At a members briefing this evening, Ways and Means Chairman Charlie Rangel outlined his “Mother of All Tax Bills” to the Committee membership. In essence, he outlined three separate bills that he will introduce in one package:
– A bill to repeal the individual AMT and provide tax benefits for low income families; A bill to extend for one year a group of tax provisions scheduled to expire at the end of 2007, including the temporary AMT “patch” ; and
– A bill to cut the corporate tax rate down to 30.5 percent.
As S-Corp readers know, the tax benefits from these three bills are great. It’s the offsets that are the problem. Here’s the current summary:
Individual Bill
– Repeals the AMT beginning 2008;
– Expands the EITC, increases the standard deduction, and increases the refundable portion of the child credit.
– Offset is a 4 percent surtax on incomes above $150,000 ($200,000 joint).
Extender Package
– Extends for one year all the major tax provisions scheduled to expire at the end of year, including the AMT patch.
– Offsets include carried interest, deferred comp on offshore hedge funds, basis reporting of securities, and higher payroll taxes on service sector S corporations.
Corporate Rate Cut
– Corporate Tax Rate Lowered to 30.5 percent. Offsets included repeal of Section 199 manufacturing deduction, repeal of LIFO accounting rules, and expense allocation rule changes.
While most of these provisions affect S corporations in one way or another, the four that stand out as particularly harmful are the individual surtax, the S corp payroll tax increase, LIFO repeal, and the repeal of the Section 199 manufacturing deduction.
What’s unclear is if the LIFO and Section 199 repeal distinguishes between C corporations who benefit from the lower corporate rates and S corporations, who do not. Treasury separated them in their corporate rate cut study back in July. We’ll have to wait until tomorrow to find out what the Committee has in mind. As you can guess, we will have more to say about the S corporation payroll tax proposal as well.