Congress Fails to Extend Tax Breaks
WSJ
By MARTIN VAUGHAN
September 30, 2008

WASHINGTON -- Congress looked increasingly unlikely to extend dozens of expiring tax breaks for individuals and businesses before the end of the year, after failing Monday to break an impasse over the issue.

Tax breaks on the line include a provision that prevents the alternative minimum tax from hitting as many as 25 million taxpayers next year.

"We cannot continue simply using the credit card of the nation to continue to buy without paying for what we buy," House Majority Leader Steny Hoyer (D., Md.) told reporters Monday. But he added that "I'm going to continue to work with the Senate...to see what can be done, even if it's next year."

Some fiscally conservative House Democrats have insisted that extensions of expiring tax cuts should be paid for so as not to add to the deficit.

Other tax breaks that could be affected in the 2008 tax year include deductions for state sales taxes and college tuition, and a deduction for teachers' out-of-pocket classroom expenses. Also in jeopardy are billions of dollars in tax cuts for businesses, including an extension of the research-and-development tax credit, and tax credits for renewable energy sources such as solar and wind power.

Ralph Hellmann, senior vice president for government relations at the Information Technology Industry Council, said: "This is the absolute worst thing you could do in this current economic climate."

The House had planned to finish its business for the year with Monday's vote on a $700 billion financial rescue package. The bill's defeat makes it increasingly likely that House lawmakers will return before November's elections, creating another opportunity for a deal on the tax package.

House members may also return after elections for committee-organization meetings, lobbyists and a House aide said. That means the tax breaks may not be off the table for the year yet.

Rep. Hoyer said the House would adjourn Monday, "subject to the call of the speaker." That means House lawmakers could be asked to return to the Capitol if Speaker Nancy Pelosi decided action were needed.

A delay in passing the AMT provision and other tax breaks for individuals creates an administrative headache for the Internal Revenue Service, which begins printing tax forms in November.

"The IRS is going to have a huge problem if the AMT is not passed now," said Democratic Sen. Max Baucus of Montana, chairman of the Senate Finance Committee and lead negotiator for Senate Democrats on the tax package.

Rep. Hoyer indirectly criticized the Senate leadership for waiting until Monday morning -- hours before the House was set to adjourn -- to send to the House the tax package passed by the Senate last Tuesday. Rep. Hoyer suggested that it was an effort to steamroll the House, calling the move "legislating by blunt force." Sen. Baucus said the stalemate on taxes was the result of poor relations between the two chambers. "The House and Senate just don't talk to each other enough, and work out trust and understanding," he said.

The disagreement between the House and Senate revolves around how much of about $60 billion in energy, business and individual tax cuts should be offset with new revenue. Rep. Hoyer, at the urging of conservative House "Blue Dog" Democrats, has insisted that the whole amount should be paid for.

The House legislation would do so by closing a loophole that allows hedge-fund managers to defer tax on offshore income, and by delaying a tax break for U.S. multinational companies, among other provisions. But Senate Democrats had reached a compromise with Senate Republicans that would allow for only about $42 billion of the tax provisions to be paid for.

Write to Martin Vaughan at martin.vaughan@dowjones.com

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