Whoa! Just what is in the water on the Senate side of Capitol Hill?
Before the upper chamber left for its annual August recess, its members agreed to let both Democrats and Republicans present their tax cut bills. That was a marked change from the Senate's usual tendency to hold legislation hostage to its 60-vote super majority procedural rule. FYI, the Dems' version won.
That was followed by a bipartisan vote in the Senate Finance Committee to move along a proposal to reinstate many tax breaks that had expired on Dec. 31, 2011.
If we can figure out exactly what prompted the Senate to finally start working together, we can bottle it and get rich!
Start of a long process: The tax provisions that the Senate committee approved are a collection of temporary tax breaks that are perpetually renewed, or extended. Because of that, they're usually referred to as extenders.
Of course, the Finance Committee's OK of The Family and Business Tax Cut Certainty Act of 2012 as this extenders bill is officially named is just one small legislative step toward getting any of the tax breaks back on the books.
Technically, tax legislation must originate in the House Ways and Means Committee. And then that more unruly legislative body has to approve it. So the possibility of Congressional gridlock over the extenders and other tax measures remains very real.
Still, any movement, however incremental, along with an even nominal indication that the two opposing parties are working together is good news.
The final Senate Finance vote was 19-to-5. Six of the Republicans on the committee joined the Democrats in voting for the bill. The five GOP members who opposed it are Jon Kyl of Arizona, John Cornyn of Texas, Michael B. Enzi of Wyoming, Tom Coburn of Oklahoma and Richard Burr of North Carolina.
Especially elated are taxpayers affected by the expired laws and the tax professionals who advise them. Finance Committee Chair Sen. Max Baucus (D-Mont.) acknowledged that collective tax sigh in a post-passage statement:
"People need certainty to plan their finances, and businesses need certainty to hire, invest and grow. These tax cuts will reassure families, help spur job growth and boost the economy. No bill is perfect, but what’s important is this shows the American people that Congress can work together to get things done. This bipartisan work is just what all members of Congress will need to do with the fiscal cliff looming and tax reform on the horizon."
Below are some highlights of individual tax breaks that Senate Finance wants to resurrect for the 2012 and 2013 tax years.
Alternative Minimum Tax (AMT) relief is provided largely via increased exemption amounts: $50,600 for individuals and $78,750 for married couples filing jointly in 2012; $51,150 for individuals and $79,850 for married filing jointly spouses in 2013. Nonrefundable personal credits against the AMT are allowed in both tax years.
The educators above-the-line $250 deduction for certain out-of-pocket classroom supplies would be back on the bottom of Forms 1040 and 1040A.
Another above-the-line deduction (officially known as adjustments to income) also would be saved. The higher education tuition and fees tax break worth up to $4,000 would be back in the tax code.
Private mortgage insurance (PMI) premiums can be deducted as itemized mortgage interest for tax years 2012 and 2013. The deduction is phased-out for taxpayers with adjusted gross income (AGI) of $100,000 and is not available to those making more than $110,000.
State and local sales taxes also will remain as Schedule A deductions for the next couple of filing seasons. This is welcome news for those who live in one of the seven no income tax states or who find that the sales tax write-off is worth more to them than the state and local income tax itemized deduction.
The option to roll over an IRA required minimum distribution (RMD) to charity got the Finance Committee OK. By doing this, the IRA owner/charity donor meets the RMD distribution rule, but avoids taking the taxable distribution.
Additional individual tax breaks, as well as those for businesses, are discussed in the Senate Finance Committee's memo on The Family and Business Tax Cut Certainty Act.
A few tax breaks omitted: Around 20 expired tax provisions, however, would remain dead and buried if the Senate bill is eventually enacted.
Missing are the expensing of brownfields environmental remediation costs, tax breaks for Gulf Opportunity Zone investments (a post-Hurricane Katrina provision), ethanol tax credits and business deductions for charitable donations of book and computer inventories.
Sen. Orrin Hatch of Utah, the ranking Republican on the Senate Finance Committee, is among those happy about fewer extenders.
"The explosion of temporary tax provisions in recent years has been a very notable and problematic trend," he said. "The number of temporary tax provisions has grown from 42 in 1998 to 154 in 2011. If you average that number out, you will find that, over that 13 year period, Congress was adding almost 9 extenders per year."
Hatch added that instead of revisiting the same tax issues year after year, Congress needs to "break out of that rut."
That roar you hear is the aforementioned taxpayers and tax pros cheering.
But …C'mon, you knew a "but" usually is tacked on any time taxes are discussed. In this case it concerns one other important thing that is missing from the Senate Finance bill.
There's no provision to pay for the $152 billion over 10 years that it will cost to put the extenders back in the Internal Revenue Code.
Hey, the guys and gals on Capitol Hill gotta have something to do when they get back!
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