Insights

On July 25, the Senate passed the Democratic version of a measure that would extend the Bush tax cuts through 2013 on incomes up to $250,000. A last-minute decision by Senate leaders allowed for a simple majority vote to move the Middle Class Tax Cut Bill (S 3412) forward. The bill was approved by a vote of 51 to 48 with lawmakers voting mainly along party lines.

A Republican proposal was rejected earlier in the day by a vote of 45 to 54. The Tax Hike Prevention Bill of 2012 (S 3413) would have extended the 2001 and 2003 rates on income, capital gains, dividends and the estate tax, for a year.
The Senate Republican proposal, S 3413, called for a two-year extension of a patch for the alternative minimum tax (AMT), while the Democrats proposed a one-year extension. The Republican version also omitted an extension of the American Opportunity Tax Credit and the Earned Income Tax Credit, which were included in the Democrats’ bill. The Democrats’ bill did not address the estate tax; the Republican alternative would extend the current rates through 2013.

In the House, on July 24, House Ways and Means Committee Chairman Dave Camp, R-Mich., introduced The Job Protection and Recession Prevention Bill of 2012 (HR 8) that would temporarily extend the Bush-era tax cuts for one year and halt the alternative minimum tax (AMT) from affecting middle-class taxpayers for two years.

HR 8 would extend the current tax rates of 10, 15, 25, 28, 33 and 35 percent through 2013. The proposal would also extend marriage penalty tax relief, earned income credit, child tax credits, education tax credits and the current lower estate tax rates. It would also extend the provisions that repeal the phase-out of personal exemptions and the limits on itemized deductions. The lower tax rates on capital gains and dividends would also be extended. The Code Sec. 179 business expensing would be extended as well as being adjusted for inflation.

Although the Senate allowed the Democratic-sponsored bill to pass, it is unlikely to make it past the Republican-controlled House. Following the Senate votes, House Speaker John Boehner, R-Ohio, said the House will vote during the week beginning July 30 to address the tax hikes.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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