Tax Watch Archive

12/24/11 — Temporary payroll tax cut approved by Congress & signed into law by President.
On the morning of December 23, the Senate approved by voice vote in pro forma session, and the House approved by unanimous consent, H.R. 3765, the "Temporary Payroll Tax Cut Continuation Act of 2011." The bill was signed into law by President Obama shortly thereafter.

After a prolonged stalemate, the House and Senate leaders had agreed late on December 22 to temporarily extend the payroll tax break. The agreement also called for new language to be inserted into the bill to prevent a potential payroll tax problem for employers.

Also as part of the agreement, Senate Majority Leader Harry Reid (D-NV) and House Minority Leader Nancy Pelosi (D-CA) named conferees to a House-Senate committee charged with negotiating a deal to extend the payroll tax cut until the end of 2012. The Senate Democrats named to the committee were Senate Finance Committee Chairman Max Baucus (D-MT), Benjamin Cardin (D-MD), Jack Reed (D-RI), and Robert Casey (D-PA), and the Representatives named to the committee were Sander Levin (D-MI), Xavier Becerra (D-CA), Chris Van Hollen (D-MD), Henry Waxman (D-CA), and Allyson Schwartz (D-PA). The Republican conferees, who were appointed by House Speaker John Boehner (R-OH) on December 20, include Representatives Dave Camp (R-MI), Fred Upton (R-MI), Greg Walden (R-OR), Tom Price (R-GA), Kevin Brady (R-TX), Renee Ellmers (R-NC), Nan Hayworth (R-NY) and Tom Reed (R-NY).

The following material can also be found on Checkpoint:

the legislative language of H.R. 3765, the "Temporary Payroll Tax Cut Continuation Act of 2011"; and
the JCX-58-11, the Joint Committee on Taxation's explanation of the revenue provision contained in H.R. 3765, the "Temporary Payroll Tax Cut Continuation Act of 2011."

12/23/11 — Temporary payroll tax cut approved by House and Senate; awaits President's expected signature.
On the morning of December 23, the Senate approved by voice vote in pro forma session, and the House approved by unanimous consent, H.R. 3765, the "Temporary Payroll Tax Cut Continuation Act of 2011." The bill will now be sent to the President for his expected signature.

More details on H.R. 3765 are available on Checkpoint. Also available on Checkpoint are the legislative language of H.R. 3765, the "Temporary Payroll Tax Cut Continuation Act of 2011," and JCX-58-11, the Joint Committee on Taxation's explanation of the revenue provision contained in H.R. 3765, the "Temporary Payroll Tax Cut Continuation Act of 2011."

12/22/11 — Pressure mounts on House to pass short-term extension of payroll tax break.
On December 22, Senate Minority Leader Mitch McConnell (R-KY) issued a statement urging the Republican-controlled House of Representatives to pass the Senate's version of H.R. 3630 (the Middle Class Tax Relief and Job Creation Act of 2011), carrying a two-month extension of the payroll tax reduction for employees and self-employeds that will under current law expire on Dec. 31, 2011. This public call by a prominent Republican spokesman, added to the drumbeat of criticism by the President and Democrats (as well as some Senate Republicans and a prominent conservative newspaper), may motivate the House to pass the Senate's version of the bill and send it to the President before year-end.

House Republicans had refused to call up the Senate's version of the bill for a vote and instead had insisted on going to conference with the Senate to reconcile their version of the bill, which would extend the payroll tax cut for one full year and make other tax changes, including a 1-year extension of 100% bonus first-year depreciation, with the Senate's version. The Senate has adjourned for the year and Senate Majority Leader Harry Reid (D-NV) has said that he would not recall the chamber to enter into negotiations and that Democratic conferees would not be appointed to a House-Senate conference on the bill.

McConnell's statement attempts to find a middle ground by calling on each side to compromise. He called on the House of Representatives to quickly pass a two-month extension of the payroll tax break, and also called on Senate Majority Leader Reid to appoint conferees on a longer-term extension (and implicitly, for a conference to timely commence). McConnell declared that "House Republicans sensibly want greater certainty about the duration of these provisions 'including extension of the payroll tax break,' while Senate Democrats want more time to negotiate the terms. These goals are not mutually exclusive. We can and should do both."

