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Thursday, August 26, 2010

Major Tax Issues in the 111th Congress

James M. Bickley, Coordinator
Specialist in Public Finance

The major focus of congressional tax deliberations in early 2009 was 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, proposed tax changes estimated to cost $2.8 trillion over the next 10 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. In 2009, the budget resolutions in the House and Senate (H.Con.Res. 85, S.Con.Res. 13) provided for many of the tax proposals included in the Obama Administration's budget outline. 

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. 

Health care reform was the subject of widespread debate in 2009. In the second session of the 111th Congress, the Patient Protections and Affordable Care Act (P.L. 111-148) was signed into law on March 23, 2010. The Joint Committee on Taxation estimated that this law included revenue provisions that would raise a total of $409.2 billion in the period 2010-2019. Over onehalf of this additional revenue ($210.2 billion) would result from a broadened Medicare hospital insurance tax base for high-income taxpayers—an additional FICA-HI (hospital insurance) tax of 0.9% on earned income in excess of $200,000 [single taxpayer]/$250,000 [married taxpayers] (unindexed), and an unearned income Medicare contribution on 3.8% on investment income for taxpayers with adjusted gross income (AGI) in excess of $200,000/$250,000 (unindexed). 

On March 18, 2010, the Hiring Incentives to Restore Employment (HIRE) Act (H.R. 2847) became P.L. 111-147. Title I, "Incentives for Hiring and Retaining Unemployed Workers," included two new tax benefits available to employers hiring workers who were previously unemployed or only working part time. 

In the 111th Congress, provision for the extension of certain expiring provisions has been debated. On December 9, 2009, the House passed H.R. 4213, the Tax Extenders Act of 2009. The Joint Committee on Taxation (JCT) estimated that this bill included tax extenders that would cost $31.164 billion over 10 years. On March 10, 2010, the Senate passed an amended H.R. 4213, the American Workers, State, and Business Relief Act of 2010. On May 28, 2010, the House passed a revised H.R. 4213 titled the American Jobs and Closing Tax Loopholes Act. Congress is expected to resume its consideration of tax extenders legislation in September 2010. 

This report includes contributions from James M. Bickley, Craig K. Elwell, Jane G. Gravelle, Thomas L. Hungerford, Mark P. Keightley, Mindy R. Levit, Megan Suzanne Lynch, Steven Maguire, Nonna A. Noto, and Christine Scott. It will be updated as legislative and economic events occur.

Date of Report: August 6, 2010
Number of Pages: 40
Order Number: R40004
Price: $29.95

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