act of 2008 (H.R. 7060).
The House is Renewable Energy and Job Creation Tax Act includes 32 extenders and these parallel the Senate tax extenders bill (H.R. 6049). In the charitable area, the House bill includes the IRA charitable rollover, enhanced deductions for gifts of food, books and computers and favorable rules for gifts of appreciated property by Subchapter S corporations.
House Majority Leader Steny Hoyer (D-MD) supported the concept of the tax extenders. He called the bill "essential tax relief to American families and businesses."
However, Leader Hoyer also noted that the bill was important because it is "paid for." In his view, "The means used to pay for this legislation are not controversial." With the offsets or additional tax provisions that are designed to raise sufficient revenue to cover the cost of the bill, the House tax extenders bill complies with the 'pay-go' provisions."
Editor's Note on Prospects For The IRA Rollover
Of all of the tax extenders, the one that is of greatest importance to philanthropy is the IRA charitable rollover. Both the House and the Senate bills include identical provisions to extend the IRA charitable rollover from January 1, 2008 to December 31, 2009. The rollover guidelines would be consistent with the rules that previously applied, permitting IRA owners over age 70½ to transfer up to $100,000 per year to qualified public charities.
At press time, the White House and congressional leaders continue to work on the proposed $700 billion bailout to purchase bad debts of major banks and financial companies. With the delay in the scheduled recess of Congress for the elections and the desire of both parties to pass the AMT/disaster relief/energy/tax extenders bill, there is still a reasonably good chance for passage during the next week.
What are the factors that may lead to passage of the tax extenders? First, the economy remains quite vulnerable. Business provisions for the research and development credit and favorable depreciation rules in the tax extenders bill are very important at this time of economic peril. Second, Congress recognizes that it must act to provide AMT relief prior to the end of the year. Third, at least four million teachers annually use the teacher's expense deduction (a popular tax extender), and most of these teachers will be voting in the upcoming election.
The difference between the House and Senate on tax extenders could be resolved. The Senate is offering $25 billion in offsets and the House would prefer about $50 billion. Because the difference in the extenders bill is now whether it will be partially offset (Senate position) or completely offset (House position), there is a reasonably good prospect that a compromise can be reached and the bill passed during the next week.
