Major Tax Issues in the 109th Congress

Publication Date: April 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

Type:

Abstract:

Congress considered a variety of tax issues over the course of 2004. Some of these were relatively narrow, applying to particular sectors or activities: energy taxation, charitable giving and charities, Internet taxation, tax shelters, and a variety of expiring tax benefits that apply to particular investments or activities. More prominent, however, were two more general issues that were the focus of tax policy deliberations for much of the year: domestic and international business taxation; and the extension of temporary tax cuts for individuals that were initially enacted in 2001 and 2003.

Congressional deliberations on business taxation grew out of a long-simmering controversy between the United States and the European Union (EU) over the U.S. extraterritorial income exclusion (ETI) tax benefit for exporting. The EU had lodged complaints with the World Trade Organization (WTO) maintaining that the ETI benefit and several predecessors in the U.S. tax code violated the WTO's strictures against export subsidies. In late spring, 2004, both the House and Senate passed legislation phasing out ETI. However, the bills in each chamber extended far beyond the ETI issue to include a wide variety of tax benefits for domestic and international investments as well as revenue-raising provisions in areas such as corporate tax shelters. In October, Congress approved a conference committee version of the legislation, which became the American Jobs Creation Act (P.L. 108-357).

The tax cuts Congress enacted in 2001 with the Economic Growth and Tax Relief Recovery Act (EGTRRA; P.L. 107-16) were a gradual phase-in of a variety of provisions, including reduction of individual income tax rates and tax cuts for married couples and families. In 2003, the Jobs and Growth Tax Relief Reconciliation Act's (JGTRRA; P.L. 108-27) principal thrust was to move the effective date of EGTRRA's gradual tax cuts forward to 2003. However, several of JGTRRA's accelerations were scheduled to expire at the end of 2004, including an increase in the child tax credit, tax cuts for married couples, and reduction of the alternative minimum tax. In September, Congress approved the Working Families Tax Relief Act (WFTRA; P.L. 108-311), which generally extended JGTRRA's tax cuts as well as a set of other temporary tax benefits.

Early indications suggest several tax issues may receive congressional attention in 2005. One possibility is fundamental tax reform: the Administration has stated that consideration of tax reform is one of its top domestic priorities and the topic has received congressional interest in the past. Another possibility is the alternative minimum tax, which will apply to an increasing number of taxpayers unless it is modified. And, notwithstanding the extensions enacted in 2004, the tax cuts enacted under EGTRRA in 2001 are scheduled to expire at the end of 2010. Congress may consider legislation to extend or make permanent the 2001 cuts; in early April, for example, the House passed a bill to make permanent EGTRRA's temporary repeal of the estate tax. For its part, the Administration's FY2006 budget plan calls for fundamental tax reform and tax cuts amounting to $1.3 trillion over ten years.

This report will be updated as tax-related legislative activity occurs.