12/20/11 — House votes to go to conference on bill to extend payroll tax cut; Senate balks.
On December 20, the House of Representatives, by a partisan vote of 229-193, voted to proceed to conference on H.R. 3630, the Middle Class Tax Relief and Job Creation Act of 201, and House Speaker John Boehner (R-OH) immediately appointed conferees. In doing so, the Republican House leadership refused to bring the Senate's version of the legislation up for a vote. Senate Majority Leader Harry Reid (D-NV) responded that he would not recall the chamber (which has already adjourned) to reopen negotiations, and House Minority Leader Nancy Pelosi (D-CA) was quoted as saying she would not appoint conferees to a House-Senate conference on the bill.

The high-stakes showdown pits the Republican-backed House version of H.R. 3630, which passed the House on December 13 by a partisan vote of 234 to 193, against the Senate's version of the bill, which was passed on December 17 by a bipartisan vote of 89 to 10.

The House version of the bill would extend the payroll tax cut for one full year and make other tax changes, including a 1-year extension of 100% bonus first-year depreciation. House Republicans are holding out for their version on the ground that a short-term extension of the payroll tax cut would create too much uncertainty and would be inefficient. By contrast, the Senate bill provides for a two-month extension of the payroll tax reduction for employees and self-employeds that will under current law expire on Dec. 31, 2011. The bill includes a number of nontax changes, including a controversial provision requiring expedited approval of the Keystone pipeline. Champions of the Senate bill say it's the best Congress can do right now and fully expect an additional extension of the payroll tax reduction to be taken up next year.

In the staring contest over H.R. 3630, House Republicans are betting the Senate will blink first and agree to a conference on the bill before year-end. Senate Democrats are betting the House will blink first and pass the short-term extension of the payroll tax cut before December 31.

12/19/11 — Deadlock continues over extension of payroll tax cut.
On Saturday, December 17, the Senate by vote of 89 to 10 approved the Reid-McConnell substitute amendment to H.R. 3630, the Middle Class Tax Relief and Job Creation Act of 2011. The bipartisan amendment provides for a two month extension of the payroll tax reduction for employees and self-employeds that will under current law expire on Dec. 31, 2011. The bill includes a number of nontax changes, including a controversial provision requiring expedited approval of the Keystone pipeline.

Going into the rare Senate weekend vote, the expectation was that the House of Representatives would accept the Senate bill passed on December 17, thereby (1) assuring that individuals' take-home pay would not go up in January, and (2) deferring a longer-term extension of the payroll tax cut reduction until early next year. However, on Sunday, December 18, House Speaker John Boehner (R-OH) said that House Republicans oppose the short-term Senate payroll tax cut bill, and would stick with the version of H.R. 3630 that the House passed on December 17. The House-passed bill would extend the payroll tax cut for one full year, and make other tax changes, including a 2-year extension of 100% bonus first-year depreciation. Boehner said that the House would vote on the Senate bill, and that House Republicans would move another bill that reflects a one year extension of the payroll tax cuts. He also said that he would like to hold a House-Senate conference to work out the details of a final agreement.

The timing and shape of further Congressional action on extension of the payroll tax cut extension is uncertain. After passing the two-month extension of the payroll tax cut, the Senate adjourned for the year, but will hold pro forma sessions twice a week while it is out of session. If the House makes changes to the Senate-passed bill--the Senate-passed two-month extension bill was expected to be considered in the House late in the evening of December 19--it will be necessary to call the Senate back into session to consider the House-passed version of the bill.

12/13/11 — House passes "Middle Class Tax Relief & Job Creation Act of 2011."
On December 13, the House of Representatives by a vote of 234 to 193, passed H.R. 3630, the "Middle Class Tax Relief & Job Creation Act of 2011." The Republican-championed bill heads for the Senate, where its prospects are iffy. Even if the Senate were to pass H.R. 3630 without change, the President has said that he would veto it.

One scenario for H.R. 3630 is that the Senate will pass an amended version of the bill and then send it back to the House for its consideration.

What's in H.R. 3630? This bill would extend through 2012 the 2% reduction in workers' payroll tax and self-employment tax that's scheduled to expire at the end of 2011. It also would make a number of other tax changes, including the following:

The 100% bonus first-year depreciation allowance under Code Sec. 168(k), which under current law won't apply to assets placed in service after 2011 (with the exception of some specialized assets), would be extended to apply for property placed in service in 2012.

RIA observation: Under current law, 50% bonus first-year depreciation is available for property placed in service in 2012. The bill doesn't appear to extend this rule to property placed in service in 2013.

