Tax laws play a crucial role in shaping the economic landscape of a country, and the United States is no exception.
Currently, there are several tax laws being considered by Congress, each with the potential to impact millions of Americans. From addressing the taxation of cryptocurrency to implementing new tax credits, these measures can range from small changes to significant overhauls of the tax code.
We’ll explore some of the tax laws being considered and how they may impact taxpayers if enacted into law in this article.
How Tax Laws are Enacted
In the United States, the Congress is responsible for writing tax laws. The process typically begins in the House of Representatives, which is one of the two chambers of Congress.
The House Ways and Means Committee, which has jurisdiction over tax policy, usually initiates the process by drafting tax legislation. Once the committee approves the bill, it is sent to the full House for consideration.
If the House approves the bill, it is then sent to the Senate, which is the other chamber of Congress. The Senate can either approve the House bill or create its own tax legislation. If the Senate creates its own bill, it must be reconciled with the House bill in a conference committee, which is made up of members from both the House and Senate.
The conference committee then works to resolve any differences between the two bills and create a final version that is acceptable to both chambers. If the conference committee reaches an agreement, the final version of the bill is sent back to the House and Senate for a final vote.
If both chambers approve the final bill, it is sent to the President for signature. Once signed, the bill becomes law and sets the rules for the taxation of individuals and businesses in the United States.
How Tax Laws REALLY Get Enacted
Tax laws can take many forms, ranging from small, one-off changes to larger, more comprehensive tax reform acts.
Small, one-off changes to tax laws may be made to address a specific issue or to provide targeted relief to a particular group of taxpayers. For example, Congress may pass a law to provide tax relief to victims of a natural disaster or to extend a tax credit that is set to expire.
On the other hand, larger tax reform acts can be more comprehensive and may include a wide range of changes to the tax code. These reforms may be aimed at simplifying the tax system, promoting economic growth, or addressing specific issues within the tax code.
One example of a comprehensive tax reform act that occurred during the 2008 tax year is the Tax Relief and Health Care Act of 2006. This act extended many tax cuts that were set to expire, including the child tax credit and the lower tax rates for capital gains and dividends. It also included provisions for health savings accounts and deductions for tuition and related expenses.
Other major reform acts that had passed before the 2008 tax year include:
- The Economic Growth and Tax Relief Reconciliation Act of 2001: This act lowered income tax rates, increased the child tax credit, and eliminated the estate tax for the 2010 tax year.
- The Jobs and Growth Tax Relief Reconciliation Act of 2003: This act lowered income tax rates further and included a reduction in the tax rates for dividends and capital gains.
- The Pension Protection Act of 2006: This act addressed pension and retirement issues and included provisions for contributions to individual retirement accounts and simplified employee pensions.
Tax reform acts can be challenging to pass because they often involve significant changes to the tax code that can have far-reaching impacts. As a result, they may require significant negotiation and compromise among lawmakers in order to reach a consensus on the final legislation.
In summary, tax laws can range from small, targeted changes to larger, comprehensive tax reform acts. The scope and scale of tax legislation often depend on the goals and priorities of lawmakers and the political climate at the time.
Tax Laws Being Considered
While not all tax laws that are considered by Congress are enacted into law, many do linger on and eventually get added to other provisions and enacted into law. This is why it is helpful to review the tax legislation periodically.
Here are a few of the tax measures that are or were recently being considered:
- Lifetime learning accounts. Amends the Internal Revenue Code to: (1) establish a tax-exempt lifelong learning account for the payment of certain employee higher education and training expenses; (2) allow individuals a nonrefundable tax credit for contributions to such accounts; and (3) allow employers a business-related tax credit for contributions to such accounts.
