Congress' Last Hours Extend Tax Breaks, Creates Iraq Accounting Oversight Office

Residents of states that do not levy income tax, college students and their families, teachers and many high-tech companies, are among the beneficiaries of the tax and trade bill passed by the House on Friday and the Senate on Saturday morning at 4 a.m.

Earlier in the week, the Senate extended the term of the Office of the Special Inspector General for Iraq Reconstruction which was set up by Congress to provide oversight of the Iraq Relief and Reconstruction Fund and all obligations, expenditures, and revenues associated with reconstruction and rehabilitation activities in Iraq. The House approved the measure by voice vote just before ending their session on Friday.

The total cost to the Treasury (DoT) of the tax breaks is estimated at $38 billion over five years, although the provisions apply only through 2007. The tax deductions and credits extended by the legislation include:

  • Twenty percent credit to companies for research and development activities.

  • Credit to employers who hire individuals who have been living on welfare. Maximum credit per hire is $3,500 each year.

  • Two credits for tuition reimbursement, the Hope and Lifetime Learning credits, for families and individuals who meet income and other requirements.

  • Deduction for state and local sales tax for individuals living in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming, which do not levy income tax

  • Deduction of $250 for supplies purchased by teacher for classroom use

A provision in the military appropriations bill passed in October called for closing the Office of the Special Inspector General for Iraq Reconstruction in 2007, a provision that some senators said they did not know was in the bill, the Houston Chronicle reports. The new bill, passed on Friday, will keep the office open until the fall of 2008.

“It is inconceivable that we would remove this aggressive oversight while the American taxpayer is still spending billions of dollars on Iraq reconstruction projects,” said Senator Susan Collins,(R-ME) one of the authors of the bill extending the office, The Chronicle says.

Action on the bill to keep the Special Inspector General’s office had been stalled by Representative Duncan Hunter, (R–Calif), the chairman of the House Armed Services Committee who removed his objections.

Other measures that were tacked on to the bill, which were successful because the tax breaks were so popular, included the expansion of drilling rights in the Gulf of Mexico, normalizing trade with Vietnam, extending trade agreements with Haiti and a block on a 5 percent increase on what Medicare would pay to doctors.

Some Republicans objected to the cost of the bill. In a speech to his Republican colleagues, Senate Budget Committee Chairman Judd Gregg (R–N.H.) said, “The American people took the reins of government away from the Republican Party . . . because they were tired of our hypocrisy as a party on the issue of fiscal discipline,” the Los Angeles Times reports.

Senator Charles E. Grassley (R-Iowa), outgoing chairman of the Senate Finance Committee, responded that his colleagues could not allow millions of Americans to face tax increases. “I never thought I’d hear a Republican advocating that we ought to have a tax increase,” Grassley said, according to the Times.

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