As Congress rushes for the exits to begin their month long summer vacation, they’ve been busy passing tax cut legislation that in many categories is worthy of a Gold Medal.
The Senate started last week when it passed a one-year extension of the Bush tax cuts on the first $250,000 of income. Families whose income exceeds that level would see their tax rates on income over $250,000 rise from 35 percent to 39.6 percent starting in January. Unlike President Obama’s proposal which would have allowed dividends to be taxed as ordinary income, as they were before the Bush tax cuts, the Senate instead capped the dividend tax rate at 20%, resulting in an average $166,500 tax break for families with more than $20 million in income, according to a report by Citizens for Tax Justice.
The House followed the Senate, but had a very different tax proposal in mind. They extended the Bush tax cuts for all taxpayers, paying for the extra cuts by reducing the tax benefits related to the child tax credit, the earned income tax credit and the college tuition tax credit, received by working families. These cuts mean that 13 million families, with 26 million children, will lose an average of more than $800 per year as a result of the reduced benefits, so that 2.7 million high-earners can continue their full tax cuts. .
Yesterday, the bouncing tax cut ball returned to the Senate court, where the Senate Finance Committee voted in bi-partisan fashion to support $205 billion in corporate and alternative minimum tax relief, in the tax extenders bill. Included in the bill were a $135 billion two-year “fix” for the alternative minimum tax. Among the other $70 billion in tax breaks are the popular R&D tax credit and the often mocked credit for NASCAR track owners to improve their tracks. Of greatest concern in the bill were two provisions that reward and incentivize corporations for shifting their profits and investments offshore. The “Active Financing Exception” and “CFC Look-Through Rule” enable large companies like General Electric, Apple and Google to legally avoid paying significant amounts of taxes on their US profits. These two provisions will cost the US Treasury $12.7 billion over the two years.
Though he won’t win any gold medals for tax cutting as a competitive sport, Florida Senator Marco Rubio, who introduced legislation to make the payments athletes receive when they win medals tax-free, certainly gets the summer’s ‘fiddling while Rome burns’ award. (Gold medalists are awarded $25,000; silver medalists, $15,000; and bronze medalist, $10,000.) Senator Rubio’s idea was first floated by anti-tax crusader Grover Norquist.
Most observers do not expect the Bush tax cuts and corporate tax extenders legislation to be resolved before the lame duck session following the November election. Both houses of Congress are expected to vote on the Rubio bill perhaps as early as today.
Author: Scott Klinger, Policy Director of Wealth for the Common Good