WASHINGTON — Congress returns from its August recess this week after a month of campaigning and faces a laundry list of issues to tackle, including extending dozens of expired tax breaks and approving legislation to avoid a government shutdown after Sept. 30.
But Capitol Hill observers contend that any significant tax legislation will be bumped to the lame-duck session after the elections or more likely punted to early 2013, given how little time the lawmakers have.
The House has scheduled 13 working days before the November election and 16 days post-election until they adjourn for the December recess. The Senate schedule closely mirrors the one for the House.
"Everybody will be hoping for an extenders package and will want to be part of the extenders package but it's a really difficult political environment," said Chuck Samuels, a partner at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC, who represents the National Association of Health and Higher Education Facilities Authorities. "It will be problematic."
Samuels contends there is a 50-50 chance at best that Congress will pass an extenders package before the end of the year. If extenders and a host of other tax provisions are shifted to next year, it "could be a dangerous time for tax-exempt bonds and all of the tax preferences," he said.
The extenders are just one component of the so-called fiscal cliff, when the 2001 and 2003 Bush tax cuts are set to expire at the end of the year and the more than $1 trillion in automatic spending cuts are slated to go into effect in January 2013. If Congress fails to act, the economy could nose dive into a deep recession, the Congressional Budget Office warned recently.
One of the largest expired tax provisions is the patch for the alternative minimum tax. The AMT is a federal income tax that's calculated separately from the regular federal income tax and is designed to prevent the wealthy from taking so many tax deductions and exclusions that they avoid paying taxes.
Private activity bonds used to finance airport, water and sewer, housing and other projects are subject to the AMT and the interest from them is one of several items included in calculations for the tax.
The interest from PABs can push taxpayers into the AMT. As a result, it increases borrowing costs for PAB issuers because investors tend to demand a higher bond yield to compensate for the risk.
Congress routinely "patches" the AMT so it increases the exemption levels and applies to fewer middle-income investors. The most recent AMT patch expired at the end of 2011.
The price tag for extending the patch in 2012 and 2013 is estimated to cost $132.24 billion over 10 years, according to a recent report by the Joint Committee on Taxation.
"It doesn't look to me like the Congress will complete action on extenders before the lame duck" session, said Jon Traub, a principal at Deloitte and former Republican staff director for the House Ways and Means Committee. "They just aren't going to be here that many days and the one thing that was potentially going to keep them here more than a short time is action on the continuing resolution, but that seems to be pretty much greased and ready to go."
Over the summer Rep. Pat Tiberi, R-Ohio, chairman of the Ways and Means Committee's select revenue measures panel, held a series of hearings aimed at examining the merits of extending, making permanent, phasing out or immediately eliminating dozens of expired or expiring tax provisions. Tiberi said after one of the hearings that the House wouldn't take up tax extenders until after the election. For now, congressional aides say that is still the plan.
"The House as of now has not shown any inclination to take it up before the election," Traub said. "It sounds to me that they haven't completed that examination and it would be premature to put that package on the floor."
"I don't think there is any way in hell the House takes it up before the election," said a tax lobbyist who did not want to be identified. "You'd be crazy to do so and there is no pressure to do so."
Before the August recess, the Senate Finance Committee approved a tax-extenders bill estimated to cost $205 billion over 10 years, according to the JCT. In addition to the AMT patch, that bill includes several municipal bond provisions, including the deduction for state and local general sales taxes, qualified zone academy bonds, and New York Liberty Zone tax-exempt bond financing, totaling $4.65 billion over 10 years.
Senate Majority Leader Harry Reid, D-Nev., has indicated he will hold a vote on extenders in the coming months. It's unclear if that could happen as early as this month. At the Republican National Convention two weeks ago, Sen. Jon Kyl, R-Ariz., told reporters he is willing to allow a tax-cut extension to move forward in September only if Democrats live up to the terms of extenders bill passed by the Finance Committee.
However, to further complicate matters, the Constitution requires that any revenue bill must originate in the House. Even if Reid brings extenders legislation to the full Senate in September, he would need to get a cloture vote approved by 60 senators to limit debate on the bill and that measure could not be approved without action in the House.
The Senate could wait for the House to send it a bill, then strip out the House language and substitute its own and send it back to the House, said Bill Daly, director of government affairs at the National Association of Bond Lawyers.
One Capitol Hill staffer suggested there will be intense political posturing in the months leading up to the Nov. 6 elections. "It's going to be a big political show before the election," the staffer said. "That's what we are expecting. We won't be dealing with the tough stuff pre-election."
The staffer said it's likely lawmakers will extend the tax breaks in the lame-duck session for one year and include instructions for comprehensive tax reform.
Meanwhile, the House is expected to consider a continuing resolution this week to fund the government after September, while the Senate will likely take up the CR the following week, Hill aides said.
Even though the current resolution expires Sept. 30, the end of the fiscal year, Senate and House leaders in July agreed to a deal that would extend it at $1.047 trillion for another six months through the end of March.
Reid has said that the bill should be clean and should not be used in conjunction with the automatic across-the-board spending cuts known as sequestration that are scheduled to go into effect on Jan. 2 unless lawmakers agree on a $1.2 trillion deficit reduction deal.
"By doing a CR now through March, they take one thing off the table and leave another on," the tax lobbyist said. "If that's the model they use for tax policy, a short-term extension of some sort seems the most likely scenario."
It's likely Congress will do temporary extensions on the tax provisions and the Bush-era tax cuts, he said. The least likely scenario is that lawmakers do a long-term fix on any legislation, and "an extension through 2013 of tax policy at this point would be considered a long-term fix," he added.