H.R. 4853a: Middle Class Tax Relief Act

H.R. 4853a

Middle Class Tax Relief Act

Sponsor
Rep. Sander M. Levin

Date
December 17, 2010 (111th Congress, 2nd Session)

Staff Contact
Communications

Floor Situation

The House is scheduled to consider H.R. 4853 under a closed rule on Thursday, December 16, 2010.  The rule provides for three hours of debate and allows for consideration of the Pomeroy Estate Amendment.  If that amendment passes, then a final vote under the underlying bill will be postponed.  If the amendment fails, the House will proceed to vote on the Senate approved bill. 

Pomeroy Estate Amendment:  The amendment would strike title III of the Senate amendment to H.R. 4853 and provide two years of estate tax rates at the 2009 levels (a 45 percent estate tax rate with an exemption amount of $3.5 million).  The amendment would change the provision to reflect an increase of the estate tax rate to 45 percent, with a lower exemption amount of $3.5 million.

Bill Summary

H.R. 4853 would provide a two year extension of all current tax rates, as well as the 15 percent rate on capital gains and dividends.  The proposal would also extend the child tax credit, the earned income tax credit, marriage penalty relief, and educational tax credits. 

Additionally, the proposal would set the death tax rate at 35 percent with an exemption amount of $5 million.  The proposal would also provide a one year payroll-tax reduction, a two year AMT patch (adjusted for inflation), 100 percent expensing for small businesses, extends the R&D business tax credit, and continues a number of refundable tax credits expanded or initiated in 2009.  Finally, the proposal would provide 13 months of unemployment insurance benefits at a cost of $56 billion.  

The bill, according to the Congressional Budget Office, is expected to have the following budgetary impact:

  • The bill would reduce revenues by $721 billion over ten years;
  • The bill would increase spending by $136 billion over ten years; and
  • The bill is estimated to add $857 billion to the deficit over the ten year period.

Title I—Temporary Extension of Current Tax Rates

The bill would temporarily extend the following tax provisions through December 31, 2012:

Individual Income Rates:  The bill would extend the current individual income tax brackets of 10 percent, 25 percent, 28 percent, 33 percent, and 35 percent.  According to the Joint Committee on Taxation this provision would reduce revenue by $186.8 billion over 10 years.

Repeal of PEP and Pease:  H.R. 4853 would repeal the personal exemption phase-out and the “Pease” limitations.  (Personal exemptions allow a taxpayer to exempt a certain amount of income based on the care of a child or other dependent. The Personal Exemption Phase-out (PEP), the exemption amounts to be phased out based on a taxpayers adjusted gross income.  The Pease limitation works in similar ways, but is applied to itemized deductions.  When a taxpayer’s adjusted gross income reaches a certain level, the amount of itemized deductions one can claim is reduced).  According to JCT, this provision would reduce revenue by $20.74 billion over 10 years.

Capital Gains and Dividends:  This bill would temporarily preserve both the capital gains and dividend tax rates at the 15 percent level for the next two years.  (Capital gains would increase from 15 percent to 20 percent; dividend rates would increase from 15 percent to being taxed as ordinary income).  According to the Joint Committee on Taxation this provision would reduce revenue by $53.2 billion over 10 years.

Child Tax Credit:  H.R. 4853 would provide a permanent extension of the child tax credit.  The 2001 tax relief provision increased the child tax credit from $500 to $1,000, and allowed the credit to be claimed against the AMT.  The Democrats’ failed stimulus increased the subsidy by allowing taxpayers to claim the refundable tax credit against tax liabilities once the taxpayer received $3,000 of earned income.  The bill would permanently extend both provisions included in the 2001 EGTRRA tax law, as well as the Recovery Act.  According to JCT, this provision would reduce revenue by $19.7 billion over 10 years.

Marriage Penalty Relief:  The bill would preserve the 2001 tax relief provisions that prevented a marriage penalty by increasing the standard deduction for joint filers to twice the amount available to single filers, the 15 percent tax bracket, and the earned income tax credit.   According to the JCT this provision would reduce revenue by $26.9 billion over 10 years.

