Senate Health Bill Calls For Excise Tax On Insurance Plans, Added Payroll Tax On High-Wage Earners
Health care reform took another major step forward on November 18 when Senate Democratic leaders unveiled the Patient Protection and Affordable Care Act. The bill is a blended version of bills passed earlier by the Senate Finance Committee (SFC) and the Senate Health, Education, Labor, and Pensions (HELP) Committee. The $849 billion package, with $370 billion in revenue raisers, was drafted not only with an eye toward garnering the 60 votes necessary for full Senate approval but also in preparation for conference committee negotiations. Although the Senate bill is similar in scope to the House-passed Affordable Health Care for America Act (H.R. 3962) many differences remain, especially over revenue raisers.
On November 7, 2009, the House passed the Affordable Health Care for America Act of 2009 (H.R. 3962), the 2,000+ page bill overhauling health insurance coverage for Americans. The legislation imposes a new surtax on higher-income individuals at a cost of more than $400 billion over 10 years to help pay for nearly universal coverage. The measure also:
Places new limits on health flexible spending accounts,
Higher penalties on nonqualified distributions from health savings accounts, and
Imposes an excise tax on medical devices.
In looking for ways for cover the cost health reform, the legislation also makes significant changes to areas of the tax law unrelated to health care except in their common ability to raise revenues. These tax increases include tightened treaty benefit limitations, new information reporting requirements on payments to corporations, extended repeal of worldwide interest allocation, new restrictions on the biofuel producers credit, and codification of a broad economic substance doctrine.
President Signs Worker, Homeownership, and Business Assistance Act of 2009 Into Law
Two popular but temporary tax incentives have been given a new lease on life as part of legislation extending unemployment compensation benefits. The Worker, Homeownership, and Business Assistance Act of 2009 (H.R. 3548) was passed by the Senate on November 4, 2009, and by the House one day later. President Obama signed the legislation into law November 6, 2009. In addition to extending unemployment insurance benefits for an additional 14 weeks, the legislation includes an extension and expansion of the homebuyer credit and an extension and expansion of the five-year carryback of net operating losses. To pay for these provisions, the legislation includes a delay in the application of worldwide allocation of interest, an increase in the penalties for failure to file partnership and S corporation returns, and an acceleration of corporate estimated tax payments. The legislation also expands the requirement for electronic filing by return preparers.
The Obama administration released much-anticipated details about its proposed tax cuts and revenue raisers on May 11. The Treasury Department's General Explanations of the Administration's Fiscal Year 2010 Revenue Proposals (also known as the "Green Book") describes the administration's tax agenda, including permanent Making Work Pay, American Opportunity and research credits; a package of international tax reforms; reinstatement of the 36 and 39.6 percent individual marginal income tax rates; expanded information reporting; and automatic enrollment in IRAs. According to the Treasury, the proposals would generate $736.5 billion in savings for individuals (largely aimed at middle income taxpayers) and $71 billion in long-term savings for businesses. Revenue raisers would bring in roughly $900 billion.
President Obama has tasked the economic recovery advisory board headed by former Federal Reserve Board Chairman Paul Volcker with considering measures to overhaul and simplify the current tax system. A tax reform task force, composed of four advisory board members, will make recommendations on tax simplification, closing tax loopholes, and reducing tax evasion and "corporate welfare," according to Office of Management and Budget (OMB) Director Peter Orszag. The economic advisory board will make its recommendations to the president by December 4, 2009.
House Passes 90% Tax on Bonuses; Senate Action Delayed
House lawmakers overwhelmingly approved a measure to tax millions of dollars in bonuses paid to employees of American Insurance Group (AIG), the troubled insurance firm that received $170 billion in federal bailout money under the Troubled Asset Relief Program (TARP). The House voted on March 19, 2009, to approve HR 1586 by a vote of 328 to 93. The legislation would impose a 90-percent tax on the bonuses of highly paid individuals who work for firms that received more than $5 billion in TARP funds.
A companion measure was introduced into the Senate on March 19, 2009. The Compensation Fairness Bill of 2009 (S 651) would impose a 35-percent excise tax on both employers and employees on retention and other bonuses. The proposal would also put a cap on the amount of income employees of these companies are allowed to defer tax free. Small banks as defined by the tax code and entities that received less than $100 million in TARP funds would be exempt from the legislation. However, in the face of growing concern over the constitutionality of the measure and republican opposition, Senate Majority Leader Harry Reid, D-Nev., backed off efforts to bring the measure to the Senate floor the week of March 23, 2009.
Congress Passes Extension of Aviation Excise Taxes
On February 18, 2009, Congress passed the Federal Aviation Administration Extension Act of 2009. The measure extends aviation programs and taxes through September 30, 2009.
President Obama has signed the American Recovery and Reinvestment Act into law. Moving through Congress in less than four weeks, the $787 billion new law, which contains nearly $300 billion in tax relief, sets in motion a wave of direct spending and tax incentives to jump start the U.S. economy out of recession.
Lawmakers Reach Agreement on Economic Stimulus Package
On February 11, 2009, House and Senate conferees announced they had reached an agreement to scale back the massive economic stimulus package, titled the American Recovery and Reinvestment Act of 2009 (H.R. 1) to $789 billion. Many of the tax provisions were pared down to reduce the overall cost of the bill. Still approximately 35 percent of the package is allocated to tax breaks at a cost of $276 billion. The compromise legislation includes:
the "Making Work Pay" individual tax credit of 6.2 of earned income up to $400 for single returns and $800 for joint filers in 2009 and 2010;
a one-time stimulus payment of $250 to retirees, disabled individuals, social security recipients and disabled veterans;
a temporarily increase of the earned income credit for working families with three or more children;
for 2009 and 2010, a $2,500 higher education tax credit that is available for tuition and related expenses paid during the first four years of college;
an extension of the first-time homebuyer credit to September 1, 2009, with the repayment obligation eliminated for 2009 purchases;
for 2009, an increase in the alternative minimum tax (AMT) exemption amounts for individuals to $46,700 for unmarried individuals and $70,950 for married individuals filing joint returns;
an above-the-line deduction for interest expenses and state and local taxes paid on the purchase of a new automobile;
an extension of the 50-percent first-year bonus depreciation through 2009;
an extension of the increased expensing limits under Code Sec. 179 to 2009; and
a suspension of federal income tax on the first $2,400 of unemployment benefits per recipient in 2009.
