It’s not news that President Bush vetoed the House bill that tied money for the war in Iraq to a time table for the withdrawal of troops. The veto happened as promised and the House did not have the votes necessary to override the veto. It is back to the drawing board.
But what didn’t make the news were the federal tax considerations buried in the bill. In addition to funding for the war, the bill contained almost $5 billion in small business tax incentives, as well as an increase in the federal minimum wage.
Had the President signed the bill into law, there would have been some pretty significant tax consequences. Included in the bill were provisions to extend the work opportunity tax credit (WOTC), to increase the so-called section 179 expensing limit to $125,000 and the investment-based expensing phaseout to $500,000, to allow employers to receive a full tip credit despite the federal minimum wage increase and to permit an unincorporated business owned jointly by a married couple to file as a sole proprietorship instead of as a partnership. The bill would have also changed many of the rules governing s corporations, including language that would have eliminated stock or securities capital gains from the definition of passive investment income.
Of course, in the midst of a tight economy, we’re going to have to pay for those breaks somehow. The bill also proposed to raise revenue by increasing the kiddie tax age threshold from 18 to 19 (keep in mind that it was just recently raised from age 14, for goodness sake) and ramping up penalties. The bill had suggested expanding and increasing tax preparer penalties and creating a new penalty for baseless refund claims (Wesley Snipes, are you listening?).
This is all history now. Sort of. The House now has to go back to work and offer the President a new version of the spending bill which they hope will escape a veto. But then they knew that would happen. It’s worth keeping an eye out to see what they’ll try into sneak in the next bill.