For tax years ending after Dec. 31, 2011, the election to claim AMT credits in lieu of bonus depreciation would be revised to allow taxpayers to instead claim 20% of the amount of the depreciation that the corporation forgoes by not using bonus depreciation, limited to the lesser of: (1) unused AMT credits from tax years ending before Jan. 1, 2011, or (2) 50% of the AMT credit for the first tax year ending after Dec. 31, 2010.
For property placed in service during 2012, solely for purposes of taking into account bonus depreciation property under the percentage of completion method of accounting under Code Sec. 460, only the cost of the property would be taken into account, not the higher bonus depreciation amount (but only with respect to property with a recovery period of seven years or less).
Effective for tax years beginning after the enactment date, taxpayers that claim a refundable tax credit would be required to include their Social Security numbers on their returns.
After 2011, a 100% tax would apply to unemployment compensation claimed by very high income taxpayers.
The amount of "excess advance payments" of the premium assistance credit (enacted as part of the 2010 health care reform legislation to help lower-income individuals acquire affordable health insurance coverage) that a taxpayer must repay under Code Sec. 36B(f)(2) would effectively be increased for some taxpayers. This would apply for tax years ending after Dec. 31, 2013.
Previous tax laws have raised revenue by shifting (i.e, accelerating) estimated tax payments in future years for large corporations (assets of at least $1 billion). Sec. 6001 of the bill would repeal five of these shifts.

H.R. 3630 also includes a large assortment of non-tax-related revenue raisers, as well as unrelated provisions, such as a permit for the Keystone XL oil pipeline from Canada to the U.S. Senate Democrats and the Administration are adamantly opposed to inclusion of the pipeline provision in a payroll tax cut bill, and it may be jettisoned (along with other non-tax changes) to arrive at a compromise.

The following material can also be found on Checkpoint:

the text of a section-by-section summary of H.R. 3630, the "Middle Class Tax Relief & Job Creation Act of 2011"; and
the legislative text of H.R. 3630, the "Middle Class Tax Relief & Job Creation Act of 2011."

12/9/11 — House Republicans' bill extends payroll tax break and 100% bonus depreciation for one year.
On December 9, House Republicans introduced their "Middle Class Tax Relief & Job Creation Act of 2011." The bill would extend through 2012 the 2% reduction in workers' payroll tax and self-employment tax that's scheduled to expire at the end of 2011. It also would make a number of other tax changes, including the following:

The 100% bonus first-year depreciation allowance under Code Sec. 168(k), which under current law won't apply to assets placed in service after 2011 (with the exception of some specialized assets), would be extended to apply for property placed in service in 2012.

RIA observation: Under current law, 50% bonus first-year depreciation is available for property placed in service in 2012. The bill doesn't appear to extend this rule to property placed in service in 2013.

For 2012, the election to claim AMT credits in lieu of bonus depreciation would be expanded.
For 2012, taxpayers that use the percentage of completion method under Code Sec. 460, could treat the cost of qualified property allocated to the contract as if bonus depreciation had not been enacted (a one-year extension of the rule).
Effective for tax years beginning after the enactment date, taxpayers that claim a refundable tax credit would be required to include their social security numbers on their returns.
After 2011, a 100% tax would apply to unemployment compensation claimed by very high income taxpayers.
The amount of "excess advance payments" of the premium assistance credit (enacted as part of the 2010 health care reform legislation to help lower-income individuals acquire affordable health insurance coverage) that a taxpayer must repay under Code Sec. 36B(f)(2) would effectively be increased for some taxpayers, effective for tax years ending after Dec. 31, 2013.
Previous tax laws have raised revenue by shifting (i.e, accelerating) estimated tax payments in future years for large corporations (assets of at least $1 billion). Sec. 6001 of the bill would repeal five of these shifts.

The House Republicans' bill also includes a large assortment of non-tax-related revenue raisers, as well as a number of unrelated provisions, such as a permit for the Keystone XL oil pipeline from Canada to the U.S. Senate Democrats have predicted the House Republicans' bill won't pass the Senate in its current form, and the President has said he would veto any bill that linked quick approval of the Keystone XL pipeline to extending the payroll tax cut.

The legislative text of the House Republicans' "Middle Class Tax Relief & Job Creation Act of 2011" can be found on Checkpoint.

12/8/11 — Senate kills two more bills to extend payroll tax cut through 2012.
On December 8, the Senate killed two more attempts to extend the 2011 payroll tax cut for workers through 2012.

The Senate voted 50 to 48 against the motion to proceed to S. 1944, the "Middle Class Tax Cut Act of 2011." This Democratic payroll tax cut bill would have cut the payroll taxes paid by employees and the self-employed from 6.2% to 3.1%, similar to the earlier Democratic proposal (see Article #2007), and would have retained the original Democratic bill's "millionaires' surtax," but in a reduced 1.9% amount (originally 3.25%).

