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Managing America: Taxes

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Week Ending February 16, 2006

H.R.976 To amend the Internal Revenue Code of 1986 to provide tax relief for small businesses, and for other purposes.

This bill comes after the passage of HR 2 , the increase in minimum wage bill and follows the Senate version of HR 2 in which Senators added numerous business tax breaks to total $8.3 billion. The purpose of this bill as were the amendments to HR 2 is to reduce the impact on small businesses (businesses with yearly income under $10 million) who will be required to increase the current $5.15 per hour minimum wage to $7.25 per hour over two years.

Hiring the economically disadvantaged is stimulated by the provision that a tax break can be had if the employee lives within an empowerment zone designed to improve economics in challenged communities. A tax credit for hiring disabled veterans is authorized if the veteran is receiving food stamps, is entitled to a service-connected disability and is being hired on a date not more than 1 year after having been discharged or released from active US military duty or has aggregate periods of unemployment equal to or greater than 6 month during the year ending on the date of hiring.

The disabled veteran is one of eight targeted hiring groups. Others eligible for such hiring includes an individual receiving financial benefits under Aid to Families with Dependent Children or Temporary Aid to Needy Families; veterans receiving food stamps for three consecutive months in the 15 months before hiring; Ex-felons released within 12 months if the felon is from an economically disadvantaged family; disabled persons receiving rehabilitative services or completed the rehab within 2 years prior to hire; any individual between 18 and 24 and who is a member of a family receiving food stamps for 6 continuous months; Recipients of Supplemental Security Income benefits for any month within two months of hire

Employers opting to hire from the list get breaks on taxes paid for 25% to 40% of wages the first year up to $6,000 in wages. The percentage break is based on 120 to 400 hours for 25% and 400 or more hours at $40%.

Business expensing limitations are improved by raising the amount allowed to be quickly written off as opposed to lengthy depreciation from $100,000 by $25,000 after 2006 and from $400,000 to $500,000 for taxable years beginning after 2002.

Tips on services performed after December 31, 2006 are taxable only if tipping for delivering or serving food or beverages for consumption is customary.

The bill aims to simplify family business tax accounting by not treating a husband and wife joint venture return as a partnership and by dividing all items of income, gain, loss, deduction and credit between the two. The break only applies to husband and wife joint ventures and both spouses must elect the option.

Some dependents may not be allowed the lowest capital gains rate of 15%. Taxpayer must be under 19 or a student under 24, and a US resident with a tax home in a foreign country and with a gain that does not exceed one half of the individual’s support.

If the Secretary of Treasury does not contact a taxpayer with a liability within 18 months of the return being filed no fines or interest will accrue on the amount owed. Fraud, recognized tax liabilities, interest and penalties due to a gross misstatement are not included.

Corporate estimated taxes for companies with fewer than $1 billion in assets the amount of an required installment of estimated taxes due July, August or September of 2006 shall be 15% of the estimated amount, 106.5% on amounts due in July, August or September of 2012 and 100.75% in the same time period for 2013.

Sponsor:  Rep. Charles B. Rangel (D-NY-15^th)

Vote: Passed House 360 to 45 February 16, 2007 (RC 102). The bill passed the Senate amended (to include the text of S 1893) August 2, 2007 68 to 31 RV 307 The Conference Report was agreed to in the House 265 to 169 RC 906. Cloture was agreed to in the Senate  69 to 30 RV 352 and the conference report was agreed to in the Senate 67 to 29.RV 353.

Cost to the taxpayers: $1.3 billion in lost tax revenue. When considered in the Senate, the text of this bill was substituted with the text of S 1893, the bill reauthorizing spending for the State Children's Health Insurance Program. The Senate would spend about $50 billion for that program.

Earmark Certification: Not applicable to this bill.

SENATE AMENDMENTS TO HR 976

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