Adoption and Child Care Tax Credits:  H.R. 4853 would make permanent a 2001 tax relief provision that allows families to claim an increased adoption tax credit, the employee tax credit for child care, and the increased dependent care tax credit.  According to JCT this provision would reduce revenue by $973 million over 10 years.

Earned Income Tax Credit:  Currently, families with two or more children are eligible for an earned income tax credit equal to 40 percent of a families initial $12,570 of earned income.  The Democrats’ stimulus increased the amount to 45 percent.  The bill would extend both provisions for two years.  According to JCT this provision would reduce revenue by $6.8 billion over 10 years.

Education Tax Credits:  The bill would make permanent certain educational tax incentives originally adopted in the 2001 tax relief bill,  including the deduction of student loan interest (maximum of $2,500) for single filers with incomes up to $75,000 and married couples of up to $150,000.  This provision would also include an allowance of up to $2,000 in contributions per beneficiary to tax-preferred Coverdell education savings accounts. Finally, the bill would extend the $2,500 American Opportunity Tax Credit, as well as certain bond-financing options for educational facilities.  According to JCT this provision would reduce revenue by $21 billion over 10 years.

Alaska Settlement Funds:  The tax relief provided in 2001 allowed the Alaska Native Settlement trusts to pay tax at the lowest marginal tax rate, rather than the higher rates which typically apply to trusts.  This provision would extend these tax preferences for the Alaska Native settlement trust.  According to JCT this provision would reduce revenue by $9 million over 10 years.

Title II—Temporary Extension of Individual AMT Relief

Alternative Minimum Tax Relief:  The bill would provide a two year AMT patch, which includes the ability to claim nonrefundable personal credits against the tax.  The current AMT exemption amounts are $33,750 (single filer) and $45,000 (joint filers).  The provision included in this bill would increase the exemption amount for 2010 to $47,450 (single filer) and $72,450 (joint filers), and would increase the amounts for 2011 to $48,450 (single filer) and $74,450 (joint filers).   According to JCT this provision would reduce revenue by $136.7 billion over 10 years.  

Title III—Temporary Extension of Individual AMT Relief

Estate Tax:  Currently, the estate tax for 2010 is fully repealed.  Beginning in 2011, it will return with a tax rate of 55 percent and an exemption amount of $1 million.  This bill would set the tax rate at 35 percent with an exemption amount of $5 million per person and $10 million per couple for the estate, gift, and generation skipping transfer taxes.  These amounts would be indexed starting in 2012.  According to JCT,  this provision would reduce revenue by $68.1 billion over 10 years.

Title IV—Temporary Extension of Investment Incentives

Extension of Bonus Depreciation:  The Small Business Jobs Act of 2010, approved in September 2010, extended and increased the bonus depreciation allowance for new business investments to 100 percent bonus depreciation.  This bill would extend the provision through December 31, 2011; any business investments after that period, through December 31, 2012, would be provided 50 percent bonus depreciation.  Finally, the bill would permit taxpayers to accelerate some AMT credits in lieu of bonus depreciation for both 2011 and 2012.  According to JCT this provision would reduce revenue by $21.5 billion over 10 years.

Temporary Extension of Increased Small Business Expensing:  The bill would extend the threshold for expensing and expansion of certain real property for taxable years beginning in 2012, at $125,000 and $500,000 respectively, indexed for inflation.  (Current law allows taxpayers to deduct the costs of certain tangible personal property in the year in which it is placed into service, instead of recovering these costs through depreciation).  According to JCT this provision would reduce revenue by $307 million over 10 years.

 Title V—Temporary Extension of Unemployment Insurance

Unemployment Insurance Extension:  H.R. 4853 would extend for one-year, the emergency unemployment compensation program and 100 percent of the federal funding for the extended benefit program.  The provision would preserve the 99 weeks of state and federal unemployment benefits.  According to the Congressional Budget Office this provision would cost $56.1 billion over 10 years. 

Title VI—Temporary Employee Payroll Tax Cut

Payroll-Tax Cut:  The bill would cut the employee portion of the 6.2 percent Social Security tax on all earned wages up to $106,800 to 4.2 percent, and would reduce self-employed Social Security taxes to 10.4 during the 2011 tax period.  According to JCT, this provision would reduce revenue by $112 billion over 10 years.