Senate Passes Economic Stimulus Bill 61 to 37; $366 Billion in Tax Cuts for Families and Businesses
The Senate has passed its version of the American Recovery and Reinvestment Act (H.R. 1) on February 10, 2009, by a vote of 61 to 37. The bill contains approximately $366 billion in tax relief for individuals and small businesses, and includes energy incentives and relief for state and local governments. The legislation also:
provides an individual tax credit of 6.2 percent of earned income up to $500 for single returns and $1,000 for joint filers in 2009 and 2010;
temporarily suspends federal income tax on the first $2,400 of unemployment benefits per recipient in 2009;
creates a $2,500 higher education tax credit that is available for the first four years of college;
expands the homeownership tax credit to $15,000 and allows the credit for all home purchases;
establishes an above-the-line deduction for interest expenses and state and local taxes paid on the purchase of a new automobile;
the alternative minimum tax (AMT) exemption amounts for individuals are increased in 2009 to $46,700 for unmarried individuals and $70,950 for married individuals filing joint returns;
extends the 50-percent first-year bonus depreciation through 2009;
extends the increased expensing limits under Code Sec. 179 to 2009;
provides a five-year carryback of net operating losses for certain businesses;
adds the categories of unemployed veterans and disadvantaged youth as qualified target groups for the Work Opportunity Tax Credit (WOTC); and
allows individuals to exclude 75 percent of the gain from the sale of certain small business stock held for more than five years.
House Passes Economic Recovery Legislation 244-188; Senate Finance Approves Package with AMT Patch
In the face of a declining economy, increasing unemployment and dismal December retail sales reports, the House, on January 22, 2009, passed a comprehensive economic stimulus package. The American Recovery and Reinvestment Act of 2009, focuses largely on infrastructure spending, energy, and bolstering various education initiatives. It also includes a broad tax package that would impact individuals, states and businesses. For businesses, the legislation includes provisions to provide bonus depreciation, increased small business expensing, and work opportunity tax credits. The legislation would also:
provide a refundable tax credit of up to $500 for working individuals and $1000 for working families;
temporarily increase the earned income tax credit for working families with three or more children;
establish a new "American Opportunity" education tax credit;
eliminate the repayment obligation of the first-time home buyers credit for taxpayers purchasing a home after January 1, 2009;
provide a five-year carryback of net operating losses for certain companies;
repeal the alternative minimum tax limits on new private activity bonds;
establish a one-year deferral of a 3-percent withholding tax on government contractors who have unpaid federal tax obligations;
would prospectively repeal an IRS ruling that allows banks to use the losses of companies they acquire to cut their own tax liability; and
include a number of energy incentive provisions, such as an extension of renewable energy production tax credits, clean renewable energy bonds, conservation bonds and research and development tax credits.
Meanwhile the Senate Finance Committee, on January 27, 2009, approved its portion of an $825 billion economic stimulus bill and potentially boosted the total cost to nearly $900 billion after agreeing to include a one-year patch for the alternative minimum tax (AMT). The goal of both chambers is to pass a final stimulus package mid-February.
The House, on February 4, 2009, passed legislation to renew and expand the State Children's Health Insurance Program (SCHIP). The Senate previously passed the measure on January 29, 2009, by a vote of 66-32. The $31.5 billion measure would fund investment in the SCHIP program with a 61-cent increase in federal tax on cigarettes, with proportional increases for other tobacco products, raising approximately $65 million over 10 years.
On December 10, 2008, the House passed the controversial Auto Industry Financing and Restructuring Act (H.R. 7321), by a vote of 237-170. The measure would provide $14 billion in bridge loans or lines of credit to eligible auto makers. Senate negotiations, however, fell apart late on December 11, 2008, apparently ending chances for the big three to receive a $14-billion bridge loan to keep them afloat. Senate leaders concluded there were not enough votes to support a bill approved by the House. Senate Majority Leader Harry Reid, D-Nev., called for a cloture vote on the Senate version that failed by a 52 to 35 margin, eight votes short of the 60 votes required to take up the bill.
The House-passed bill would create a "car czar" appointed by the president to oversee restructuring efforts by companies receiving assistance under the measure. Although the legislation does not directly amend the Internal Revenue Code, it does include provisions that would limit executive compensation and allows companies that merge with an automaker receiving assistance to claim certain net operating losses.
The White House subsequently announced that $13.4 billion in federal loans would be provided to General Motors and Chrysler LLC. The money will come from the Troubled Asset Relief Program (TARP) established by the Emergency Economic Stabilization Act of 2008.
President Signs Legislation That Eases Funding Requirements for Employer-Sponsored Pension Plans
On December 23, 2008, President Bush signed the Worker, Retiree and Employer Recovery Act (H.R. 7327). The legislation was passed by the House on December 10, 2008, by unanimous consent. The Senate subsequently followed suit and passed the measure on December 11, 2008, by unanimous consent. The legislation eases funding requirements for employer-sponsored pension plans that would have been be forced to make significantly increased contributions to meet funding targets set by the Pension Protection Act of 2006 (P.L. 109-280). The measure also temporarily suspends the excise tax assessed on seniors who fail to take a required minimum distribution from their retirement accounts. The legislation also makes a number of technical corrections to the Pension Protection Act of 2006 (P.L. 109-280).
