CRS Reviews Tax Activity in 108th Congress

H.R. 1 provides tax breaks to keep private employers from eliminating retirees' prescription drug coverage, creates health savings accounts and makes them a permanent feature fo the tax code, and calls for Medicare to pay companies with retiree health plans 28 cents for every dollar spent on drug benefits from $250 to $5,000, provided the health plan is certified to be at least the equivalent of the standard Medicare drug plan. After having been in conference since September 17, the conference report, H.Rept. 108-391, was agreed to in the House on November 22 and in the Senate on November 25. On December 8, 2003, the legislation was signed into law, P.L. 108-173.

The provisions enacted in H.R. 743 prohibit payments to illegal immigrants and felons except in certain circumstances. Illegal immigrants are not allowed to collect Social Security benefits for the time they worked in the country illegally unless they are later granted legal status. The enactment denies benefits to fugitive felons and parole and probation violators, although administrators have some flexibility in considering payments to felons guilty of minor offenses.

The Joint Committee on Taxation estimated² that the interest rate replacement would postpone about $96 billion in corporate contributions to pension plans in 2004 and 2005. This reduction in pension contributions, which corporations can deduct from their income taxes, would add $9 billion in revenue for the federal government.

Child Tax Credit. While the proposals in H.R. 1308 included making the $1,000 child tax credit amount permanent, the enacted provision extends the $1,000 amount through December 31, 2009. H.R. 1308 proposed to accelerate the refundability of the tax credit to a 15% rate, effective in 2003 rather than 2005, but the enactment accelerates the 15% rate effective in 2004. The new law also includes combat pay, which is otherwise excludable from gross income, as earned income for the purpose of determining the child tax credit refundability.

S. 1637 is the only Senate bill to have passed the committee (October) and be reported to the Senate floor (November). S. 1637 was proposed as a measure to replace foreign sales corporation/extraterritorial income taxes (FSC/ETI) with tax cuts for manufacturing and other international tax relief and contains nearly $55 billion in tax cuts and revenue offsets of $62 billion. The Senate passed S. 1637 on May 11.

H.R. 4520, which was introduced and passed in the House in June 2004, proposed to repeal FSC-ETI over three years with 100% of the benefit provided in 2004 and then falling to 0% in 2007. The bill would provide $13 billion of transition relief. In comparison, S. 1637 would repeal FSC-ETI over three years with 80% of base-year benefit provided in 2004 and then falling to 0% in 2007. The bill would provide $9 billion of transition relief. In July 2004, S. 1637 was added as an amendment to H.R. 4520, which was then passed in the Senate.

Conferees for H.R. 4520 were appointed in late September, and their conference report, H.Rept. 108-755, was passed in the House (on October 7) and the Senate (on October 11), and signed into law (on October 22) P.L. 108-357. The conference agreement phases out the ETI over three years and firms will be able to claim 100% of applicable ETI benefits in 2004, 80% in 2005, 60% in 2006, and none of the benefit in 2007. The provision is estimated to increase revenue by $49.2 billion over 10 years. The new law also created a phased-in corporate tax deduction applicable to income from domestic production; tax cuts for income earned abroad; other business tax cuts, including a number of tax cuts for agriculture; other tax cuts, including an option for individuals to deduct state and local sales taxes; and assorted revenue raisers in areas, such as tax shelters, corporate inversions, and leasing transactions.

Charitable Contributions. On April 9, 2003, the Senate approved the CARE Act, S. 476, which is intended to provide tax subsidies for charitable giving, improve the public disclosure of activities of exempt organizations, and enhance the ability of low-income Americans to gain financial security by building assets. The bill includes $12.3 billion in decreased tax revenue but raises $13 billion over 10 years by curbing corporate tax shelters. A similar bill, H.R. 7, the Charitable Giving Act, was introduced in the House in June 2003 and passed on September 17, 2003. H.R. 7, which was referred to the Senate Committee on Finance on December 9, contains provisions for charitable contribution deductions for non- itemizers, tax-free distributions from IRAs for charitable purposes, and an increase in the corporate charitable contributions cap.

