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# Legislative Bulletin.................................................May 21, 2008

**Contents:**

**H.R. 6049**---Energy and Job Creation Act

H.R. 6049---Energy and Job Creation Act (*Rangel, D-NY*)

**NOTE: Americans for Tax Reform (ATR) will score against this bill.**

**[Order of Business]{.underline}**: The bill is scheduled to be
considered on Wednesday, May 21^st^, subject to a likely closed rule.
The RSC will summarize any amendments provided for in, or made in order
under, the rule in a separate document, if necessary.

**[Summary]{.underline}**: H.R. 6049 would impose long-term tax
increases as offsets to primarily short-term tax extenders and other
extensions of current law. Key [highlights]{.underline} of the bill are
below. For an exhaustive list of every provision in the bill, go
[here](http://www.house.gov/jct/x-42-08.pdf).

[Note]{.underline}: This bill does [NOT]{.underline} contain any repeal
or inflation adjustment of the Alternative Minimum Tax (AMT).

**[TAX INCREASES]{.underline}**

-   [Deferred Compensation]{.underline}. Requires hedge fund managers to
    pay federal income tax on deferred compensation as it accrues,
    rather than when it's actually paid. In other words, this provision
    would impose tax on income before it is received. ***Costs taxpayers
    \$24.29 billion over ten years.***

-   [Worldwide Allocation of Interest]{.underline}. Delays by ten years
    the implementation of a current-law provision allowing U.S.
    corporations to elect special interest allocation rules for foreign
    assets. ***Costs taxpayers \$29.96 billion over ten years.***

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-   [Coal Excise Tax]{.underline}. Adjusts and extends the coal excise
    tax. ***Costs taxpayers \$1.1 billion over eleven years.***

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-   [Corporate Estimated Tax Timing Gimmick]{.underline}. This provision
    would increase the estimated tax payments that certain corporations
    must remit to the federal government. Under current law,
    corporations with assets of at least \$1 billion must make equally
    divided estimated tax payments for each quarter. This legislation
    would increase the payment due for the third quarter of
    calendar-year 2013 by 37.75 percentage points. The payment due for
    the fourth quarter of calendar-year 2013 would be reduced
    accordingly so that the corporations pay no net increase in
    estimated payments in 2013. This provision is merely a revenue
    timing shift, a gimmick used to comply with the House's PAYGO rules,
    yet would have real-world implications, as it forces certain
    companies to pay more of their tax payments earlier. Given the time
    value of money, there's little doubt that requiring bigger, earlier
    payments would harm the bottom lines of qualified corporations.
    ***No [net]{.underline} revenue effect beyond fiscal year 2014, but
    would force corporations to pay \$30.75 billion in additional tax
    payments in FY2013 instead of FY2014 .***

**[ALTERNATIVE ENERGY TAX INCENTIVES]{.underline}**

Many of the energy tax incentives and extensions are from the
House-passed version of [H.R.
5351](http://www.house.gov/hensarling/rsc/doc/lb_022708_energytax.doc)
this year.

-   Extends the renewable energy tax credit (2.0 cents per kilowatt/hour
    for electricity generated from biomass, geothermal, solar, landfill
    gas, trash combustion, etc., indexed for inflation) for an
    additional three years, from the end of 2008 through the end
    of 2011. (Just a one-year extension for wind.)

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-   Adds marine and hydrokinetic renewables as a qualifying energy
    source under the renewable energy tax credit above. Marine
    renewables include electricity produced from waves, tides, currents,
    rivers, lakes, streams, irrigation systems, canals, and ocean
    thermal energy conversion.

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-   Extends the 30% investment tax credit for solar and fuel cell
    property for commercial use from the end of 2008 to the end of 2014,
    and permits the credit to be claimed against the corporate
    Alternative Minimum Tax (AMT).

-   Increases the solar/fuel cell credit limitation for fuels cells from
    \$500 to \$1,500 for each .5 kilowatt of capacity and repeals the
    prohibition against public utilities claiming the credit. Permits
    the credit to be claimed against the corporate Alternative Minimum
    Tax (AMT).