Title VII—Temporary Extension of Certain Expiring Provisions

Subtitle A:  Energy

Incentives for Biodiesel and Renewable Diesel:  The bill would extend the $1 per gallon production tax credit for biodiesel and diesel fuel created from biomass, as well as the 10 cent per gallon credit for small agri-biodiesel producers through 2011.  According to JCT, this provision would reduce revenues by $2 billion over ten years.

Credit for Refined Coal Facilities:  The bill would extend through 2011 the placed-in-service deadline for qualifying refined coal facilities.  According to JCT, this provision would reduce revenue by $230 million over 10 years.

New Energy Efficient Home Credit:  The legislation would extend through 2011, the tax credit provided to manufacturers that construct energy-efficient homes.  According to JCT, this provision would reduce revenues by $138 million over ten years.

Excise Tax Credits and Outlay Payments for Alternative Fuel and Alternative Fuel Mixtures:  The bill would extend through 2011 the $0.50 per gallon production tax credit for alternative liquid fuels derived from biomass, compressed or liquefied biogas, national gas and propane.  The bill would not provide a tax credit for fuels derived from pulp or paper manufacturing. According to JCT, this provision would reduce revenues by $202 million over ten years.

Special Rule to Implement FERC or State Electric Restructuring Policy:  H.R. 4853 would extend through 2011, the present deferral of any gains from sales of transmission property by electric utilities to FERC-approved independent transmission companies.  According to JCT, this provision would reduce revenues by $171 million over five years.

Suspension of Limitation on Percentage Depletion for Oil and Gas from Marginal Wells:  The bill would extend for one year, the suspension on the taxable income limit for purposes of depleting a marginal oil or gas well.  According to JCT, this provision would reduce by $224 million over ten years.

Extension of Grants for Specified Energy Property in Lieu of Tax Credits:  The bill would extend through 2011 the start-of-construction deadline for the cash grant in lieu of tax credit program.  (The provision was originally created in the Democrats’ stimulus).   According to JCT, this provision would reduce revenues by $3 billion over ten years.

Extension of Provisions Related to Alcohol used as Fuel:  The bill would extend through 2011 the per-gallon tax credits and payments for ethanol.  The bill would also extend a provision requiring a $0.54 per-gallon tariff on imported ethanol and the $0.227 per-gallon tariff on ethyl tertiary-butyl ether (ETBE).  According to JCT, this provision would reduce revenues by $4.9 billion over ten years.

Energy Efficient Appliances Tax Credit:  This bill would allow manufactures of energy-efficient appliances to elect to receive a direct payment in lieu of the energy-efficient appliance tax credit under section 45M through 2011.  According to JCT, this provision would reduce by $78 million over ten years.

Credit for Non-business Energy Property:  The bill would extend through 2011 the credit for energy-efficient improvements to existing homes.  According to JCT, this provision would reduce revenues by $596 million over ten years.

Alternative Fuel Vehicle Refueling Property:  The bill would extend through 2011 the 30 percent tax credit for any property used to store or dispense an alternative fuel.  According to JCT, this provision would reduce revenues by $16 million over ten years.

Subtitle B:  Individual Tax Relief

Deduction for Certain Expenses of Elementary and Secondary School Teachers:  The bill would extend an above-the-line tax deduction of up to $250 for elementary and secondary school teacher’s expenses for classroom supplies through 2011. According to JCT, this provision would reduce revenues by $390 million over ten years.

Deduction of State and Local Sales Taxes:  The bill would allow taxpayers to take an itemized deduction for state and local sales taxes instead of the itemized deduction for state and local income taxes for one year, through 2011.  According to JCT, this provision would reduce by $5.5 billion over ten years. 

Contributions of Capital Gain Real Property Made for Conservation Purposes:  The bill would extend the increased contribution limits of real property for conservation purposes through 2011.  The bill also extends the carryforward period for amounts in excess of these limits through 2011.  According to JCT, this provision would reduce revenues by $96 million over ten years.

