Bills in Brief

While plans for any large scale tax overhaul are on hold until 2009, Congress continues to tweak, extend and slice taxes on an ongoing basis.

in 2006

In 2006, Congress managed to extend a couple of Bush tax cuts in 2006 - including capital gains and dividends cuts and relief from the Alternative Minimum Tax (AMT).

At the tail end of the year, Congress also squeezed through some last minute tax credit extensions, including; research and development credits for business, college tuition deductions, state sales tax deductions (for those in states with no income tax), and incentives to hire welfare recipients and to conserve energy. (WP)

Efforts to pull off a permanent cut to the estate tax went no where in 2006.

in 2007

Congress will again try to keep AMT at bay in 2007 at the same time as twittering around with minor tax breaks and tweaks.

Alternative Minimum Tax: Originally created to keep the super-rich from deducting the heck out of their tax returns, the AMT set up a second way of calculating taxes and told the wealthy to pay whichever amount was higher. The problem is that more and more middle class Americans qualify as "rich" since the AMT brackets don't rise with inflation. Congress has passed short term exemptions from the AMT over the past few years, and the Dems continued the trend this year. But doing so was expensive - about $50b for a one year extenstion. Dems had a harder time with pay-go rules in the way - without an out from a super-majority, Congress would normally have to make up for that $50 billion somewhere else in the budget.

In the end Congress passed on pay/go - and instead ditched the AMT for a year without accounting for the cost. (WP)

(For more on the AMT, see TPC, a joint venture of Brookings and Urban to get the full wonked out picture - or just look at this NYT's graphic.)

Other tax cut extenders: Along with the AMT exemption, Congress will also likely pass short term extensions to popular tax cuts - including research and development tax incentives and state tax deductions. Unlike with the AMT, Congress may cover the cost of those tax extensions ($45b over two years) by raising taxes on Wall Streeters.

Energy: As part of its 100 hour agenda, the House took back tax perks for the oil industry. But those perks were left untouched in the final energy bill passed.

Restauranteurs: Attached to a minimum wage bill - to dull the blow of higher wages on the food industry - businesses with low wage workers got a few tax breaks from Congress this year.

Streamlined corporate tax? The president says he'll be sending Congress a package to lower the corporate tax rate - to bring it more in line with other wealthy nations - while dropping targeted corporate
tax breaks, but it's hard to imagine this Congress working with the president on tax reform. (WP)

in 2008

In October '07, the House announced ambitious plans to overhaul the tax code. Its chances of getting anywhere under a Bush presidency are near nonexistent, but for what it's worth, we list some of the key provisions:

• $870 billion in tax cuts (over ten years, we're guessing) by axing the Alternative Minimum Tax and upping the standard deduction and earned income credit,
• cutting corporate income taxes down to 30.5% from 35% while dropping a slew of tax credits, and adding on 4% in taxes to families topping $200,000 in income.

The Treasury Department offered up a kind of white paper on corporate tax reform in December '07, outlining two plans (that it's not necessarily endorsing); one would also cut corporate taxes down - to 31% - while nixing a series of tax breaks, the other would switch taxes on corporations over from a tax on income to a 5% tax on sales of goods and services.

While wholesale tax reform probably won't happen until '09 (if ever), smaller tax measures are sure to come up:

Tax extenders: With a slew of relatively un-contentious tax cuts ready to expire, the House voted in May to extend about $57 billion's worth of tax incentives, including $20 billion for alternative energy and $16 billion in research and development and other breaks for corporations. The only thing that's controversial about the bill is how the tax cuts are paid for - by tax hikes (or loophole fixes, depending on your viewpoint) on multinational corporations. The Senate is picked up a similar bill in June, but it got nixed - and it's not clear if or when senators will bring it back (WP).

Tax hike for GIs: As part of a war funding bill, the House passed a measure that would expand education benefits for Iraq war veterans - to be paid for by an 0.5% tax increase on those making more than $500,000 a year. Hill watchers, however, don't think the tax hike will survive the Senate. (WP & NYT)

Taxing investment funds: Last year, when Congress was looking for ways to pay for other tax cuts or programs, it thought about raising the tax on the income managers make on hedge funds, private equity and venture capital. (WP) Although fund managers were spared last year, Congress could hit them in '08.

Alternative Minimum Tax: As in past years, Congress will for sure be okaying continued middle class exemptions from the Alternative Minimum Tax (see 2006 for more on the dread tax). This time around a one year exemption will cost us $62. As with other tax cut extentions, the House and Senate will battle out whether they should be paid for elsewhere in the budget - or just be added to the national debt. Favorite tax hikes that could fit the bill: taxing fund managers' "carried interest" as income rather than capital gains; rollbacks on oil tax breaks; taxes on multinational profits; and increased taxes expected from requiring banks to report on credit-card payments.

See our tax page for an explanation of what exactly all those cuts are about.

Updated June 23, 2008

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