A failed vote yesterday in the Senate sets the stage for further behind-the-scenes work on what bond-related provisions should eventually be included in the final tax-extenders bill that will be presented to President Bush.
Senate Democrats failed to garner the necessary 60 votes yesterday to consider the current extenders package, HR 6049, which contains $5.4 billion of tax-credit bonds and several other bond-related measures. It is not known at this time when the bill will be taken up again and presented for amendments.
On Monday, Finance Committee chairman Max Baucus, D-Mont., said on the Senate floor that if the bill was approved for consideration, he would have substituted his own measure for the language approved by the House.
While the bond provisions are expected to be similar, a key difference is that Baucus' proposal includes a one-year "patch" for the individual alternative minimum tax. But Baucus' patch does not come with revenue-raising offsets, which would automatically draw dissent from moderate and conservative Democrats in the House, who are demanding that all legislative spending be offset with revenue.
The AMT, which applies to interest earned on private-activity bonds and some governmental and 501(c)(3) bonds, was created to prevent high-income households eligible for several tax breaks from paying little or no taxes. However, the AMT is not indexed to inflation, so more taxpayers become subject to it each year.
In May, when the House Ways and Means Committee approved the original extenders bill, sponsored by chairman Charles Rangel, D-N.Y., Republican members strongly criticized the lack of an AMT patch, and made several failed attempts to add one. Rangel and other Democrats said they wanted to address the matter in the future with a separate bill, which would include offsets. A one-year patch is estimated to cost $65 billion in tax year 2008.
Meanwhile, Senate Minority Leader Mitch McConnell, R-Ky., introduced his own extenders bill last week, which contains an unpaid AMT patch as well as the tax credit bonds found in the other two bills. Jeff Munk, a partner who specializes in legislation at Hogan & Hartson LLP, said now lawmakers will likely debate the House, Baucus and McConnell proposals in an attempt to craft a unified bill.
"I think we're going to have to have some negotiations going forward," he said. "We have opening bids from Rangel, Baucus, and McConnell,"
One provision he thinks could be a point of contention is the extension and restructuring of tax law provisions in Rangel's bill that provide New York City and New York State with tax credits for expenditures made for transportation infrastructure projects connected with the New York Liberty Zone, which was established after the Sept. 11, 2001, terrorist attacks.
House Republicans have argued that an extension of the program amounts to an earmark and the tax credit employers within the zone receive for wages paid would set a dangerous example of preferential tax treatment for certain businesses.
The less controversial bond provisions in the bills include the creation of a new category of "qualified energy conservation bonds" to finance state and local initiatives to reduce greenhouse gas emissions. Up to $3 billion of the bonds would be allocated to states, localities, and tribal governments.
The bills would also authorize $2 billion of clean renewable energy bonds to finance facilities that would generate electricity from renewable resources. In addition, the bills would authorize state and local governments to issue another $400 million of qualified zone academy bonds annually, which can be used for public schools located in certain designated areas.
