By Jeff Carlson, CCH Washington Staff Writer
The Senate late on August 3, 2006, narrowly defeated a motion to proceed to a three-pronged bill, the Estate Tax and Extension of Tax Relief Act of 2006, that would have extended a group of popular tax breaks, increased the minimum wage and permanently reformed the estate tax.
The final vote was 56-42 along party lines. Republicans supported the wage hike and estate tax reform, and Democrats opposed it, evidently preferring to keep the issues alive as election fodder. Senate rules require a 60-vote supermajority because the tax provisions exceed the amount called for in the 2006 budget reconciliation. The compromise legislation was crafted to attract bipartisan support, as Democrats want the wage hike but not estate tax reform, and the Republicans want reform but not the hike.
Republicans view the higher wage as a growth-killer for small businesses, leading to fewer jobs, but saw the estate tax reform as an economic counter-balance to the hike. Democrats, despite years of lobbying for a raise in the minimum wage, defeated its best chance of passage in years because of their objections to the estate tax provisions.
Immediately following the so-called trifecta bill vote, the Senate approved the Pension Protection Act of 2006 by a vote of 93-5. The Senate will recess until September 7.
Senate Minority Leader Harry Reid (D-Nev.) vowed that Democrats would move the extenders bill when Congress returns in September, although he did not offer any concrete plans as to how they would bring that about. In addition, Senate Majority Leader Bill Frist (R-Tenn.) switched his vote to "nay" in order to preserve a procedural option to reconsider the trifecta package in the Senate at a later date.
Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) had warned GOP leaders earlier that removing the extenders bill from the pension reform legislation would jeopardize its chances of passage this session. If the extenders bill is brought to the floor as a stand-alone measure, it would be open to numerous amendments, increasing the likelihood that it would never clear the Senate. Moreover, there are precious little legislative days left this session as both chambers plan to adjourn during the first week of October.
The pension bill represents the agreed-upon provisions from the House-Senate conference on pension reform. Among other things, it makes permanent the pension improvements enacted in the Economic Growth Tax Relief Reconciliation of 2001, including increased contribution limits for individual retirement accounts (IRAs) and 401(k) plans. In addition, the bill makes permanent the "savers' credit" of up to $2000, which is set to expire at the end of 2006.
The trifecta bill would have increased the estate and gift tax exemption amount to $5 million per person, fully phasing in on January 1, 2015. Estates valued at between $5 million and $25 million would have been taxed at the capital gains rate, which is currently 15 percent, but set to increase to 20 percent in 2011, unless extended. The bill phased in a reduced tax rate on amounts in excess of $25 million, ultimately to 30 percent.
The bill also would have extended through 2007 certain provisions of the tax code, such as the research and development credit, higher education expenses deduction, and the state and local sales tax deduction, which have expired or will soon expire. In addition, the bill increased the federal minimum wage from $5.15-per-hour to $7.25-per-hour incrementally over three years. The House approved both measures on July 28.
- Related items:
- 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
- IRS Concedes Defeat on Long Distance Telephone Tax; Refunds To Be Granted
- New Retirement Savings Opportunities in Recent Tax Relief Law
- Congress Extends Tax Relief Provisions with Offsets, Seeks To Reinstate Expired Credits
- New Tax Year Means Many Tax Changes to Consider
Added to the news on August 16, 2006.
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