The motion to proceed to S. 1931, the "Temporary Tax Holiday and Government Reduction Act," also failed, this one by a yes-no vote of 22-76. This Republican bill would have extended through 2012 the 2% reduction in employment and self-employment tax rates, paid for by a 100% tax on unemployment compensation claimed by high-earners, plus an assortment of nontax provisions including increased Medicare Part B and D premiums for Medicare beneficiaries with high incomes plus a federal employee hiring and pay freeze.

RIA observation: Both sides have declared they want to extend the 2011 payroll tax cut through 2012, but, as is evident in the latest Senate votes, they are still far apart on how to pay for that cut.

12/6/11 — Additional bills to extend payroll tax cuts introduced in Senate.
On December 5, following the defeat of both the Democratic and Republican payroll tax cut bills last week (see Article #2011), Senator Bob Casey (D-PA) introduced a new "compromise bill" to extend the payroll tax cuts through 2012. The new bill, S. 1944, carries the same title as the Democrats' prior proposal (the "Middle Class Tax Cut Act of 2011").

The legislation would cut the payroll taxes paid by employees and the self-employed from 6.2% to 3.1%, similar to the earlier Democratic proposal (see Article #2007), but it contains no similar provision for employers. The bill also retains the original Democratic bill's "millionaires' surtax," but in a reduced 1.9% amount (originally 3.25%). The surtax would be effective for tax years beginning after Dec. 31, 2012, and would expire after ten years.

To pay for the compromise bill, Casey is proposing to increase the fees that Fannie Mae and Freddie Mac charge mortgage lenders to guarantee repayment of new mortgage loans. The compromise bill also includes also a number of provisions from the Republicans' bill, including making millionaires ineligible for unemployment compensation and food stamps (see Article #2010). Senate Majority Leader Harry Reid (R-NV) said that he hopes to bring the Demoractic compromise bill to the Senate floor on Friday.

Also on December 5, Senators Susan Collins (R-ME) and Claire McCaskill (D-MO) announced their agreement on the "Bipartisan Jobs Creation Act," a jobs bill that includes an extension of the payroll tax cut. The tax changes proposed in the bill include:

extending the current payroll tax cut for employees through 2012;
lowering the payroll rate for employers to 4.2% on the first $10 million of payroll for 2012;
providing a tax credit equal to 25% of qualified equity investment in high-tech small businesses that are less than five years old and headquartered in the U.S.; and
extending for one year 100% bonus depreciation under Code Sec. 168(k)(5), the research and development tax credit under Code Sec. 41, and 15-year depreciation period for qualified restaurant and retail improvement property under Code Sec. 168(e).

The bill would be paid for by imposing a 2% millionaires' surtax, with a "carve-out" to protect small businesses, and repealing certain tax breaks for the five largest oil companies.

The following material can also be found on Checkpoint:

the text of the new "Middle Class Tax Cut Act of 2011"; and
a summary of the "Bipartisan Jobs Creation Act."

12/2/11 — Democratic & Republican payroll tax reduction bills both fail, clearing the way for possible compromise.
On December 1, as expected, both the Democratic and the Republican payroll tax bills met defeat in the Senate. Both bills failed to gain the 60 votes necessary for cloture (i.e., to cut off debate and proceed to consideration of a bill).

The Senate voted 51 to 49 against the motion to invoke cloture on the motion to proceed to S. 1917, the Democrats' Middle Class Tax Cut Act. This bill would have cut 2012 payroll taxes for both employers and employees, financed with a 3.25% surtax on millionaires. The Senate also voted 20 to 78 against the motion to proceed to S. 1931, the Republicans' Temporary Tax Holiday and Government Reduction Act. The Republicans' bill would have cut 2012 payroll taxes for employees and financed the reduction through a variety of nontax provisions.

Defeat of both parties' partisan approaches clears the stage for an attempt at compromise before the payroll tax cut ends on Dec. 31, 2011. Leaders of both parties haver said they want to see the 2011 payroll tax cut extended through 2012.

12/1/11 — Senate Republicans introduce 2012 payroll tax cut bill, financed by nontax offsets.
On November 30, Senator Dean Heller (R-NV) introduced the "Temporary Tax Holiday and Government Reduction Act." The bill, which would extend through next year the 2011 payroll tax cut for employees and self-employeds, is the Senate Republicans' alternative to the Senate Democrats' bill that would cut both employer and employee payroll taxes and pay for it with a millionaire's surtax (see Article #2007).

