What the Republican Victory in the House Means for American Taxpayers

Leading up to the election last week, Republican candidates promised serious tax law changes in the next two years. However, since Democrats retained control of the Senate, many are wondering which, if any, of these promises will actually come to fruition.

Government Gridlock

Although Republicans took over the House of Representatives, they do not have the power to override a presidential veto. In order to pass a serious tax reform package in spite of a veto Republican leaders will need to come up with a 2/3-majority vote in both chambers of Congress. This has many worried that we will see serious government gridlock over the next two years. However, the change in power could finally push legislators to work together, and compromise on legislation that will actually help this country.

Health Care Revisions

Exit polls indicated that many voters were dissatisfied with the President's health bill, and the newly elected Republican leaders plan to listen to the dissatisfaction. Congressman John A. Boehner told reporters “the American people are concerned about the government takeover of health care. I think it’s important for us to lay the groundwork before we begin to repeal this monstrosity.”

Court Led Overhaul

Although Congress has limited options when it comes to overturning the health care reform law, the U.S. courts could take action. Currently there are 21 states that are challenging the law's requirement that all taxpayers have a qualifying health care plan. If the courts overturn part of the legislation, then it will be easy to build up public support for reforming the bill. Additionally, other experts are warning that members of Congress could add complications to the legislation and build up unpopularity of the law, which could be used as leverage to get Obama out of the White House next election. They could argue that the only way to repeal the law would be to elect a new Republican president.

1099 Changes and Manufacturer Taxes

In addition to concerns over the mandate, Republicans also plan to address two specific parts of the reform package: the new employer 1099 requirements, and the manufacture taxes. James P. Gelfand, Director of Health Policy at the United States Chamber of Commerce, has said he doesn't think "we’ll see a repeal of the health care law tomorrow." But that "Congress got the message that we need serious changes.” Gelfand claimed that he expects the new House to attempt to eliminate the provision that would require many employers to contribute to the cost of coverage for employees. Many experts claim that this provision would hurt job creation, as well as the tax on manufacturers of medical devices.

Energy and Climate Legislation

Although energy and climate reform has been a big issue for the President, it is unlikely that any major law changes will pass the new House. Last week, President Obama said he would like to move the country towards cleaner energy by focusing on smaller issues, which likely won't result in major tax law changes. "When it comes to something like energy,” the President asserted, “what we're probably going to have to do is say here are some areas where there's just too much disagreement between Democrats and Republicans. We can't get this done right now. But let's not wait. Let's go ahead and start making some progress on the things that we do agree on."

Bush Tax Cuts

Although next year there will be a Republican majority in the House, Democrats still have enough votes to extend or repeal the Bush tax cuts during the lame duck session. Obama has called for an extension of all the tax cuts, except for those that benefit highest earning taxpayers. Senate Majority Leader Harry Reid said that the Republicans' proposed extension of all tax cuts "won't happen." However, if Congress does follow the President's suggestion then there is no promise that the new Congress won't pass a retroactive extension of the cuts for wealthier taxpayers.

AMT Patch

Currently the Alternative Minimum Tax (AMT) is scheduled to affect 25 million families next year unless Congress passes a patch to the law. If Congress does not take action next year then all of these taxpayers will be faced with a huge and unexpected tax increase.

Estate Tax Compromise

Congress must address the estate tax. In 2011, this tax is scheduled to return at a rate of 55% on estates valued at over $1 million. This is a significant increase from the 2009 tax of 45% levied on estates worth more than $3.5 million. Republicans would like to completely get rid of the estate tax, but experts predict that we will see some sort of compromise that could affect estates valued at over $5 million.

Obama Pleads for $50 Billion in State, Local Aid

According to the Washington Post, yesterday President Obama asked Congress to approve $50 billion in emergency aid to state and local governments. He said the money was necessary to avoid "massive layoffs of teachers, police and firefighters" and to assist local governments with their economic recovery efforts.

