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Week Ending February 3, 2005
H.R.4297 To provide for reconciliation pursuant to section 201(b) of the concurrent resolution on the budget for fiscal year 2006.
BRIEF
This bill is the House’s effort to extend existing tax breaks and provide other opportunities for tax savings through an eclectic mix that ranges from continued reduction in investment dividend and capital gains taxes to housing help in the District of Columbia, veterans mortgage bonds and how musical copyrights can be sold as capital assets.
Of most interest to the average American are the continued deduction for higher education borrowing and the opportunity to elect to deduct sales tax in states where there is no state income tax.
Veterans would find limitations on how long after returning from active duty they may qualify for a VA mortgage loan. Veterans would have to apply for the mortgage within 25 years of leaving active duty and limits on the number of VA mortgages available would be applied to Texas, California, Oregon, Wisconsin and Alaska through 2010.
Businesses would benefit from the continued deduction for research spending and depreciation of business property on Native American reservations would be accelerated. Taxes applying to extracting gas and oil from marginal properties would be limited. And restaurants depreciating equipment would see the depreciation period accelerated. Tax break incentives are offered to businesses that hire welfare recipients and Native Americans.
Opposition to the bill centered on the conclusion that it follows last month's spending reduction bill that cut nearly $50 billion in spending, around ten million from Medicaid programs, froze increases in healthcare spending for the poor and reduced food stamp privileges to some who receive other Federal benefits.
Democrats, led by Rep. Charles Rangel (D-NY) proposed a substitute bill that totaled around $45 billion in cuts but did not include extending the stock dividend and capital gains tax breaks. The substitute bill aimed to pay for the lost revenue by raising taxes on individuals earning over $500,000 and couples earning over $1 million. Rep. Rangel and supporters argued that the dividend and capital gains cuts benefit only the wealthy and leave a deficit that all taxpayers must pay off. Rep. Rangel's substitute failed to pass. (Vote data below)
Sponsor: Representative William M. Thomas (R-CA-22nd)
Vote: Passed House 243 to 197 (RC 621) December 8, 2005. A motion to recommit the bill with instructions failed 193 to 235 (RC 620). The Rangel substitute failed to pass 192 to 239 (RC 619) December 8, 2005. Bill passed Senate amended 66 to 31 Feb. 2 2006 (RV 10)
Cost to the taxpayers: “CBO and the Joint Committee on Taxation (JCT) estimate that enacting this legislation would reduce revenues by $56.1 billion over the 2006-2010 period and by $80.5 billion over the 2006-2015 period. In addition, CBO estimates that this legislation would have no effect on federal spending.” $50 billion in lost tax revenue (out ten years) is attributed to the dividend and capital gain tax reduction extension.
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MORE INFORMATION
TITLE I Extension through 2006
TITLE II Extensions for two years
TITLE III Other Provisions
Title I (Sec. 101) Extends through 2006:
The allowance of certain nonrefundable tax credits against alternative minimum tax liability;
NATIVE AMERICAN LAND
The Indian employment tax credit;
Accelerated depreciation of business property on Indian reservations;
WELFARE
The work opportunity tax credit (increases from 25 to 35 the age limit for food stamp recipients eligible for such credit); The welfare-to-work tax credit;
CHARITABLE CONTRIBUTIONS
The tax deduction for corporate donations of computer technology and equipment for educational purposes;
MEDICAL INSURANCE
Certain eligibility provisions for Archer medical savings accounts (MSAs) (extends the filing deadline for the report of Archer MSA trustees);
Parity requirements for the application of group health plan limits to mental health benefits
SMALL BUSINESS AND THE DISTRICT OF COLUMBIA
Accelerated depreciation of leasehold and restaurant improvements (15-year recovery period); and
The suspension of the taxable income limit on percentage depletion for oil and natural gas from marginal properties.
The authority to designate District of Columbia Enterprise Zones;
The authority for issuance of tax-exempt economic development bonds in D.C. enterprise zones;
The exemption of gain from the sale or exchange of enterprise zone assets; and (4) the tax credit for first-time D.C. homebuyers.
The possessions tax credit for American Samoa; and
RESEARCH AND LARGE BUSINESS
The tax credit for increasing research activities. Increases the rates of the alternative incremental credit. Allows a taxpayer election of an alternative simplified tax credit for research expenses.
The authority for issuance of qualified zone academy bonds;
EDUCATION
The tax deduction from gross income for elementary and secondary school teacher expenses;
The tax deduction for higher education tuition and related expenses; and
PERSONAL INCOME TAX DEDUCTIONS
The election to deduct state and local general sales taxes in lieu of state and local income taxes.