The Republicans' bill would use non-tax offsets to pay for continuing the current temporary payroll tax holiday. It would freeze federal workers' pay for three years and reduce the federal workforce by 10%. Wealthy individuals (adjusted gross income over $750,000, but over $1.5 million for joint filers) would be required to pay a nondeductible tax equal to part or all of any unemployment compensation they collect, and those with income or assets of at least $1 million would be ineligible for food stamps. Individuals with more than $750,000 of income (but less than $1 million) would be required to pay 95% of Medicare Part B and Part D premiums (those with income over $1 million or more would have to pay 100% of such premiums). Another provision would allow taxpayers who feel they are not taxed enough to voluntarily donate any amount of money to the U.S. Treasury on their tax returns for the purpose of paying down the national debt.

RIA observation: Both the Republican and Democratic approaches are likely to be defeated, thereby clearing the stage for a last-minute attempt at compromise before the payroll tax cut ends on Dec. 31, 2011.

The text of the "Temporary Tax Holiday and Government Reduction Act" can be found on Checkpoint.

12/1/11 — House votes to eliminate taxpayer funding of Presidential election campaigns.
On December 1, the House of Representatives by a vote of 235 to 190 approved H.R. 3463, a bill that would repeal Code Sec. 6096, which allows every individual (other than a nonresident alien) whose income tax liability for the tax year is $3 or more to designate that $3 be paid over to the Presidential Election Campaign Fund. The repeal would be effective for tax years beginning after Dec. 31, 2010. The bill also would abolish the Presidential Election Campaign Fund and the Presidential Matching Payment Account.

In a Statement of Administration Policy issued on December 1, the White House declared that it strongly opposed H.R. 3463, because it would "terminate the Nation's Presidential election public financing system, expanding the power of corporations and special interests in the Nation's elections." The policy statement also said the bill would "force many candidates into an endless cycle of fundraising at the expense of engagement with voters on the issues, and would place a premium on access to large donor or special interest support, narrowing the field of otherwise worthy candidates."

The legislative text of H.R. 3463, as passed by the House of Representatives can be found on Checkpoint.

11/30/11 — Senate Republicans support extension of payroll tax cut, with non-tax offsets.
On November 29, Senate Minority Leader Mitch McConnell (R-KY) said that Senate Republicans would agree to extend the 2011 payroll tax cuts for individuals for one year, namely through 2012. Without Congressional action, the 2012 Social Security tax for employees will rise from 4.2% to 6.2% of earnings up to the $110,100 wage base, and the OASDI portion of self-employment tax paid by self-employeds will rise from 10.4% to 12.4% of self-employment income up to $110,100. McConnell said that the payroll tax cuts would have to be fully offset, but not through increased taxes.

RIA observation: By contrast, Senate Democrats have introduced a bill that would cut both employer and employee payroll taxes and pay for it with a millionaire's surtax (see Article #2007). Their bill is expected to be taken up by the Senate later this week.

11/29/11 — Senate Democrats introduce 2012 payroll tax cut, offset by millionaire's surtax.
On Nov. 28, Senator Bob Casey (D-PA) introduced S. 1917, the "Middle Class Tax Cut Act of 2011," which would cut 2012 payroll taxes for both employers and employees and pay for it via a millionaire's surtax.

The legislation would:

Cut in half (from 6.2% to 3.1%) the Social Security payroll tax paid by employees and the self-employed on their 2012 wages and salaries.
Cut in half (from 6.2% to 3.1%) the payroll taxes paid by employers on the first $5 million of taxable payroll for 2012.
Provide incentives to hire new workers by completely eliminating the Social Security payroll tax paid by employers on the first $12.5 million of an employer's increased taxable payroll for the 4th quarter of 2011 and $50 million in increased payroll for 2012.
Offset the cost of the above payroll tax breaks by imposing a 3.25% surtax on income in excess of $1 million for single filers and married couples filing jointly. The surtax would be effective for tax years beginning after Dec. 31, 2012.

RIA observation: This bill represents the third time Senate Democrats will attempt to pass portions of the American Jobs Act, which died on the vine in the Senate on October 11 (see Article #1982). The first two attempts failed to pass the Senate (see Article #2000 and Article #1991) because of Republican opposition to offsets taking the form of a millionaire's surtax. The third attempt likely will meet the same fate.

The text of S. 1917, the "Middle Class Tax Cut Act of 2011" can be found on Checkpoint.

