Congressional tax cutters went into a feeding frenzy during the closing hours of this year's session, approving legislation that supporters say will save taxpayers more than $100 billion over the next 10 years, and vowing to swing the axe even deeper when they return in 2005.
The biggest piece of last-minute tax cutting came as lawmakers overwhelmingly approved the Working Families Tax Relief Act of 2004 - a series of provisions that extend the Bush administration's previous tax reforms through 2004.
In addition to extending "marriage penalty" relief for working couples, the bill sweetened the $1,000 child tax credit by accelerating the higher 15 percent refundability rate to the beginning of 2004, and preserved the new 10 percent income tax bracket for low-income families.
Higher-bracket taxpayers facing a hit from the alternative minimum tax would get at least a temporary reprieve under the new legislation. The AMT exemption, which had originally been slated to drop next year to $45,000 for families and to $33,750 for single filers, will remain at $58,000 and $40,250, respectively, through 2005.
The bill also simplifies the tax code by adopting a uniform definition of a child for the dependency exemption, the child credit, the earned income credit, the dependent care credit, and head-of-household filing status - a move championed by tax accountants during hearings this year.
The legislation, which was promptly signed into law by President Bush, also extended a number of expiring tax code provisions through 2005, including the Archer medical savings accounts, the work opportunity tax credit and welfare-to-work tax credit programs, and federal tax credits for research and development expenditures.
Although critics of the measure warned that it would add nearly $150 billion to the national debt over the coming decade, congressional leaders avoided characterizing the measure as a tax "cut."
House Ways and Means chairman Bill Thomas, R-Calif., said that the legislation "will prevent a tax increase on millions of Americans," adding that working families would have faced a $109 billion tax hike had Congress not acted.
For their part, congressional Democrats who had grumbled about the cost of the bill ultimately joined Republicans in voting for it on the eve of the election.
"While I would have preferred a revenue-neutral version of this bill that did not add to the national debt, this legislation does deliver continued tax relief for working families at a time when assistance is greatly needed," Rep. James R. Langevin, D-R.I., said.
Indications are that others in Congress will be pushing for even more tax "assistance" for their constituents next year. During House hearings at the close of the 108th Congress, a parade of lawmakers turned up to plead for an array of pet projects popular in their home districts.
New tax credits topped the list of proposals advanced during that session, as Rep. Jim Saxton, R-N.J., called for legislation offering employers a $1,000 federal tax credit for each veteran or military reservist hired; Ohio Democrat Tim Ryan proposed a $1,000 non-refundable tax credit for the cost of college textbooks; Rep. Curt Weldon, R-Pa., argued for new fire safety tax credits under his Fire Sprinkler Incentive Act; and erstwhile presidential candidate Dennis Kucinich, D-Ohio, proposed a "streamlined Simplified Family Credit of $2,000 per family" to replace a series of existing federal child credits.
Other House members uncorked plans to sweeten tax deductions for businesses and individuals. Chet Edwards, RTexas, wants to restore federal deductions for state sales taxes; fellow Texas Republican Randy Neugebauer called for tax incentives to promote wind mills for West Texas; Rep. Vito Fossella, R-N.Y, proposed raising the $3,000 ceiling on deductions for investment losses to $8,250; and Missouri Democrat Karen McCarthy wants accelerated tax deductions for the cost of producing TV commercials in the U.S.
Still other lawmakers advocated new tax exemptions to promote a variety of endeavors. Connecticut Democrat John Larson joined Connecticut GOPer Rob Simmons to support legislation forcing the Internal Revenue Service to tax exempt the value of property tax abatements that local governments offer firefighters; Rep. Bob Beauprez, R-Colo., called for exempting Social Security benefits from federal income tax; and Rep. Lois Capps, D-Calif., proposed tax law changes to allow California fishermen to use their Capital Construction Fund savings for non-fishing purposes.
Look for a number of proposals affecting the tax treatment of businesses. South Carolina Republican Joe Wilson called on Congress to relax "the draconian penalties of the accumulated earnings tax" on corporations; Rep. Peter Hoekstra, R-Mich., wants to allow businesses to write off building air conditioners in 15 years instead of 39 years; Illinois Democrat Rahm Emanuel proposed barring corporate tax deductions for private jet travel and "janitors insurance" on employees; and Rep. Zoe Lofgren, D-Calif., is pushing legislation to exempt employee stock options from the alternative minimum tax.