In a letter to congressional leaders, Obama defended last year's huge economic stimulus package, saying it helped break the economy's free fall, but argued that more spending is urgent and unavoidable. "We must take these emergency measures," he wrote in an appeal aimed primarily at members of his own party.

The letter comes as rising concern about the national debt is undermining congressional support for additional spending to bolster the economy. Many economists say more spending could help bring down persistently high unemployment, but with Republicans making an issue of the record deficits run up during the recession, many Democratic lawmakers are eager to turn off the stimulus tap.

"I think there is spending fatigue," House Majority Leader Steny H. Hoyer (D-Md.) said recently. "It's tough in both houses to get votes."

Democrats, particularly in the House, have voted for politically costly initiatives at Obama's insistence, most notably health-care and climate change legislation. But faced with an electorate widely viewed as angry and hostile to incumbents, many are increasingly reluctant to take politically unpopular positions.

Highlights of House Tax and Spending Bill

On Friday, the House of Representatives passed a new tax and spending bill. Over the weekend the Associated Press published a list explaining the changes that would occur if the legislation were signed into law. You can find a few of the highlights below, or read the full article on Google News.

• Extends for one year about $32 billion in tax breaks that expired in January, including a property tax deduction for people who don't itemize, lucrative credits that help businesses finance research and develop new products, and a sales tax deduction that mainly helps people in states without income taxes.

• Increases taxes on investment and hedge fund managers, venture capitalists and many real estate investment partnerships by $18.7 billion.

• Increases taxes on oil companies by $11.8 billion by raising from 8 cents a barrel to 34 cents a barrel the tax they pay into the Oil Spill Liability Trust Fund.

• Raises taxes on multinational companies some $14.5 billion by limiting their ability to use credits for paying foreign taxes to lower their U.S. tax liability.

• Imposes $11.2 billion in new Medicare taxes on lawyers, doctors and other service providers.

House to Vote on Tax Bill as Net Cost Drops to $60.5 Billion

From the Wall Street Journal:

The latest version of House legislation to extend tax cuts and unemployment benefits would add $60.5 billion to the deficit over the next 10 years, the Congressional Budget Office said Friday.

The House took the first step toward passing the package. On a 221-199 vote, the House approved a rule setting up two votes later Friday. The House will vote on the jobless and tax package, then vote separately on a provision to postpone scheduled cuts in Medicare payments to doctors.

The new cost estimate from CBO appeared to give Democrats the needed confidence to move ahead, after lacking the votes all week.

The estimate reflects changes House leaders made to the package including eliminating spending programs created by the 2009 stimulus bill, expanded Cobra health insurance subsidies and increased federal Medicaid payments to states.

Those and other changes shaved the net cost of the package to $60.5 billion from $140 billion earlier in the week.

The total cost of spending and tax cuts in the package is roughly $116 billion. About $56 billion of that is offset by targeted tax increases on business, including the fund manager tax rate increase and changes in the way overseas income of U.S.-based multinationals is taxed.

Timeline of Tax Provisions in the House Health Care Bill

As many of you have probably heard, yesterday the House of Representatives passed President Obama’s health care reform package in a 219 – 212 majority vote. It now heads to the Senate where it is widely expected to pass after the required 20 hours of debate time.

The complicated legislation includes dozens of tax provisions; some that will take effect immediately while others will not take effect until up to eight years from now. Listed below are all of the tax law changes included in the bill, organized by when they will go into effect courtesy of The Tax Foundation.

