Don't Mess With Taxes

Ways and Means Chair Charles Rangel (D-N.Y.) apparently wants to get out of D.C. in time to do some holiday shopping in New York. He's introduced a bill to extend 49 tax provisions that expire on Dec. 31, and word is the House will vote on the measure today, Wednesday, Dec. 9.

Yep. Four-nine. I printed out the 12-page summary (sorry trees!) and numbered them myself just to be sure.

You and I know some these tax measures all too well. They're called extenders because technically they are temporary and must be extended to remain in the tax code. Invariably, when that extension time comes, Capitol Hill puts these tax breaks off until the last minute (and sometimes even deals with them retroactively), provoking extreme consternation among affected taxpayers, tax planners and sometimes even the IRS.

Of course, there are only a handful of expiring provisions that affect individual taxpayers. But they have become tax-filing mainstays for millions of filers.

Under Rangel's bill, H.R. 4213, all would be extended for one more year, through 2010. They are:

• Deduction of state and local general sales taxes: This is the provision that allows itemizing filers to choose between claiming their state and local income taxes and their state and local sales taxes.
  
• Additional standard deduction for real property taxes: This tax break gives filers who claim the standard deduction the ability to add up to $500 (or $1,000 if they are married and file jointly) in real property taxes they paid to that amount.
• Deduction for qualified tuition and related expenses: This tax break, claimed directly on Form 1040 or 1040A, lets eligible filers subtract up to $4,000 in certain education costs from their income.
• Deduction by educators for certain classroom expenses: On the same section of the tax returns where you'll find the eduction expenses deduction, there's the line where teachers and other educators can deduct up to $250 they spent on for books, certain supplies, computer equipment and other materials they used in class.
• Direct tax-free transfer of IRA distributions to a charity: IRA owners at least 70½ years old would be able to send up to $100,000 of their retirement distributions directly to their favorite charity and not face any tax liability on the transfer.

Although the deficit is ginormous, there's general agreement on Capitol Hill that these tax breaks are worth keeping. And I'm sure that the possibility they wouldn't be around for the 2010 midterm election has nothing to do with Congressional support.

Extenders for all: Among the remaining 44 extenders are some more specialized tax breaks.

There are lots of business provisions that would continue, including many that give various corporate entities favorable treatment for certain charitable deductions, such as computers or books to schools and excess food inventory to the appropriate recipients.

All these types of breaks likely will not cause any problems on the House floor.

There also are nine extenders that relate to community assistance programs. Don't panic. I didn't see ACORN in there anywhere.

And there are six more expiring tax breaks that are related to disaster relief, both for individuals and businesses.

There's the extension of the tax credit for training mine rescue team members. Obviously it's not a widely used credit, but it's a for a critical, and we hope rare, need. And it only costs $1 million over 10 years, a drop in the bucket when you look at a deficit exceeding $1 trillion.

Thumbing a few pages further into the summary, we find the extension of the special rule for percentage depletion for marginal oil or gas wells. This costs a little more, $104 million over the next decade.

I have no idea exactly what the percentage depletion break does, but I'm sure it has the support of my Texas legislators, as well as that of those who represent the many other states with these type of energy expenditures.

Representatives might haggle a bit on some of these breaks, but they'll probably get the thumbs up without much trouble.

Why is the rum not taxed? But then we get to other extenders that might cause some Representatives to balk.

It's not that these are do-or-die budget busters, but they make for such good sound bites on the local news.

You know what I'm talking about. Things like the rum excise tax break for Puerto Rico and the U.S. Virgin Islands. You know that our members of Congress like a Bacardi and Coke as much as the rest of us, but when you see a distilled spirits tax break spelled out in a piece of legislation, it could make for good demagoguery today, just as it did when this topic came up in the financial services bailout bill.

And lawmakers who think there's already too much trash on TV will probably not be thrilled to continue the provision that allows film and television producers to expense the first $15 million of costs incurred on U.S.-based shoots. They get a $20 million write-off if the set is in an economically depressed area of the country. Given the recession, that opens up a lot more tax-subsidized filmmaking options.

As with the rum tax, the film subsidy took some bailout hits back in the fall of 2008.

Paying for it: There also will be a lot of debate on the provisions to pay for the extenders. Continuing all of these expiring tax breaks would cost $31 billion.

Financial folk are raising their eyebrows, and their Capitol Hill supporters no doubt will raise their voices, at the revised carried-interest profits provision of the bill. Rather than being treated as capital gains, this investment fund money would instead be treated as ordinary income, meaning the tax rate would go from the current 15 percent to at least 35 percent,

The Private Equity Council, which represents large private-equity firms, says such an increase would create "a significant new tax burden on investment partnerships that wish to offer shares to the public -- a provision that would discriminate among and between firms and further reduce important investments."

More money for the extenders would come from tightening enforcement on offshore tax havens.

Will Representatives come to a workable agreement on who should pay more so that others can continue to have tax breaks? Will one of the more goofy porky obscure tax extenders cause the measure to stumble?

Realistically, H.R. 4213 probably will make it through the House largely intact. But getting to that final yea-or-nay vote could make for some fun floor debate.

And remember. Even if the House does vote later today on extenders, we will have to wait for the Senate to act, too.

So Mr. Rangel and his House colleagues might be here for New Year's Eve after all.

• Bailout breaks for you and me!
• An easier estate tax and extenders
• Tax extenders, AMT patch welcome Congress back (2008 version)

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