President Bush signed the Emergency Economic Stabilization Act of 2008, on October 3, 2008; the same day that the House passed the legislation by a vote of 263 to 171. The House vote came just two days after the Senate passed the measure by a vote of 74 to 25, and four days after the House failed to pass a similarly title bill. The landmark legislation gives the Treasury $250 billion immediately, and requires the president to certify if an additional $100 billion is necessary. An additional $350 billion may be disbursed subject to Congressional approval. The Treasury Department is required to report on the use of the funds and progress made in addressing the crisis. An oversight board and a special inspector general will also be created to watch over the Treasury department. The measure also:
Requires the Treasury to modify troubled loans wherever possible to help families keep their homes;
Directs other federal agencies to modify loans that they own or control;
Improves the HOPE for Homeowners program by expanding eligibility and increasing the tools available to the Department of Housing and Urban Development to help more families keep their homes; and
Places certain limits on executive compensation.
The legislation requires companies that sell some of their bad assets to the government to provide warrants so that taxpayers will benefit from any future growth these companies may experience as a result of participation in this program. In addition, the president must submit legislation that would cover any losses to taxpayers resulting from this program by charging a small, broad-based fee to all financial institutions.
The legislation temporarily raises the FDIC insurance cap from $100,000 to $250,000. It also includes a one year AMT "patch," would extend a number of individual and business deductions, credits and incentives, provides disaster relief to those impacted recent hurricanes and flooding, and includes a number of energy-related tax provisions. The added tax provisions are largely taken from the Renewable Energy and Job Creation Act of 2008 (HR 6049), which the Senate passed on September 23, 2008, and are only partially offset.
House and Senate Struggling to Reach an Agreement on an AMT "Patch," Disaster Relief and Extenders
With little time left on the Congressional calendar, the House and the Senate are trying to reach an agreement that would extend AMT relief and certain expired or expiring tax provisions, as well as provide assistance to victims of recent disasters. The Senate, on September 23, 2008, passed an amended version of the Renewable Energy and Job Creation Act of 2008 (HR 6049), by a vote of 93 to 2. The Senate-amended version of HR 6049 would:
Extend AMT relief for one year;
Provide a number of clean energy tax incentives at a cost of $18 billion;
Extend expired or expiring individual deductions, including the deductions for local and sales taxes, qualified tuition, teacher expenses, and the additional standard deduction for real property taxes;
Extend a number of business credits and incentives, including the research and development credit); and
Provide disaster relief to those impacted by Hurricane Ike and the flooding in the Midwest.
The total cost of the amended Senate version of HR 6049 is only partially offset. In response to the Senate's action, the House on September 24, 2008, passed the Alternative Minimum Tax Relief Act of 2008 (HR 7005) and the Disaster Tax Relief Act of 2008 (HR 7006), setting the stage for final passage of AMT and disaster relief provisions before Congress adjourns for the election. This could potentially postpone and agreement on a broader extenders package and energy-related tax incentives for later this year or next.
Congress Passes Six-Month Extension of Aviation Taxes
On September 23, 2008, the House passed the Federal Aviation Administration (FAA) Extension Act of 2008, Part II (HR 6984). The Senate promptly followed suit and passed the measure on September 24, 2008. HR 6984 provides a six-month extension of aviation programs and taxes through March 31, 2009. The measure now heads to the White House.
On September 17, 2008, the House passed the Social Security Income (SSI) Extension for Elderly and Disabled Refugees Act (HR 2608). The Senate previously passed the measure by unanimous consent on August 1, 2008. The legislation temporarily extends the current seven-year SSI eligibility period for refugees and asylum seekers in the United States to nine years, along with a limited retroactive provision. To pay for the extension, the legislation authorizes the IRS to offset income tax refunds of individuals who have fraudulently secured state unemployment benefits. President Bush is expected to sign the bill into law.
The House, on September 16, 2008, passed the Comprehensive American Energy Security and Consumer Protection Act (HR 6899), by a vote of 236 to 189. Title VIII of the measure, the Energy Tax Incentives Act of 2008, provides a number of energy-related tax incentives, including:
(1) an extension and modification of the renewable energy production tax credit;
(2) an extension and modification of the solar energy and fuel cell investment tax credit;
(3) an extension and modification of the residential energy-efficient property credit;
(4) the creation of $1.75 billion of new clean renewable energy bonds; and
(5) the creation of a new credit for plug-in drive vehicles.
To pay, in part, for these and other incentives, the legislation would deny the Code Sec. 199 domestic production deduction for certain integrated oil companies. The legislation faces an uncertain future. President Bush has threatened to veto the bill. Further, it is unlikely that comprehensive energy legislation will pass in the Senate prior to adjourning before the election. The Senate, however, may take up it's owe $18 billion package of energy tax incentives.
Reacting to the continuing slumps in housing sales, rising unemployment numbers, and weakening credit markets, Congress passed the Housing and Economic Recovery Act of 2008 (H.R. 3221). The House passed the measure on July 23, 2008, by a vote of 272 to 152. After a procedural delay, the Senate followed suit and passed the legislation on July 26, 2008, by a vote of 72 to 13. The legislation includes a $15.1 billion tax title, the Housing Assistance Tax Act of 2008, which will:
(1) provide first-time home buyers (as defined in the legislation) with a refundable credit of 10% of the purchase price of a home, up to $7500 (recipients would be required to repay any credit amount received over a 15 year period and the credit is phased out for individuals with an adjusted gross income in excess of $75,000 (or $150,000 for joint filers));
(2) provide taxpayers who claim the standard deduction an additional standard deduction of up to $500 (or $1000 for joint filers) for state and local property taxes;
(3) provide an increase the state-by-state allocation of low-income housing tax credits;
(4) simplify the rules applicable to tax-exempt housing bonds; and
(5) allow taxpayers in affected GO Zone areas to amend prior returns to take into account receipt of hurricane-related recovery grants.
