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Senate Debate on Extending 2001/2003 Tax Cuts
By Children’s Home Society of Florida Foundation
The Senate Finance Committee conducted a hearing on July 14, 2010 to discuss the potential extension of tax cuts. In the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), there were tax reductions for nearly all Americans. The tax reductions continue through 2010, but are set to be repealed on January 1, 2011.
Proposals
The White House has proposed to extend these tax cuts for single persons with incomes under $200,000 ($250,000 for couples), but to increase the capital gain rate and top income tax brackets. Under the White House plan, the capital gain rate will increase from 15% to 20%, the 33% bracket increases to 36% and the 35% tax bracket is raised to 39.6%.
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The Senate
Senate Finance Chair Max Baucus (D-MT) opened the hearing by stating, “Americans are struggling to make ends meet, and we need to do all we can to put more money back in the hands of workers, middle-class families and small businesses so our economy can grow. I support extending the middle-class tax cuts permanently, as soon as possible, so working families can keep more of their hard-earned money.”
Sen. Baucus and the White House are both advocating a permanent extension of the tax cuts for low and middle-income taxpayers, with an increase in taxes for those in the upper brackets.
Ranking Member on the Senate Finance Committee Charles Grassley (R-IA) has repeatedly expressed concern about the increase of taxes on small business owners. He noted, “To those who are pushing the higher marginal rates, I say the burden is on you to show that you are not harming our primary job creators.” Sen. Grassley has noted that two-thirds of new jobs in the past decade have been created by the small business owners who will be subject to the higher taxes.
Editor’s Note: The hearings on taxes are the first step in creation of a tax bill. Because the failure to act this year would result in repeal of all of the tax cuts, it is probable that there will be a tax bill prior to the end of 2010. However, with the shortened legislative calendar due to the fall elections, the tax bill is quite likely to be deferred until after the election.
Conclusion
Douglas Holtz-Eakin is President of the American Action Forum and was formerly the Congressional Budget Office Director. He testified that approximately one-half of the $1 trillion in business income that will be reported in 2011 will be subject to the higher 36% and 39.6% tax brackets. In his opinion these higher rates will reduce the willingness of small businesses to hire new employees.
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Filed under: Breaking News, Taxation | Tagged: American Action Forum, Charles Grassley, COngressional Budget Office, Economic Growth and Tax Relief Reconciliation Act, income tax, Jobs and Growth Tax Relief Reconciliation Act, Max Baucus, middle-class tax cuts, Senate Finance Committee, Taxation |
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Small Business Bill Nears Passage
In addition to the proposed tax cuts, on September 16, 2010, the Senate passed the Small Business Jobs Act by a vote of 61 to 38. The bill passed after retiring Senator George Voinovich (R-OH) decided to vote in favor of the bill. Democratic leaders hope that the bill will enable small businesses to create as many as 500,000 new jobs.
The House of Representatives passed a similar bill earlier this year. Speaker Nancy Pelosi (D-CA) indicated that she plans to submit the Senate bill for a vote by the House. If the House passes the bill, it will be sent to President Obama for his signature.
Senate Finance Committee Chairman Max Baucus (D-MT) was very please that the bill passed. He stated, “When we help small businesses, we help to get Americans back to work. This bill creates the right conditions right now to help small businesses create jobs by spurring investments and entrepreneurs helped with tax cuts and improved access to capital.”
There are several provisions in the bill that are designed to assist small businesses in hiring new employees. These include the following sections.
1. $30 billion loan fund – The funds will be transferred to small and mid-size banks. These banks will be encouraged to make loans to small businesses. Compared with mid-2008, loans to businesses are down approximately 18%. It is hoped that this fund will increase lending to small businesses who then will hire new employees.
2. Small Business Administration loans – There will be reduced fees on SBA loans. In addition, the loan down payments for some types of loans may be reduced from 25% to 10%.
3. Various tax reductions – For new corporations, if investors hold the stock for five years, it may be sold with no capital gains tax. Assets purchased this year may be expensed up to $250,000 for real estate or $500,000 for equipment. There is also a one year extension on bonused appreciation.
A point of controversy was a Republican amendment that failed by a vote of 46-52. The amendment would have repealed the healthcare act requirement that businesses report all payments of $600 or more on Form 1099. Small businesses have objected strenuously to this requirement on the grounds that it will be very burdensome and expensive to implement.
Ranking Member on the Senate Finance Committee, Charles Grassley (R-IA), was generally supportive of the bill even though he voted against it. Sen. Grassley complimented his “friend, Chairman Baucus, for diligently pressing the tax proposals in this bill.” However, he did express concern about the $30 billion bailout. Sen. Grassley was concerned that the bailout fund might be mismanaged as he believes the Troubled Assets Recovery Plan (TARP) funds were mismanaged. He quoted Professor Elizabeth Warren, head of the TARP Congressional Oversight Panel, who noted that the fund “runs the risk of creating moral hazard by encouraging banks to make loans to borrowers who are not credit-worthy.” Sen. Grassley is concerned that the new loan fund may create incentives for banks to make bad loans to overextended small businesses.
Source: Children’s Home Society of Florida Foundation
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Doctors and Tax Hikes – Oh My!
Much could change in the last few months of 2010.
For example, one uncertainty facing many Americans is what will happen regarding the tax cuts that are ready to expire at the turn of the year. Because of their income potential, many physicians across the country are asking themselves not only what will happen in the next four plus months if the cuts are allowed to expire but what can be done about it now.
Brice
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