-   Creates \$2 billion in new clean renewable energy bonds, 100% of the
    available project proceeds of which would be used for capital
    expenditures incurred by public power providers or cooperative
    electric companies to construct one or more qualified renewable
    energy facilities (using one or more of the fuels listed above). The
    bill provides details for calculating the tax credit generated from
    the purchase of such bonds. In addition, the bonds would be tradable
    and could not be issued by state and local governments.
    **[Davis-Bacon prevailing wage standards would apply to projects
    funded by these bonds]{.underline}.**

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-   Extends through the end of 2014 the residential solar and fuel cell
    credit and increases the \$2,000-per-taxpayer cap to \$4,000. This
    credit could also be claimed for residential small wind equipment
    and geothermal heat pumps. Permits the credit to be claimed against
    the individual Alternative Minimum Tax (AMT).

[]{.mark}

-   Creates \$1.5 billion in new tax credits for advanced coal
    electricity projects and certain coal gasification projects that
    demonstrate the greatest potential for carbon capture and
    sequestration technology. The tax credit would be conditioned on
    demonstrating (on an ongoing basis) that either their advanced coal
    electricity project would capture and sequester at least 65% of the
    facility's carbon dioxide emissions or that their coal gasification
    project would capture and sequester at least 75% of the facility's
    carbon dioxide emissions.

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-   Creates a new personal or business tax credit up to \$6,000 for
    plug-in hybrid automobiles (based on battery capacity). Phases out
    the credit applicable to vehicles that have more than 60,000 of them
    sold in the U.S. (total).

> []{.mark}

-   Terminates the remaining portions of the New York Liberty Zone tax
    incentives program (implemented to encourage business investment in
    lower Manhattan)---the first-year 30% depreciation allowance and the
    additional section 179 expensing in the case of nonresidential real
    property and residential rental property.

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-   Requires the federal government to surrender its claim to about \$2
    billion in federal income taxes withheld on New York City and state
    employees as part of the Liberty Zone program. These surrendered
    funds could be used by New York for any transportation
    infrastructure project, including highways, mass transit, railroads,
    airports, ports, waterways, etc. [This provision might be construed
    as an earmark for New York City]{.underline}.

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-   Extends the alternative fuel vehicle refueling property credit (e.g.
    ethanol and biodiesel gas station pumps) for one year, from the end
    of 2009 to the end of 2010. Increases the credit from 30% to 50% of
    the property value and increases the total taxpayer annual credit
    cap from \$30,000 to \$50,000.

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-   Makes permanent the income exclusion (up to \$20 per month) for
    bicycle commuting fringe benefits paid by an employer.

[]{.mark}

-   Creates \$3.0 billion of new tax-credit bonds to be used for
    qualified energy conservation purposes (as detailed in the bill to
    include such things as capital expenditures for reducing energy
    consumption in public buildings by 20%, research grants for carbon
    capture technologies, mass commuting facilities, projects for
    "green" building technologies, and pubic education campaigns to
    promote energy efficiency). States and localities would have to
    issue the bonds, distributed to them on a per-capita basis (plus a
    suballocation for large cities and counties). The bonds would be
    tradable and **[would be subject to Davis-Bacon
    requirements]{.underline}.**

[]{.mark}

-   Extends the \$300 credit for non-business energy property (i.e.
    residential energy-efficiency improvements to existing homes) for
    two years---to the end of 2008---and adds residential biomass-fuel
    stoves heaters to claimable property.

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-   Extends the efficient commercial building tax deduction from the end
    of 2008 through the end of 2013. (The current deduction is \$1.80
    per square foot of the property for which expenditures are made to
    reduce the energy consumption of a commercial building by 50%.)

[]{.mark}

-   Extends and modifies (as detailed in the bill) the manufacturer's
    tax credit for the production of energy efficient dishwashers,
    clothes washers, and refrigerators. Limits a manufacturer's total
    claim of credits under this section to \$75 million per year.

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-   Shortens the depreciable life of qualifying "smart meters" installed
    by a utility from 20 years to 10 years, and requires that a
    qualifying meter measure and record electricity usage on a
    time-differentiated basis at least 24 times per day, while providing
    real-time price and usage data to customers and to the electricity
    supplier.

[]{.mark}

**[NON-ENERGY TAX PROVISIONS]{.underline}**

The bill would apply [Davis--Bacon prevailing wage
requirements](http://www.house.gov/hensarling/rsc/doc/Davis-Bacon_Talking_Points_030507.pdf)
to all tax-credit bonds, whether created by this legislation or not.

