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Saturday, January 9, 2010

Major Tax Issues in the 111th Congress

James M. Bickley
Specialist in Public Finance

Andrew Hanna
Presidential Management Fellow

The major focus of congressional tax deliberations in early 2009 had been on an economic stimulus package, the American Recovery and Reinvestment Act of 2009 (P.L. 111-5; ARRA), which was enacted with a projected cost of $787 billion over the next few years, with about 40% of the cost reflecting tax cuts. The new law included a number of individual income tax provisions targeted at lower and middle income families. Business provisions included accelerated depreciation, net operating loss carrybacks for small businesses, deferral of tax on the discharge of indebtedness, and energy provisions. 

Other tax-related activity included the President's the FY2010 budget request, proposing tax changes estimated to cost $2.8 trillion over the next ten years. Most of the revenue losses would arise from making most of the 2001-2003 tax cuts permanent (with the exception of certain provisions affecting high-income individuals) and extending or making permanent other expiring provisions including the alternative minimum tax (AMT) revision in ARRA. It also included provisions making permanent some of the middle and lower income tax provisions in ARRA, restricting the benefits of itemized deductions, and making a number of revisions in business taxes, which would increase revenues. 

As congressional actions continued, the budget resolutions in the House and Senate (H.Con.Res. 85, S.Con.Res. 13) provide for many of the tax proposals included in the Obama Administration's budget outline. Specifically, the conference agreement for S.Con.Res. 13, passed by the House and Senate on April 29, 2009, provides for three additional years of AMT relief, without offset, a two-year extension of certain expired and expiring tax provisions, and estate tax reform. The legislation also supports the permanent extension of middle-income tax relief first enacted in 2001 and 2003, including extension of the child tax credit; the 10%, 25%, and 28% tax brackets; and marriage penalty relief. Corporate tax reform, and the treatment of multi-national corporations, is an active issue as both the Administration and Congress work to address tax havens and other national and international issues. 

In the fall of 2009, tax measures to finance health care reform have received substantive attention. Proposals have been made in the America's Affordable Health Choices Act of 2009 (H.R. 3200), which was reported out by three committees. Modifications and additions to those proposals were added to new legislation titled the Affordable Health Care for America Act (H.R. 3962), which was passed in the House on November 7, 2009. In the Senate, two committees each have reported out health care reform bills, America's Healthy Future Act of 2009 (S. 1796) and Affordable Health Choices Act (S. 1679). In November 2009, Senator Reid introduced a new health care reform measure, the Patient Protection and Affordable Care Act, as an amendment in the nature of a substitute for H.R. 3590, which was subsequently passed by the Senate on December 24, 2009. The extension and expansion of the first-time home buyer tax credit and net operating losses, were included in the Worker, Homeownership, and Business Act (H.R. 3548, P.L. 111-92), which was signed into law on November 6, 2009. On December 3, 2009, the House passed H.R. 4154, the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009. On December 9, 2009, the House passed H.R. 4213, Tax Extenders Act of 2009, which would provide individuals and businesses with approximately $31 billion in tax relief in 2009 by extending for one year 49 provisions that are scheduled to expire at the end of 2009. 

This report, which includes contributions from Jane G. Gravelle, Mindy Levit, and Pam Jackson, will be updated as legislative and economic events occur.

Date of Report: December 30, 2009
Number of Pages: 27
Order Number: R40004
Price: $29.95

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