Energy Taxation. Both the House and the Senate have approved energy taxation measures that are currently in conference: H.R. 6, which provides $18.6 billion in net tax relief, passed the House on April 11, and the Senate version, which provides $15.5 billion, passed on July 31. This measure includes several energy tax cuts including tax credits for producers and consumers of energy. The conference report, H.Rept. 108-375, was agreed to in the House on November 18 and considered in the Senate that same week. Senate Energy Committee Chair Domenici introduced S. 2095 in February 2004 as a new, smaller energy policy act containing more than 50 tax provisions that parallel items in the conference report to H.R. 6.

Estate Tax Repeal. The House approved H.R. 8 introduced by Representative Dunn, on June 18. It proposes to make permanent the repeal of the estate tax, currently scheduled to expire after 2010.

Expiring Temporary Tax Provisions. Several bills have been introduced to provide extensions for certain expiring temporary provisions, also known as "extenders." In November 2003, H.R. 3521, projected to cost $7.4 billion in tax revenue loss, passed the House and was referred to the Senate Committee on Finance; S. 1896, with a $1.2 billion projected revenue loss, was referred to the Senate Committee on Finance. H.R. 4520, which passed the House in June 2004, and S. 1637, which passed the Senate in May 2004, were introduced to address other tax policy issues but also included proposals to extend certain expiring provisions. S. 1637 was later included as an amendment to H.R. 4520, which was then passed in the Senate in July 2004. Conferees for H.R. 4520 were appointed in late September, and their conference report, H.Rept. 108-755 which was passed in the House (on October 7) and the Senate (on October 11), included the extension of certain expiring tax provisions (extenders).

In the April and May 2004, three bills were introduced and passed in the House to extend family tax relief scheduled to expire in 2004. H.R. 4181 proposed to permanently extend tax relief for married couples by making permanent both the expansion of the 15% income bracket for married taxpayers filing joint returns and the increase in the standard deduction to an amount twice that provided to single filers. H.R. 4227 proposed to extend to 2005 the alternative minimum tax (AMT) relief available in 2003 and 2004 and to index that relief for inflation. H.R. 4275 proposed to permanently extend the 10% individual income tax rate bracket and allow for an inflation adjustment to the income limit amounts for the bracket.

Many provisions to extend certain expiring provisions were included in the conference report, H.Rept. 108-696, to H.R. 1308 which was passed in both the House and the Senate on September 23, 2004 and became law, P.L. 108-311 in October 2004. The new law extends many temporary tax provisions (extenders) through December 31, 2005, and also provides the extension of the family tax provisions that were included in H.R. 4181, H.R. 4227, and H.R. 4275.

Internet Access. In January 2003, the Internet Tax Freedom Act, H.R. 49, was introduced to permanently extend the existing moratorium on the taxation of Internet access, ban the multiple or discriminatory taxation of Internet commerce, and preclude state and local governments from levying existing sales and use taxes on Internet access services. In September 2003, this act passed the House and was received in the Senate. S. 150, which is identical to H.R. 49 and was also introduced in January 2003, was referred to the Committee on Commerce, Science, and Transportation in July 2003, then referred to the Senate Committee on Finance, where it was discharged on October 29. S. 150 was passed in the Senate on April 29, 2004.

The Internet Tax Ban Extension and Improvement Act, S. 2084, introduced in February 2004, proposes a two-year extension of the moratorium on Internet taxation. S. 2084, like S. 150, is intended to prohibit taxes on certain telecommunications transactions -- such as high-speed, direct-subscriber-line (DSL) Internet access -- currently subject to taxes. S. 2084, however, would allow states and localities to tax certain business-to-business transactions that occur during the delivery of DSL services, while S. 150 would exempt all forms of technology used to provide Internet access.

Tax Simplification. On July 21, 2004, the House passed two bills, H.R. 4840 and H.R. 4841, designed to simplify the tax code. H.R. 4840, the Tax Simplification for America's Job Creators Act, proposes to simplify certain tax rules for businesses and includes a two-year extension of section 179 expensing for small business, a change in accounting rules for certain taxpayers, and the removal of several inoperative corporate tax provisions in the Internal Revenue Code. H.R. 4841, the Tax Simplification for Americans Act, proposes to simplify certain tax rules for individuals, including the expanded availability of the 1040EZ and 1040A income tax filing forms, a change in head of household filing status to single head of household, and the removal of several inoperative individual income tax provisions.

² U.S. Congress, Joint Committee on Taxation estimates posted on the Joint Committee on Taxation's website: [http://www.house.gov/jct/x-28-04.pdf].