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News & Views |Lawmakers Agree on Some Tax Hikes As Negotiations ContinueTuesday, August 4, 1999 OnLine Agreement on a few revenue-raising and other items have been reached by the House-Senate conference charged with ironing out the differences between the two versions of the approximately $800 billion tax-cut bill (H.R. 2488), as talks continued August 3. "I think we're making progress. We're very close to what could be some breakthroughs here," said Senate Majority Leader Trent Lott, R-Miss., taking a break from the negotiations which congressional leaders hope will conclude today. Once the conferees work out their differences, the House and Senate must approve the conference agreement. The goal is to complete work on the bill by the end of the week. Discussions over big-ticket items such as the nature and size of the across-the-board tax cut and the capital gains tax relief are the focus of the talks. The conferees are expected to move closer to the House’s more conservative position on these items. Congressional leaders must be careful because if the bill that emerges from the conference is too far to the right, GOP lawmakers may risk losing the support of moderates, thus defeating the entire legislation, congressional aides warn. Lawmakers also must decide how to address the House-passed trigger provision, which would phase out many tax cuts if federal debt reduction targets are not met. Lott hopes to find a way, other than the trigger, to satisfy moderates who are concerned that the tax-cut bill will restore budget deficits in the future. The majority leader wants to find a more direct and less complex mechanism. No one expects the bill that emerges from the conference to be enacted. President
Clinton has promised repeatedly to veto the bill. He favors a more modest $250 billion tax
cut. GOP lawmakers are nonetheless pushing the massive tax cut to emphasize to voters
their desire to reduce taxes. |
Some Consensus The identical provisions accepted by the conference total about $30 billion and include several revenue-raisers, such as the proposal to repeal the non-experience accrual method of accounting. The use of the non-accrual experience method would be limited to amounts that are to be received for the performance of qualified personal services. The proposal would be effective for taxable years ending after the date of enactment. Another tax increase agreed upon would prohibit the use of the installment method for dispositions of property that would otherwise be reported for federal tax purposes using an accrual method of accounting. The pledge rule also would be modified, so that if a taxpayer enters into any arrangement that gives the taxpayer the right to satisfy an obligation with an installment note, it will be treated in the same manner as the direct pledge of the installment note. The proposal would be effective for installment sales entered into on or after the date of enactment. The conferees also agreed to language requiring information reporting on the
cancellation of indebtedness income by certain financial institutions, extending Internal
Revenue Service user fees, and curtailing the so-called charitable split dollar life
insurance transaction. |
| Relief for Small Businesses The agreed upon provisions also include two items that would help small businesses. The maximum dollar amount that may be deducted under Section 179 would be increased to $30,000 for taxable years beginning in 2000 and thereafter, without the present-law phase-in rule, and the 0.2 percent temporary Federal Unemployment Tax Act surtax would be repealed after December 31, 2004. The present-law exception from subpart F for personal holding company income, foreign base company services income, and insurance income for certain income that is derived in the active conduct of a banking, financing, or similar business would be extended for five years, under the agreement. The conferees also agreed that the alternative research credit would be increased by one percentage point per step. For instance, the ARC credit would increase from 1.65 percent to 2.65 percent when a taxpayer’s current-year research expenses exceed a base amount by at least one percent but not more than 1.5 percent. The conferees have not agreed about how long to extend the research and development tax credit. In addition, the staff of the Joint
Committee on Taxation released a revenue table showing that the Senate-passed bill
would cost $809 billion over ten years. The maximum tax cut allowable in the Senate was
$792 billion, so the overall cost of the tax cut must be reduced in conference. |
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