-   [Special Tax Cut for Trial Lawyers]{.underline}. Allows
    [all]{.underline} trial lawyers to claim a tax deduction for their
    up-front expenses in contingency cases (cases in which the lawyer's
    compensation is based on what he or she wins for the client). Under
    current law, only trial lawyers whose compensation is based on
    winnings [without regard to]{.underline} up-front expenses can take
    such a deduction. ***Saves taxpayers \$1.57 billion over ten
    years.***

-   [Special Tax Cut for Hollywood]{.underline}. Modifies the Section
    199 manufacturing tax deduction so that it encourages domestic film
    production and modifies the expensing rules for certain film and TV
    productions. ***Saves taxpayers \$468.0 million over eleven
    years.***

Many of the one-year extenders are pulled from [H.R.
3970](http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.03970:/), the
"Mother of All Tax Hikes" bill.

-   [One-Year Extenders]{.underline}. Extends numerous tax credits and
    deductions for [one year]{.underline}, with examples as
    follows[:]{.underline}

> \--State and Local Sales Tax Deduction. ***Saves taxpayers \$1.74
> billion over two years.***
>
> \--Research and Development Credit. ***Saves taxpayers \$8.76 billion
> over eleven years.***
>
> \--New Markets Credit. ***Saves taxpayers \$1.32 billion over ten
> years.***
>
> \--15-Year Depreciation for Leasehold and Restaurant Improvements.
> ***Saves taxpayers \$5.40 billion over eleven years.***
>
> \--7-Year Depreciation for Motorsports Entertainment Complex
> Improvements. ***Saves taxpayers \$48.0 million over eleven years.***
>
> \--Accelerated Depreciation for Indian Reservation Business Property.
> ***Saves taxpayers \$152.0 million over eleven years.***
>
> \--Tuition Expenses Deduction. ***Saves taxpayers \$2.60 billion over
> two years.***
>
> \--DC Investment Tax Incentives (such as the first-time homebuyer
> credit). ***Saves taxpayers \$129.0 million over eleven years.***
>
> \--Deduction for Contributions of Food Inventory. ***Saves taxpayers
> \$71.0 million over two years.***
>
> \--Deduction for Contributions of Books to Public Schools. ***Saves
> taxpayers \$31.0 million over two years.***
>
> \--Deduction for Corporate Contributions of Computer Equipment.
> ***Saves taxpayers \$2608.0 million over two years.***
>
> \--Tax-Free IRA Distributions by Seniors for Charitable Purposes.
> ***Saves taxpayers \$465.0 million over eleven years.***
>
> \--Special Allowance for S Corporations Donating Property. ***Saves
> taxpayers \$62.0 million over eleven years.***
>
> \--Deduction for School Teacher Expenses. ***Saves taxpayers \$204.0
> million over two years.***
>
> \--Special Rules for Qualified Mortgage Bonds for Veterans, Regardless
> of First-Time Homebuyer Requirement. ***Saves taxpayers \$158.0
> million over eleven years.***
>
> \--Mental Health Parity. Extends for one year the \$100-per-day excise
> tax on group health plans that impose limits on mental health benefits
> that are not imposed on medical and surgical benefits. ***Saves
> taxpayers \$25.0 million over two years.*** *(Although this provision
> looks like a tax increase on its face, the Joint Committee on Taxation
> scores this as inducing group health plans to increase their mental
> health coverage and thus increase tax deductible health care
> expenditures.)*

-   [Additional Standard Deduction]{.underline}. Provides an additional
    standard deduction for state and local real property taxes paid or
    accrued in tax-year 2008 for people who claim the regular standard
    deduction. The maximum additional amount claimed would be \$700 for
    married couples filing jointly and \$350 for singles (and married
    filing separately). ***Saves taxpayers \$1.17 billion over one
    year.***

-   [Refundable Child Tax Credit]{.underline}. Reduces the amount above
    which the portion of a taxpayer's income is refundable under the
    child tax credit from about \$12,000 to \$8,500. ***Gives
    individuals \$3.13 billion over one year.***

-   [Incentive Stock Options]{.underline}. Makes adjustments to how
    incentive stock options are taken against the Alternative Minimum
    Tax (AMT), so that individuals whose AMT liability exceeds any gain
    from the exercise of a stock option (because of a drop in the value
    of such option) are made whole. ***Saves taxpayers \$2.29 billion
    over eleven years.***

-   [GO Zone]{.underline}. Allows taxpayers in affected Gulf Opportunity
    (GO) Zone areas to amend prior tax returns to waive any interest
    earned from the receipt of hurricane-related recovery grants, waive
    the start-construction deadline for certain property eligible for
    bonus deprecation in the GO Zone, and allow projects in two
    additional counties in Alabama to qualify for tax-exempt bond
    financing. ***Saves taxpayers \$1.33 billion over eleven years.***

**[Committee Action]{.underline}**: On May 14, 2008, H.R. 6049 was
introduced and referred to the Ways & Means Committee, which the next
day, marked up and ordered the bill reported to the full House by a
near-party-line vote of 25-12.

