House and Senate Both Like Tax Cuts, but Not the Same Ones
How much federal tax will you be paying over the next year or two . . . or five? It's really hard to tell these days, but what happens on Capitol Hill in the next two weeks will supply key pieces of the picture.
There are two big tax-cut bills pending in Congress, one already passed by the Senate, the other approved by the House Ways and Means Committee and awaiting floor action when that chamber returns this week.
Both bills include tens of billions of dollars in tax cuts, but they differ widely in how those cuts are to be handed out. These differences will have to be hammered out before a final bill can be passed, and that process is shaping up as difficult and contentious.
Lawmakers could, of course, wait until next year, but that would mean allowing a number of tax breaks to expire Dec. 31 and then possibly restoring them retroactively. This happens often enough, but it drives taxpayers and their advisers -- not to mention the Internal Revenue Service -- nuts in trying to plan.
It would also push this divisive issue into an election year, which many members would like to avoid.
So here's what we're looking at.
Both measures would extend a number of cuts that were enacted temporarily in a series of bills dating back to 2001.
These include allowing small businesses to "expense" (deduct immediately) up to $100,000 in equipment purchases, giving low-income taxpayers a "saver's credit" of up to $1,000 for contributions to retirement savings accounts, and extending an "above-the-line" (i.e., available to those who don't itemize) deduction for college tuition.
Both bills would also extend through next year the right of taxpayers to choose to deduct state and local sales taxes instead of income taxes, if they find that more advantageous. And they would extend through 2006 the $250 deduction for teachers' classroom expenses, along with the credit for first-time home buyers in the District.
But while the House bill would also extend for two years the maximum 15 percent tax rates on capital gains and stock dividends, which are now scheduled to expire after 2008, the Senate measure would not.
On the other hand, the Senate approved a one-year extension and slight improvement of the "patch" in current law that eases the impact of the alternative minimum tax, but the House bill doesn't include it.
The problem is that adopting both those provisions would jack up the cost enough to scare a lot of people, even Republicans, and also it would blow right past the Senate's budget limit, possibly derailing the bill.