WASHINGTON – Millions of entrepreneurs, teachers and parents with children in college have a financial stake in whether Congress, in the dying hours of Republican rule, revives tax breaks that expired 11 months ago.
If Congress fails to act, teachers no longer will be able to deduct up to $250 for the books and supplies they pay for out of their own pocket.
Also, residents of Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming – each without an income tax – will miss out on an average $1,500 deduction for state and local sales taxes.
Lawmakers have tried all year to renew the diverse mix of targeted tax breaks.
The breaks, which expired Jan. 1, enjoy wide support in both parties. Precisely because of this, lawmakers have sought to add them as a “sweetener” to contentious legislation in hopes of getting that legislation through.
Before the election, Republicans tried unsuccessfully to link the tax cuts to a bill that would reduce the estate tax, which most Democrats find unacceptable, and raise the federal minimum wage, which many Republicans dislike.
Lawmakers will take one more shot when they return this week to wrap up their work for the year. Yet they may not have the time or the will to agree on a compromise.
Aides in the House and Senate said it is possible, with prospects best if the tax bill is not combined with other measures as Congress rushes to get out of town.
Negotiators say they have agreed that the proposal will cover two years, retroactive to 2006 and through 2007.
Businesses could be big losers if Congress fails to renew the research and development tax credit, which offers a 20 percent credit for new activities. One estimate puts the value of the credit to businesses at $16.5 billion.
“There are some expenditures by the U.S. government that should really be called investments,” William Archey, head of the American Electronics Association, said recently. “The R&D tax credit is unequivocally an investment.”
Also important, said Philip Beram, chief tax counsel with the U.S. Chamber of Commerce, are provisions that allow employers to claim a tax credit of up to $3,500 for the first year of a worker who received public welfare for an extended time.
Businesses also benefit from the provision allowing people from the seven states without income taxes to deduct state and local sales taxes. The Internal Revenue Service said that on 2004 returns, 11.1 million taxpayers in those states claimed $17.3 billion in deductions from state and local sales taxes.
Also in 2004, an estimated 4.7 million families claimed $10.7 billion in deductions for college tuition and fees. In the legislation that Congress failed to pass before the November election, taxpayers could claim above-the-line deductions of up to $4,000, depending on their income, for higher-education expenses.
In 2004, the full deduction was available to a taxpayer earning up to $65,000, or $130,000 for a couple filing jointly. A person earning up to $80,000, or $160,000 for a couple, could claim up to $2,000.
Meantime, 3.4 million teachers took advantage of the $250 deduction for personal costs incurred to buy supplies for their classrooms.
