House, Senate at Odds on Tax Relief

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The year's most important tax package was in trouble Friday as the House passed a key part of it that the White House threatened to veto and the Senate said was a dead end.

On the table were four tax initiatives wrapped into one bill by the Senate earlier this week: preventing more than 20 million people from being victimized by the alternative minimum tax, incentives for renewable energy, extension of expiring tax breaks and disaster relief.

All are must-do tasks for Congress before it adjourns for the year, but the House, in three different bills covering those issues, has taken the same approach as the Senate only on the alternative minimum tax. The Senate has made clear that any House divergence from its carefully crafted compromise will kill the whole package. The Senate bill passed 93-2.

The House on Friday voted 257-166 on a $60 billion measure dealing with renewable energy initiatives and the extension of such business and individual tax breaks as the R&D credit, credit for higher education tuition, deductions for state and local sales taxes and the expansion of eligibility for the child tax credit.

The bill covers similar ground as the Senate package: in the energy portion it provides investment and production tax credits for solar, wind and other renewable resources, offers credits for purchase of plug-in electric vehicles and promotes conservation and energy efficiency.

But the House has insisted on a basic principle, that relief should be paid for by increasing revenues elsewhere so the budget deficit doesn't worsen. That concept is opposed by the White House — a main reason for its veto threat — and by Republicans who say it is wrong to increase taxes to extend existing tax policy.

The House bill is paid for by limiting tax breaks available to the oil and gas industry and closing loopholes that hedge fund managers and corporations use in paying taxes on overseas income.

The energy and tax extension parts of the Senate bill have revenue offsets for about $25 billion out of a total of $68 billion.

House Ways and Means Committee Chairman Charles Rangel, D-N.Y., said it was "shameful" that the Senate would give the House a take-it-or-leave-it ultimatum on the tax package. "They shouldn't have the arrogance of saying they aren't even going to look at it."

But Rep. Dave Camp, R-Mich., said Democrats should face the reality that their bill "will never actually deliver the tax relief it is promising because it will never pass the Senate and it will never be enacted into law."

The House earlier this week bowed to Senate pressures and passed separate AMT and disaster relief bills that are not paid for. The AMT would cost an estimated $64 billion over 10 years to keep those hit by the tax, originally designed to affect only millionaires, from growing from about 4 million to up to 26 million in 2008, with an average tax increase of more than $2,000.

The bill extending tax breaks to natural disaster victims would cost about $8 billion. The House bill covers disaster victims nationwide, while the Senate bill targets those in the Midwest hit by devastating storms this summer and recent hurricane victims in Texas and Louisiana.

A similar battle played out last year over the AMT, with the House pushing for new revenues to pay for the one-year fix and Senate Republicans blocking any bill with offsets. Finally, shortly before Congress adjourned at the end of December, the House gave in.

As a result of the delay, more than 13 million taxpayers had to wait until February to file their returns and get their refunds while the Internal Revenue Service updated its programs to reflect the changes in the law.