US Tax: Health care, estate tax, extenders dominate as Congress takes up end-of-year agenda

Health care remains at the forefront of the action as Congress returns to Washington November 30 following the Thanksgiving recess, but with the legislative session quickly winding down, lawmakers also must confront two other pressing tax issues: an estate tax fix and legislation to extend tax provisions that are set to expire at the end of the year.


Health care

Prior to the Thanksgiving recess, the Senate voted 60-39 along party lines to proceed to consideration of its comprehensive health care reform bill, the Patient Protection and Affordable Care Act. Introduced November 18 by Senate Majority Leader Harry Reid, D-Nev., the bill is financed in large part by a proposed excise tax on high-value "Cadillac" health insurance plans, tax hikes on health care-related industries, and a payroll tax increase on high-income individuals.

General debate and consideration of amendments is scheduled to begin the week of November 30. It is unclear how long Reid will allot for consideration of the bill or when a final vote will take place. Significantly, although all 60 Senate
Democrats agreed to debate the bill, several moderates have indicated that they would not vote to approve it in its current form. Reid hopes to shore up his majority through the amendment process in the coming days and weeks.

For its part, the House passed its health care legislation on November 7, which would be paid for primarily through a 5.4 percent surtax on joint-filing taxpayers with modified adjusted gross income (AGI) above $1 million, and on other taxpayers with AGI above $500,000. The House is now awaiting Senate action before both chambers can proceed to a conference committee to negotiate a final bill.


Estate tax

The House is expected the week of November 30 to take action on legislation that would avoid a zero- estate tax year in 2010. Under current law, the estate tax is scheduled to disappear in 2010 and return in 2011 with a top tax rate of 55 percent and a unified credit exemption amount of $1 million (the levels in effect before the Bush tax cuts were enacted in 2001).

The Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 (H.R. 4154), introduced by House Ways and Means Committee member Earl Pomeroy, D-N.D., on November 19, would permanently extend the estate tax at its 2009 levels – that is, a top rate of 45 percent and exemption amounts of $7 million for couples and $3.5 million for individuals – and repeal carryover basis rules. The Senate is expected to take up an estate tax bill in late December.


Extension of expiring tax provisions

The House reportedly will soon begin floor consideration of a bill that would extend expiring tax provisions. The Ways and Means Committee on November 20 released a summary of legislation that would extend for one year (through 2010) more than 40 provisions that are scheduled to expire at the end of 2009, such as the research and experimentation tax credit, the New Markets Tax Credit, 15-year straight-line cost recovery for qualified leasehold improvements, the exception for active financing income under subpart F, and lookthrough treatment of payments between related controlled foreign corporations. Although offsets are not specified, the committee says that the bill provides relief without adding to the deficit, which indicates that revenue raisers are likely. The bill may bypass committee consideration and head straight to the full chamber.


Consideration of an extenders package in the Senate is expected later in December. It is possible that a bill to extend expiring provisions may be tacked on to an estate tax measure and considered jointly.