Republicans, Democrats Agree On Tax Issue

Republicans, Democrats Agree On Tax Issue; Winter Storm Warning Issued For Hell

Congress is determined to fix the broken tax Code, even if it has to do it one provision at a time. Which apparently, it just might have to do.

On Thursday night, the House voted 240-39 to approve a bill (H.R. 644) that would make permanent three of the nearly four dozen tax breaks that expired on December 31, 2014. Typically, these provisions have been addressed en masse, but House leaders have recently adopted a new approach: they will knock of those provisions that have bipartisan support one by one, and leave the stickier sections for later.

On Thursday’s ballot were three charitable provisions:

Section 170(e)(3)(C): Generally, if a taxpayer donates property to charity, the sale of which would have generated ordinary income rather than capital gain, the taxpayer’s charitable contribution deduction is limited to the basis of the property. Until December 31, 2014, however, if a taxpayer contributed “wholesome food” inventory (read: Not Funions) from its trade or business, the taxpayer was entitled to an “above basis” deduction, generally equal to the lesser of 1) the basis of the food plus one-half of the ordinary income that would have resulted from a sale, or 2) twice the basis of the property.

House bill 644 will make the enhanced donation permanent, while also increasing the limitation on the deduction from 10% to 15% of the taxpayer’s taxable income from the business from which the food was donated.

Price tag: $2.2 billion over ten years according to the Joint Committee on Taxation.

Section 408(d)(8)(F): Once a taxpayer reaches age 70 1/2, they are generally required to start taking required minimum distributions (RMD) from their traditional or Roth IRA. Under a recent law change, however, the taxpayer could instead contribute up to $100,000 of the IRA balance directly to a charitable organization. The taxpayer would recognize no taxable income, but also would not be entitled to a charitable contribution deduction. The contribution could, in many circumstances, satisfy the taxpayer’s RMD for the year.

Section 408(d)(8)(F) expired on December 31, 2014, but H.R. 644 would make the provision permanent.

Price tag: $8.8 billion over ten years.

Section 170(b)(1)(E): When a taxpayer donates non-cash property to a qualified charity, the resulting charitable contribution deduction is generally limited to 30% of adjusted gross income, with any unused deduction carried over for five years. Beginning in 2005, Congress relaxed the rules when the taxpayer donates certain land rights, or what are referred to as “conservation easements,” permitting a taxpayer to deduct up to 50% of adjusted gross income with a 15-year carryover of any unused amount.

These relaxed rules expired on December 31, 2014; the House bill, however would make this provision permanent.

Price tag: $1.2 billion over ten years.

As you may have noticed, there are no revenue offsets in H.R. 644; instead, this bill would reduce tax revenue by over $12 billion over the next ten years with nary a penny to pay for it. As a result, President Obama has already threatened to veto the bill, which is why Thursday night’s voting results were so important.

The 279 “yea” votes in the House represented 67% of the total votes, a particularly important number when you consider that a two-thirds vote would be needed to overcome a Presidential veto. To get to this magic number, a whopping 39 of the 188 Democratic members of the Republican-controlled House broke ranks and voted for the bill, offering a rare glimpse of the type of bipartisan agreement that has gone missing in recent years.

As a general rule, Democrats do not embrace a tax cut bill without revenue offsets, nor do they approve of a piecemeal approach to tax reform. Which makes Thursday night’s results all the more surprising.

Of course, lest you think Congress has become an overnight lovefest, understand that H.R. 644 could still die on the vine. Sixteen members of the House were absent, including 13 Democrats, meaning a subsequent vote could fail to meet the 66% approval necessary to overcome a veto. And of course, the vote must next go the Senate, where Democrats may either attempt to attach additional provisions to the existing bill that the Republican majority will reject (such as making permanent the expansion of the earned income and child credits, slated to expire in 2017), or the 12 Democrats needed to break rank and provide the needed 66 “yea” votes (assuming the Republicans vote along party lines) may fail to do so, rendering the bill susceptible to veto power.

Regardless, Thursday’s vote is an encouraging sign that both sides are beginning to recognize the silliness — not to mention the adverse economic consequences — of waiting until year-end to resuscitate over 50 sections of the Code, thereby negating their effectiveness as incentive provisions.

Original Article: http://www.forbes.com/sites/anthonynitti/2015/02/12/republicans-democrats-agree-on-tax-issue-winter-storm-warning-issued-for-hell/


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