11/29/11 — Public law number assigned to 3% Withholding Repeal and Job Creation Act.
A public law number has been assigned to the "3% Withholding Repeal and Job Creation Act," which was signed into law by President Obama on November 21. It is P.L. 112-56.

Among other things, this law repeals a controversial 3% withholding rule for payments due to vendors providing services to federal, state, and local governmental entities; tightens eligibility for a refundable health-related tax credit under Code Sec. 36B; and amends the Code Sec. 51 work opportunity tax credit (WOTC) to give employers bigger tax credits for hiring certain veterans. For details on this new law, see Weekly Alert - 11/23/2011.

11/16/11 — House passes Senate-amended bill repealing 3% governmental contractor withholding and enhancing credits for hiring veterans.
On November 16, the House of Representatives by a vote of 422 to 0 passed H.R. 674, the "3% Withholding Repeal and Job Creation Act," as amended by the Senate on November 10. Thus, the measure is on its way to the White House for the President's expected signature.

H.R. 674:

Repeals the controversial 3% withholding requirement under Code Sec. 3402(t) on payments due to vendors providing services to federal, state, and local governmental entities.
Tightens eligibility for a refundable health-related tax credit under Code Sec. 36B.
Amends the Code Sec. 51 work opportunity tax credit (WOTC) to give employers a tax credit of up to $5,600 for hiring veterans who have been looking for a job for six months or more (up to $9,600 for hiring disabled veterans). The boosted credit amounts apply for those beginning work for the employer after the enactment date. The WOTC, which under current law doesn't apply to workers starting work after Dec. 31, 2011, is extended for one year for those hiring qualified veterans.
Effective for levies issued after the enactment date, the Code Sec. 6331(h)(3) continuous 100% tax levy on "specified payments" to vendors for goods and services sold or leased to the federal government is extended to include payments for property, goods, or services sold or leased to the federal government.
No more than 12 months after the enactment date, Treasury will have to submit to the appropriate Congressional committees a study on ways to reduce the amount of federal tax owed but not paid by persons submitting bids or proposals for the procurement of property or services by the federal government.

RIA observation: For a more detailed Special Study on the tax provisions in H.R. 674, the "3% Withholding Repeal and Job Creation Act," see Weekly Alert - 11/23/2011.

H.R. 674 also includes non-tax provisions that provide job-finding assistance to returning veterans.

Only Title I of H.R. 674 (Three Percent Withholding Repeal and Job Creation Act), as first passed by the House of Representatives on October 28, survived after the Senate's amendment of the bill (which the House then accepted). The Senate on November 10, struck the rest of H.R. 674 as first passed by the House, and inserted Title II (Vow to Hire Heroes), Title III (Other Provisions Relating to Federal Vendors), Title IV (Modification of Calculation of Modified Adjusted Gross Income For Determining Certain Healthcare Eligibility), and Title V (Budgetary Effects).

RIA caution: The engrossed version of H.R 674 as passed by the House and Senate is not yet ready. The legislative language of all five Titles of H.R. 674 is carried in the two documents that follow.

The following material can also be found on Checkpoint:

the legislative text of Title I (Three Percent Withholding Repeal and Job Creation Act), as first passed by the House of Representatives on October 28. Note that only Title I of this text survives in the final bill;
the legislative text of Titles II through V of H.R. 674, as passed with an amendment by the Senate on November 10, and passed by the House on November 16.

11/10/11 — Senate passes bill repealing 3% governmental contractor withholding and enhancing credits for hiring veterans.
On November 10, the Senate by a vote of 95 to 0, 1 present, approved H.R. 674, which repeals 3% withholding on government contractor payments. Prior to passage of the bill, the Senate approved Amendment #927, which amends H.R. 674 to include enhanced credits for hiring veterans, and a provision broadening a levy rule applicable to federal contractors. Because the Senate-passed bill differs from the version approved earlier by the House, H.R. 674 now heads back to the House for its reconsideration.

Both the Senate and House-passed versions of H.R. 674 would repeal the controversial 3% withholding requirement under Code Sec. 3402(t) on payments due to vendors providing services to federal, state, and local governmental entities. And in both versions, the repeal would be paid for by way of a tightening of eligibility for a refundable health-related tax credit under Code Sec. 36B.

