Out with the Old Challenges
Last week the House and Senate wrapped up the 109th Congress by approving a “continuing resolution” to fund the federal government through February 15th. Doing so leaves major 2007 spending decisions to the new Democratic-controlled Congress when they convene in January.
The House and Senate also approved a $45 million tax bill that extends for two years popular to tax benefits, such as the Research and Development and Work Opportunity Tax Credits, many of which expired at the end of last year. This comprehensive package also included an energy tax title that extended, again for two years, the Production Tax Credit and other energy tax credits last enacted as part of the Energy Policy Act of 2005. Finally, the bill refined and expanded the rules governing Health Savings Accounts, permitting employees to roll Flexible Savings Account balances into an HSA while increasing the overall limit on HSA contributions.
Adoption of these tax extensions creates a new tax policy wall of sorts, where numerous popular tax provisions will again expire at the end of 2007. Over the next two years, the new congressional leadership will face the considerable political challenge of approving (and paying for with corresponding tax offsets) legislation to both address a top tax priority of the Democratic leadership-protecting low and middle-income taxpayers from the alternative minimum tax-together with extending the expiring provisions.
In with the New
Given the new congressional leadership’s goal of offsetting any new spending or tax relief with spending cuts and tax increases, they are beginning their legislative leadership with a quest for revenue. Where will they find it?
One likely target continues to be the “tax gap” (the difference between taxes legally owed and the amount of taxes collected on a timely basis). Last week, incoming Senate Finance Committee Chairman Max Baucus (D-MT), who has continually focused on the need to address the tax gap this Congress, ended his objection to the confirmation of Eric Solomon as Assistant Treasury Secretary for Tax Policy after receiving a commitment from Treasury Secretary Henry Paulson to testify on the “tax gap” at a Senate Finance Committee hearing next year. (As S-CORP members know, Eric has met with our organization on several occasions and is viewed as a friend to small and closely-held businesses. Congratulations to Eric on his confirmation!)
S-CORP has been focusing on the Finance Committee’s, Joint Committee on Taxation’s (JCT) and Treasury’s work in this area for two years now and has played an active role in opposing the JCT proposal to increase taxes on S corps. As you’ll recall, much of the estimated tax gap is attributed to small and closely-held businesses, and the IRS has begun a program to audit 5000 S corporations in an effort to identify where their enforcement activities could be better targeted.
In recent days, the rest of the business community has come to recognize the challenge it faces. Last week, our friends at the National Federation of Independent Business convened the first of what promises to be many meetings on the tax gap initiatives and the threat they pose to the business community should they reach beyond the established definition of the tax gap into the realm of new tax increases. S-CORP promises to be an active part of these efforts.
New Tax Writers in the Wings
Another area of interest to S-CORP members is who will sit on next year’s tax panels. Senate Democrats have already named three new Finance Committee panelists (Salazar, Cantwell, and Stabenow), but the new Republican Committee member has not been named yet. Last week we were hearing that Senator Pat Roberts (R-KS) is the lead candidate to fill that vacancy on the Senate Finance Committee. Other names in consideration include Senator George Voinovich (R-OH) and John Ensign (R-NV). Republican Committee assignments might be announced this week or could wait until the new Congress convenes on January 4th.
In the House, the Democratic steering committee met last week to complete appointments of incoming chairmen. This week the Democratic steering committee will consider committee assignments so we will report back to you once there is news about the new members on the tax-writing Ways and Means Committee. The House Republican steering committee completed its work on ranking members and named Rep. Jim McCrery (R-LA) as Ranking Member for the House Ways and Means Committee and Steve Chabot (R-OH) for the Small Business Committee.
The big story in the House has been the Democratic Leadership’s announcement that the House will be in session 5 days a week beginning in January with fewer “recesses” or “district work periods”. Typical workweeks for the Republican-led Congress have been Tuesday-Thursday to allow Members more time in their districts. This new schedule is likely to present both benefits and challenges to the business community as there will be more congressional work days that pro-S corporation and pro-small business legislation can be approved, but that also means more opportunities for revenue offsets to be needed to pay for any new benefits. S-CORP will continue its vigilance on your behalf as we look ahead to the changes the new Congress will bring and focus on finding new friends and allies to support the much-needed reforms to the S corporation structure.