Just to keep everybody up to speed, there are a couple recent tax items of note.
First, CongressDaily reports the House may take up yet another extender package prior to the Memorial Day recess. This package reportedly includes energy provisions as well as the expired extenders like R&E and the state and local sales tax deduction. An extension of the Alternative Minimum Tax “patch” does not appear to be under consideration.
Regarding the central issue of whether the revenue impact of the package will be offset by accompanying tax increases, Majority Leader Steny Hoyer is quoted saying, “We want it paid for and it will be paid for.”
If that remains the case, then this exercise is similar to those that preceded it – the House passes a tax package with revenue raisers and the Senate rejects them. A similar stalemate kept Congress in session right up until Christmas last year.
As further evidence of the divide, on Tuesday the White House issued a veto threat against a housing stimulus package to be considered by the House yesterday. The veto is tied to both a new first-time buyer tax credit included in the package as well as the tax increase offset used to pay for the package.
With the Senate and Administration drawing a hard line against offsets on the one side, and the House digging in its heels for offsets on the other, we could be in for a long, post-election ride on tax policy.
On a related note, Senate Democrats are working on a package of provisions to provide relief from rising energy prices. At first glance, the package introduced this afternoon is heavy on taxing and regulating oil companies and light on actual relief for consumers from rising energy prices. The bill:
- Repeals the manufacturing deduction for large oil and gas companies;
- Imposes a 25 percent windfall profits tax on certain oil companies;
- Suspends filling the Strategic Petroleum Reserve; and
- Increases certain government regulatory authority over energy pricing and related securities.
Notably absent from the package is the gas tax holiday proposed by the Clinton campaign. It is also unclear what all the revenues from the windfall profits tax and Section 199 repeal would be used for.
As with so many tax bills being considered by either the House or Senate these days, prospects for this legislation moving beyond the Senate appear to be slim to none. Candidates and Capital Gains CNBC had a nice segment Tuesday morning on the Presidential candidates and the capital gains tax rate. Which candidate has the best plan?
The current rate is 15 percent. Candidate Obama would to raise it to 28 percent, Clinton to 20, and McCain would hold it at 15.
Here at the S Corporation Association, we believe the bias in the next couple years is towards higher rates, regardless of who is President. Current law has the rate reverting to 20 percent in 2011 unless Congress proactively passes a different rate. That means 41 Senators opposed to lower capital gains rates (or rates higher than 20 percent for that matter) can block any effort to legislate something different.
So if Obama is President and wants to raise the tax on capital gains up to 28 percent, Senate Republicans will want to block that effort in defense of a 20 percent rate instead. If McCain is President and wants to keep the rate at the current 15 percent, Senate Democrats should have the ability to block that effort and preserve the 20 percent rate instead. If Senator Clinton is President, Congress can just sit on its hands and the rate will revert to her preferred level.
This analysis applies to several other tax items as well, including the lower individual tax rates, the rate on dividend income, and the estate tax. Absent consensus for a particular change, current law has these items reverting back to their pre-2001 levels in 2011.
All of which suggests the any deviation from current law will require Republicans and Democrats to reach some consensus on a compromise package.
What motivation do they have? Lots. Bi-partisan challenges like the growth of the AMT, $1000 child credit, and the on-going challenge of paying for tax extenders should give the leadership of both parties sufficient incentive to work something out.