At press time in mid-December, all odds were in favor of both the House and Senate passing the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the bill introduced by Senate Majority Leader Harry Reid, D-Nev., which extends the Bush-era tax rates for two years and extends unemployment benefits for 13 months. By a vote of 83-15, the Senate passed the bill in a procedural vote on Dec. 13; it was expected to sail through final passage in the Senate on Dec. 15.

But House passage of the bill was expected to be tougher, and was needed before the bill could be passed into law. House Majority Leader Steny Hoyer, D-Md., said in comments at The National Press Club in Washington on Dec. 13 that he hoped to finish work on the legislation by Dec. 17. He further commented that House Democrats would likely have a chance to make changes to the bill passed by the Senate—particularly amendments to the estate tax provision that liberal House Democrats strongly opposed. Hoyer also said that the House Ways and Means and Rules committees would consider the legislation before it came to the House floor.

[Read about changes to the 112th Congress Financial Services Committee leadership.]

In comments before the Senate vote, Mitch McConnell, R-Ky., minority leader, said on the floor of the Senate that he would “vote for this bill and urge my colleagues in the Senate and the House to do likewise,” referring to H.R. 4853, the Middle Class Tax Relief Act of 2010.

The bill, introduced by Reid on Dec. 9, is a compromise between McConnell and Senate Republicans and President Obama under which the Bush-era tax rates on everything from income to capital gains to the estate tax will be extended, while unemployment benefits will also be extended.

“There are parts of this bill I don’t like,” McConnell admitted in his remarks to the Senate before the procedural vote, but called the “bipartisan compromise…an essential first step” in addressing the budget deficit. He also warned that raising tax rates for higher-income Americans would be a misstep. “No one ever created a job,” he said, “by punishing the job creator.”

The Senate compromise bill includes the following provisions:

• Extends Alternative Minimum Tax (AMT) relief for two years. Currently, a taxpayer receives an exemption of $33,750 (individuals) and $45,000 (married filing jointly) under the AMT. Current law also does not allow nonrefundable personal credits against the AMT. The Senate proposal increases the exemption amounts for 2010 to $47,450 (individuals) and $72,450 (married filing jointly) and for 2011 to $48,450 (individuals) and $74,450 (married filing jointly). The Senate proposal also allows the nonrefundable personal credits against the AMT. The proposal is effective for taxable years beginning after Dec. 31, 2009.

• Reinstitutes the estate tax. The Senate bill sets the estate tax exemption at $5 million per person and $10 million per couple and a top tax rate of 35% for the estate, gift and generation skipping transfer taxes for two years, through 2012.
• Extends by two years the current tax rates (the Bush-era JGTRRA and EGTRRA) for all taxpayers.

• Extends the capital gains and dividends rates through 2012.

• Institutes a two-year, $120 billion payroll tax reduction for workers.

• Extends unemployment insurance benefits for 13 months.

• Extends the American Opportunity Tax Credit (college tuition), the Child Tax Credit and the Earned Income Tax Credit for lower- and middle-income taxpayers.

• Allows businesses to deduct 100% of certain R&D investments in the first year.

• Extends for two years the state and local sales tax deduction.