The legislation also includes several revenue raising provisions, one of which would require certain institutions to file information returns with respect to reimbursements made to merchants that accept various forms of "payment cards" (including credit and debit cards). The bill would also delay the phase-in of the world-wide interest allocation election enacted as part of the American Jobs Creation Act of 2004 for two years (i.e., for taxable years beginning after 2010).
President Bush originally opposed the legislation in part because it creates $3.9 billion in new community development block grants to help rebuild communities significantly impacted by foreclosures. On July 23, 2008, President Bush withdrew his veto threat on the measure in an effort to hasten passage and provide relief to the troubled housing and financial markets. President Bush signed the measure into law on Wednesday, July 30, 2008.
President Signs Tax Relief for Military Personnel and Veterans
On May 20, 2008, the House unanimously approved the Heroes Earnings Assistance and Relief Tax Act of 2008 (HR 6081). The Senate followed suit and passed the measure on May 22, 2008. President Bush signed the measure into law on June 17, 2008. The legislation will:
(1) Allow military personnel to qualify for economic stimulus payments even though a spouse does not have a Social Security number;
(2) Make permanent the ability to include combat pay as earned income under the Earned Income Tax Credit;
(3) Make permanent and modify the availability of qualified mortgage bonds used to finance veterans' residences;
(4) Allow the day prior to the date of death to be treated as the date an employee in the military returned to work for purposes of qualified plan benefit distributions;
(5) Permit an employer to make contributions to a qualified plan on behalf of an employee killed or disabled in combat;
(6) Treat differential wages paid to an employee called to the military as wages for withholding and retirement plan purposes and create a small employer tax credit for differential wages;
(7) Extend the limitations period for tax refund credit claims with respect to veterans' disability determinations;
(8) Make permanent the ability of reservists to make penalty-free withdrawals from retirement plans and permit reservists to make penalty-free withdrawals from flexible spending accounts;
(9) Make permanent the ability of the Social Security Administration to disclose information to the Veterans' Administration for purposes of determining veterans' program eligibility;
(10) Clarify that state payments to service members are treated as qualified military benefits; and
(11) Permit recipients of military death benefit gratuities to roll the sums over tax-free to a Roth IRA or Coverdell Education Savings Account.
To pay for these provisions, the legislation revises the expatriation tax rules, treat domestically controlled foreign persons performing services under contract to the United States as U.S. employers, increases the failure to file penalty, and extends the excise tax for failure to comply with mental health parity requirements.
President Vetoes Farm Legislation for a Second Time; Congressional Override Expected
The Senate, on June 5, 2008, passed HR 6124, the Food, Conservation, and Energy Act of 2008, by a vote of 77 to 15. The House previously passed HR 6124 on May 22, 2008. The measure will now go to the White House. President Bush is expected to veto the measure, setting the stage for an override vote in Congress. HR 6124 would repeal previously passed farm legislation, HR 2419, also titled the Food, Conservation, and Energy Act of 2008, then re-enact the provisions of HR 2419 plus approximately 34 pages of trade provisions inadvertently omitted from the enrolled version of HR 2419.
The House, on May 21, 2008, voted 318 to 108 to override President Bush's veto of the Food, Conservation, and Energy Act of 2008 (HR 2419). The Senate followed suit and, on May 22, 2008, voted to override the veto 82 to 13. The override votes in the House and Senate took place amid a procedural mix-up, calling into question the validity of both votes. The enrolled bill text received by the White House and vetoed by President Bush on May 21, 2008, was missing Title III, which contained approximately 34 pages of trade provisions. Likewise, the House and Senate votes to override the President's veto were of the legislation without Title III. In effort to immediately resolve the mix-up, the House passed HR 6124, also titled the Food, Conservation, and Energy Act of 2008, which contains the same provisions as the enrolled version of HR 2419 plus Title III. Prior to the Memorial Day recess, however, the Senate successfully voted to override the version of HR 2419 vetoed by the President, thus enacting everything except Title III, rather than passing the measure as a whole for a second time.
In an unprecedented move, the Senate subsequently passed HR 6124 on June 5, 2008, sending farm legislation to the White House for a second time. President Bush vetoed HR 6124 on June 17, 2008. Both the House and Senate are expected to override the President's veto for a second time.
The tax title of HR 6124, titled the Heartland, Habitat, Harvest, and Horticultural Act of 2008, provides $1.67 billion in tax relief and incentives. Retired farmers and farmers on disability who participate in land conservation reserve programs will be permitted to count payouts under the program as investment income, preventing reductions in Social Security or disability benefits. New deductions and credits include a deduction for endangered species recovery expenditures and a credit for agricultural chemicals security measures. Deduction and credit enhancements include an increase in the cellulosic biofuels credit and an extension of the conservation easement deduction. Another provision creates uniform three-year depreciation for horses and allows horse sales to qualify for the 15 percent capital gain rate. Also included are a couple of provisions related to timber REITs. Bond provisions include authorization of forest conservation bonds and increased loan limits on Aggie Bonds.
The measure also contains several revenue offset provisions, including a reduction in the ethanol credit, a limitation on the ability to offset farm losses against nonfarm income, and creation of an optional self-employment tax for Social Security. In addition, the legislation excludes denaturant from the alcohol fuels credit.
President Signs Economic Stimulus Package Into Law
President Bush, on February 13, 2008, signed into law the Economic Stimulus Act of 2008 (HR 4140).The legislation, estimated to cost $125 billion over a ten-year period, includes a recovery rebate credit for 2008. The basic credit is calculated as the greater of:
(1) net income tax liability not to exceed $600 ($1,200 for joint filers), or
(2) $300 ($600 for joint filers) if the individual has either (a) at least $3,000 of any combination of earned income, social security benefits, and certain veterans' benefits, or (b) net income tax liability of at least one dollar and gross income greater than the sum of the applicable basic standard deduction amount and one personal exemption (two if a joint return).