Title II: Extensions Of Certain Provisions For 2 Additional Years And Other Modifications –
ENVIRONMENTAL
Extends through 2007: The expensing allowance for environmental remediation costs, including remediation of sites at which petroleum products have been released or disposed of.
IRA AND OTHER INVESTMENTS
Extends through 2008: The exemption of active financial services income from Subpart F taxation;
The tax credit for retirement savings contributions (saver's credit); and dividends, interest, rents, and royalties received or accrued from a controlled foreign corporation (CFC) from Subpart F taxation to the extent attributable or properly allocable to the non-Subpart income of the CFC.
Extends through 2010:
The reduced tax rates for capital gains and dividend income enacted by the Jobs and Growth Tax Relief Reconciliation Act of 2003; and
The increased expensing allowance for depreciable business property.
Title III: Other Provisions –
ENVIRONMENTAL
Allows an income tax exemption for certain settlement funds established under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 prior to December 31, 2010.
CORPORATIONS
Revises the active business requirement for non-recognition of the gain from distributions of corporate property to treat all members of a corporation's separate affiliated group as one corporation.
VETERANS
Revises eligibility requirements for veterans' mortgage bonds to provide that veterans must apply for financing within 25 years of leaving active duty (currently, such veterans must have served prior to January 1, 1977). Sets volume limits on veterans' mortgage bonds for the states of Texas, California, Oregon, Wisconsin, and Alaska, phased in through 2009. Terminates such limits after 2010.
INTELLECTUAL PROPERTY
Allows a taxpayer to elect to treat musical compositions or copyrights in musical works that are created by the taxpayer's personal efforts and are sold or exchanged before January 1, 2011, as capital assets (thus eligible for lower capital gains tax rates).
MARITIME
Revises the definition of "qualifying vessel" for purposes of the alternative tax on international shipping activities to reduce the tonnage requirement for such vessels from 10,000 to 6,000 deadweight tons for taxable years beginning after December 31, 2005, and ending before January 1, 2011.
INTERNATIONAL
Extends until August 31, 2009, special arbitrage rules enacted by the Deficit Reduction Act of 1984 governing certain securities or obligations held in a fund subject to state law restrictions continuously in effect since October 9, 1969.
Several months ago, Hurricane Katrina forced America to see poverty and its consequences every night on the evening news. For many in New Orleans, poverty was the difference between the ability to escape the disaster and being left behind to face the consequences of the Hurricane with little or no assistance from the Federal government.
The failure of the Federal government to react quickly and effectively to the Hurricane forced President Bush to respond. He made a stirring speech vowing to rebuild New Orleans regardless of the cost. His speech also expressed concern about the growing divide in this country between the rich and the poor.
Both before and after that speech, Americans have been exposed to the real plight of poverty in this country. The number of people in poverty has increased by 5.4 million under Republican policies between 2000 and 2004. The number of children alone in poverty increased by 1.5 million. The Census Bureau reported that the number of Americans in poverty increased by 1.1 million in 2004, and the poverty rate increased to 12.7%. Today a total of 37 million Americans live in poverty.
Watching the chilling footage of Hurricane Katrina brought home a reality that is all too real to poor people in America: poverty can be a death sentence. Poor children are more likely to suffer chronic health problems, lower cognitive scores, and lower school achievement. The real tragedy is that those who are left to fend for themselves in the most dire conditions become trapped in a cycle of poverty--children who experience persistent poverty are more likely to be poor as adults.
President Bush's speech and the evidence of increasing poverty gave hope that at long last the American people would see the compassionate side of President Bush's `compassionate conservative' agenda. But a decent interval has passed. President Bush and his Republican supporters in the Congress have returned to their true agenda of cutting programs protecting the most vulnerable in our society and reducing taxes on the most fortunate.
Even in light of the fact that the number of Americans in poverty has grown by millions over the last four years, Congress will soon vote on a budget bill that cuts health coverage, food assistance, and student aid to needy Americans. Other programs, including Temporary Assistance for Needy Families (TANF), the Child Care and Development Block Grant, and the Social Services Block Grant will not be allowed to keep pace with inflation, so they too will decline in real terms. There is no compassion in the Republican agenda for the most vulnerable Americans.