Retroactive provisions:

• Exclusion for assistance provided to participants in State student loan repayment programs for certain health professionals (retroactive to January 1, 2009)
• Qualifying therapeutic discovery project credit (retroactive to January 1, 2009) – provision expires at end of 2010
• Modification of section 833 treatment of certain health organizations (retroactive to January 1, 2010)
• Make the adoption credit refundable; increase qualifying expenses threshold, and extend the adoption credit through 2011 (retroactive to January 1, 2010)
• Small Business Tax Credit for certain small businesses (those meeting certain criteria) providing health insurance to employees (retroactive to January 1, 2010). In 2013, restricted only to insurance purchased through an exchange and only available for two consecutive years
• Exclusion of unprocessed fuels from the cellulosic biofuel producer credit (retroactive to January 1, 2010)

Provisions that will go into effect on the date bill is signed into law:

• Additional requirements for section 501(c)(3) hospitals
• Study and report of effect on veterans’ health care
• Provide income exclusion for specified Indian tribe health benefits
• Codify economic substance doctrine and impose penalties for underpayments
• Provision specifying that subsidies or tax credits received through health care reform will not affect individual's qualifications for other federal programs
• Tax Exemption for Certain Member-Run Health Insurance Issuers
• Tax Exemption for Entities Established Pursuant to Transitional Reinsurance Program for Individual Market in Each State
• Rules pertaining to how the IRS is involved in income-verification and individual status for the purposes of participation in the exchanges and subsidies received

Other provisions going into effect before the end of 2010

• July 1, 2010: Impose 10% excise tax on indoor tanning services

Continue reading at Tax Foundation.org…

House Votes for Faster Tax Breaks for Haiti Gifts

Yesterday, the U.S. House of Representatives voted unanimously to approve a bill allowing taxpayers to write-off donations made to Haitian relief efforts on their 2009 tax returns. According to this article from the Washington Post, the Senate is expected to act quickly on the popular legislation.

Under current law, donors would have to wait until they file their 2010 returns next year to take the deductions. But the newly advanced bill would allow donations made by the end of February to be deducted from 2009 returns.

The bill passed on a voice vote with no opposition. Quick Senate action is expected. A similar law was enacted in 2005 for donations to victims of the Indian Ocean Tsunami in December 2004.

"It's a simple gesture but it will encourage giving in this challenging economy," said Rep. Earl Blumenauer, D-Ore.

Last week's quake killed an estimated 200,000 people in Haiti, left 250,000 injured and made 1.5 million homeless, according to the European Union Commission. A powerful aftershock caused even more damage Wednesday.

House Passes Tax Extenders Bill

From ABC.com:

The House passed a bill Wednesday that would extend for one year more than $31 billion in tax breaks. Among the 45 deductions and credits for businesses and individuals, which are set to expire at year's end:

A sales tax deduction that mainly benefits people who live in the nine states without a state income tax. The states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming. Cost: $1.8 billion.

An additional standard deduction for state and local property taxes for taxpayers who don't itemize their deductions. Cost: $1.5 billion.

A deduction of up to $4,000 for college tuition and related expenses. Cost: $1.5 billion.

A deduction of up to $250 for teachers who spend their own money for books and other classroom supplies. Cost: $228 million.

A credit that helps businesses finance research and development. Cost: $7 billion.

Accelerated depreciation for improvements made to leased restaurant and retail property. Cost: $5.4 billion.

Additional depreciation allowance for businesses that suffer damage from a federally-declared disaster. Cost: $1.4 billion.

House Prepares To Renew Expiring Tax Cuts For One Year

After voting to extend the homebuyers credit just a few weeks ago, Congress is already making plans to extend $37 billion in tax cuts for individuals and businesses in 2010. Leaders of the House of Representatives have been working on legislation and assert that they plan to pass the legislation by the end of the year as part of an effort to create jobs.

According to a summary obtained by Dow Jones Newswires, the package will be offset by tax-raising provisions, but those provisions are not identified in the summary.

The draft bill omits a provision to temporarily shield middle-class taxpayers from the alternative minimum tax in 2010. Congress earlier this year passed an AMT "patch" for 2009.

Since the lack of an AMT patch for 2010 won't affect most taxpayers until they file tax returns in 2011, House lawmakers said they will likely wait until next year to pass it.