Any individual qualifying for a basic amount of credit also qualifies for an additional credit of $300 per qualifying child. The 2008 recovery rebate credit would be payable in the form of advance rebate checks paid during 2008 based on 2007 tax returns or information from the Social Security Administration or Veterans Administration. The credit will require valid taxpayer identification numbers.
According to Treasury Secretary, Henry Paulson, the IRS will begin sending rebate checks to qualifying taxpayers immediately after the 2008 filing season. "The IRS will manage the current tax filing season and simultaneously prepare to issue these additional payments starting in early May."
The legislation also includes a temporary increase in the small business expensing limitations, a temporary special first-year 50 percent bonus depreciation allowance, and increases in the housing loan limits for Fannie Mae, Freddie Mac, and FHA approved mortgages.
Senate Finance Committee Approves Health Care Reform Bill With New Taxes/Fees
After weeks of lengthy debates and consideration of more than 500 amendments, the Senate Finance Committee (SFC) approved, by a 14-9 vote on October 13, an $829 billion health care reform bill. America's Healthy Future Act contains approximately $300 billion in revenue raisers. Additional revenues would come from cuts to federal government health programs. The SFC is the final Congressional committee to tackle health care reform.
The Obama administration released much-anticipated details about its proposed tax cuts and revenue raisers on May 11. The Treasury Department's General Explanations of the Administration's Fiscal Year 2010 Revenue Proposals (also known as the "Green Book") describes the administration's tax agenda, including permanent Making Work Pay, American Opportunity and research credits; a package of international tax reforms; reinstatement of the 36 and 39.6 percent individual marginal income tax rates; expanded information reporting; and automatic enrollment in IRAs. According to the Treasury, the proposals would generate $736.5 billion in savings for individuals (largely aimed at middle income taxpayers) and $71 billion in long-term savings for businesses. Revenue raisers would bring in roughly $900 billion.
President Obama has tasked the economic recovery advisory board headed by former Federal Reserve Board Chairman Paul Volcker with considering measures to overhaul and simplify the current tax system. A tax reform task force, composed of four advisory board members, will make recommendations on tax simplification, closing tax loopholes, and reducing tax evasion and "corporate welfare," according to Office of Management and Budget (OMB) Director Peter Orszag. The economic advisory board will make its recommendations to the president by December 4, 2009.
House Passes 90% Tax on Bonuses; Senate Action Delayed
House lawmakers overwhelmingly approved a measure to tax millions of dollars in bonuses paid to employees of American Insurance Group (AIG), the troubled insurance firm that received $170 billion in federal bailout money under the Troubled Asset Relief Program (TARP). The House voted on March 19, 2009, to approve HR 1586 by a vote of 328 to 93. The legislation would impose a 90-percent tax on the bonuses of highly paid individuals who work for firms that received more than $5 billion in TARP funds.
A companion measure was introduced into the Senate on March 19, 2009. The Compensation Fairness Bill of 2009 (S 651) would impose a 35-percent excise tax on both employers and employees on retention and other bonuses. The proposal would also put a cap on the amount of income employees of these companies are allowed to defer tax free. Small banks as defined by the tax code and entities that received less than $100 million in TARP funds would be exempt from the legislation. However, in the face of growing concern over the constitutionality of the measure and republican opposition, Senate Majority Leader Harry Reid, D-Nev., backed off efforts to bring the measure to the Senate floor the week of March 23, 2009.
Congress Passes Extension of Aviation Excise Taxes
On February 18, 2009, Congress passed the Federal Aviation Administration Extension Act of 2009. The measure extends aviation programs and taxes through September 30, 2009.
President Obama has signed the American Recovery and Reinvestment Act into law. Moving through Congress in less than four weeks, the $787 billion new law, which contains nearly $300 billion in tax relief, sets in motion a wave of direct spending and tax incentives to jump start the U.S. economy out of recession.
Lawmakers Reach Agreement on Economic Stimulus Package
On February 11, 2009, House and Senate conferees announced they had reached an agreement to scale back the massive economic stimulus package, titled the American Recovery and Reinvestment Act of 2009 (H.R. 1) to $789 billion. Many of the tax provisions were pared down to reduce the overall cost of the bill. Still approximately 35 percent of the package is allocated to tax breaks at a cost of $276 billion. The compromise legislation includes:
the "Making Work Pay" individual tax credit of 6.2 of earned income up to $400 for single returns and $800 for joint filers in 2009 and 2010;
a one-time stimulus payment of $250 to retirees, disabled individuals, social security recipients and disabled veterans;
a temporarily increase of the earned income credit for working families with three or more children;
for 2009 and 2010, a $2,500 higher education tax credit that is available for tuition and related expenses paid during the first four years of college;
an extension of the first-time homebuyer credit to September 1, 2009, with the repayment obligation eliminated for 2009 purchases;
for 2009, an increase in the alternative minimum tax (AMT) exemption amounts for individuals to $46,700 for unmarried individuals and $70,950 for married individuals filing joint returns;
an above-the-line deduction for interest expenses and state and local taxes paid on the purchase of a new automobile;
an extension of the 50-percent first-year bonus depreciation through 2009;
an extension of the increased expensing limits under Code Sec. 179 to 2009; and
a suspension of federal income tax on the first $2,400 of unemployment benefits per recipient in 2009.