Above-the-Line Deduction for Qualified Tuition:  H.R. 4853 would extend a deduction for qualified college tuition and related expenses for one year, through 2011.  The tuition and fees deduction can reduce the amount of a taxpayer’s income subject to tax by up to $4,000. According to JCT, this provision would reduce revenues by $1.2 billion over ten years.

Tax-Free Distribution from Individual Retirement Plans for Charitable Purposes:  The bill would extend a provision that allows individuals age 70 ½ or older to make tax free charitable contributions of up to $100,000 from an Individual Retirement Account (IRA) through 2011.  According to JCT, this provision would reduce revenues by $979 million over ten years.

Look-Thru of Certain Regulated Investment Company Stock:  H.R. 4853 would extend the so-called “look through” treatment of payments such as dividends, interest, rents and royalties to determine the gross estate of nonresidents.  According to JCT, this provision would reduce revenue by $10 million over ten years.

Parity for Exclusion from Income for Employer-Provided Mass Transit and Parking Benefits:  The bill would extend through 2011 the increase in the monthly exclusion for employer-provided transit and vanpool benefits to that of the exclusion for employer-provided parking benefits.  According to JCT, this provision would reduce revenues by $136 million over ten years.

Refunds Disregarded in the Administration of Federal Programs and Federal Assisted Programs:  Currently, the law stipulates that any earned income tax credit or child tax credit is not to be used against households to make them ineligible for means-tested benefit programs.  This provision would disregard all refundable tax credits and refunds as income for means tested programs.   According to JCT, this provision would reduce revenues by $8 million over ten years.

Subtitle C:  Business Tax Relief

Research Credit:  The bill would extend the tax credit for certain business research and development expenditures for one year, through 2011. According to JCT, this provision would reduce revenues by $13.3 billion over ten years.

Indian Employment Tax Credit:  H.R. 4853 would extend through 2011 a business tax credit of up to $20,000 for employers that employ qualified individuals that live and work on or near Indian reservations.  According to JCT, this provision would reduce revenues by $102 million over ten years.

New Markets Tax Credit:  The bill would extend the new market tax credit for one year.  The credit is provided to businesses that make qualifying investments in community development entities.  According to JCT, this provision would reduce revenue by $1.8 billion over ten years.

Railroad Track Maintenance Credit:  The bill would extend the 50 percent tax credit for certain costs of maintaining railroad tracks through 2011.  According to JCT, this provision would reduce revenue by $331 million over ten years.

Mine Rescue Team Training Credit:  H.R. 4853 would extend the tax credit for mine rescue teams through 2011.  According to JCT, this provision would reduce revenues by $5 million over ten years.

Employer Wage Credit for Active Duty Members of the Armed Services:  The bill would extend a tax credit for eligible small businesses of activated military reservists equal to 20 percent of the sum of wage payments to reservists through 2011.  According to JCT, this provision would reduce revenues by $3 million over ten years.

15-Year Straight-Line Cost Recovery for Qualified Leasehold Improvements, Restaurant Buildings, and Retail Improvements:  The bill would extend the special 15-year period for businesses to recover the costs of certain leasehold improvements, including restaurant buildings and improvements, and retail improvements through 2011.  According to JCT, this provision would reduce revenue by $3.6 billion over ten years.

7-Year Recovery Period for Motorsport Entertainment Complexes:  H.R. 4853 would extend the special seven-year period for businesses to recover the costs for Motorsports Racing Track Facilities through 2011. According to JCT, this provision would reduce revenues by $36 million over ten years.

Accelerated Depreciation for Business Property on Indian Reservations:  The bill would extend the placed-in-service-date for the special depreciation recovery period for qualified business property on an Indian reservation through 2011.  Qualified Indian reservation property is property used predominantly in the active conduct of a trade or business within an Indian reservation and is not regularly used outside the reservation.  According to JCT, this provision would reduce revenues by $41 million over ten years.

Enhanced Charitable Deduction for Contributions of Food Inventory:  The bill would extend a provision that allows businesses to claim an increased deduction for contributions of food inventory through 2011.  According to JCT, this provision would reduce revenue by $134 million over ten years.

