CQ TODAY ONLINE NEWS
July 23, 2012 – 10:57 p.m.
Senate May Vote on Tax Proposals
By Sam Goldfarb, CQ Staff
After arguing for nearly a month, the Senate is expected to vote this week on competing measures that would extend a host of expiring tax cuts through 2013 and help define the tax issue for voters this fall.
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Senate Majority Leader
One way or another, the bills are likely to be considered side by side. But a senior Republican aide cautioned that no agreement had been reached by Monday evening, leaving open the possibility that Republicans could block consideration of the Democratic bill and look for other ways to force a vote on their own legislation.
For all their differences, both tax measures would continue current tax rates on income up to $200,000 for single filers and $250,000 for joint filers. In addition, they would keep the child tax credit at $1,000, rather than let it drop to $500. They also would extend marriage penalty relief in the form of a bigger standard deduction and 15 percent tax bracket for married couples who file their taxes jointly. And they would continue a variety of education tax breaks, such as an incentive for businesses to pay for the college and postgraduate expenses of employees.
Altogether, a one-year extension of only the middle-income tax cuts that were first enacted in 2001 during the George W. Bush administration would cost $129.5 billion in forgone revenue, according to a preliminary estimate by the Joint Committee on Taxation (JCT).
At a cost of $92 billion, the two bills also include a “patch” for the alternative minimum tax to prevent the levy from hitting households with moderate incomes in 2012. Unlike Democrats, however, Republicans would continue the AMT relief through 2013 at an additional cost of $100.7 billion.
For the most part, the similarities between the two measures end there.
In a bid to help small businesses, Democrats are proposing to allow businesses to immediately deduct $250,000 worth of property in 2013. Under their bill, the benefit would be phased out for businesses that spend more than $800,000 on equipment. The GOP bill is more generous, providing a maximum deduction of $500,000 and a phaseout threshold of $2 million.
But the largest and most meaningful distinction between the two bills is in the way they would treat the top two individual income tax brackets.
Rounded off, joint filers under the Republican plan would continue to pay a 33 percent rate on adjusted gross income above $250,000 and a 35 percent rate on income above $400,000 in 2013. Under the Democratic plan, those rates would be 36 percent and 39.6 percent, respectively.
Unlike Republicans, Democrats also would reinstate limits on itemized deductions and personal exemptions claimed by taxpayers in the top two income tax brackets.
While Republicans would maintain current tax rates on long-term capital gains and dividends, Democrats would let them increase to 20 percent from the current 15 percent.
Senate May Vote on Tax Proposals
Because current law would still tax capital gains and dividends more heavily in 2013, the Democratic plan for investment income is projected to cost $17.6 billion, while the Republican proposal would cost $25.8 billion.
Democrats Back Targeted Cuts
Overall, the GOP bill would maintain tax relief worth $49 billion for people that Democrats have defined as wealthy, a hit to the Treasury that would be significantly higher if the tax cuts were made permanent. However, the savings Democrats achieve would be partly offset by continuing other tax breaks that were originally included in the 2009 stimulus law (PL 111-5).
Chief among these is a temporary tax credit for college expenses, known as the American Opportunity credit, that amounts to a more generous version of a permanent tax credit known as the Hope credit. The maximum Hope credit is $1,800 and is available for the first two years of higher education, while the American Opportunity credit runs up to $2,500 and can be claimed for up to four years. The temporary credit begins to phase out for joint filers with income above $160,000, compared with $116,000 for the Hope credit.
Democrats also propose to continue an expanded version of the child tax credit, keeping the refundable portion of the tax break roughly four times the size of what it would be under the Republican plan.
In addition, the Democratic bill would ensure that married couples with three or more children can claim an earned-income tax credit worth 45 percent of earnings up to $22,300. Without an extension, the maximum earned-income tax credit would be 40 percent.
Taken together, a one-year extension of stimulus tax cuts would result in forgone revenue of $27.2 billion, according to the JCT.
Such tax breaks are not renewed in the GOP bill. In dueling statements Monday, Senate Finance ranking Republican
In fact, the true cost of the Democrats’ tax plan is obscured because their current tax bill includes only a one-year AMT patch and does not address the estate tax. Although their bill officially costs $155.3 billion less than the Republican measure, the difference would shrink to roughly $50 billion if it contained their preferred policies to cap the estate tax at its 2009 levels and extend the AMT relief through next year.