Tax Quote of the Week

"I want to find out who this FICA guy is and how come he's taking so much of my money."



Tax Extenders Deadlocked Until September

On June 29, 2008, the tax extenders bill failed to pass for the fourth time. The Jobs, Energy, Families, and Disaster Relief Act of 2008 (S. 3335) was voted down on a 51-43 ballot. Republican senators, again, denied the Democrats the 60 votes needed to break a filibuster.

The failure was in part due to White House pressure. In a press release, the White House stated, "The administration does not believe that efforts to avoid tax increases on Americans need to be coupled with provisions to increase revenue. Although the Senate has avoided pairing AMT relief with tax increases, the bill contains a host of objectionable provisions." The White House also indicates that advisors to President Bush "would recommend a veto" of the bill in its current status.

Sen. Max Baucus (D-MT) was clearly disappointed. He lamented the failure and stated, "Today, the Senate missed a huge opportunity to stand up and stand together, for jobs, energy and families. This is the fourth time that Senators have failed to do what is right on this tax relief bill and they are going to hear about it over the August recess."

The deadlock is due to a major policy difference between the Democratic and Republican Party. The Democratic Party wants to apply "pay-go" principles to the bill. However, as the Republicans note, the Democratic Party pay-go version applies only to taxes and not to spending. That is, in order to extend expiring tax provisions, the Democratic Party advocates increasing taxes elsewhere. The Republican Senators suggest that continuation of existing tax breaks should not require new taxes. However, they also observed that the offsets should include a combination of both tax increases and spending decreases.

Sen. Charles Grassley (R-IA) is both a good friend of Sen. Baucus and the Republican spokesman on the issue. He noted, "Folks across the country must wonder why the Senate can't pass the popular expiring tax relief provisions. There's no disagreement between the parties on the merits alone. Nearly all members of this body and the other body support the AMT patch and extenders. They'd be crazy not to."

However, Sen. Grassley claims that the deadlock is due to an unwillingness by Democrats to look beyond tax increases and include limits on spending. He notes that the Senate Democrats have passed a budget with non-defense discretionary spending of an additional $350 billion over the White House proposal. He suggests, "This extra $350 billion is like an extra checkbook that Congress is carrying around in addition to the already fat checkbook. We simply ask that they take a few checks out of this extra checkbook over the next ten years to help pay for part of the needed tax relief provided in the tax extenders package."

Editor's Note: While there are over 60 tax extenders, for most charitable organizations, the IRA rollover extension is the most important provision. With the delay until September, the earliest the IRA rollover could be passed is early October. Senate Majority Leader Harry Reid (D-NV) stated, "We need to do that" and indicated the importance he places on passing the extenders bill. Therefore, it still remains nearly certain that the extenders bill will be passed before the end of the year. As a result, donors, advisors and charities are advised to make plans for a very focused IRA rollover program during October and November of 2008.

Will the Housing Bill Lead to a Rebound?

The U.S. housing market remains in the doldrums as a result of the subprime mortgage crisis. With the dramatic increases in house payments facing many homeowners with interest-only adjustable mortgages, there were 1.5 million foreclosures last year and an expected 2.5 million foreclosures this year.

Given the depth of the despair in the housing industry, Congress and the President have worked diligently to develop a housing bailout bill. The housing bill (HR 3221) was signed by the President on July 29, 2008. It provides $3.9 billion to state and local governments to purchase foreclosed homes, includes a line of credit for mortgage giants Fannie Mae and Freddie Mac and a number of other tax provisions.

Sen. Max Baucus was delighted with the housing bill and indicated, "This is an enormous win for millions of American families facing foreclosure and for our housing sector at the core of this economic downturn. It took ingenuity and great cooperation and today I'm pleased to say that we passed a bill that will bring property tax relief to tens of millions of homeowners, help refinance subprime loans and reduce the number of vacant homes on the market."

The housing bill includes four specific tax provisions. These are: