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.
Published by RIA Newsstand 12/14/11.
