Tax Edge

The House and Senate approved fiscal year (FY) 2010 budget resolutions shortly before their April recess. The resolutions reflect lawmakers' significant differences on tax policy not only between the two chambers but also with the White House. At the same time, lawmakers have introduced stand-alone tax bills, many of which would extend or enhance temporary incentives in the American Recovery and Reinvestment Act of 2009.

Common Ground

President Obama and the Democratic-controlled Congress agree on many tax incentives. These include extending the:

• current marginal income tax rates except for the top two rates (which would increase to 36 and 39.6 percent rates after 2010);
• 10 percent marginal tax bracket;
• marriage penalty relief;
• increased child tax credit; and
• enhanced HOPE credit (now known as the American Opportunity Tax Credit).

The White House and congressional Democrats agree on "patching" the AMT but disagree on the duration of a patch. Many lawmakers favor a three-year patch rather than a 10-year patch.

It is unclear at this time if the tax incentives will move under "reconciliation", which allows incentives to pass the Senate by a simple majority rather than by 60 votes.

Estate Tax

Obama and House Democrats have endorsed a permanent federal estate tax exemption of $3.5 million and a top rate of 45 percent. The Senate countered with a $5 million exemption and a top rate of 35 percent.

Higher Income Individuals

Obama has proposed limiting itemized deductions (including mortgage interest and charitable deductions) to 28 percent for higher-income individuals. Neither the House nor the Senate included this limitation in their budget resolutions.

More Tax Bills

Sen. Max Baucus, D-Mt., chair of the Senate Finance Committee, has introduced the Taxpayer Certainty and Relief Bill of 2009, which largely tracks the president's proposals. The Baucus bill also would make permanent the reduced capital gains and dividend tax rates.

Other tax bills recently introduced in Congress would:

• expand the enhanced NOL carryback for 2008 losses to all businesses (and not just small businesses);
• provide for a five-year carryback for 2009 NOLs;
• double the first-time homebuyer credit; and,
• extend 2009 bonus depreciation and increased Code Sec. 179 expensing.

Related items:

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 April 27, 2009.