This nation also is involved in a war in Iraq. This will be the first war in our country's history where only those in the military and the poor will be forced to sacrifice. This will be the only time when we will cut taxes for wealthy individuals during a war. The Congressional Research Service (CRS) recently estimated the total cost of military activities in Iraq, Afghanistan, and for enhanced base security since September 11, 2001. The October 3, 2005, CRS report shows a total budget authority of $311.7 billion for FY2001-FY2005, and $214.6 billion for Iraq operations alone. This country faces a costly war, yet this Republican Congress sees fit to shield the wealthy from those costs, and even reward them with increased tax cuts. The sense of shared sacrifice that has characterized our history is missing.
The fact that these are not normal times makes it very easy to oppose the Committee bill that provides tax reductions disproportionately benefitting the truly wealthy. But even in normal times, it would be very easy to oppose the Committee bill.
The Committee bill is another in a series of reckless tax cuts that continue to leave this country facing enormous deficits. The largest unfunded responsibility faced by this country is not Social Security or Medicare, it is interest on the national debt. Increasingly, we are ceding control of our future to foreign investors who have financed our recent deficits.
The Committee bill also demonstrates that the many budgetary gimmicks used by the Republicans to hide the cost of their tax cuts have finally come home to roost. Even the Republicans now recognize that they cannot afford all of the tax cuts that they have promised in the big print of their bills. The Committee Republicans were faced with a choice. They could extend a tax cut for investors (a tax cut which does not expire until 2009 and over 50% of which will be enjoyed by individuals with annual incomes of over $1 million) or they could avoid a tax increase (of up to $3,380) on 15 million American families next year. Even we were surprised by their choice.
A prime example of the flawed Republican priorities concerns our military. Some of our military serving in combat in Iraq will face tax increases next year because one of the few temporary tax benefits not extended by the Committee bill is a provision that provides a larger earned income tax credit to low-income families with a mother or father serving in Iraq. During the markup, the Committee Republicans refused to extend that tax benefit, hiding behind arcane Senate Budget rules which do not even apply in the House. But the excuse of those arcane Senate rules did not prevent the Committee Republicans from adopting other tax benefits to benefit a variety of other interests.
When President Bush took office in January 2001, the projected ten-year (FY2002-11) budget surplus was $5.6 trillion. Under Bush Administration policies, the budget outlook has deteriorated into a deficit of $3.5 trillion (over the same period)--a swing of $9.1 trillion.
The Congressional Budget Office (CBO) now estimates that the ten-year total budget deficit for FY2006-15 will reach more than $2.1 trillion, and the on-budget deficit (excluding the temporary sound security surpluses) nearly $4.6 trillion, based on current law (the required CBO baseline assumption). In addition, CBO estimates that the cost of making the tax cuts permanent would raise the ten-year deficit by nearly $1.9 trillion, to $4.0 trillion. If the higher exemption level in the AMT were also extended, with no offsetting provision, the ten-year deficit would increase by $775 billion more.
The current federal debt limit (a gross debt measure) is $8.184 trillion, and we are now less than $200 billion away from that limit. Since President Bush took office, the limit has been raised by more than $2.2 trillion. To make room for the President's current budget proposals, the Republican fiscal plan will raise the debt limit by another $781 billion--for a total increase in the debt of around $3 trillion.
Republicans repeatedly claim that the problem has been `runaway domestic spending,' but the fact is that most of the deterioration in the fiscal outlook has been due to the drop in revenues. Revenues fell from nearly 20.9 percent of GDP in 2000 to just 16.3 percent in 2004, while outlays increased from 18.4 percent to 19.8 percent (the bulk of which went to the costs of the war). Revenues had not been that low in 45 years.
One consequence of this out of control, borrow-and-spend budgeting is the rapid increase in the amount of U.S. Treasury
securities sold to foreign interests. Currently, foreign investors own more than $2 trillion in U.S. bonds and notes. Furthermore, more than half of that amount is owned by foreign central banks.
Since 2001, foreign investors purchased close to 90% of the new debt held by the public. Clearly, foreign ownership of our publicly held debt has created a financial vulnerability with national security implications. A country cannot be the world's leading economic and military power if its government financing is dependent on funds from foreign countries, many of which oppose our policies.
Instead of ignoring this threat to our nation, we need decisive action, and that will not be possible without a bipartisan agreement. Therefore, the President and Congressional leaders need to stop discounting this crisis and come together to confront our fiscal problems. We owe it to the American people to act responsibly by sitting-down together and devising a serious plan to keep America from going even deeper into debt.
