In an era of budget surpluses not seen in 30 years, President Clinton has proposed tax reductions, marriage penalty relief, increased charitable contribution deductions, and the following credits: (i) a new college credit, (ii) a long-term health care credit, (iii) an increase in the child-care credit, and (iv) an expanded earned income tax credit.
The House in March approved a fiscal 2001 budget calling for up to $240 billion in tax cuts over five years. The Senate in April approved a more modest $150 billion tax reduction. Budget proposals of both the Congress and the President were dwarfed by the five-year $483 billion package of tax cuts proposed by Governor Bush, who favors lowering marginal tax rates for individuals, phasing out gift and estate taxes, reducing the marriage penalty, doubling the child credit to $1,000 per child, vetoing any increase in corporate taxes, and expanding education savings accounts.
Vice President Gore, an advocate of national debt reduction, favors more modest tax cuts. Mr. Gore also supports marriage penalty relief, a permanent research and development tax credit, and the creation of (i) tax-favored accounts for education expenses, and (ii) Universal Savings Accounts (USAs), which are tax-favored retirement accounts funded by low and middle income families with matching government contributions.
In other tax developments:
¶ A bill sponsored by Senate majority leader Trent Lott (R-Miss.) proposing sharp increases in the standard deduction for married couples and expansion of the 15% and 28% tax brackets was defeated in April, perhaps due to its projected cost of $248 billion over ten years. Mr. Clinton had earlier vowed to veto a similar House bill costing $182 billion;
¶ The Senate in April also rejected Mr. Lott’s proposal to temporarily suspend the 4.3 cents per gallon federal gasoline tax. Republicans were said to express concern over the potential loss of road construction subsidies;
¶ House and Senate Conferees are currently negotiating a package of health-related tax bills that would increase deductions for health insurance premiums and long-term care expenses, and facilitate the use of medical savings accounts;
¶ Federal Reserve Chairman Greenspan, who also favors reducing the national debt, urged the Senate Committee on Aging in May not to divert income tax surpluses to Social Security;
¶ The House Judiciary Committee voted in May to extend for another five years the current moratorium on new state and local taxation of the Internet imposed by the Internet Tax Freedom Act of 1998.
¶ The House approved a five-year, $46 billion tax reduction for small businesses over five years, which would provide greater deductions for (i) business equipment purchases, (ii) self-employed health insurance premiums, and (iii) meal and entertainment expenses. Mr. Clinton has vowed to veto the bill;
¶ The House voted unanimously in April to approve new taxpayer rights legislation protecting against illegal disclosure of taxpayer information. The bill would also simplify estimated tax rules, and reduce IRS penalty and interest charges for individuals;
¶ In response to last year’s unpopular repeal of accrual basis taxpayers’ right to use the installment method, the IRS has issued guidance (Rev. Proc. 2000-22) permitting taxpayers with annual gross receipts of $1 million or less to use the cash method of accounting, and therefore, the installment method. The guidance would be retroactive to the date of repeal, December 17, 1999; and
¶ Treasury Secretary Summers characterized the growth in corporate tax shelters as the “most serious compliance issue threatening the American tax system today,” and outlined the administration’s strategy to curb their use.