2006 Tax Return Filing Season Impact of Delayed Legislative Action on Widely-Applicable Tax Relief Provisions

2006 Tax Return Filing Season Impact of Delayed Legislative Action on Widely-Applicable Tax Relief Provisions

Sen. Chuck Grassley, chairman of the Committee on Finance, asked his staff to explore the 2006 tax filing season impact of delaying legislative action on the extension of widely applicable tax provisions. He made the following statement on his staff's findings. A staff background memo follows.

"Three widely-applicable tax provisions expired on December 31, 2005. The provisions are deductions that have been used by millions of taxpayers, most of them middle-income taxpayers. The most widely applicable is the state and local sales tax deduction. According to IRS data, 8.6 million families and individuals claimed the state and local sales tax deduction in 2004. The second widely-applicable deduction is the college tuition and fees deduction. According to IRS data, 3.7 million families and individuals claimed this deduction in 2004. The third widely-applicable deduction is a deduction for teachers who provide their students with classroom supplies. According to IRS data, 2.66 million teachers claimed this deduction in 2004.

"These provisions are bipartisan and overwhelmingly supported in both the House and Senate. At every stage of the tax legislative process for the last two years, I have pressed for extension of these provisions. These provisions were accounted for in the relevant budget resolution and included in both reconciliation bills. Unfortunately these provisions could not be included in the reconciliation tax relief conference agreement that Congress approved in May. At that time, I received assurances that both the House and Senate leadership would support the agreement on these provisions worked out between Chairman Bill Thomas and me. As part of that agreement, these time-sensitive provisions were to be addressed in the pension conference.

"These provisions were transferred to the so-called Trifecta bill, which also dealt with permanent death tax relief and an increase in the federal minimum wage. I voted for the Trifecta legislation. At the time, I indicated my concern over the potential delay in addressing the expiring tax relief measures if the supporters of the Trifecta were not to prevail. Senator Frist entered a motion to reconsider the cloture vote on the Trifecta package. Six weeks have passed since the Trifecta was last considered, and my concern for the millions of families and individual taxpayers who regularly claim the benefits of this tax relief has grown.

"Some members and staff have suggested that these widely-applicable tax relief measures can be dealt with after the elections. If Congress does return after the elections, the date frequently mentioned is November 13, 2006.

"In testimony before the Finance Committee one week ago, IRS Commissioner Everson indicated taxpayers and the IRS would face unnecessary confusion and compliance errors if legislative action on expiring tax provisions were delayed. Upon learning of this problem, I directed Finance Committee tax staff to consult with the Internal Revenue Service about the effects of legislative delay on the upcoming filing season. The attached staff memorandum reflects those discussions.

"A delay of legislative action beyond the anticipated recess date of September 29, 2006, will cause hardship, tax compliance problems and confusion for the millions of taxpayers who claim these widely-applicable tax benefits. Because of the confusion, taxpayers could miss out on valuable benefits through no fault of theirs. I urge the House and Senate leadership, both Republican and Democrat, to take this problem seriously. Specifically, if action is contemplated on the pending Trifecta or a new version of the Trifecta, that action should take place promptly. If the Trifecta passes the Senate, then the widely-applicable provisions will be addressed and taxpayers will not be harmed. If the Trifecta doesn't pass, I urge the House and Senate leadership, both Republican and Democrat, to process the so-called trailer bill, which contains a bipartisan agreement between the tax-writing committees on the expiring provisions. The trailer bill should be processed expeditiously in this event.

"We owe this vigilance to the millions of affected taxpaying families and individuals. They are, after all, our constituents. The tax code is complicated enough. Millions of American family and individual taxpayers have a right to expect us to act carefully and not to unduly complicate their lives."

http://grassley.senate.gov/index.cfm?FuseAction=PressReleases.Detail&PressRelease_id=5168&Month=9&Year=2006