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News & Views |Extenders Bill Approved by House Tax Panel; White House Expresses ConcernsFriday, September 24, 1999 OnLine The House Ways and Means Committee approved a $23 billion tax cut September 24 that extends the research and development tax credit and other expiring provisions, but the administration expressed reservations about the cut. The Clinton administration does not want the expiring provisions extended unless some progress is made this year on Social Security and Medicare reform, a White House spokesman said. Clinton wants steps taken to ensure the solvency of Social Security and wants prescription drug benefits to be extended to Medicare recipients. Responding to the White House’s concerns, House Ways and Means Committee Chairman Bill Archer, R-Texas, told reporters after the hearing, "Any tax relief of any size has been effectively killed by this President." The bill would lose $23 billion over five years and probably would lose about $50 billion to $60 billion over ten years, congressional aides said. Archer wants to pay for the revenue loss from the non-Social Security budget surplus. The committee also included offsets to pay for only the first year of the five-year package. Democrats said their substitute extenders bill was a better option because it is paid for. "We like the R&D credit," but its extension must be paid for, said Rep. Robert Matsui, D-Calif., a member of the committee. Details of the Bill The bill approved by the House tax panel 23 to 14 would extend until June 30, 2004, the research and development tax credit with a one percentage point increase in the alternative incremental research credit. The R&D credit cannot be claimed until after September 30, 2000, however, as part of an effort to pay for the bill in the first year. Other items in the bill include an extension of the exception under subpart F for active financing income until June 30, 2004, and the work opportunity tax credit and the welfare to work tax credit through December 31, 2001. Another item in the bill would suspend the net income limitation on percentage depletion from marginal oil and gas wells until December 31, 2004. The measure also would make permanent the provision enabling alternative minimum taxpayers to qualify for non-refundable tax credits. Democrats were upset that a proposal to provide additional tax-exempt financing for
school construction was excluded from the bill. Also excluded from the package is an
extension of the section 127 exclusion for employer-provided educational expenses, which
is set to expire May 31, 2000. |
Sole Tax Hike The only tax hike in the bill would accelerate the phase-in of the increase in the amount taxpayers would have to set aside to qualify for the individual estimated tax safe harbor. Beginning in 2000, the safe harbor for an individual with an adjusted gross income of more than $150,000 would be modified to be 108.5 percent, instead of 106 percent, of last year’s liability safe harbor. Archer added the tax increase to pay for the revenue loss in 2000 and 2001, after Democrats revealed they would pay for their proposed extension with tax increases. The Democratic alternative, defeated 14 to 23, included all the tax hikes from the vetoed Taxpayer Refund and Relief Act, as well as the bills (H.R. 2705, H.R. 2255) offered by Rep. Richard Neal, D-Mass.., to require recognition of gains on assets transferred to swap funds, and by Rep. Lloyd Doggett, D-Texas, to discourage corporate tax shelters by requiring transactions to have economic substance as codified in his proposal. The Democratic substitute also included the GOP’s proposed modification to the individual estimated tax safe harbor. The bill generally would extend all the expiring provisions included in Archer’s bill, but for shorter time periods. Analysis The debate over the $23 billion tax-cut bill appears to be shaping up like a microcosm of the debate over the $792 billion tax cut that Clinton vetoed September 23. Like the discussion over the larger bill, the debate over the smaller bill pits Clinton, who wants to spend on Social Security reform and prescription drug benefits for Medicare recipients, versus Archer, who wants to cut taxes. The impasse over the larger bill now has been shrunk. At this early juncture, the only way the extenders bill seems likely to pass would
be as part of a compromise on spending and Social Security. Clinton has expressed a
willingness to negotiate and talks with congressional leaders over spending seem
inevitable considering the difficulty GOP lawmakers are having with the appropriations
process. |
Another opportunity for the impasse to break is in the Senate, where lawmakers are less likely to go along with a $50 billion to $60 billion tax cut that extends the expiring provisions. Tax law changes must be considered over ten years in the Senate, unlike in the House where only a five-year window exists. Thus, the bill will be a much larger money loser in the Senate because of its stricter accounting rules. This means Senate supporters of the extenders will have a tougher time overcoming perennial opponents of the extenders, such as Sen. Don Nickles, R-Okla. ., due to the large revenue loss in the present form. House Oversight Hearing Planned: The House Ways and Means Oversight
subcommittee plans to hold a hearing September 30 on the impact of tax laws on land use,
conservation, and preservation. |
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