As previously reported, the Senate approved a version of the tax bill. Not to be outdone, the House did, too (yesterday). The problem? Er, they’re not consistent and it’s not clear when (and if) the two can be reconciled.
The top priority of the House in what was a narrow victory, 234-197, seemed to be capital gains. The 15% tax rate for investment income, passed in years prior, was set to expire in 2008. Like most tax bills in Congress, the legislature again chose not to think long term and merely extended the current bill by two years. Likewise, other provisions set to sunset at the end of 2005, including deductions for state and local sales taxes and tuition, were also extended.
This follows a bill passed on Wednesday aimed at reducing the AMT consequences to the middle class. The AMT was originally implemented to prevent the wealthy from artificially reducing their tax bill through the use of “tax preference” items. However, the specifics of the AMT had not been re-examined in recent years and many middle class Americans were getting “caught” in the AMT tax snare. The bill passed by the House would extend for one year, through 2006, an increase in the levels of income that would be exempt from the AMT, which would result in preventing approximately 17 million or so taxpayers from being subject to the higher tax next year.
An additional tax bill passed overwhelmingly (415-4) to provide tax breaks and tax incentives to the Gulf Coast following the devastation of Hurricane Katrina.