- Sales tax fairness. Grants the consent of Congress to the Streamlined Sales and Use Tax Agreement (Agreement), the multistate agreement for the administration and collection of sales and use taxes adopted on November 12, 2002. Expresses the sense of Congress that the Agreement provides sufficient simplification and uniformity to warrant federal authorizations to states that are parties to it (member states) to require remote sellers (sellers without a physical presence in the taxing state) to collect and remit the sales and use taxes of such states and their local taxing jurisdictions. Authorizes each member state, after 10 states (comprising at least 20% of all states imposing a sales tax) have petitioned for and become member states, to require all sellers, except those sellers with gross remote taxable sales nationwide of less than $5 million, to collect and remit sales and use taxes on remote sales owed to such member state under the terms of the Agreement. Permits a federally recognized Indian tribe that imposes a generally applicable sales tax to petition to become a member state. Allows any person affected by the Agreement to petition the Governing Board established by the Agreement for a determination of any issue arising under the Agreement. Provides for judicial review of Governing Board determinations by the U.S. Court of Federal Claims. Sets forth minimum simplification requirements for the Agreement. Expresses the sense of Congress that member states should work with each other to prevent double taxation where a foreign country has imposed a transaction tax on a digital good or service.
- Research tax credit. Amends the Internal Revenue Code to: (1) modify the tax credit for increasing research expenses to establish a standard 20% credit rate for research expenses exceeding 50% of average expenses over the preceding three year period; (2) establish a uniform 80% reimbursement rate for all contract research expenses (100% for basic research payments); (3) make such tax credit permanent; (4) allow a tax credit for equity investments in small business innovation companies; and (5) allow the issuance of tax exempt facility bonds for research park facilities used in connection with research and experimentation. Directs the Secretary of the Treasury to: (1) study and report to Congress on taxpayer compliance with the substantiation requirements for claiming the tax credit for increasing research activities; and (2) issue regulations on the application of private activity bond rules to the funding of federal research agreements.
- Alternative minimum tax. Amends the Internal Revenue Code to repeal the alternative minimum tax on individuals.
- Business meals and entertainment expenses. Amends the Internal Revenue Code to increase the income tax deduction for business meals and entertainment expenses from 50 to 75% of such expenses in calendar year 2007, and 80% in 2008 and thereafter.
- College tax credit. Amends the Internal Revenue Code to replace the Hope Scholarship and Lifetime Learning Tax Credits with an increased, partially refundable college opportunity tax credit to cover up to four years (currently, limited to two years) of the tuition and related expenses of full or part-time postsecondary and graduate students.
- Health care insurance credit. Amends the Internal Revenue Code to allow certain small business employers a partially refundable business tax credit for the health insurance costs of employees who are not otherwise covered by a spouse’s insurance or by a federal health insurance program.
- Alternative minimum tax and dividend tax rate. A bill to amend the Internal Revenue Code of 1986 to extend and expand relief from the alternative minimum tax and to repeal the extension of the lower rates for capital gains and dividends for 2009 and 2010.
- Education savings accounts. Amends the Internal Revenue Code to: (1) increase the maximum annual contribution limit for Coverdell education savings accounts from $2,000 to $5,000 and make such increase permanent; and (2) allow a tax deduction up to $5,000 for contributions to an education savings account.
- State and local sales tax deduction. Amends the Internal Revenue Code to make permanent the tax deduction for state and local general sales taxes.
- Cell phone tax. Prohibits states from imposing any new discriminatory tax on mobile services (cell phones), mobile services providers, or mobile services property for three years after enactment of this Act. Defines “new discriminatory tax” as a tax imposed on mobile services, providers, or property which is not generally imposed on other types of services or property or is generally imposed at a lower rate.
- Telephone tax. Amends the Internal Revenue Code to repeal the excise tax on communication services (i.e., local telephone service, toll telephone service, and teletypewriter exchange service).
- Indian employment tax credit. Amends the Internal Revenue Code to permanently extend the Indian employment tax credit and the depreciation rules for property used predominantly within an Indian reservation.
- Marriage tax penalty. Makes provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 that eliminate the marriage penalty in the standard deduction, the 15-percent tax bracket, and the earned income tax credit, permanent.
- Depreciable business property. Amends the Internal Revenue Code to: (1) increase the expensing allowance for depreciable business property from $100,000 to $200,000; (2) make such allowance permanent; (3) increase to $800,000 the asset cost threshold for calculating reductions in such allowance; (4) allow an annual inflation adjustment to the expensing allowance and the threshold amount after 2007; and (5) allow a taxpayer to revoke an election to expense such business property without the prior consent of the Secretary of the Treasury.