Senate Passes Economic Stimulus Bill 61 to 37; $366 Billion in Tax Cuts for Families and Businesses
The Senate has passed its version of the American Recovery and Reinvestment Act (H.R. 1) on February 10, 2009, by a vote of 61 to 37. The bill contains approximately $366 billion in tax relief for individuals and small businesses, and includes energy incentives and relief for state and local governments. The legislation also:
provides an individual tax credit of 6.2 percent of earned income up to $500 for single returns and $1,000 for joint filers in 2009 and 2010;
temporarily suspends federal income tax on the first $2,400 of unemployment benefits per recipient in 2009;
creates a $2,500 higher education tax credit that is available for the first four years of college;
expands the homeownership tax credit to $15,000 and allows the credit for all home purchases;
establishes an above-the-line deduction for interest expenses and state and local taxes paid on the purchase of a new automobile;
the alternative minimum tax (AMT) exemption amounts for individuals are increased in 2009 to $46,700 for unmarried individuals and $70,950 for married individuals filing joint returns;
extends the 50-percent first-year bonus depreciation through 2009;
extends the increased expensing limits under Code Sec. 179 to 2009;
provides a five-year carryback of net operating losses for certain businesses;
adds the categories of unemployed veterans and disadvantaged youth as qualified target groups for the Work Opportunity Tax Credit (WOTC); and
allows individuals to exclude 75 percent of the gain from the sale of certain small business stock held for more than five years.
House Passes Economic Recovery Legislation 244-188; Senate Finance Approves Package with AMT Patch
In the face of a declining economy, increasing unemployment and dismal December retail sales reports, the House, on January 22, 2009, passed a comprehensive economic stimulus package. The American Recovery and Reinvestment Act of 2009, focuses largely on infrastructure spending, energy, and bolstering various education initiatives. It also includes a broad tax package that would impact individuals, states and businesses. For businesses, the legislation includes provisions to provide bonus depreciation, increased small business expensing, and work opportunity tax credits. The legislation would also:
provide a refundable tax credit of up to $500 for working individuals and $1000 for working families;
temporarily increase the earned income tax credit for working families with three or more children;
establish a new "American Opportunity" education tax credit;
eliminate the repayment obligation of the first-time home buyers credit for taxpayers purchasing a home after January 1, 2009;
provide a five-year carryback of net operating losses for certain companies;
repeal the alternative minimum tax limits on new private activity bonds;
establish a one-year deferral of a 3-percent withholding tax on government contractors who have unpaid federal tax obligations;
would prospectively repeal an IRS ruling that allows banks to use the losses of companies they acquire to cut their own tax liability; and
include a number of energy incentive provisions, such as an extension of renewable energy production tax credits, clean renewable energy bonds, conservation bonds and research and development tax credits.
Meanwhile the Senate Finance Committee, on January 27, 2009, approved its portion of an $825 billion economic stimulus bill and potentially boosted the total cost to nearly $900 billion after agreeing to include a one-year patch for the alternative minimum tax (AMT). The goal of both chambers is to pass a final stimulus package mid-February.
The House, on February 4, 2009, passed legislation to renew and expand the State Children's Health Insurance Program (SCHIP). The Senate previously passed the measure on January 29, 2009, by a vote of 66-32. The $31.5 billion measure would fund investment in the SCHIP program with a 61-cent increase in federal tax on cigarettes, with proportional increases for other tobacco products, raising approximately $65 million over 10 years.
On December 10, 2008, the House passed the controversial Auto Industry Financing and Restructuring Act (H.R. 7321), by a vote of 237-170. The measure would provide $14 billion in bridge loans or lines of credit to eligible auto makers. Senate negotiations, however, fell apart late on December 11, 2008, apparently ending chances for the big three to receive a $14-billion bridge loan to keep them afloat. Senate leaders concluded there were not enough votes to support a bill approved by the House. Senate Majority Leader Harry Reid, D-Nev., called for a cloture vote on the Senate version that failed by a 52 to 35 margin, eight votes short of the 60 votes required to take up the bill.
The House-passed bill would create a "car czar" appointed by the president to oversee restructuring efforts by companies receiving assistance under the measure. Although the legislation does not directly amend the Internal Revenue Code, it does include provisions that would limit executive compensation and allows companies that merge with an automaker receiving assistance to claim certain net operating losses.
The White House subsequently announced that $13.4 billion in federal loans would be provided to General Motors and Chrysler LLC. The money will come from the Troubled Asset Relief Program (TARP) established by the Emergency Economic Stabilization Act of 2008.
President Signs Legislation That Eases Funding Requirements for Employer-Sponsored Pension Plans
On December 23, 2008, President Bush signed the Worker, Retiree and Employer Recovery Act (H.R. 7327). The legislation was passed by the House on December 10, 2008, by unanimous consent. The Senate subsequently followed suit and passed the measure on December 11, 2008, by unanimous consent. The legislation eases funding requirements for employer-sponsored pension plans that would have been be forced to make significantly increased contributions to meet funding targets set by the Pension Protection Act of 2006 (P.L. 109-280). The measure also temporarily suspends the excise tax assessed on seniors who fail to take a required minimum distribution from their retirement accounts. The legislation also makes a number of technical corrections to the Pension Protection Act of 2006 (P.L. 109-280).
President Bush signed the Emergency Economic Stabilization Act of 2008, on October 3, 2008; the same day that the House passed the legislation by a vote of 263 to 171. The House vote came just two days after the Senate passed the measure by a vote of 74 to 25, and four days after the House failed to pass a similarly title bill. The landmark legislation gives the Treasury $250 billion immediately, and requires the president to certify if an additional $100 billion is necessary. An additional $350 billion may be disbursed subject to Congressional approval. The Treasury Department is required to report on the use of the funds and progress made in addressing the crisis. An oversight board and a special inspector general will also be created to watch over the Treasury department. The measure also:
Requires the Treasury to modify troubled loans wherever possible to help families keep their homes;
Directs other federal agencies to modify loans that they own or control;
Improves the HOPE for Homeowners program by expanding eligibility and increasing the tools available to the Department of Housing and Urban Development to help more families keep their homes; and
Places certain limits on executive compensation.