**[Possible Conservative Concerns]{.underline}**: Some conservatives may
have the following concerns:

[Tax Increases]{.underline}. The bill contains about \$55 billion in tax
increases over ten years (primarily on capital formation) plus a harmful
corporate estimated tax payment shift gimmick. The tax increases are
long-term, while many of the tax cuts in this bill are just one-year
extensions of current law.

[Davis-Bacon Expansion]{.underline}. The bill would apply Davis-Bacon
prevailing wage requirements to all tax-credit bonds, whether created by
this legislation or not.

[No AMT]{.underline}. This tax-extender bill does [NOT]{.underline}
contain any repeal or inflation adjustment of the Alternative Minimum
Tax (AMT).

[Too Much Energy Speculation]{.underline}. The energy incentives are
aimed primarily at energy sources and technologies that may *[or may
not]{.underline}* provide the bulk of America's energy needs over the
next few decades, while virtually ignoring energy sources and
technologies that are providing the bulk of America's energy needs
today.

[Annual Extenders Bill]{.underline}. Many of the tax cuts in the bill
are just *[one-year]{.underline}* extensions of current law, despite the
obvious reality that most of these popular provisions will have to be
extended later this year. Furthermore, as in the case of the research
and development tax credit, the lack of long-term extensions prevents
American companies from being able to make proper business plans, even
for the near future.

[Special Tax Cut for Trial Lawyers]{.underline}. The bill contains a
special tax cut for trial lawyers in certain contingency-fee cases.

[Targeted]{.underline} [Tax Cut for]{.underline} [Movie
Producers]{.underline}. The bill contains a targeted tax cut for movie
producers, including a carve-in to the Section 199 tax deduction from
which Democrats have tried to carve petroleum companies out.

[Expanded Refundability of Child Tax Credit]{.underline}. The bill
expands the refundability of the child tax credit, which increases the
use of the tax code to provide entitlement expenditures.

[Transportation Earmark for New York City]{.underline}. The bill
terminates the Liberty Zone program in such a way as to essentially
provide, as some conservatives have argued, a \$2 billion earmark for
New York City for any transportation infrastructure project, including
highways, mass transit, railroads, airports, ports, waterways, etc.

**[NOTE]{.underline}: Americans for Tax Reform (ATR) will score against
this bill.**

**[Administration Position]{.underline}**: Although a Statement of
Administration Policy (SAP) was not available at press time, a
forthcoming SAP is expecting to express opposition to this bill.

**[Cost to Taxpayers]{.underline}**: The Joint Committee on Taxation and
the Congressional Budget Office estimate that H.R. 6049 would save
taxpayers \$8.055 billion in FY2008 and a total of \$28.705 billion over
the FY2008-FY2012 period. The bill would also increase direct spending
by \$98.0 million in FY2008 and a total of \$4.937 billion over the
FY2008-FY2012 period.

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}**: No.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}**: No.

**[Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax
Benefits/Limited Tariff Benefits?]{.underline}**: The Ways & Means
Committee, in House Report 110-\_\_, asserts that H.R. 6049 contains no
earmarks, limited tax benefits, or limited tariff benefits.

**[Constitutional Authority]{.underline}**: The Ways & Means Committee,
in House Report 110-\_\_, cites constitutional authority in Article I,
Section 8, Clause 1 (the congressional power to lay and collect taxes,
etc.) and in the Sixteenth Amendment (the congressional power to tax
incomes).

**[Outside Organizations]{.underline}**: Americans for Tax Reform is
opposed to this bill, citing the long-term tax increases to offset
short-term extensions of current law, and will score against the bill in
its annual ratings of Congress.

The Alliance for Worker Freedom, Associated Builders and Contractors,
and the Independent Electrical Contractors, and possibly other groups,
will oppose the bill because of the Davis-Bacon language.

**[RSC Staff Contact]{.underline}**: Paul S. Teller,
<paul.teller@mail.house.gov>, (202) 226-9718