Enhanced Charitable Deductions for Contributions of Book to Public Schools:  The bill would extend a provision that allows businesses (C corporations) to claim an increased deduction for contributions of books to public schools through 2011.  According to JCT, this provision would reduce revenue by $53 million over ten years.

Enhanced Charitable Deductions for Corporate Contributions of Computer Inventory for Educational Purposes:  The bill would extend the provision that allows businesses to claim an increased deduction for contributions of computer equipment and software to elementary, secondary, and post-secondary schools through 2011.  According to JCT, this provision would reduce revenues by $350 million over ten years.

Election to Expense Mine Safety Equipment:  The bill would extend through 2011 the provision that provides businesses with 50 percent bonus depreciation for certain qualified underground mine safety equipment.   According to JCT, this provision would reduce revenues by $1 million over ten years.

Special Expensing Rules for Certain Film and Television Productions:  H.R. 4853 would extend through 2011 a provision that allows film and television producers to expense the first $15 million of filming costs incurred in the U.S., and the first $20 million if the costs are incurred in an economically depressed area.  According to JCT, this provision would reduce revenues by $101 million over ten years.

Expensing of Environmental Remediation Costs:  The bill would extend a provision that allows taxpayer’s to expense the environmental remediation costs of cleaning up hazardous sites known as “brownfields” through 2011.  According to JCT, this provision would reduce revenue by $583 million over ten years.

Deduction Allowable with Respect to Income Attributable to Domestic Production Activities in Puerto Rico:  The bill would extend the allowance for production activities in Puerto Rico to qualify for the 199 domestic production activities deductions through 2011.  According to JCT, this provision would reduce revenue by $415 million over ten years.

Modification of Tax Treatment of Certain Payments to Controlling Exempt Organizations:  The bill would extend through 2011 the special rules for interest, rents, royalties, and annuities received by a tax exempt entity from a controlled entity.  According to JCT, this provision would reduce revenue by $40 million over ten years.

Treatment of Certain Dividends of Regulated Investment Companies:  H.R. 4853 would extend a number of provisions that provide special tax treatment for foreign shareholders that invest in regulated investment companies (RICs).  The bill would extend these rules for one year, through 2011.  According to JCT, this provision would reduce revenue by $174 million over ten years.

RIC Qualified Investment Entity Treatment under FIRPTA:  The bill would extend the inclusion of a RIC within the definition of a “qualified investment entity” through 2011.  According to JCT, this provision would reduce revenues by $59 million over ten years.

Exceptions for Active Financing income:  The bill would extend the exceptions that allow financial services companies and manufacturers with financing arms to defer taxes on qualifying overseas income from for one year, through 2011.  According to JCT, this provision would reduce revenues by $9.2 billion over ten years.

Look-Through Treatment of Payments Between Related Controlled Foreign Corps. Under Foreign Personal Holding Company Rules:  H.R. 4853 would extend the so-called “look through” treatment of payments (dividends, interest, rents and royalties) between related controlled foreign corporations (CFCs).  The CFC look-through rule provides that certain payments received by a CFC from related CFCs will not be treated as income.  According to JCT, this provision would reduce revenues by $1.5 billion over ten years.

Basis Adjustment to Stocks of S Corps Making Charitable Contributions of Property:  The bill would extend a rule that allows S-corporation shareholders to take their pro rata share of charitable deductions into account, even if those deductions would exceed their adjusted tax basis.  The provision would be extended for one year, through 2011.  According to JCT, this provision would reduce revenue by $82 million over ten years.

Empowerment Zone Tax Incentives:  The bill would extend tax incentives for taxpayers and businesses within economically depressed areas known as Empowerment Zones, for one year, through 2011.  According to JCT, this provision would reduce revenue by $387 million over ten years.

