By Paul N. Gada, Toolkit Staff Writer, and Jeff Carlson and Paula Cruickshank, CCH Washington Staff Writers
With the 2006 tax year rapidly drawing to a close, this is a great time to do some last-minute tax planning. Of course, this assumes that you know all the tax rules needed to make informed decisions.
Unfortunately, navigating through the tax world can be extremely difficult when important tax updates are unreasonably delayed. This certainly applies in the case of a number of important tax provisions that await legislative resurrection after expiring at the end of 2005.
Popular tax provisions that expired at the end of last year include:
- state and local sales tax deduction
- qualified tuition deduction
- deduction for teacher classroom expenses
- New Market Tax Credit
- Earned Income Tax Credit for military combat pay
- Deduction for computers donated to schools and libraries
- R&D tax credit
- WOTC/Welfare-to-Work incentives
- Indian employment tax credit for wages and health insurance
In previous years, provisions like the R&D tax credit and tax incentives for hiring certain disadvantaged groups were automatically renewed each year. In addition to leaving business who relied on this practice in the lurch this year, failure to renew these laws effectively means that many taxpayers will see their tax bills go up for 2006.
Call for Swift Renewal of Tax Extenders
Senate Finance Committee ranking member Max Baucus (D-Mont.) called again on October 25, 2006, for swift passage of expiring tax cuts, issuing the call after President Bush noted in a morning press conference that a failure to renew tax cuts would result in tax increases for the American people. In his statement, Baucus said that, although Bush was referring to what Republicans term "tax increases," if his major tax bills passed in 2001 and 2003 are not made permanent, Bush unwittingly implied that Congress was willing "to saddle Americans with tax increases" on college tuition, state and local sales taxes, and supplies that teachers buy for their classrooms by its failure to approve the expiring tax provisions.
Baucus charged that renewal of these tax cuts was omitted from the 2006 tax reconciliation bill in favor of extending tax cuts on capital gains and dividends earnings beyond 2009. The provisions were also stripped from the final pension bill in order to force a vote on other, controversial, legislation, he said. The provisions referred to by Baucus include the research and development tax credit, Welfare-to-Work incentives, state and local sales tax deductions, qualified tuition deductions, deductions for teacher classroom expenses, the New Market Tax Credit, the earned income tax credit for military combat pay, computer donation deductions (for equipment donations to schools and libraries) and Indian employment tax credit for wages and health insurance.
"We should move immediately in the lame duck session to renew these expired tax cuts on which millions of American families and businesses depend, and avoid these looming tax hikes," said Baucus.
White House Response
Although the president did not specifically address the expiring and expired tax cuts in his October 25 remarks, he does want Congress to pass the trifecta bill containing the extenders provisions, noted White House Deputy Press Secretary Tony Fratto. White House Press Secretary Tony Snow on October 23 maintained that the president does not want the minimum wage provision to be advanced separately.
That is the "beauty" of the three-pronged package, Fratto said in reference to the bill including the estate tax provision supported by Republicans and the minimum wage provision favored by many Democrats in Congress. Adding the noncontroversial extenders provision was designed to be the sweetener that would attract bipartisan support of the overall package. With passage of the trifecta bill in the lame-duck session looking grim, Fratto said that he would not comment on any other legislative vehicles for passing the popular extenders in 2006, but he did not rule out the possibility of such.
The president, at the press conference, also indicated that the prospects for an overhaul of the tax system, comprehensive immigration and Social Security reforms are far less likely to happen if GOP lawmakers lose the majority in either chamber. "I firmly believe it is more likely to achieve those three objectives with a Republican-controlled Congress," Bush asserted.
With the November elections right around the corner, we shouldn't have too long to wait to see if the president's statement proves true. The important thing here is that our legislators get their act together long enough to pass the tax extenders. Then we can get down to the serious business of doing our year-end tax planning.
- Related items:
- Congressional Panel Examines Business Tax Reform
- Rules Change for Hybrid Vehicle Tax Credit
- Congress Passes Comprehensive Pension Reform Bill
- Estate Tax/Minimum Wage Bill Falls in Senate; Pension Legislation Approved
- House Couples Estate Tax Reform with Minimum Wage Hike
- House Passes Estate Tax Relief Bill, Senate Vote Expected Next
- Full Estate Tax Repeal Dies in Senate; Compromise Reform Under Consideration
- Congress Extends Tax Relief Provisions with Offsets, Seeks To Reinstate Expired Credits
Added to the news on November 1, 2006.
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