Tax Edge

The House of Representatives voted 233 to 193 to approve the fiscal year 2010 budget resolution (Senate Concurrent Resolution 13). The Senate approved the measure later in the day by a 53-to-43 vote. The budget agreement is said to provide $764 billion in tax cuts over a five-year period (including substantial middle-class tax relief), and also is said to support the President's policy objectives of investing in energy, education and health care. The $3.56 trillion FY 2010 budget resolution also assumes a budget deficit of approximately $1.2 trillion. It was approved largely along party lines on April 29.

The agreement on the budget resolution would maintain the existence of the 10-percent marginal tax bracket, but calls for an increase in the high-end marginal tax brackets from 33 and 35 percent to 36 and 39.6 percent after 2010. It also allows for the continuation of the increased child tax credit and the enhanced education credit called the American Opportunity Tax Credit, as they exist for the 2009 tax year. It also extends many other tax-cutting features of laws passed in 2001 and 2003 which were set to expire shortly. The resolution assumes that these provisions are extended for the entire 5 years covered by the budget.

The budget resolution also provides for a "patch" of the alternative minimum tax (AMT), but only for 3 years, exhibiting Congress' unwillingness to permanently fix the AMT. The AMT exclusion amount will be adjusted slightly each year for inflation, based on the exclusion amount applicable in 2009, keeping millions of taxpayers out of the AMT's clutches.

However, the budget resolution does provide for a permanent fix of the estate tax, by extending the provisions in effect in 2009 into the future. Therefore, the amount of a gross estate exempted from estate tax is $3.5 million, and the rate of tax applicable to the estate in excess of $3.5 million is 45 percent.

The participants in the budget process have agreed that "PAYGO" will apply to further budget adjustments, indicating that applying pay-as-you-go principles is essential for fiscally sound management of our nation's finances. Under PAYGO, any new tax cuts or entitlement spending would have to be paid for by new taxes or spending cuts.

President Obama urged Congress to boost funding for the IRS in his FY 2010 budget proposals to help close the estimated $300 billion tax gap between the amount that is paid and the amount that should be paid in income taxes. The budget resolution allocates an additional $400 million to the IRS's enforcement activities for FY 2010.

IRS Commissioner Douglas H. Shulman reported that the White House and the Treasury Department are committed to a "robust IRS enforcement budget." Shulman indicated that more funding was needed if the Service is to keep pace with rapid changes in tax administration and to combat tax evasion. This budget is expected to allow the IRS to meet its rising work load and strengthen its tax compliance programs.

More details about the President's FY 2010 budget proposals may be available shortly, since the Treasury Department is expected to release its budget "blueprint" soon.

Related items:

House And Senate Pass FY 2010 Budget Resolutions; Tough Negotiations Loom On Tax Incentives

President's Budget Backs $28 Billion in Small Business Loan

IRS Decides To Be Generous with Credit for New Homebuyers

Congress Approves Massive Spending Bill Along Party Lines

Senate Finance Approves "Stimulus" Package with AMT Patch

White House Stands Firm on $500 Tax Credit in Economic "Stimulus" Package

Obama, House Democrats Unveil $825 Billion Economic Stimulus Bill

Lawmakers May Deliver Small Business Tax, Pension Relief Before Year-End

Congress Passes Tax Extenders as Part of Bailout Bill

Posted May 4, 2009.