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Monday, February 12, 2007

Summary: Rangel-McCreary $1.3 Billion Tax Package

As of this writing, the House Ways and Means Committee is marking up a $1.3 billion tax package proposal co-sponsored by Committee chair Charles Rangel (D-NY) and ranking member Jim McCrery (R-LA).

The package, H.R. 976 (the Small Business Tax Relief Act Of 2007), would accompany the House minimum wage bill when it is conferenced with the Senate bill, which combines a minimum wage hike and an $8.3 billion tax package. H.R. 976 is expected to clear the Committee today and the full House when it comes up for a vote, perhaps as early as this Wednesday.

The Joint Committee on Taxation has published a scoring of H.R. 976's tax costs, totaling $1.335 billion over 10 years, as well as a detailed description of the bill's provisions.

The bill's principal tax benefits include:

• a one-year extension of the work opportunity tax credit (WOTC) -- the Senate bill provides a five-year extension -- expanded to cover veterans and high-risk youth (estimated cost: $695 million over ten years)
• a waiver -- not in the Senate bill -- of alternative minimum tax limitations that keep some small businesses from claiming the WOTC and the credit for Social Security taxes paid on cash tips ($552 million)
• a one-year extension -- which the Senate bill also provides -- of tax code Section 179 small business expensing through 2009 ($68 million)

The bill's main offsets include:

• disallowing use of the lowest capital gains and dividend income rates to wealthy dependents that occurs when parents shift assets to children qualifying for the lower rates (estimated revenue: $874 million)
• allowing the IRS an extra four months--22 months instead of 18 months--to notify taxpayers of failure to comply with tax obligations before the service is required to suspend interest and penalties ($506 million)

H.R. 976 includes none of the $8.3 billion in offsets in the Senate bill, a relief to larger corporations. And its WOTC and Section 179 tax benefits amount to less than a fifth of those offered in the Senate version.

The upshot: in size and content, the two bills differ significantly and the outcome of a conference is hard to predict, with diverse elements of the business community at loggerheads.

UPDATE: H.R. 976 was unanimously approved tonight by the Ways and Means Committee by voice vote. It will now move to the House floor, with a vote possibly as soon as Wednesday.