Outlook for Critical Tax Legislation
According to reports from ISSA, Congress at long last has begun serious discussion regarding how to address the tax rate reductions that will expire at the end of this year. Coinciding with this renewed congressional interest in tax legislation, the Tax Relief Coalition (TRC), of which ISSA is a member, has sent a letter to all members of the House and Senate calling for extension of all the expiring tax provisions and advocating a pro-growth tax agenda.
To read the TRC letter, please click here.
Background and Current Status of Tax Issues
The tax cuts enacted in 2001 and 2003 are scheduled to expire at the end of this year if Congress does not act to extend them. If the tax cuts are not extended, it will result in a substantial increase in tax rates on dividends, capital gains, all levels of income, and estates. In addition, the President included hundreds of billions of dollars in additional tax increases in his budget proposal earlier this year, and the newly-enacted health care bill includes even more tax hikes.
The President and most of the Majority Leadership in both houses of Congress have consistently called for extending the income tax rate cuts for middle-income taxpayers, but allowing the rates to increase for upper income earners. But in January a group of moderate House Democrats sent a letter to the President urging that all the reduced tax rates be extended for two years. More recently, several Democratic senators and additional House Democrats have also come out against raising taxes during a recession, calling for extension of all of the reduced rates.
There is a growing consensus that recognizes that such a substantial increase in taxes now will stifle economic recovery and hamper job creation. Nonetheless, Treasury Secretary Tim Geithner has just reaffirmed the Obama Administration's commitment to raising taxes on upper income earners and protecting only the middle class from the schedule tax hikes.
The House leaves Washington for their August break at the end of this week, and the Senate follows the next week. Therefore, it is fairly certain that no major tax legislation will be considered before September at the earliest. While there is talk of trying to move a tax bill while Congress is in session in September and before they adjourn in October to campaign, it is also possible that consideration of tax measures will be postponed until after the elections when Congress reconvenes for the certain "lame duck" session.
It is not clear at this point what tax legislation will eventually be considered this year, i.e., just extension of some or all of the expiring provisions, or any of the additional tax increases advocated by the President (those include LIFO repeal, phase-out of itemized deductions and personal exemption for upper income earners, a 28% cap on the value of itemized deductions, and several provisions raising taxes on multinational firms and specific industries). But the tax hike on all income earners that would result from Congress failing to act to extend at least some of the rate reductions virtually ensures that legislation will be considered before the end of the year.
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