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Mark Schoeff Jr. looks at what's really happening on Capitol Hill - and the upshot for advisers.

Tax reform imminent?

Senate Finance Committee tackles extenders, such as AMT

Aug 2, 2012 @ 3:31 pm

By Mark Schoeff Jr.

Senate Finance Committee Chairman Max Baucus, D-Mont.
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Senate Finance Committee Chairman Max Baucus, D-Mont. (Bloomberg)

As Congress heads toward its summer recess, signs are popping up that there may be some agreement on tax policy lurking under the battle at the surface.

On Thursday, the Senate Finance Committee approved a $151.7 billion package of 52 individual and business tax cuts.

The most prominent of the so-called tax extenders would continue for two years the alternative minimum tax patch, raising the exemption to $50,600 for individuals and $78,750 for joint filers. The committee said that 27 million taxpayers would avoid the AMT under the change.

The agreement comes a day after the House voted to extend all the Bush administration tax cuts – a big part of the looming “fiscal cliff.” Last week, the Senate approved a bill that would continue the Bush cuts only for households making less than $250,000.

Even though the chasm over the Bush tax cuts is deep, movement on the tax extenders was hailed as a breakthrough -- in part because senators streamlined the number of special tax breaks, which are typically renewed, from 73 to 52.

“Today, the Senate Finance Committee is putting progress ahead of politics and working together to provide some certainty to American families and businesses,” said Sen. Max Baucus, D-Mont., chairman of the panel.

Lawmakers said the bill – which also includes extensions of the deduction for state and local general sales taxes and tax-free distributions from individual retirement accounts for charitable gifts – is a harbinger for Capitol Hill comity on broader tax issues.

“This is essentially the prelims for tax reform,” said Sen. Ron Wyden, D-Ore.

Sen. John Kerry, D-Mass., said that the AMT patch would protect 1 million of his Massachusetts constituents from a tax increase next year. Beyond these short-term fixes, Mr. Kerry asserts the Congress can make progress on bigger tax questions.

“There is a strong appetite in the Senate to tackle the tax code as a whole,” Mr. Kerry said.

Although any final congressional action on tax extenders is likely going to be coupled with a decision on the Bush tax cuts during the lame-duck session after the election, it's good that lawmakers are addressing at least part of the fiscal cliff now.

“You have to crawl before you walk,” said Phillips Hinch, assistant director of government relations at the Financial Planning Association. “Anything that hashes out these issues and deals with them is a positive step.”

Like all the other dimensions of tax policy, it's not clear that the Republican House is inclined to agree with the Democratic Senate on tax extenders. The House Ways & Means Committee is taking a wait-and-see approach.

“The House has a review process underway that involves a comprehensive top-to-bottom review of all extenders,” said a committee spokesperson. “While that process continues, we will be watching to see what sort of package emerges from the Senate.”

What came out of one Senate committee today is a bill that addressed at least some of the fiscal cliff – a hopeful step for a divided Congress.

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