Democrats Consider Tax Hikes

Didn’t take long for the Democrats to look at ways to dig into our pockets huh?  This is from CQ, a subscription based publication so the whole article is printed below:

Senate Democrats are considering a step in the politically sensitive direction of tax increases, but only to offset an $8.3 billion package of new tax breaks.

Finance Chairman Max Baucus, D-Mont., proposes to limit deferred compensation to business executives to $1 million annually in the Senate version of a measure (HR 2) that would increase the federal minimum wage to $7.25 an hour and provide small-business tax breaks.

The Finance panel is scheduled to mark up the legislation Wednesday.

House and Senate tax writers are at odds on the small-business tax provisions. New York Democrat Charles B. Rangel, who chairs the House Ways and Means Committee, wants to keep the minimum wage bill free of tax cuts.

The House has a new pay-as-you-go rule that requires offsets for the cost of any new tax cuts or entitlement spending.

According to lobbyists and aides in both parties, a list of offsets circulated by Baucus includes the plan to raise $806 million in revenue over 10 years by capping the amount of compensation that can be deferred annually. Pay above the amount that could not be deferred would be subject to the top federal income tax rate of 35 percent.

Business lobbyists were quick to criticize Baucus’ proposal as an unjustified attack on a standard form of executive compensation.

“We don’t think this proposal should be adopted. . . . This will interfere with significant business objectives,” said Robert C. Shepler, director of corporate finance and tax for the National Association of Manufacturers. He said deferred compensation is limited under the 2004 corporate tax law (PL 108-357).

Another of Baucus’ proposed offsets would raise $4.1 billion by tightening restrictions on foreign-based tax-exempt leases, known as sale-in-lease-out (SILO) transactions. Those leases typically provide tax-loss benefits to investors and brokerage firms.

Baucus also proposed a tax based on mark-to-market, or fair market value, of the net gain from the sale of property exceeding $600,000 for an individual who becomes an expatriate, or $1.2 million for a couple. That change would raise $417 million over 10 years.

Strategic Dispute

Rangel has vowed to raise a “blue slip” objection if senators try to add tax breaks to the minimum wage bill, invoking the constitutional requirement that revenue measures originate in the House.

Typically, senators would avoid such an obstacle by using an unrelated House-passed tax bill to carry their version of the minimum wage and tax break package back to the House. But with no such bill available so early in the session, Rangel’s threat appears likely to delay a compromise.

For Democrats, the decision whether to advance the minimum wage bill with tax breaks boils down to a dispute over strategy.

Some in the party, including Rangel and Sen. Edward M. Kennedy of Massachusetts, argue that passing a minimum wage increase right away would provide the new Democratic congressional majority with a key victory at the start of the 110th Congress.

But senators in both parties maintain that they cannot pass a minimum wage increase in their chamber without attaching business tax breaks.

Baucus said Tuesday he will continue to press to add his package of tax breaks and revenue offsets to the minimum wage bill. He said he has not discussed his plan with Rangel.

“All that will be worked out. Basically, most of these provisions have been agreed to in the past,” Baucus said. “There’s no choice but to put this on the minimum wage. Otherwise there’s not 60 votes for the minimum wage. . . . It will happen when the leadership on both sides decides that’s what we’re going to do.”

Hostile Reception

Grover Norquist, president of Americans for Tax Reform, said Tuesday that his group will air campaign advertisements aimed at defeating lawmakers who vote for legislation including revenue raisers.

“What we should have is a minimum wage increase with small-business tax breaks, and no offsets,” Norquist said.

Other business groups also oppose the offsets. R. Bruce Josten, executive vice president of the U.S. Chamber of Commerce, said he expects the package to include new tax proposals targeting businesses.

“From what we understand, they are looking at a number of offsets that would redistribute revenue. They would be taking with one hand and giving with the other. And if that is what they do, we will oppose that,’’ Josten said.

Ready for Markup

Tax writers have submitted amendments in preparation for Wednesday’s markup, including a proposal by Sen. Blanche Lincoln, D-Ark., intended to help small businesses cover the cost of health care.

According to the Joint Committee on Taxation, the package drafted by Baucus and the Finance Committee’s ranking Republican, Charles E. Grassley of Iowa, would extend for five years the work opportunity tax credit available to employers who hire low-income workers. The proposal also would extend for one year so-called Section 179 expensing for small businesses and broaden accelerated 15-year depreciation rules for leasehold improvements to include retail stores and new restaurants. That tax break would be extended through March 31, 2008.

The Senate bill also would permanently allow more businesses to use the simple, cash method of accounting, based largely on cash flow, as opposed to a more complex accrual method.

Further, the proposal would allow more small businesses to qualify for tax preferences as “S” corporations, which resemble partnerships in which the owners must pay personal income tax on their earnings, not a corporate income tax.

Well, we knew it was coming when the Democrats took over.  They haven’t seen a tax increase they didn’t like.

Curt

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