Senate Breaks Impasse, Reaches Deal on Tax Relief Package

WASHINGTON – Senate leaders said Tuesday that they had broken a months-long impasse over a tax break package that would bring billions of dollars in relief to individual and business taxpayers, developers of clean energy resources and people threatened by the alternative minimum tax.

Senate Finance Committee Chairman Max Baucus, D-Mont., and his Republican counterpart on the panel, Charles Grassley of Iowa, said the package could reach the Senate floor this week. The tax package is one of the last major issues that Congress must address in the last weeks before its scheduled adjournment for the year.

The agreement includes some $17 billion in clean energy tax incentives and provides for a fix, at an estimated cost of $64 billion over 10 years, to shield more than 20 million taxpayers in danger of getting hit by the alternative minimum tax.

The AMT was enacted in 1969 to catch a small number of very rich tax dodgers, but was never adjusted for inflation and hits more upper-middle-level income people every year unless Congress acts to protect them.

The Baucus-Grassley measure would also extend numerous targeted tax breaks that expired at the end of last year or are set to die out at the end of this year. Those include tax breaks for college tuition, state and local sales taxes and research and development for U.S. businesses.

"Protecting families from the alternative minimum tax and extending expiring tax cuts will put real money in the pockets of struggling families, and enable entrepreneurs to invest and innovate," Baucus said.

Grassley noted that the agreement also included $7 billion in tax relief to help Iowa and other Midwestern states recover from floods and tornadoes that hit the area this summer.

The compromise had the blessing of Senate Majority Leader Harry Reid, D-Nev., and Republican leader Mitch McConnell, R-Ky. ""It's always a little bit dangerous to predict optimistic outcomes around here, but let's do it anyway." He said he and Reid have basically agreed to the package extending tax breaks that have expired or are about to expire.

Reid and the Democrats have made several attempts this year to advance a tax relief package, but have been thwarted by Republicans objecting to Democratic proposals to offset the costs of the relief. Complicating the issue is that House Democrats have insisted that they will reject any legislation to renew expiring tax bills that adds to the deficit.

Baucus and Grassley said the clean energy tax incentives would be paid for with such measures as freezing the tax deduction for the domestic manufacturing activities of American oil and gas companies and tightening the rules by which oil and gas companies pay taxes on income earned overseas.

The said the extension of expiring family and business tax cuts, which include expansion of the child tax credit and legislation providing parity for mental health treatment, would be partially offset by closing loopholes by which hedge fund managers use offshore corporations to defer taxes on compensation received for investment services.

The AMT fix would not be paid for.

House Majority leader Steny Hoyer, D-Md., asked Tuesday about the Senate actions, said it was "better to do something half right than not to do it at all." He said the House would move with dispatch on the paid-for energy tax breaks. "The part that is not paid for, we'll look at," he said.

Sen. Maria Cantwell, D-Wash., who led negotiations on the energy tax credits with Sen. John Ensign, R-Nev., said the tax credits could mean tens of thousands of jobs.

"This is a major step forward to help get us off our dependence on oil and shift over to renewable technologies like solar, wind and geothermal. That is absolutely the direction we need to go in," Cantwell said.

The bill extends tax credits for renewable energy such as solar power, biomass, hydro and geothermal, and offers up to $760 million in tax credits for plug-in vehicles.