NAICU Washington Update

Congress Fails to Renew Expiring Tax Benefits

December 20, 2007

IRA Charitable Rollover, Tuition Deduction To Expire

The IRA charitable rollover and the tuition deduction, along with all the other tax provisions set to expire on December 31, were dropped from tax legislation considered by the House and Senate this week. Unfortunately, this means that Congress will not extend these important provisions this year.

The House and Senate were locked in disagreement over a temporary Alternative Minimum Tax (AMT) "patch," and whether or not to offset the cost of the measure. Caught up in the fight were a package of bipartisan extenders of expiring tax provisions that included the IRA charitable rollover, the tuition deduction, the R & D tax credit, and many others.

The AMT was created in the 1960's to prevent the very rich from avoiding taxes, but its income threshold has not risen with inflation. Instead of dealing with the expense of fully repealing the AMT, Congress has sought temporary one-year patches to spare primarily middle-class taxpayers from a whopping tax increase.

Both chambers had originally intended to patch the AMT for one year and to also include a package of extenders that would renew all tax credits and deductions set to expire at the end of 2007. However, there was disagreement on whether or not to pay for the cost of the patch to the federal government, with the House insisting it be paid for, and the Senate saying it should not.

After passing as many as three versions of the AMT bill in both the House and the Senate, the Senate approved a one-year AMT patch without any offsets on December 18. No tax extenders were included. The next day the House surrendered to the Senate language, approving an AMT patch without offsets, but also without an extension of expiring provisions. The President is expected to sign the measure into law.

Congressional Democrats and their leadership face scrutiny over promises to rein in fiscal spending by fully offsetting any tax relief bill. Those supporting language without offsets argue that preventing a tax increase from happening is different from lowering taxes, and therefore the measure did not require pay-as-you-go rules. The intensity of the battle, and the resulting focus on only completing action on an AMT patch, has resulted in the loss of the extenders.

According to House and Senate staff, they fully intend to extend all expiring provisions early next year, and make them retroactive to January 1. The higher ed community has been pushing House and Senate tax-writing committees and leadership to extend the IRA rollover and tuition deduction this year.

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