It’s typical for progress to stall during the postelection lame-duck session, but that wasn’t the case for the 111th Congress. The push to wrap up business before Christmas made it one of the more active legislatures in history.
Lawmakers put the finishing touches on a host of issues, including tax cuts, estate taxes, biofuels and food safety. Some of their actions were merely extensions of existing provisions, but they at least made headway.
This progress, coupled with President Barack Obama’s willingness to work with congressional Republicans to devise a plan, signaled to many observers that Obama is prepared to move more to the middle given the split control headed to Capitol Hill.
As the mammoth tax package was unveiled, it prompted howls of protest from lawmakers, primarily Democrats. Even Sen. Tom Harkin (D-Iowa) criticized the package as “obscene” relative to the 2001 and 2003 extension of tax cuts for the “rich,” even though the package had ag-friendly provisions that dealt with biofuels and estate taxes.
In the end, the House cleared the package 193 to 165 and the Senate 81 to 19. But with many of the provisions continued for either one or two years, future decisions loom still.
Tax cuts. President Obama negotiated a plan with congressional Republican leaders to extend tax cuts for two years for all taxpayers. Also included is a two-year extension of the reduced 15% maximum tax rate for capital gains and dividends, as well as the 0% rate for those in the lowest two tax brackets.
The payroll tax is reduced by 2% for 2011. Employees will pay 4.2%, instead of 6.2%, on wages up to $106,800, and self-employed individuals will pay 10.4%, instead of 12.4%, on their self-employment income up to the threshold.
Estate taxes. Included in the package was a two-year estate tax with a $5-million-per-person ($10-million-per-couple) exemption (indexed for inflation) and a 35% rate beyond that. It carries an estimated cost of $68.1 billion throughout 10 years.
The plan repeals the modified carry-over basis rules under the 2001 tax law that would apply for purposes of determining basis in property acquired from a decedent who dies in 2010. A recipient of property acquired from a decedent who dies after Dec. 31, 2009, generally would receive fair market value basis (also known as step-up basis) under the basis rules that are applicable to
assets acquired from decedents who died in 2009.
For a decedent who dies during 2010, the executor of the estate can elect to apply the tax code as if the new estate tax and step-up basis rules had not been enacted. The executor could elect to have present law, as enacted under the 2001 tax law, apply, and the estate would not be subject to estate tax.
Biofuels. The ethanol blender credit is extended for one year at the current rate of 45¢ per gallon. The import duty on ethanol continues for a year at 54¢ per gallon, which will cost $4.9 billion during a 10-year period. The biodiesel tax credit was made retroactive to Jan. 1, 2010, and extends through the end of 2011 at $1 per gallon. It carries a cost of $2 billion for 10 years. The ethanol blender credit would have expired Dec. 31 without congressional action and the biodiesel tax credit lapsed at the end of 2009, with lawmakers unable to restart it until the tax cut/stimulus package came along.
While the estate and biofuels provisions, along with extension of the 2001 and 2003 tax cuts, clearly built Republican support, the plan also contained a 13-month extension (through Jan. 3, 2012) of unemployment benefits for laid-off workers. There is 100% federal funding to help state programs cover the costs of the additional unemployment benefits. The unemployment benefits, which provide up to 99 weeks of assistance in some states, expired on Nov. 30, and the measure makes the benefits retroactive to that date. This provision will cost an estimated $56.5 billion during 10 years.
Alternative minimum tax. Another seemingly regular “fix” was included relative to the alternative minimum tax (AMT). The package has a two-year “patch” to prevent AMT from affecting 25 million taxpayers. For 2010, the measure sets the exemption amounts (i.e., the income not subject to taxes under AMT) at $47,450 for individuals and $72,450 for couples filing jointly. It increases the exemption amounts for 2011 to $48,450 and $74,450, respectively.
The package has another important provision for agriculture, in that it allows businesses to expense 100% of the cost of qualified property placed in service after Sept. 8, 2010, and before Jan. 1, 2012. It also provides for a 50% first-year additional depreciation deduction for qualified property placed in service in 2012. The threshold limit for 2012 would be $125,000 per year, with a phaseout for capital expenditures exceeding $500,000. The provision is estimated to cost $21.8 billion during 10 years.
Republicans halted plans to put through a $1.1 trillion omnibus spending package that would have funded the government for the rest of the current fiscal year. Instead, lawmakers approved a continuing resolution that will keep the government operating until March 4. That means lawmakers will still have to wrestle with the issue in 2011.
Ag panel shifts
While the elections shifted House control to Republicans and Senate Ag Committee Chair Blanche Lincoln (D-Ark.) was defeated in her re-election bid, there is another key change ahead. Sen. Pat Roberts (R-Kan.) is expected to become the new ranking minority member on the Senate Ag Committee as Sen. Saxby Chambliss (R-Ga.) takes the top GOP role on the Senate Intelligence Committee. Roberts has years of ag panel experience in both the House and Senate, presiding over passage of the 1996 farm bill as chairman of the House Ag Committee.
Chambliss was a key point person in putting together a North-South coalition of lawmakers during the 2008 farm bill process, and Roberts certainly has the credentials to continue that important relationship.
Roberts acknowledged Southern interests, primarily cotton and rice, during the 1996 farm bill talks, realizing that there needs to be broad support for a bill’s passage. That ability could serve Roberts and U.S. agriculture well during the debate on the 2012 farm bill that is expected to be heavily impacted by budget issues.