The legislation requires companies that sell some of their bad assets to the government to provide warrants so that taxpayers will benefit from any future growth these companies may experience as a result of participation in this program. In addition, the president must submit legislation that would cover any losses to taxpayers resulting from this program by charging a small, broad-based fee to all financial institutions.
The legislation temporarily raises the FDIC insurance cap from $100,000 to $250,000. It also includes a one year AMT "patch," would extend a number of individual and business deductions, credits and incentives, provides disaster relief to those impacted recent hurricanes and flooding, and includes a number of energy-related tax provisions. The added tax provisions are largely taken from the Renewable Energy and Job Creation Act of 2008 (HR 6049), which the Senate passed on September 23, 2008, and are only partially offset.
House and Senate Struggling to Reach an Agreement on an AMT "Patch," Disaster Relief and Extenders
With little time left on the Congressional calendar, the House and the Senate are trying to reach an agreement that would extend AMT relief and certain expired or expiring tax provisions, as well as provide assistance to victims of recent disasters. The Senate, on September 23, 2008, passed an amended version of the Renewable Energy and Job Creation Act of 2008 (HR 6049), by a vote of 93 to 2. The Senate-amended version of HR 6049 would:
Extend AMT relief for one year;
Provide a number of clean energy tax incentives at a cost of $18 billion;
Extend expired or expiring individual deductions, including the deductions for local and sales taxes, qualified tuition, teacher expenses, and the additional standard deduction for real property taxes;
Extend a number of business credits and incentives, including the research and development credit); and
Provide disaster relief to those impacted by Hurricane Ike and the flooding in the Midwest.
The total cost of the amended Senate version of HR 6049 is only partially offset. In response to the Senate's action, the House on September 24, 2008, passed the Alternative Minimum Tax Relief Act of 2008 (HR 7005) and the Disaster Tax Relief Act of 2008 (HR 7006), setting the stage for final passage of AMT and disaster relief provisions before Congress adjourns for the election. This could potentially postpone and agreement on a broader extenders package and energy-related tax incentives for later this year or next.
Congress Passes Six-Month Extension of Aviation Taxes
On September 23, 2008, the House passed the Federal Aviation Administration (FAA) Extension Act of 2008, Part II (HR 6984). The Senate promptly followed suit and passed the measure on September 24, 2008. HR 6984 provides a six-month extension of aviation programs and taxes through March 31, 2009. The measure now heads to the White House.
On September 17, 2008, the House passed the Social Security Income (SSI) Extension for Elderly and Disabled Refugees Act (HR 2608). The Senate previously passed the measure by unanimous consent on August 1, 2008. The legislation temporarily extends the current seven-year SSI eligibility period for refugees and asylum seekers in the United States to nine years, along with a limited retroactive provision. To pay for the extension, the legislation authorizes the IRS to offset income tax refunds of individuals who have fraudulently secured state unemployment benefits. President Bush is expected to sign the bill into law.
The House, on September 16, 2008, passed the Comprehensive American Energy Security and Consumer Protection Act (HR 6899), by a vote of 236 to 189. Title VIII of the measure, the Energy Tax Incentives Act of 2008, provides a number of energy-related tax incentives, including:
(1) an extension and modification of the renewable energy production tax credit;
(2) an extension and modification of the solar energy and fuel cell investment tax credit;
(3) an extension and modification of the residential energy-efficient property credit;
(4) the creation of $1.75 billion of new clean renewable energy bonds; and
(5) the creation of a new credit for plug-in drive vehicles.
To pay, in part, for these and other incentives, the legislation would deny the Code Sec. 199 domestic production deduction for certain integrated oil companies. The legislation faces an uncertain future. President Bush has threatened to veto the bill. Further, it is unlikely that comprehensive energy legislation will pass in the Senate prior to adjourning before the election. The Senate, however, may take up it's owe $18 billion package of energy tax incentives.
Reacting to the continuing slumps in housing sales, rising unemployment numbers, and weakening credit markets, Congress passed the Housing and Economic Recovery Act of 2008 (H.R. 3221). The House passed the measure on July 23, 2008, by a vote of 272 to 152. After a procedural delay, the Senate followed suit and passed the legislation on July 26, 2008, by a vote of 72 to 13. The legislation includes a $15.1 billion tax title, the Housing Assistance Tax Act of 2008, which will:
(1) provide first-time home buyers (as defined in the legislation) with a refundable credit of 10% of the purchase price of a home, up to $7500 (recipients would be required to repay any credit amount received over a 15 year period and the credit is phased out for individuals with an adjusted gross income in excess of $75,000 (or $150,000 for joint filers));
(2) provide taxpayers who claim the standard deduction an additional standard deduction of up to $500 (or $1000 for joint filers) for state and local property taxes;
(3) provide an increase the state-by-state allocation of low-income housing tax credits;
(4) simplify the rules applicable to tax-exempt housing bonds; and
(5) allow taxpayers in affected GO Zone areas to amend prior returns to take into account receipt of hurricane-related recovery grants.
The legislation also includes several revenue raising provisions, one of which would require certain institutions to file information returns with respect to reimbursements made to merchants that accept various forms of "payment cards" (including credit and debit cards). The bill would also delay the phase-in of the world-wide interest allocation election enacted as part of the American Jobs Creation Act of 2004 for two years (i.e., for taxable years beginning after 2010).
President Bush originally opposed the legislation in part because it creates $3.9 billion in new community development block grants to help rebuild communities significantly impacted by foreclosures. On July 23, 2008, President Bush withdrew his veto threat on the measure in an effort to hasten passage and provide relief to the troubled housing and financial markets. President Bush signed the measure into law on Wednesday, July 30, 2008.
