D.C. meetings with Congressional delegation offer insights on tax issues

I recently returned from several days in Washington where I met with key staff from the Minnesota Congressional delegation.

Our discussions included, among other issues, the permanent extension of tax credits benefiting low- and moderate-income working families, such as the Child Tax Credit and the Earned Income Tax Credit, reform of the federal estate tax, and the future of the temporary 2001 and 2003 Bush tax cuts that are set to expire at the end of 2010.

There seems to be broad support among the Minnesotans in Congress to permanently extend the temporary improvements to the Child Tax Credit and the Earned Income Tax Credit that were approved earlier this year as part of the American Recovery and Reinvestment Act. You may recall that the earnings threshold to qualify for the Child Tax Credit was lowered to enable more families to qualify for the $1,000 per child tax credit. Similarly, the Earned Income Tax Credit was temporarily increased to 45 percent of the family’s first $12,570 of earned income for working families with three or more children. Both provisions will expire at the end of 2010 unless Congress passes an extension.

Another big tax issue on Congress’ plate is the future of the federal estate tax. Efforts to repeal the estate tax have failed repeatedly in recent years. However, efforts to reform the estate tax in the Senate have triggered fresh concerns about the possible loss of billions of dollars in revenue during a period of record-high deficits and a growing national debt. In April, the U.S. Senate narrowly adopted the Lincoln-Kyl amendment to the Senate budget resolution that called for raising the estate tax exemption from the current $7 million per couple to $10 million per couple and lowering the top tax rate on the portion of an estate that is taxable from 45 percent to 35 percent. (The amendment is non-binding because it is in the Senate budget resolution rather than a bill signed into law by the President. Nevertheless, it is a strong indicator of where sentiments in the Senate lie on estate tax reform). Based on estimates from the Joint Tax Committee, the Lincoln-Kyl amendment would lose nearly $100 billion in revenue over the first ten years it would be fully in effect. Senator Klobuchar voted against the amendment.

A more reasonable alternative to Lincoln-Kyl proposed by the President and endorsed by many in Congress is to make permanent the current 2009 estate tax parameters (exempting $7 million per couple and a top rate of 45%). Unless Congress acts, the estate tax would expire in 2010 and then return to its 2001 parameters in 2011 with a $1 million per couple exemption and a 55% top tax rate; a scenario that most members of Congress reject as politically unacceptable.

It is clear from talking with Minnesota’s delegation staff that the fate of these provisions will be closely connected to whatever Congress decides to do on extending or partially extending some of the 2001 and 2003 Bush tax cuts that also expire at the end of next year. Look for Congress to put together a big omnibus tax bill later this year (fall or winter).

We will continue working to ensure that Congress makes permanent the much-needed improvements to the Child Tax Credit and the Earned Income Tax Credit for low and moderate-income working families. We will also continue to urge Congress not to go beyond the parameters of current law in making any changes to the federal estate tax.

— Steve Francisco

About Steve Francisco

Steve Francisco is the former federal policy analyst for the Minnesota Budget Project.
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