High-tech firms and manufacturers would gain a one-year extension of the research tax credit, while banks would get an extension of a tax break on their overseas business income.

NASCAR racetracks would win another year of more favorable depreciation rules under the House bill, as would retail stores and restaurants.

Continue reading at Nasdaq.com…

House Panel Votes to Give SEC More Money, Power

In the latest move to end corruption on Wall Street, the House of Representatives Financial Services Committee voted this morning to give more power and funding to Federal regulators. They hope the additional funds will help agents prevent future abuses, such as the high profile Bernie Madoff scandal. Check out the following coverage of the new legislation courtesy of the Associated Press.

The 41-28 vote was the panel's latest move to try to rein in abuses on Wall Street. It would give the Securities and Exchange Commission new enforcement powers, including the ability to offer bounty money to tipsters on fraud cases and the power to bar violators of the law from employment in any securities-related industry.

The bill also would double the SEC's budget in the next five years.

Rep. Paul Kanjorski sponsored the legislation after leading the panel's investigation into the government's failure to uncover Madoff's massive fraud scheme for nearly two decades. Madoff was sentenced in June to 150 years in prison.

"In the last five years, there's been a significant change and a greater sophistication in the financial service industry than has ever happened in the history of mankind," said Kanjorski, a Pennsylvania Democrat. "So we're going to have to change fast."

The proposal was part of a broader effort by the committee to tighten rules governing financial institutions after last year's market crisis. The full House was expected to vote on the bill and related proposals in early December.

IL Resident Declares their Home a Church and Gets Tax Breaks

According to the Chicago Tribune, the Illinois State government allowed a Lake Bluff resident to convert his home into church, that correlated to a $80,000 in property tax reduction. Below is a snippet from the news story.

“When George Michael placed a cross on the side of his lakefront mansion, neighbors assumed the decoration was simply a display of the man's religious faith.

What his neighbors didn't know is that Michael had decided to convert his $3 million residence into the Armenian Church of Lake Bluff, qualifying him for a nearly $80,000 break on his annual property tax bill.

Now, locals are questioning whether the property is a church at all. Village officials wonder how they'll be able to make up the lost revenue, and residents worry that their share of the tax burden will grow as a result.

Meanwhile, Lake Bluff officials notified Michael that if he is running a church, he will need to pay more than $115,000 in fines for failing to get the village's permission, setting up a possible court battle.”

IRS Kicks Home Owners While They're Down

According to the Washington Post, the IRS has bad news for homeowners who are seriously delinquent on their mortgages and hoping for debt relief. If your lender decides to modify your loan or forgive your debt, you could end up owing federal income taxes on that amount. The IRS essentially treats the amount that is forgiven as ordinary income. Lenders are even required by law to notify the IRS when they forgive the debt. This news is especially bad in the current market, where many people are finding themselves upside-down in the current market because of interest only loans or property value decreases.

Energy Savings = Tax Savings

If you have made recent upgrades to your house then you may qualify for additional tax credits. There are many different home improvements that qualify for the energy credits including insulation, water heaters, air conditioners, fans, furnaces, skylights, windows, doors, solar panels, and certain roofs. The credit is usually around ten percent of the cost, but can vary depending on the type of upgrades. Keep in mind that only home improvements that reduce a home’s "heat loss or gain" are eligible for the credit. Thus, the credit may not apply to common household appliances such as dishwashers or refrigerators even if they bear the Energy Star label. For more details on getting an energy credit, visit DailyNews.com.

Senate Tax Writing Committee Approves Tax Breaks

The bill that proposed an increase to the minimum wage and that was approved by the U.S. House of representatives was met with some changes in the U.S. Senate Tax Writing Committee. Democratic leaders in the Senate opted to add over eight billion dollars in tax relief aimed at helping small businesses that typically hire minimum wage workers. It is expected that the bill will now be approved in the Senate, avoiding a fight with business lobbyists and possible filibusters. Visit Mail Tribune for more details on the new minimum wage bill.