However, the bill as passed by the Senate also includes the following tax-related provisions:

an amendment of the Code Sec. 51 work opportunity tax credit (WOTC) to give employers a tax credit of up to $5,600 for hiring veterans (up to $9,600 for hiring veterans with service-connected disabilities) who have been looking for a job for six months or more. The credits would apply for those beginning work for the employer after the enactment date. The WOTC, which under current law doesn't apply to workers hired after Dec. 31, 2011, would be extended for one year for those hiring qualified veterans.
Effective for levies issued after the enactment date, the Code Sec. 6331(h)(3) continuous 100% tax levy on "specified payments" to vendors for goods and services sold or leased to the federal government would be extended to include payments for property, goods, or services sold or leased to the federal government.
No more than 12 months after the enactment date, Treasury would be required to submit to the appropriate Congressional committees a study on ways to reduce the amount of federal tax owed but not paid by persons submitting bids or proposals for the procurement of property or services by the federal government.

The Senate-passed version of H.R. 674 also includes detailed non-tax provisions that would provide job-finding assistance to returning veterans.

The following material can also be found on Checkpoint:

Senate Amendment #927 to H.R. 674, an amendment to the bill that was adopted prior to the bill's passage by the Senate; and
the legislative text of H.R. 674, as passed by the House of Representatives.

11/8/11 — Senate to vote on repeal of 3% government contractor withholding; enhanced credits for hiring veterans may be added.
On November 7, the Senate by a vote of 94 to 1 approved the motion to invoke cloture (i.e., cut off debate) on the motion to proceed to H.R. 674, a bill to repeal 3% withholding on government contractor payments. But the Senate may not rubber-stamp the House-passed bill and may seek to change it, including adding enhanced credits for hiring veterans.

As passed by the House on October 27 (see Article #1996), H.R. 674 would repeal the controversial 3% withholding requirement under Code Sec. 3402(t) on payments due to vendors providing services to federal, state, and local governmental entities. The repeal would be paid for by way of a tightening of eligibility for a refundable health-related tax credit under Code Sec. 36B.

Senate Majority Leader Harry Reid (D-NV) has said that he would seek to amend the House-passed measure so that repeal of the 3% withholding rule would only apply to contractors who are not delinquent on their taxes. Under Reid's approach, 3% withholding would apply to contractors who are delinquent on their tax bills.

Additionally, Senate Democrats will attempt to offer as an amendment to the bill the "VOW to Hire Heroes Act of 2011," which was unveiled on November 4 by Senate Democrats. The veterans bill would, among other things, amend the Code Sec. 51 work opportunity tax credit (WOTC) to give employers a tax credit of up to $5,600 for hiring veterans (up to $9,600 for hiring veterans with service-connected disabilities) who have been looking for a job for six months or more. The credits would apply for those beginning work for the employer after the enactment date.

The WOTC, which under current law doesn't apply to workers hired after Dec. 31, 2011, would be extended for one year for those hiring qualified veterans.

The veterans tax credit provisions were part of the President's American Jobs Act proposal (see Article #1982).

The following material can also be found on Checkpoint:

the legislative language of the "VOW to Hire Heroes Act of 2011";
a one-page summary of the "VOW to Hire Heroes Act of 2011"; and
the legislative text of H.R. 674, as passed by the House of Representatives.

11/4/11 — House Democrats introduce bill extending UI benefits and staving off FUTA tax increases for employers.
On November 4, House Democrats introduced the "Emergency Unemployment Compensation Act." This legislation, which would extend federal unemployment insurance (UI) programs through 2012, also would prevent employers from paying a higher 2011 federal unemployment tax (FUTA) bill.

FUTA tax rate complications. Effective for wages paid beginning July 1, 2011, the FUTA tax rate, before consideration of state unemployment tax credits, is 6.0%. Many employers are allowed to claim 5.4% in state unemployment tax credits (known as the "normal credit") against the FUTA tax rate if they timely pay their state unemployment taxes, making the net FUTA rate 0.6% beginning with wages paid on July 1. (Code Sec. 3302(a))

However, the state unemployment tax credit may be lower for employers located in financially strapped states. Under Title XII of the Social Security Act, states with financial difficulties can borrow funds from the federal government to pay unemployment benefits. But if a state defaults on its repayment of the loan, the normal credit available is reduced. This effectively increases the employer's FUTA tax rate by 0.3% beginning with the second consecutive January 1 in which the loan isn't repaid, then an additional 0.3% annually thereafter. (Code Sec. 3302(c)) Thus, the net FUTA tax rate paid by an employer in a state that has had an unpaid loan with the federal government for two consecutive years will be 0.3% higher than the net 0.6% rate used by employers in states without past due loans. The net FUTA tax rate continues to rise 0.3% for each additional year that the loans remain unpaid. A number of states currently are behind on their loans from the federal government. See Weekly Alert - 07/28/2011 for more details.