President Signs Tax Relief for Military Personnel and Veterans
On May 20, 2008, the House unanimously approved the Heroes Earnings Assistance and Relief Tax Act of 2008 (HR 6081). The Senate followed suit and passed the measure on May 22, 2008. President Bush signed the measure into law on June 17, 2008. The legislation will:
(1) Allow military personnel to qualify for economic stimulus payments even though a spouse does not have a Social Security number;
(2) Make permanent the ability to include combat pay as earned income under the Earned Income Tax Credit;
(3) Make permanent and modify the availability of qualified mortgage bonds used to finance veterans' residences;
(4) Allow the day prior to the date of death to be treated as the date an employee in the military returned to work for purposes of qualified plan benefit distributions;
(5) Permit an employer to make contributions to a qualified plan on behalf of an employee killed or disabled in combat;
(6) Treat differential wages paid to an employee called to the military as wages for withholding and retirement plan purposes and create a small employer tax credit for differential wages;
(7) Extend the limitations period for tax refund credit claims with respect to veterans' disability determinations;
(8) Make permanent the ability of reservists to make penalty-free withdrawals from retirement plans and permit reservists to make penalty-free withdrawals from flexible spending accounts;
(9) Make permanent the ability of the Social Security Administration to disclose information to the Veterans' Administration for purposes of determining veterans' program eligibility;
(10) Clarify that state payments to service members are treated as qualified military benefits; and
(11) Permit recipients of military death benefit gratuities to roll the sums over tax-free to a Roth IRA or Coverdell Education Savings Account.
To pay for these provisions, the legislation revises the expatriation tax rules, treat domestically controlled foreign persons performing services under contract to the United States as U.S. employers, increases the failure to file penalty, and extends the excise tax for failure to comply with mental health parity requirements.
President Vetoes Farm Legislation for a Second Time; Congressional Override Expected
The Senate, on June 5, 2008, passed HR 6124, the Food, Conservation, and Energy Act of 2008, by a vote of 77 to 15. The House previously passed HR 6124 on May 22, 2008. The measure will now go to the White House. President Bush is expected to veto the measure, setting the stage for an override vote in Congress. HR 6124 would repeal previously passed farm legislation, HR 2419, also titled the Food, Conservation, and Energy Act of 2008, then re-enact the provisions of HR 2419 plus approximately 34 pages of trade provisions inadvertently omitted from the enrolled version of HR 2419.
The House, on May 21, 2008, voted 318 to 108 to override President Bush's veto of the Food, Conservation, and Energy Act of 2008 (HR 2419). The Senate followed suit and, on May 22, 2008, voted to override the veto 82 to 13. The override votes in the House and Senate took place amid a procedural mix-up, calling into question the validity of both votes. The enrolled bill text received by the White House and vetoed by President Bush on May 21, 2008, was missing Title III, which contained approximately 34 pages of trade provisions. Likewise, the House and Senate votes to override the President's veto were of the legislation without Title III. In effort to immediately resolve the mix-up, the House passed HR 6124, also titled the Food, Conservation, and Energy Act of 2008, which contains the same provisions as the enrolled version of HR 2419 plus Title III. Prior to the Memorial Day recess, however, the Senate successfully voted to override the version of HR 2419 vetoed by the President, thus enacting everything except Title III, rather than passing the measure as a whole for a second time.
In an unprecedented move, the Senate subsequently passed HR 6124 on June 5, 2008, sending farm legislation to the White House for a second time. President Bush vetoed HR 6124 on June 17, 2008. Both the House and Senate are expected to override the President's veto for a second time.
The tax title of HR 6124, titled the Heartland, Habitat, Harvest, and Horticultural Act of 2008, provides $1.67 billion in tax relief and incentives. Retired farmers and farmers on disability who participate in land conservation reserve programs will be permitted to count payouts under the program as investment income, preventing reductions in Social Security or disability benefits. New deductions and credits include a deduction for endangered species recovery expenditures and a credit for agricultural chemicals security measures. Deduction and credit enhancements include an increase in the cellulosic biofuels credit and an extension of the conservation easement deduction. Another provision creates uniform three-year depreciation for horses and allows horse sales to qualify for the 15 percent capital gain rate. Also included are a couple of provisions related to timber REITs. Bond provisions include authorization of forest conservation bonds and increased loan limits on Aggie Bonds.
The measure also contains several revenue offset provisions, including a reduction in the ethanol credit, a limitation on the ability to offset farm losses against nonfarm income, and creation of an optional self-employment tax for Social Security. In addition, the legislation excludes denaturant from the alcohol fuels credit.
President Signs Economic Stimulus Package Into Law
President Bush, on February 13, 2008, signed into law the Economic Stimulus Act of 2008 (HR 4140).The legislation, estimated to cost $125 billion over a ten-year period, includes a recovery rebate credit for 2008. The basic credit is calculated as the greater of:
(1) net income tax liability not to exceed $600 ($1,200 for joint filers), or
(2) $300 ($600 for joint filers) if the individual has either (a) at least $3,000 of any combination of earned income, social security benefits, and certain veterans' benefits, or (b) net income tax liability of at least one dollar and gross income greater than the sum of the applicable basic standard deduction amount and one personal exemption (two if a joint return).
Any individual qualifying for a basic amount of credit also qualifies for an additional credit of $300 per qualifying child. The 2008 recovery rebate credit would be payable in the form of advance rebate checks paid during 2008 based on 2007 tax returns or information from the Social Security Administration or Veterans Administration. The credit will require valid taxpayer identification numbers.
According to Treasury Secretary, Henry Paulson, the IRS will begin sending rebate checks to qualifying taxpayers immediately after the 2008 filing season. "The IRS will manage the current tax filing season and simultaneously prepare to issue these additional payments starting in early May."
The legislation also includes a temporary increase in the small business expensing limitations, a temporary special first-year 50 percent bonus depreciation allowance, and increases in the housing loan limits for Fannie Mae, Freddie Mac, and FHA approved mortgages.
