Larry Jones
September 20, 2010

Although the House and Senate passed separate bills many months ago to extend a number of expiring tax provisions, it is still uncertain if Congress will be able to approve a final measure before members adjourn for the October recess leading up to the November elections. While both bills include language extending many of the expiring tax provisions supported by the Conference of Mayors and other state and local government groups, they include different offsets to pay for the legislation. So far, the two chambers have not been able to reach agreement on offsets, which could delay approval on a final measure until after the November elections.

After returning to Washington from the summer recess September 13, Democratic leaders in both houses indicated they will most likely not move a separate tax extenders bill. However, it is possible that tax extenders could be included in a major tax package extending tax cuts for individuals and families. President Barack Obama is pushing Democratic leaders to pass legislation before leaving for the October recess that will make tax cuts adopted during the Bush Administration permanent but only for individuals with annual earnings less than $200,000 and families with earnings less than $250,000.

Almost all Republicans and some Democrats in both houses would like to see the Bush tax cuts extended for all income levels. With only a few weeks remaining in the session, reaching agreement on a final tax package could be difficult. However, if a package is adopted, there is a good chance it will include a number tax extenders that are scheduled to expire on December 31, including:

• Build America BondsÑCities across the nation are issuing Build America Bonds to raise capital to finance large'scale infrastructure projects such as the construction or renovation of schools, water and sewage upgrades and transportation systems. Under the program, cities issuing these bonds receive a 35 percent direct subsidy from the Treasury Department to offset their borrowing costs. Since 2009, this program had saved state and local governments an estimated $12 billion. Democratic leaders support extending the program for two years and phasing down the direct subsidy to 32 percent in 2011 and 30 percent in 2012.
• Recovery Zone BondsÑIn 2009 this program provided state and local governments $10 billion in Recovery Zone economic development bonds and $15 billion in Recovery Zone facility bonds to invest in infrastructure, job training, education, and economic development in areas with significant poverty, unemployment or home foreclosures. Authorization for issuing Recovery Zone bonds would be extended through 2011.
• Water and Sewage Exempt-Facility Bonds Excluded from State Volume CapsÑUnder current law, state and local governments are generally subject to a cap on the volume of private activity bands they may issue. This restriction has severely hampered state and local efforts to raise capital to upgrade their water and sewage systems. To address this concern current law would be amended to exclude bonds financing facilities that furnish water and sewage facilities from state volume caps.
• Expensing of Brownfield Environmental Remediation CostsÑThe provision that allows the expensing of costs associated with cleaning up hazardous brownfield sites would be extended for one year.
• New Market Tax CreditÑThrough this program, the federal government is able to leverage federal tax credits to encourage significant private investment in businesses in low-income communities. For each dollar of investment, the New Market Tax Credit program provides investors with either five or six cents of federal tax credits. The program would be extended for one year and permit a maximum annual amount of qualified equity investments of $5 billion.
• Empowerment Zones and Renewal CommunitiesÑThe designation of certain economically depressed census tracts as Empowerment Zones and Renewal Communities, which makes businesses and individuals located within such zones and renewal communities eligible for special tax incentives, would be extended for one year.
• Deduction of State and Local General Sales TaxesÑThe option for individuals to take a deduction for state and local general sales tax in lieu of the itemized deduction allowed for state and local income taxes would be extended for one year.