Tax Incentives for Investment in the District of Columbia:  The bill would extend tax incentives for taxpayers and businesses within economically depressed areas in the District of Columbia (D.C.), known as the District of Columbia Enterprise Zone, for one year, through 2011.  In addition, the bill would extend the $5,000 D.C. first-time homebuyer tax credit for one year.  According to JCT, this provision would reduce revenues by $138 billion over ten years

Temporary Increase in Limit on Cover Over of Rum Excise Tax to Puerto Rico and the Virgin Islands:  H.R. 4853 would extend the federal payment of $13.25 per gallon of rum produced in Puerto Rico and the U.S. Virgin Islands through 2011.  The payment is used to cover a $13.50 excise tax placed on distilled spirits imported into the U.S.  According to JCT, this provision would reduce revenue by $262 million over ten years.

American Samoa Economic Development Credit:  The bill would extend through 2011 the American Samoa economic development tax credit.  The credit provides tax incentives to businesses operating in American Samoa to offset their U.S. tax liability on income earned in American Samoa.  According to JCT, this provision would reduce revenue by $27 million over ten years.

Work Opportunity Tax Credit:  Currently, businesses are allowed to claim a work opportunity credit equal to 40 percent of the first $6,000 of wages paid to new hires from twelve target groups who consistently face significant barriers to employment.  These groups include members of families receiving benefits under TANF, qualified veterans, or designated community residences, amount others.  The bill would extend this tax credit through 2011.  According to JCT, this provision would reduce revenues by $162 million over ten years.

Qualified Zone Academy Bonds:  Qualified Zone Academy Bonds are a form of tax credit which is offered in lieu of interest payments; and can be used to finance renovations, equipment purchases, developing course material, and training teachers and personnel at a qualified zone academy.   A qualified zone academy is any public school below college level that is located in an empowerment zone or enterprise community.  The bill would extend this program through 2011.  According to JCT, this provision would reduce revenues by $151 million over ten years.

Mortgage Insurance Premiums:  Currently, a taxpayer may itemize the cost of mortgage insurance on a qualified personal residence.  The itemized deduction is phase-out by 10 percent for each $1,000 by which the taxpayer’s adjusted gross income exceeds $100,000.  The bill would extend this provision through 2011.  According to JCT, this provision would reduce revenues by $348 million over ten years.

Temporary Exclusion of 100 Percent of Gain on Certain Small Business Stock:  The bill would extend through 2011 the 100 percent exclusion of the gain from the sale of a qualifying small business stock that is acquired before January 1, 2012, and held for more than five years.  According to JCT, this provision would reduce revenues by $1.5 billion over ten years.

Subtitle D:  Temporary Disaster Relief Provisions

Extension of Tax Incentives for the New York Liberty Zones:  The bill would extend through 2011 the time for issuing New York Liberty Zone bonds, effective for bonds issued after December 31, 2009.  According to JCT, this provision would reduce revenues by $116 million over ten years.

Increase in Rehabilitation credit for Gulf Opportunity Zone:  The bill would extend the increase rehabilitation credit for qualified expenditures in the Gulf Opportunity Zone through 2011.  According to JCT, this provision would reduce revenues by $50 million over ten years.

Extension of Gulf Opportunity Zone Low-Income Housing Placed-In-Service Date:  The Gulf Opportunity Zone Act of 2005 provided an additional allocation of low-income housing tax credits to the Gulf Opportunity Zone in an amount equal to the product of $18 multiplied by the portion of the state population which is located in the Gulf Opportunity Zone.  The bill extends that placed-in-service date for one year.  According to JCT, this provision would reduce revenues by $314 million over ten years.

Extension of Tax-Exempt Bond Financing for the Gulf Opportunity Zone:  Currently, bonds authorized to help rebuild areas devastated by Hurricane Katrina must be reissued by December 31, 2010.  This bill would extend these bonds by one year, through 2011.  According to JCT, this provision would reduce revenues by $226 million over ten years.

Bonus Depreciation Deduction Applicable to the Gulf Opportunity Zone:  The bill would extend through 2011 an additional depreciation deduction claimed by businesses equal to 50 percent of the cost of new property investments made in the Gulf Opportunity Zone.  According to JCT, this provision would reduce revenues by $202 million over ten years.

Cost

The Congressional Budget Office estimates that implementing H.R. 4853 would reduce revenues by $721 billion and increase spending by $136 billion over ten years; the bill is expected to increase the deficit by $858 billion.