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Tax News & Views
                                                                                                                       February 17, 2012

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Congress approves extended payroll tax holiday without tax offsets; president's signature expected

The House and Senate on February 17 approved legislation that extends through 2012 the current-law 2 percent payroll tax relief, emergency unemployment insurance benefits, and provisions to prevent a cut in payments to doctors who serve Medicare beneficiaries (the so-called “doc fix”). Final passage of the Middle Class Tax Relief and Job Creation Act of 2012 (H.R. 3630) comes after congressional leaders reached a deal February 16 following four official conference committee meetings since the end of January that showed no significant progress.

President Obama is expected to quickly sign the measure into law.

No tax offsets, no extenders

The legislation does not include significant tax offsets. In fact, the $93.2 billion 10-year revenue cost of extending payroll tax relief through 2012 is not offset at all under the conference report.

The final package also does not extend expired or expiring tax provisions such as the research and development tax credit or the production tax credit for wind facilities, nor does it extend through 2012 the 100 percent bonus depreciation for qualified property placed in service before 2013. Many lawmakers had viewed the payroll tax legislation as a “last chance” to address extenders provisions early in the year. The fact that expired and expiring provisions were not included in this legislation increases the likelihood that they will not be addressed until a lame-duck session after the November elections.

The conference report does include a tax provision that repeals shifts in corporate estimated tax payments as passed in the Corporate Estimated Tax Shift Act of 2009; the Hiring Incentives to Restore Employment Act; and the Korea, Colombia, and Panama trade agreements. Repeal of these provisions does not have a revenue impact.

Next up: Highway funding

Congress is out of session during the week of February 20 to observe the President’s Day recess. Upon their return the week of February 27, both chambers are expected to resume consideration of their respective versions of a long-term reauthorization of surface transportation funding.

The Senate bill (S. 1813) includes a variety of tax offsets related to, among other things, the treatment of certain distributions of subsidiary debt securities in so-called reverse Morris Trust transactions. For its part, the House bill (H.R. 7) does not include significant additional tax provisions beyond the extension of current-law highway excise taxes.

The legislation currently authorizing Highway Trust Fund taxes and expenditures expires after March 31.

— Joel Deuth
     Tax Policy Group
     Deloitte Tax LLP

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