Sec. 202 of the "Emergency Unemployment Compensation Act" would amend Code Sec. 3302(c) to eliminate automatic tax increases under FUTA that are due in January 2012 (for tax year 2011) from employers in states with outstanding UI loans to the Federal government. This tax relief would be conditioned on a state entering into a voluntary agreement under Sec. 203 of the bill. During the period of the agreement, a state could not alter the method of determining eligibility for, or calculating the amount or duration of, regular unemployment benefits.

The following material can also be found on Checkpoint:

the legislative text of the "Emergency Unemployment Compensation Act"; and
a press release on the "Emergency Unemployment Compensation Act."

11/4/11 — Cloture motion filed on bill repealing 3% government contractor withholding.
On November 3, Senate Majority Leader Harry Reid (D-NV) filed cloture on the motion to proceed to H.R. 674. As passed by the House on October 27 (see Article #1996), this bill would repeal the controversial 3% withholding requirement under Code Sec. 3402(t) on payments due to vendors providing services to federal, state, and local governmental entities. The repeal would be paid for by way of a tightening of eligibility for a refundable health-related tax credit under Code Sec. 36B.

Reid has said that he would seek to amend the House-passed measure so that repeal of the 3% withholding rule would only apply to contractors who are not delinquent on their taxes. Under Reid's approach, 3% withholding would apply to contractors who are delinquent on their tax bills.

11/3/11 — Senate Democrats once again fail to advance part of American Jobs Act agenda.
On November 3, the Senate failed to gain the 60 votes necessary to proceed to the consideration of S. 1769, the "Rebuild America Jobs Act." S. 1769 would have provided over $56 billion to rebuild roads, rails and airports, and would have established a National Infrastructure Bank, paid for by way of a 0.7% surtax on modified adjusted gross income in excess of $1 million for both single filers and married couples filing jointly. The surtax would have been effective for tax years beginning after Dec. 31, 2012. S. 1769 also would have extended for two years the exemption from alternative minimum tax treatment for certain tax-exempt bonds.

The defeat of the "Rebuild America Jobs Act" represents the second failed attempt by Senate Democrats to advance part of the President's American Jobs Act agenda. The first such piecemeal effort, to finance the hiring of teachers and first responders with a 0.5% surtax on millionaires, was defeated in October (see Article #1991).

11/3/11 — Senate won't consider Surface Transportation Extension Act.
On November 3, the Senate failed to garner the 60 votes necessary to proceed to the consideration of S. 1786, the "Long-Term Surface Transportation Extension Act of 2011." This measure would have, among things extended a number of highway-related taxes.

11/2/11 — Senate to consider repeal of 3% government contractor withholding, but Reid wants to limit repeal's scope.
On November 1, H.R. 674, was placed on the Senate's legislative calendar. This bill, which passed the House on October 27 (see Article #1996), would repeal the controversial 3% withholding requirement under Code Sec. 3402(t) on payments due to vendors providing services to federal, state, and local governmental entities, paid for by way of a way of a tightening of eligibility for a refundable health-related tax credit under Code Sec. 36B.

However, a potential obstacle to quick passage emerged on November 1, when Senate Majority Leader Harry Reid (D-NV) said he would seek to amend the measure so that repeal of the 3% withholding rule would only apply to contractors who are not delinquent on their taxes. Under Reid's approach, 3% withholding would apply to contractors who are delinquent on their tax bills.

11/2/11 — Cloture motion filed on Rebuild America Jobs Act.
On November 1, Senate Majority Leader Harry Reid (D-NV) filed cloture on the motion to proceed to S. 1769, the "Rebuild America Jobs Act." This legislation would provide over $56 billion to rebuild roads, rails and airports, and establish a National Infrastructure Bank, paid for by way of a 0.7% surtax on modified adjusted gross income in excess of $1 million for both single filers and married couples filing jointly. The surtax would be effective for tax years beginning after Dec. 31, 2012. S. 1769 also would extend for two years the exemption from alternative minimum tax treatment for certain tax-exempt bonds.

The "Rebuild America Jobs Act" represents the second attempt by Senate Democrats to advance part of the President's American Jobs Act. The first such piecemeal effort, to finance the hiring of teachers and first responders with a 0.5% surtax on millionaires, was defeated in October (see Article #1991).

The text of S. 1769, the "Rebuild America Jobs Act" can be found on Checkpoint.

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