In recent years, the Congress has used a variety of budget gimmicks to hide the true cost of the tax reductions that are boldly promised in the big print of their tax cut legislation. Those gimmicks include phase-ins, sunsets, temporary provisions, and the alternative minimum tax (AMT).
The AMT is probably the largest and the most consequential of those budget gimmicks. According to the Joint Committee on Taxation, the 2001 and 2003 tax cuts almost tripled the size of the AMT problem, from $400 billion over 10 years under prior law to $1.139 trillion today. Again, according to the Joint Committee on Taxation, the individual AMT will deny $739 billion of tax relief over the next ten years that was promised in the big print of the 2001 and 2003 tax cuts.
The individual AMT also dramatically changed the distribution of the 2001 and 2003 tax cuts. The AMT will limit the tax cuts provided to middle-income and moderately wealthy taxpayers while taking away relatively little of the tax cuts given to the very wealthy. In 2010, the AMT will take back only 9.2 percent of the promised tax cuts from individuals making more than $1 million per year. In contrast, individuals with incomes between $75,000 and $100,000 will lose 21 percent of the tax cuts, and individuals between $100,000 and $200,000 will lose 47 percent of the tax cuts.
Even without the AMT, the recent tax cuts would disproportionately benefit upper income taxpayers. With the AMT, they will disproportionately benefit the super wealthy, those making more than $1 million per year.
Next year, under the Committee bill, approximately 19 million families will be affected by the minimum tax, an increase from approximately 3.5 million this year. As a result, over 15 million families will face a tax increase next year compared to their liability in 2005. The size of the tax increase could be as much as $3,380.
Even as millions of Americans face a tax increase due to a provision of law that expires in little more than six weeks, the Committee's bill instead concentrates on two provisions that do not expire until 2009.
President Bush and his Republican Congressional allies vow to make the Bush tax cuts permanent. But they ignore the fact that the AMT will repeal all or a portion of the Bush tax cuts for approximately 19 million families next year because of the choices made by the Committee bill.
There was another alternative. The Democratic substitute would have totally eliminated the AMT for all families with incomes under $200,000. If that substitute had been adopted, the number of AMT taxpayers would drop next year from 19 million under the Committee bill to approximately 3 million. The substitute would
have eliminated the Republican tax increase on 15 million American families.
The Committee bill ignores the
reality facing millions of Americans, and instead chooses to focus on the
nation's most wealthy. The struggles of those in poverty fall into the shadows
of giant tax cuts skewed to the richest of the rich Americans. The Republicans
on this Committee have failed in their job to legislate responsibly in the
interest of all Americans, especially those who have been left behind to fend
for themselves by conservative Republican policies that offer no compassion.
Charles B. Rangel.
Xavier Becerra.
Pete Stark.
William J. Jefferson.
John Lewis.
Sander Levin.
John S. Tanner.
Mike Thompson.
Jim McDermott.
Rahm Emanuel.
Earl Pomeroy.
John B. Larson.
Stephanie Tubbs Jones.
Richard E. Neal.
Ben Cardin.
Lloyd Doggett.
Michael R. McNulty.
1. Senator Kent Conrad (D-SD) an amendment to include offsets for tax cuts failed 44 to 52 (RV 3) Feb. 2, 2005
2. Senator Chuck Grassley (R-IA) an amendment in support of the Medicare Prescription Drug Plan failed 42 to 54 (RV 4) Feb. 2, 2006.
3.Senator Bill Nelson (FL) an amendment to extend the enrollment period for the Medicare Prescription Drug Plan by six months failed 52 to 45. Required 60 votes to pass. (RV 5)
4. Senator Hillary Clinton (D-NY) To establish a congressional commission to examine the Federal, State, and local response to the devastation wrought by Hurricane Katrina in the Gulf Region of the United States especially in the States of Louisiana, Mississippi, Alabama, and other areas impacted in the aftermath and make immediate corrective measures to improve such responses in the future failed 44 to 53. (RV 6)
5. Senator Christopher J Dodd (D-CT) To support the health needs of our veterans and military personnel and reduce the deficit by making tax rates fairer for all Americans failed 44 to 53. (RV 7)
6. Senator Jack Reed (D-RI) To strengthen America's military, to repeal the extension of tax rates for capital gains and dividends, to reduce the deficit, and for other purposes. Failed 44 to 53 (RV 8)
7. Senator Robert Menendez (D-NJ) To express the sense of the Senate that protecting middle-class families from the alternative minimum tax should be a higher priority for Congress in 2006 than extending a tax cut that does not expire until the end of 2008 passed 73 to 24 (RV 9)
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