The current Congress has little time and much to accomplish. It has five big items on its tax agenda. Here’s a quick summary of what they are and where they stand.
Bush tax cuts. Getting most of the attention is the issue of what to do about the Bush income tax cuts, which expire at the end of 2010. As you’ve no doubt heard, the basic disagreement here is over whether they should be extended for all taxpayers (the Republican position) or only for those with income below $250,000 (the position of President Obama and most Democrats). One news report this morning says there’s no progress in resolving this difference in positions, while another says a deal may be in the works to trade a tax cut for higher-income individuals for an extension of unemployment benefits. The Shadow knows.
Estate tax. While tied to the Bush tax cuts, this is a distinct piece of the puzzle. Under the 2001 tax law, temporary repeal of the estate tax for 2010 is followed by reinstatement of that tax in 2011 at levels in place back in 2000. Neither party wants a return to those earlier levels, but a permanent solution based on some sort of compromise has eluded lawmakers. We’ve heard nothing about what might happen to this item in the lame duck session of Congress. Nothing.
AMT relief. While the Bush tax cuts are an issue for 2011, AMT relief is an issue for 2010. Without a legislative fix, more than 20 million taxpayers would swell the rolls of those paying this tax. Congressional taxwriters from both parties have sent the IRS a letter promising to do everything possible to enact this relief, but no one can provide absolute assurance that a deadlock won’t develop. Meanwhile, the deadline for the IRS to finalize forms and instructions for the upcoming filing season is fast approaching, and they can’t put out forms that reflect tax relief Congress has yet to enact.
The parties agree on the need for AMT relief, but there is disagreement over the need for an offsetting tax increase. Most Democrats would like to use what they consider to be loophole closers to reduce or eliminate the $62 billion increase in the budget deficit, while Republicans see those offsets as undesirable tax increases.
Extenders. There are a number of tax breaks for both individuals (the itemized deduction for state and local sales tax, for example) and businesses (the research credit, for example) that have never been made permanent even though they’re popular with members of both political parties. Affectionately known as extenders, they require renewal every year or two. It looked like Congress might reach a deal on these back in May, but the deal fell apart over the usual issue: whether to offset these tax breaks with loophole closers/tax increases somewhere else, and if so, which ones.
Like AMT relief, extenders are an urgent issue affecting 2010 income tax returns.
1099 reporting. Part of the revenue needed to pay for the healthcare reform law came from making it harder for businesses to cheat on their taxes. This was accomplished through a requirement for businesses to report to the IRS when they make payments of more than $600 per year to other businesses. Here at Fairmark.com, for example, we’d have to tell the IRS how much money we paid to the company that manufactures our books, so the IRS would have a way of knowing, without auditing that company, whether it reported all its income. In theory this is a great idea because it reduces the federal budget deficit without raising taxes, simply making it harder to cheat. In practice, preparing these reports for the IRS imposes a huge burden on businesses, and a chorus of opposition has led leaders of both parties to disown the idea. At this point it’s all but certain that this provision will be repealed before it takes effect.