- Start-up business tax year. Amends the Internal Revenue Code to permit certain small start-up businesses to elect a taxable year, other than the required taxable year, which ends on the last day of any of the months of April through November (or at the end of an equivalent annual period).
- Retail improvement property. Amends the Internal Revenue Code to allow qualified retail improvement property a 15-year recovery period for purposes of the tax deduction for depreciation. Defines such property as any improvement to an interior portion of a building which is nonresidential real property, if: (1) such portion is open to the general public and is used in the trade or business of selling tangible personal property or services to the general public; and (2) such improvement is placed in service more than three years after the date the building was first placed in service. Excludes specified improvements, including the enlargement of a building, any elevator or escalator, or the internal structural framework of a building.
- Disabled veterans. Amends the Internal Revenue Code to allow members of the uniformed services whose retired pay in any taxable year is reduced due to an award of disability compensation by the Department of Veterans Affairs an extension of the three-year limitation period for filing tax refund claims until one year after the date of a disability determination. Limits the period for which such refund claims may be filed to taxable years beginning less than five years before the date of a disability determination.
- IRS private debt collectors. Requires the Internal Revenue Service (IRS) to suspend the use of private debt collection companies to collect unpaid taxes and prohibits the use of any IRS funds for tax collection contracts with private companies.
- Art tax rate. Amends the Internal Revenue Code to: (1) eliminate the 28-percent capital gains tax rate for collectibles, thus allowing gain from the sale of collectibles (including artworks) to be taxed at the 15-percent tax rate applicable to other investment property; (2) allow the creator of a literary, musical, artistic, or scholarly property a fair market value tax deduction for the donation of such property to a tax-exempt organization, if properly appraised and donated no sooner than 18 months after its creation.
- Tax haven countries. Amends the Internal Revenue Code to treat certain controlled foreign corporations created or organized under the laws of a tax-haven country as domestic corporations for tax purposes. Sets forth a list of “tax-haven countries” and grants the Secretary of the Treasury authority to remove or add a country from such list.
- Timber tax. Amends the Internal Revenue Code to allow a tax deduction (available to taxpayers whether or not they itemize deductions) for up to 60% of gains from certain sales or exchanges of timber.
- Volunteer use of personal vehicles. Amends the Internal Revenue to provide that volunteers who use their automobiles for the benefit of a charitable organization may exclude from their gross income reimbursements for their automobile operating expenses at the same level as business employees (i.e., 48.5 cents per mile in 2007). Increases criminal sanctions and monetary penalties for: (1) underpayments or overpayments of tax due to fraud; (2) attempts to evade or defeat tax; (3) willful failure to file tax returns, supply information, or pay tax; and (4) fraud and false statements.
- Electricity tax credit. Amends the Internal Revenue Code to eliminate after 2006 the reduction in the rate of the tax credit for electricity produced from open-loop biomass, small irrigation power, landfill gas, trash combustion, and hydropower facilities (thus allowing the same credit rate for all renewable resource facilities).
- Electricity tax credit. Amends the Internal Revenue Code to include kinetic hydropower as a renewable resource eligible for the tax credit for electricity produced from certain renewable resources. Defines “kinetic hydropower” as: (1) ocean free-flowing water derived from flows from tidal currents, ocean currents, waves, or estuary currents; (2) ocean thermal energy; or (3) free-flowing water in rivers, lakes, man-made channels, or streams.
- Active duty military. Amends the Internal Revenue Code to: (1) allow certain small business owners (with 100 or fewer employees) and self-employed individuals a tax credit for wages paid to members of the Ready Reserve of the Armed Forces and to temporary replacement employees for such members while on active military duty; (2) treat differential wage payments made to members of the Ready Reserve as earned income for tax withholding and retirement plan purposes; (3) allow the rollover of military death gratuities to individual retirement accounts, health savings accounts, Archer medical savings accounts, and education savings accounts; (4) increase the standard tax deduction by $1,000 in 2007 and 2008 for members of the uniformed services on active duty for more than 30 days; and (5) make permanent the taxpayer election to treat combat pay as earned income for purposes of computing the earned income tax credit.
