President Obama announced Dec. 6 that he has agreed to
the “framework” of a deal to extend the 2001 and 2003 tax
rates for two years, temporarily cut the estate tax rate
to 35 percent, and trim two percentage points off of the
Social Security payroll tax.
The president said his goal is to ensure that taxes do
not rise on middle-class households on Jan. 1 and that
the plan he has sketched out with Senate Republicans
would do that, while also providing additional stimulus
to the economy through extensions of key tax breaks from
the American Recovery and Reinvestment Act (Pub. L. No.
111-5).
Obama said he understands that congressional Democrats
will be displeased with the agreement, but said he needed
to break the stalemate with Republicans in order to keep
taxes from rising sharply in the coming weeks.
“I know there are some people in my own party and in the
other party who would rather prolong this battle even if
we can't reach a compromise but I am not willing to let
working families across this country become collateral
damage for political warfare here in Washington,” Obama
said in an evening press conference.
Obama said the agreement would extend unemployment
insurance benefits for the long-term unemployed for an
additional 13 months, cut workers' share of the Social
Security payroll tax from 6.2 percent of earnings to 4.2
percent for one year, and extend the improvements to the
earned income tax credit and the child tax credit.
The cut in the Social Security payroll tax rate would
give workers who earn $70,000 per year an additional
$1,400 per year in tax savings, White House officials
said. The officials said the provision would replace the
Making Work Pay tax credit used in 2009 and 2010 and
would offer a more generous and easier system for
calculating tax breaks.
As was done with the Hiring Incentives to Restore
Employment Act (Pub. L. No. 111-147, the money would be
shifted to the Social Security trust fund to make sure
there is no negative impact on trust fund and solvency.
The idea of a payroll tax cut is “one of the higher
impact tax cuts for encouraging job growth and economic
growth” and would provide $120 billion into the economy
next year, a White House aide said.
On the business side, the plan would also provide
businesses with the ability to expense the full cost of
all capital investments made during 2011, an improvement
from the 50 percent expensing provision included in ARRA.
None of the proposed extensions would be offset through
spending cuts or other revenue raisers, White House aides
said.
Reid Says It's Not a Deal
Senate Majority Leader Harry Reid's (D-Nev.) office said
they were not referring to the announcement as a “deal”
and called Reid's reaction to the announcement “tepid.”
“Now that the President has outlined his proposal,
Senator Reid plans on discussing it with his caucus
tomorrow,” Reid spokesman Jim Manley said in a written
statement.
Republicans had a more upbeat reaction to the
announcement, saying it will help the economy.
“Preventing a massive, job-killing tax increase on
families and small businesses is my number one priority.
This framework will allow us to extend all current tax
rates and give economic recovery and job creation a
chance,” said Rep. Dave Camp (R-Mich.), ranking member of
the House Ways and Means Committee. “The failure to reach
and pass an agreement preventing a tax hike would have
been devastating for families, especially those who are
still looking for work.“
Senate Minority Leader Mitch McConnell (R-Ky.) said he
appreciates the “determined efforts” of the White House
to craft a plan with Republicans and expressed
encouragement that the agreement would create incentives
for economic growth.
“Members of the Senate and House will review this
bipartisan agreement, but I am optimistic that Democrats
in Congress will show the same openness to preventing tax
hikes the administration has already shown,” McConnell
said.
Estate Tax Cut for Two Years
On top of the extension of the upper-income tax cuts for
two additional years, Republicans also won a significant
victory in getting the White House to agree to a
reduction in the estate tax.
Obama agreed to a 35 percent tax rate for the estate tax
for 2011 and 2012 and the exemption level for the estate
tax would be raised to $5 million per person. Without
congressional action, the estate tax rate will return to
its pre-2001 level of 55 percent and the exemption level
will fall to $1 million per person.
White House aides said the plan would also include a
two-year extension of the alternative minimum tax
exemption “patch” to keep taxes from rising on an
additional 20 million taxpayers, as well as all of the
short-term tax provisions known collectively as the
“extenders.”
Those extenders provisions include popular tax breaks
such as the research and development tax credit, the
subpart F active financing exception, and federal
deductions for state and local taxes.
Investors will also benefit from the plan through an
extension of the 15 percent top tax rate for both capital
gains and dividends tax rates.
Kenneth Bentsen, executive vice president for Securities
Industry and Financial Markets Association, praised the
announcement and encouraged Congress to pass a bill as
soon as possible.
“With this likely agreement, America's investors have
achieved the necessary certainty to put the economic
recovery on firmer ground. Extending current tax rates on
capital gains and dividends for the next two years will
help stimulate savings and investment, thus promoting
economic growth and job creation,” Bentsen said.
The agreement was prompted after party leaders and
members of the six-man tax negotiating team met with
President Obama over the weekend to discuss a way forward
after efforts to extend only the tax cuts affecting the
first $250,000 in income (for couples; $200,000 for
individuals) failed in a Dec. 4 cloture vote.
Although Democrats' initial tax extension bill failed, it
did provide a road map for many of the provisions that
will be in the final package. The substitute amendment
(S. Amdt. 4727 to H.R. 4853) offered by Senate Finance
Committee Chairman Max Baucus (D-Mont.) featured most of
the same provisions suggested by the president, but also
included the repeal the new Form 1099 information
reporting rules, created under the Patient Protection and
Affordable Care Act (Pub. L. No. 111-149). Repealing the
expanded Form 1099 rules would cost the government $19.3
billion over 10 years.
White House officials said the Form 1099 provision is not
included in their framework, but the president has
previously said he will support its full repeal.
Tab to Exceed $2.2 Trillion
The White House said it could not yet provide an estimate
for the total cost of the bill. The Joint Committee on
Taxation estimated that the tax portion of Baucus's
legislation would cost $2.2 trillion over 10 years, with
$1.5 trillion of that coming from the extension of the
middle-class tax cuts. The American Opportunity tax
credit would cost $80 billion under the Baucus bill.
Lawmakers said they are eager to complete the legislation
and adjourn for the year.
“Look, it's almost Christmas Eve. I don't think anybody
thinks that we can leave this thing hanging. And so that
deadline is a pretty good way to focus our attention,”
Senate Minority Whip Jon Kyl (R-Ariz.) said during a Dec.
5 interview on CBS's Face the Nation.
Likewise, Senate Majority Whip Richard Durbin (D-Ill.),
speaking alongside of Kyl, said Congress is ready to
leave town as soon as possible and acknowledged that
Democrats would likely have to accept a short-term
extension of the upper-income tax rate extensions.
“There's nothing that motivates members of Congress more
than the thought of a recess or going home,” Durbin said.
Separately, the Congressional Research Service said in a
Dec. 3 report that the House-passed bill (H.R. 4853) to
extend tax cuts affecting those earning less than
$250,000 would increase tax revenues by $252 billion over
five years, “but still leaves federal debt on an
unsustainable path.”
A two-year extension of all of the Bush-era tax cuts
could cost over $300 billion and raise debt service costs
by $121 billion over 10 years, CRS said. However, a
temporary extension “could provide time for Congress to
consider tax reform and also provide a deadline to
complete deliberations,” the report said.
By Brett Ferguson and Heather M. Rothman
The JCT estimate on the cost of the Baucus substitute
amendment (S. Amdt. 4727 to H.R. 4853) and the CRS
report updating the status of the tax rate extensions
are available in TaxCore.
No comments:
Post a Comment