Tax Activity in the 107th Congress RS20264 -- Tax Activity in the 107 th Congress Updated January 14, 2003 Summary After passing a major multi-year tax cut in Mid-2001 (which was sunsetted after 10 years) and a stimulus bill in 2002, Congress considered, but did not complete, work on energy tax subsidies,taxincentives for charitable giving deductions, pension diversification in the wake of the ENRON problems, and taxshelters. The House passed several bills that would make the multiyear tax cut permanent as well as a bill to speed up certainprovisions. This report will not be updated. In the first half of 2001, a major multi-year tax cut was enacted and signed into law. The bill was passed with asunsetprovision because there were not enough votes to set aside a budget rule. Several bills passed the House in 2002to makethe tax cut or parts of it permanent ( H.R. 586 to make all provisions permanent on April 18, H.R. 2143 to make the estate tax repeal permanent on June 6, H.R. 4019 to make marriage tax relief provisionspermanent on June 13). H.R. 4931 to make the retirement and pension provisions permanent was passed onJune 21. The House also passed H.R. 4626 , which would speed up marriage relief provisions on May 22. The terrorist attacks of September 11 led to consideration of a stimulus package which was enacted and signed into law inMarch of 2002. More detail on both of these bills is provided below. While revenue concerns limited the consideration of some tax changes, the House, on July 19, approved H.R. 7 , a bill to expand tax benefits for charitable giving and charities. H.R. 7 is estimated to cost $13.3 billionover 10-years, with about half the cost associated with a capped above-the-line deduction for charitablecontributions fornon-itemizers. This bill is a considerably scaled back version of the President's faith-based initiative that wouldhavecost $80 billion. About half of the cost of H.R. 7 is due to allowing an above-the-line deduction for charitablegiving by those who do not itemize deductions. The revenue cost was limited, however, because there was a capon thedeductions gradually rising to $200.. Singles would have limits half as big. The bill also includes provisions fortax freedistributions from individual retirement accounts to charities, raising the cap on corporate charitable contributions,modifyexcise taxes on net investment income of charities and make a number of minor changes. The Senate FinanceCommitteeapproved a version of the Lieberman-Santorum bill ( S. 1924 ) as substitute for H.R. 7 whichincluded a temporary non-itemizer's deduction with a floor and a ceiling and several other provisions. The billwould alsoincluded revenue offsets including provisions to address tax shelters ( S. 2498 and S. 2119 ). On June 19, the Ways and Means Committee approved H.R. 4969 , a bill to provide long term care relief, costing $5.3 billion over 10 years. On July 11, Ways and Means Chairman Thomas introduced H.R. 5095 , a bill that would repeal the ETI (export) benefits, restrict tax shelters associated with international activities and provide a number of tax benefitsformultinational operations. The bill did not see further action. The House (August 2, 2001) and Senate (April 25, 2002) passed H.R. 4 which includes a series of tax subsidies and incentives for energy. In response to the ENRON problem, the House has passed H.R. 3762 which requires permitting some diversification in 401(k) plans ( H.R. 3762 , April 12). The Senate approvedasimilar bill, S. 1971 which was reported in October, which also contained provisions concerning executivecompensation and formally excluded incentive stock options from payroll tax withholding. On June 19, the WaysandMeans Committee approved H.R. 4969 , a bill to provide long term care relief, costing $5.3 billion over 10years. In addition, general concerns about stock market performance and the slowly growing economy also led totheconsideration of an investor relief package ( H.R. 5553 , reported out of the Ways and Means Committee)which included speedups in IRA and pension contribution limit increases, as well as an increase in the age at whichdistributions from IRAs must begin. Another bill, H.R. 2884 , to provide tax relief to victims of terrorist attacks on the United States,was signed by the President on January 24, 2002. The terrorist attacks of September 11 increased concerns about an economic slowdown and Congressionalleadersconsidered what tax measures, if any, to take to stimulate the economy. Among the provisions initially discussedwere acredit for payroll taxes and a speedup of already enacted future rates cuts ( P.L. 107-16 ). Business tax cuts andproposalsfor tax rebates were also debated. On October 24 the House passed H.R. 3090 , a tax cut costing $99 billion in 2002 and $159.4 billion over thenext 10 years. This bill included temporary expensing for 30% of equipment cost, repeal of the corporate alternativeminimum tax (with an immediate refund of accumulated credits), a 15-year write-off period for leaseholdimprovements, asupplemental rebate for those without enough tax liability to use the prior rebate, an acceleration of the 25% ratecutalready enacted, a temporary increase in the individual alternative minimum tax exemption, a reduction in the capitalgainsrate from 20% and 10% to 18% and 8% for all property held a year, and a number of more minor provisions. Senate Finance Committee Chairman Baucus proposed a plan which would allow businesses to expense 10% ofinvestment ($15 billion in 2002, $3 billion in 2002-2011), increase the expensing ceiling for small business ($1billion in2002, no cost in 2002-2011), extend net operating loss carryback period from 2 years to 5 years ($4 billion in 2002,$1billion in 2002-2011), extend tax provisions that are set to expire at the end of 2001, and provide refunds totaxpayers whodid not receive a full rebate ($14 billion in 2002 only). On November 8, the H.R. 3090 was reported withslight amendments. Senate Republicans prepared an extensive list of amendments, and on November 14, theproposalfailed to garner enough vote to overcome their points of order. Negotiations between the Senate, the House and theAdministration are failed to produce a compromise. On December 19, the House passed a more limited version ofthe bill, H.R. 3529 . On January 24, the Senate began considering H.R. 622 , a more limited bill that included only the expensingand rebate tax provisions (along with some spending provisions); the tax cost was $56 billion in 2002 and $21billion from2002-2011. The Senate continued to consider proposals and passed H.R. 622 with only unemploymentbenefits. The House added their tax provisions to this bill on February 14. On March 7, the House passed a morelimitedpackage of tax provisions along with unemployment benefits ( H.R. 3090 ); the Senate passed the bill onMarch 8 and the President signed it on March 9. Congressional leaders early expressed interest in tax cuts in the 107th Congress. Congress hadpassed several tax cuts inthe 106th Congress, which were vetoed; some other provisions saw some action that was notcompleted, in part because ofexpected vetoes. Congressional leaders also supported the tax plan proposed by President Bush during his campaign,presented to them on February 8, 2001, and included with some amendments, in his address to the Congress ofFebruary27. Several separate bills were been passed by the House; the Senate has passed an omnibus bill; the omnibusSenate billand final agreement cost $1.35 trillion over 2001-2011. (Please note that revenue estimates from stand-alone billsare notcomparable with those from omnibus bills because of interactions among provisions.) On March 1, the House Ways and Means Committee marked up H.R. 3 , Chairman Thomas's $958 billion, 10-year bill that implements the rate reductions that form a part of President Bush's tax cut; this legislation waspassed bythe House on March 8. These reductions would gradually reduce tax rates from 15% to 10% on a new bracket of$12,00for married couples and $6,000 for singles. This phase in would apply in 2001, when the rate would be reduced to12%and cost $383 billion over 10 years. It would gradually reduce the 28% and 31% rates to 25% and the 36% and39.6%rates to 33%, beginning in 2002 ($560 billion over 10 years). A more minor provision would also allow refundabletaxcredits to be taken against the Alternative Minimum Tax (AMT), at $15 billion over 10 years. Two amendmentsto theplan were adopted on March 1, one setting a time frame for changing withholding tables and the other keeping thetransfers to the Social Security Trust Fund reflecting income tax payments on social security benefits from fallingdue tothe tax cut. The Chairman indicated that he planned to address AMT concerns, marriage penalty relief, the child credit, and estate taxrepeal in subsequent tax legislation, but plans to keep the overall tax cut the same size as the Administration's $1.6trillionfigure. The committee rejected a proposal by Ways and Means Committee Democrats for a $249.5 billion plan to lower the 15%tax rate, provide marriage penalty relief, and expand the earned income tax. This plan was a scaled back versionof theplan announced by Democratic leaders Gephardt and Daschle.