California has a new budget

AMT update

U.S. Senate Backs AMT Relief, Tax Breaks for Research, Energy

By Ryan J. Donmoyer

Sept. 23 (Bloomberg) -- The U.S. Senate voted to renew $148.6 billion in temporary corporate and individual tax breaks after the White House dropped a veto threat.

The 93-2 approval, as Congress pushes for adjournment this week, may avoid last year's December brinkmanship that disrupted tax and corporate filings. The House must also vote for the measure before it goes to President George W. Bush.

The two-year measure would spare 24 million households from a $61.8 billion alternative minimum tax increase due to take effect this year, and would revitalize an $8 billion annual research credit for businesses. It also would subsidize some financial services income earned overseas and extend $17 billion of incentives to produce energy from renewable sources such as solar or wind.

The Bush administration withdrew a veto threat prompted by budget-balancing tax increases in the bill. Those include higher burdens on large oil and gas companies and a provision that would cost hedge fund managers who park profits offshore some $25 billion.

The provision would end a technique used by hedge fund managers to defer paying U.S. tax on profits earned overseas for as long as a decade.

``This is not a tax increase on hedge fund managers,'' said Senate Finance Committee Chairman Max Baucus, a Montana Democrat. ``Rather it is a change in the timing of when income tax would be recognized.''

``Congress cannot dawdle any longer,'' said Charles Grassley of Iowa, the top Republican on the Senate Finance Committee and co-author of the measure with Baucus.

Passage today ends months of stalemate over the budget impact of the measure, which renews most provisions only through Dec. 31, 2009. Republicans, who previously opposed any budget- balancing revenue raisers, had blocked various versions of the bill more than half a dozen times this year.

Tax Returns

Last year, Congress passed a similar bill in late December, forcing the Internal Revenue Service to delay accepting some tax returns as it revised forms and reprogrammed computers.

The lapse of certain tax credits -- especially the one for research -- also has forced companies to report lower earnings on financial disclosures because accounting rules don't allow them to assume the tax credits will be renewed.

House Majority Leader Steny Hoyer of Maryland today said his chamber would likely adopt the Senate legislation.

The administration ``supports the passage of this legislation despite the inclusion of several provisions that the administration opposes,'' the Office of Management and Budget said in an official statement of administration policy.

Alternative Minimum Tax

The alternative minimum tax was created in 1969 to prevent 155 wealthy Americans from avoiding any tax by claiming excessive deductions, credits and exemptions. It replaces common preferences such as those for medical expenses and state and local taxes with a flat exemption when the itemized deductions become too large relative to income. Amounts over the exemption are taxed at 26 percent or 28 percent, depending on the amount of income.

Because the exemption was never indexed for inflation, it ensnares a growing number of Americans as incomes and the value of deductions rise unless Congress annually curtails its reach.

The Senate bill renews a research credit used by thousands of companies including Palo Alto, California-based Hewlett- Packard Co. and Midland, Michigan-based Dow Chemical Co. It also extends a provision letting companies such as General Electric Co., Citigroup Inc. and American International Group Inc. defer U.S. tax on income earned from certain lending overseas.

For individuals, the measure renews popular tax breaks such as a deduction for state and local sales taxes. That would add a deduction for residents of states with no income tax such as Texas, Florida and Washington.

Education Deductions

It also renews a $250 tax deduction for teachers who buy their own classroom supplies, a deduction for some college tuition and provides relief for thousands of technology workers who were left owing the alternative minimum tax after their incentive stock options became worthless.

Other incentives for businesses would benefit the Nascar racing association, enhance expired deductions for charitable donations of books and computers and reward companies that do business on Indian tribal lands.

The bill contains $17 billion of incentives for renewable energy that gives an unprecedented boost to the solar-power industry. It also extends tax credits for wind and refineries that process heavy oil.

``It is the most significant legislation ever introduced in Congress for solar,'' said Rhone Resch, president of the Solar Energy Industries Association. ``It will provide a stable market for businesses to grow over the next 10 years.''

The measure also contains $5.3 billion in tax relief for Americans who live in areas affected by natural disasters such as floods.

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

Last Updated: September 23, 2008 18:16 EDT

Latest on California Budget and Tax Issue

Looks like the State of California has finally come up with a budget compromise. It is at this moment at the governors desk for signature of for veto. So this is good news? Well maybe not.

What our wonderful legislature has done is what they usually do and that is bad accounting. They are taking projected future income (taxes) that may or may not come in into account in the balancing of the budget.

What the real problem is that the cost of our California government has gone up 30% since our new, "cut the taxes" governor took office. That is about the same amount of increase that was accounted for under the guy we pitched out. So what has changed?


California government spending has gotten bigger and bigger and our tax burden has gotten bigger and bigger. One must ask, "are we better than we were under the old governor?"

What can we do other than move to some foreign county that will not blow us up just for being an American? Well the best thing is to stay informed. Read what is going on in our government and most importantly, Vote. Take your citizenship seriously.