House Poised To Pass Tax Cuts

Dow Jones Newswires

The House is poised to pass more than $600 billion in tax cuts on Thursday, delivering benefits to manufacturers, medical device makers, labor unions, multinational banks and low-income families, among others. The bill resulted from a bipartisan agreement to play down concerns about budget deficits and construct a package of tax breaks so large and diverse that most lawmakers will find something in it to like. Republicans, business groups and the White House cheered the deal, while congressional Democrats were divided because of the price tag and the permanent extension of some business breaks. The deal would take popular tax breaks that expired at the end of 2014 and make them permanent, ending a cycle in which Congress routinely lets major pieces of the tax code lapse, then revives them retroactively, long after they had lost any value as incentives. The bill would make permanent the research and development tax credit for companies, a tax-deferral rule used by multinational banks and a provision that lets taxpayers move money directly from individual retirement accounts to charities. Small businesses could write off $500,000 in capital costs instead of a $25,000 limit if the break lapsed. Residents of states without income taxes could deduct sales taxes instead, and the 2.3% excise tax on medical devices intended to help fund the Affordable Care Act would be suspended for 2016 and 2017. The bill extends "bonus depreciation" -- faster write-offs of capital equipment -- through 2019, along with breaks favored by Democrats that encourage hiring of workers from disadvantaged groups and investments in struggling areas of the country. Democrats won several other policy victories. The legislation permanently extends expansions of the child tax credit, earned income tax credit and tuition tax credit that were created in the 2009 stimulus law but set to lapse after President Barack Obama leaves office in 2017. The White House said 24 million families would benefit from the move. Democrats secured the extensions without accepting the most restrictive changes sought by Republicans that were aimed at limiting fraud and would have prevented some families from qualifying for the breaks. After it passes, the $622 billion tax bill will be merged with a second measure, which contains $1.15 trillion in spending and another $58 billion in tax cuts. The merged bill would go to the Senate on Friday. The second bill contains five-year extensions of tax credits for wind and solar energy and a two-year delay in the so-called Cadillac tax on high-cost employer-sponsored health insurance. Labor unions and corporations have been pressing to repeal the Cadillac tax; the bill would delay the start date to 2020 from 2018. Most Republicans are expected to vote for the tax bill, especially because the biggest renewable-energy provisions they oppose are in the spending bill that won't get a vote until Friday. They hailed the bill as a significant step toward overhauling the tax code. "I understand business really well, and so any dollar that you allow a business owner to reinvest back into it, it's going to spur jobs and job creation," said Rep. Markwayne Mullin (R., Okla.). Democrats, meanwhile, were bitterly divided. House Minority Leader Nancy Pelosi (D., Calif.) denounced the measure as "practically an immorality." The multinational bank provision, known as the active financing exception, is a particular source of frustration for Democrats. It benefits companies such as Citigroup and Morgan Stanley, along with manufacturers that offer customer financing, such as Caterpillar. House Democrats tried but failed to index the $1,000 child tax credit to inflation -- meaning it could rise over time -- as a counterbalance to the business benefits. The tax bill "provides too much to people who need it least," said Rep. Steve Israel (D., N.Y.). "It's an unfunded increase in the deficit that favors special interests." Other Democrats, including in the White House, called the tax-credit expansions a significant win. Lily Batchelder, a former tax aide to Mr. Obama, said the deal was a "historic achievement." Many Democrats back the breaks for research and small business, and the family tax credits faced an uncertain future. "There was a large risk that these would have expired at the end of 2017, especially if the next president is a Republican," Ms. Batchelder said. "I think the Democrats really got basically everything they wanted and the Republicans got much less than I would have expected."

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(END) Dow Jones Newswires