- Conservation easements. Amends the Internal Revenue Code to make permanent the tax deduction for charitable contributions by individuals and corporations of real property interests for conservation purposes.
- 1031 exchanges. Amends the Internal Revenue Code to allow tax-free exchanges of shares in certain mutual ditch, reservoir, or irrigation companies.
- Tax rates. Repeals the termination date in the Jobs Growth Tax Relief Reconciliation Act of 2003 for provisions reducing individual tax rates on capital gains and dividend income.
- Long-term trust accounts. Amends the Internal Revenue Code to: (1) establish tax-exempt long-term care trust accounts; (2) allow cash contributions to such accounts up to $5,000 annually; (3) allow an exclusion from gross income for certain distributions, including for long-term care services for chronically-ill individuals; (4) impose penalties for excess contributions to such accounts and for failure to provide required reports on such accounts; and (5) allow a refundable tax credit for 10% of the annual contributions to such accounts.
- School teachers. Amends the Internal Revenue Code to: (1) increase the allowable tax deduction for the expenses of elementary and secondary school teachers to $400; (2) allow the deduction of professional development expenses; and (3) make the deduction permanent.
- Combat zone compensation. Amends the Internal Revenue Code to make permanent the taxpayer election to treat combat zone compensation (otherwise excludable from gross income) as earned income for purposes of computing the allowable earned income tax credit.
- Agricultural tax safety credit. Amends the Internal Revenue Code to allow a retailer of agricultural products and chemicals or a manufacturer, formulator, or distributor of certain pesticides a business tax credit for 30 percent of costs for or related to the protection of such chemicals or pesticides, including employee security training and background checks, installation of security equipment, and computer network safeguards. Sets a $2 million annual limit on such credit and a per facility limitation of $100,000 (reduced by credits received for the five prior taxable years). Terminates such credit after 2010.
- Exxon Valdez benefits. Allows taxpayers who are plaintiffs in the civil action In re Exxon Valdez, No. 89-095-CV (HRH) (Consolidated) (D. Alaska), or their heirs or dependents, to: (1) elect to average, for income tax purposes, income received in settlement of such civil action for the period beginning on January 1, 1994, and ending on December 31 of the year in which any settlement income is received; and (2) make contributions of any amount of such settlement income to certain tax-exempt retirement plans in the year such income is received.
- Employee benefit cafeteria plan. Amends the Internal Revenue Code to establish a new employee benefit cafeteria plan to be known as a Simple Cafeteria Plan. Defines “Simple Cafeteria Plan” as a cafeteria plan which: (1) is established and maintained by an employer with an average of 100 or fewer employees during a two-year period; (2) requires employers to make contributions or match employee contributions to the plan; (3) requires participating employees to have at least 1,000 hours of service for the preceding plan year and allows such employees to elect any benefit available under the plan; (4) permits participation by self-employed individuals; and (5) includes long-term care insurance as an qualified benefit. Exempts employers who make contributions for employees under a simple cafeteria plans from pension plan nondiscrimination requirements applicable to highly compensated and key employees. Modifies rules applicable to employee benefit flexible spending arrangements, including health and dependent care arrangements, to permit participants to make or modify elections regarding covered benefits and to carry over up to $500 (indexed for inflation) of unused benefits to the succeeding year or transfer such unused amounts to another plan, including an individual retirement plan or a health savings account. Allows an exclusion from the gross income of an employee of up to $7,500 ($10,000 for employees with one or more dependents) for employer contributions to a flexible spending arrangement. Provides for a cost-of-living adjustment to such exclusion amounts beginning in calendar year 2007.
- Adoption tax credit. Exempts provisions expanding the adoption tax credit and adoption assistance programs enacted by the Economic Growth and Tax Relief Reconciliation Act of 2001 from the general terminating (sunset) provisions of that Act.
- Stock broker basis reporting. Amends the Internal Revenue Code to include within the reporting requirements of investment brokers the adjusted basis of any security owned by customers of such brokers.