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Multitude Of US Tax Measures To Renew By Year-End

by Mike Godfrey, Tax-News.com, Washington

30 November 2011


The Committee for a Responsible Federal Budget (CRFB) has recently noted that the United States Congress has an extensive policy list to take care of before the end of this year, including many expiring tax provisions.

Some politicians had been hoping that at least some of the necessary measures would have formed part of more extensive tax reforms that could have been included within the Joint Committee on Deficit Reduction’s USD1.2 trillion fiscal deficit programme, but that is now impossible; and now, while Congress will not have to deal with the Bush tax cuts (which are not due to expire for a further year), it will still have to deal with many tax cuts or benefits that, otherwise, are due to expire in the next month.

Apart from such matters as appropriations for the 2012 budget, the year-end expiry of the 13-month extension of unemployment benefits that was agreed last year, and the 30% cut to Medicare physician payments in 2012, the CRFB has looked particularly at the possible effects on the Alternative Minimum Tax (AMT), payroll taxes and ‘tax extenders’.

The increased exemption for the AMT, it says, will expire at the end of this year, reverting back to pre-2001 levels and hitting many middle- and upper-middle class households in the process. "The AMT 'patch' is certainly the most costly item that Congress will have to deal with as cumulative costs of patching the AMT could total US700bn,” the CRFB says.

With regard to payroll taxes, President Obama has already proposed a reduction in federal revenues by around USD265bn by way of an extension for a further year of the payroll tax reduction, from 6.2% to 4.2%, a reduction in the tax to 3.1% for the first USD5m of a firm’s payroll, and a payroll tax holiday for firms that increase their payroll by adding new workers.

The CRFB points out that a one-year extension of the current 4.2% rate would probably cost some USD120bn, and “the Senate is expected to vote this week on this provision alone, offset - like other stand-alone pieces of the President’s American Jobs Act - with a millionaire surtax”.

It concludes its analysis with the temporary group of tax expenditures called the ‘tax extenders’, which are regularly extended on an annual basis, and which, although individually mostly small, put together “could add up to hundreds of billions of dollars” over ten years.

“About 80 of them are set to expire at the end of this year,” it adds. “After having trouble passing an extension last year, lawmakers finally stuffed the extenders into the 2010 tax cut package.” The largest of the tax expenditures due for renewal is the research and development tax credit, which has been temporary for 30 years.

TAGS: tax | economics | law | budget | payroll | tax credits | legislation | tax rates | United States | tax breaks | individual income tax | research and development

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