Senate Passes Tax Package, But House Clash Looms

by Mike Godfrey, Tax-News.com, Washington

25 September 2008

A comprehensive set of tax measure which will create new, and extend existing, tax breaks for clean energy producers, while extending other business and personal tax breaks, won the overwhelming support of the Senate on Tuesday, although aspects of the bill have prompted criticism from the chief tax writer in the House.

The legislation, drawn up by Finance Committee Chairman Max Baucus (D - Mont.) and Ranking Republican Chuck Grassley (R - Iowa), combines key provisions of a bipartisan energy bill they introduced at the beginning of the month with an agreement to update alternative minimum tax rules and continue tax cuts for college tuition, state and local sales taxes, and research and development for US businesses. The bill passed the Senate by a vote of 98-2.

The Senate agreement includes clean energy tax incentives totaling approximately USD18bn, fully paid for by several offset provisions including a delay of the tax deduction for domestic manufacturing activities of major American oil and gas companies. Another offset provision tightens the rules by which oil and gas companies pay taxes on income earned overseas, and makes general fund monies available with increased payments into the oil spill liability trust fund as new drilling is considered. The incentives are also funded in part by a one year extension of the Federal Unemployment Tax Act surtax at the current level, and by increasing reporting requirements for brokers on sales of stock.

An increase in the income threshold at which Americans become subject to the higher alternative minimum tax is also included in the bill. This measure would protect more than 21 million taxpayers from higher taxes at a cost of USD64bn - although the cost of the AMT “patch” is not offset.

In addition, the bill provides for extensions of expiring family and business tax cuts and other policies – including an expansion of the child tax credit, legislation providing parity for mental health treatment in the US health care system, and tax relief for victims of natural disasters. Extensions of expiring tax cuts are partially offset by requiring hedge fund managers and others to account for deferred compensation – income held in offshore accounts and other corporate structures – as it accrues, rather than avoiding appropriate and timely income taxes.

Baucus argues that the tax measures "represent real support for the American families, workers, and businesses that need a break now."

“This is must-do legislation,” added Grassley.

Meanwhile, in the House of Representatives, House Ways and Means Chairman Charles Rangel (D - NY) responded to the Senate action by introducing his own bill, the 'Renewable Energy and Job Creation Act of 2008,' which would amend Senate-passed legislation to ensure that tax incentives provided to encourage renewable energy and energy conservation "fit within the scope of the offsets approved by the Senate."

“Tonight, the US Senate finally approved a package of energy tax provisions and offsets to help establish America’s energy independence and reduce our dependency on foreign oil,” Rangel observed following the Senate vote.

“Sadly, they did not live within their means, and their bill would add billions to the national deficit at a time when we can hardly afford it," he argued.

"The House will soon consider, and pass, legislation providing the Senate with an opportunity to help enact these tax incentives, fully offset by the provisions they have already blessed. This vote should be a no-brainer for the Senators already on record supporting these provisions," he concluded.

Recommended