Daily Tax Update - July 24, 2012: House Republicans Introduce Bill to Extend Tax Cuts

HOUSE REPUBLICANS INTRODUCE BILL TO EXTEND TAX CUTS:  Today, House Ways and Means Committee Chairman Dave Camp introduced a bill, "The Job Protection and Recession Prevention Act of 2012" (H.R. 8), which would extend all of the 2001 and 2003 tax cuts.  According to the Joint Committee on Taxation, the proposal, as a whole, would prevent a $383.6 billion tax increase over 2013-2022.

  • Camp said: "This bill will stop the tax hike facing every American who pays income taxes at the end of the year and give small businesses and families the certainty they need in these tough economic times.  Despite more than three years of high unemployment, the President and Democrats who control Washington are calling for higher taxes that will eliminate more than 700,000 jobs.  That is the wrong direction, and I call on President Obama and Congressional Democrats to join Republicans and abandon their pursuit of job-killing tax hikes."
  • The bill includes:
    • Extension of 2001 and 2003 Tax Relief through December 31, 2013 - under the proposal, the lower statutory rates now in effect for 2012 would be extended through 2013.
    • Maintain a 15-percent top rate on dividends and capital gains.
    • Marriage penalty relief - under the proposal, the existing marriage penalty relief would be extended through 2013.
    • 1,000 child credit - under the proposal, the $1,000 child credit amount would be extended through 2013.
    • Repeal of the Personal Exemption Phase-out ("PEP") and the Pease Limitation - under the proposal, the repeals of each of these provisions would be extended through 2013, preventing the additional, hidden marginal rate increases they create from once again taking effect.
    • Estate tax relief.  Prior to 2001, the estate tax featured a confiscatory top rate of 55 percent and a very low exemption amount of $1 million.  Under EGTRRA, the estate tax rate was gradually phased down and the exemption amount was gradually increased over the following decade.  Under TRUIRJCA, for 2011 and 2012, the top estate tax rate was set at 35 percent and the exemption amount was set at $5 million (indexed for inflation), but both of those parameters are scheduled to revert to their pre-2001 levels in 2013.  Under the proposal, the parameters in effect for 2012 would be extended through 2013.
    • Extension of increased small business expensing - under the proposal, the small business expensing parameters that were originally put in place in 2003 as part of JGTRRA -- $100,000 and $400,000, respectively – would be extended (and adjusted for inflation) through 2013.
    • Extension of Alternative Minimum Tax Relief for Individuals - under the proposal, a two-year AMT patch is provided, covering both 2012 and 2013, coordinating the AMT patch with the proposal’s overall extension of the 2001 and 2003 tax relief through 2013.  This patch is designed to hold the number of AMT-affected taxpayers constant at 3.9 million, the same target used for the two-year AMT patch, covering 2010 and 2011, enacted as part of TRUIRJCA.  For 2012, the AMT exemption amount would be increased to $50,600 for singles and $78,750 for joint returns; for 2013, the exemption amount would be increased to $51,150 for singles and $79,850 for joint returns.  For both 2012 and 2013, non-refundable personal credits would be allowed against the AMT.
    • Read the full bill text here and section by section summary here.

HOUSE TO CONSIDER BILL TO EXPEDITE TAX REFORM PROCESS:  Next week, the House is expected to consider legislation to expedite tax reform procedural issues.  Under the Pathway to Job Creation through a Simpler, Fairer Tax Code Act of 2012 (H.R. 6169), the chairman of the House Ways and Means Committee must introduce a tax reform bill by April 30, 2013.

  • H.R. 6169 would require the future tax reform bill to consolidate the current six individual tax brackets into not more than two brackets of 10 percent and up to 25 percent; reduce the corporate rate down to at least 25 percent; repeal the alternative minimum tax; broaden the base to specified levels; and change the international business tax system from a worldwide system of taxation to a territorial system.
  • The House would be required to consider the tax reform bill within 15 days after all committees with jurisdiction over the bill had completed a mark up.  Following House action, the Senate would have two weeks to take up the legislation, which would not be subject to a cloture vote on a motion to proceed or on individual amendments.

HEARING TO EXAMINE THE VARIED TAX TREATMENT OF BUSINESS ENTITIES: On August 1, the Senate Finance Committee will hold a hearing entitled "Tax Reform:  Examining the Taxation of Business Entities" to explore the different taxation of business entities structured as corporations versus passthroughs, and to consider proposals to alter those rules.  The hearing will explore the history of the two-tiered corporate tax system, compare the US taxation of passthroughs to the systems of other countries and consider whether the current system distorts business decisions in ways that hurt job creation and economic growth.

The witnesses at next Wednesday’s hearing will be:

  • Mr. Harrison T. LeFrak, Vice Chairman, The LeFrak Organization
  • Mr. Dana L. Trier, Adjunct Professor in Taxation, University of Miami School of Law and Columbia Law School
  • Mr. Alvin C. Warren, Ropes & Gray Professor of Law, Harvard Law School
  • Mr. Fred C. De Hosson, Partner, Baker & McKenzie

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