House On Summer Break After Tossing Tax Bomb To Senate

by Mike Godfrey, Tax-News.com, Washington

01 August 2006

In a surge of last-minute activity before breaking for its 5-week summer recess, the US House of Representatives has passed two major tax bills - but the Senate has a further week of work and Democrats will not give a warm welcome to one of the bills which couples a minimum wage increase with estate tax reductions.

A second bill, to reform pensions laws, was passed 279-131, and House Majority Leader John Boehner (R - Ohio) said it represented “the most sweeping changes to America’s pension laws in more than 30 years.”

Earlier in the week, the pensions legislation had been coupled with the estate tax and minimum wage measures in House/Senate reconciliation negotiations which broke down, leading to separate presentation of the two packages.

The 900-page pension bill, which is thought likely to pass the Senate this week, would force employers that have fallen behind in payments into defined-benefit pension schemes to catch up within seven years. Pension plans that are less than 80% funded would not be allowed to increase benefits during contract negotiations, and companies with poorly financed pensions would be restricted in increasing executive compensation. The bill also strengthens 401(k) plans with automatic enrollment and gives a legal basis to various "hybrid" defined-benefit plans which have been attacked as discriminatory. Pension scheme managers would be allowed for the first time to offer advice to prospective members.

The minimum wage/estate tax bill (a lamb lying down with a lion?) was passed by 230-180 votes, and couples a $2.15 increase in the $5.15 hourly minimum wage over three years with increased exemptions and lower rates for estates. Currently, estate tax will be phased out completely by 2010, but returns at 55% on estates larger than $1 million in 2011. Last week's bill would increase the exemption to $5 million, while taxing estates worth up to $25 million at capital gains rates, currently 15%. Amounts over $25m would be taxed at 30%. The bill also includes a extension of the R & D credit for small businesses, something that has bi-partisan support.

Although many Democrats voted for the bill (and some Republicans did not), it stands little chance in the Senate, where many Democrats are furious at being fed what they see as sugar-coated poison.

Senate Minority Leader Harry Reid (Dem - Nev) said that Democrats would kill the bill, set to cost $300 billion: "The Senate has rejected fiscally irresponsible estate tax giveaways before and will reject them again," he said. "Blackmailing working families will not change that outcome."

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