Shortly before midnight on Tuesday, November 14, the House Ways and Means Committee approved a bill of new tax cuts costing $56.6 billion over the next five years (slightly more than the proposed House spending cuts bill). The Ways and Means committee turned back a Democratic alternative and approved the bill on a party line vote, 24 - 15. The House tax cut bill is drastically different than the Senate version, which was approved yesterday afternoon by the Finance Committee. The most drastic difference between the two bills at this point is only the House bill includes a two-year extension of cuts to capital gains and dividend income and only the Senate bill includes a one-year "patch" to keep the Alternative Minimum Tax from creeping up on millions of Americans. These two provisions are the largest in question in these bills, totaling over $47 billion over five years if put together. Including both of them in the final version will leave very little room under the $60.2 billion cut off for other preferred tax cuts for the bill to retain reconciliation protections in the Senate. The following is a summary from the Ways and Means Committee of the legislation approved last night. One-Year Extension of Provisions Expiring at end of 2005:

• Exempt personal tax credits, such as the dependent care, HOPE and Lifetime Learning credits, from the AMT.
• State and local sales tax deduction.
• Research and experimentation tax credit. In addition to the extension, the credit is enhanced by providing an alternative method for calculating the credit.
• Incentives for business activity on Indian reservations: (a) Wage tax credit for employment on Indian reservations; (b) Accelerated depreciation for businesses on Indian reservations.
• Above-the-line deduction for higher education expenses.
• Above-the-line deduction for teacher classroom expenses.
• Authority to issue Qualified Zone Academy Bonds (QZABs) for school modernization, equipment and teacher training.
• Enhanced charitable deduction for computer donations.
• Work Opportunity Tax Credit (WOTC). In addition to the extension, the age limit for eligible food stamp recipients is increased from 25 to 35.
• Welfare to Work Tax Credit.
• Archer MSAs (Medical Savings Accounts).
• 15-year depreciation for restaurants and leasehold improvements.
• Suspension of limit on percentage depletion for oil and gas produced from marginal wells.
• Tax incentives to revitalize the District of Columbia.
• Possession tax credit for American Samoa.
• Excise tax for enforcing mental health parity rules.

Two-Year Extension of Other Expiring Provisions:

• Savers credit for lower income workers who contribute to IRAs and pension plans. Higher expensing limit and phase-out threshold under section 179 (i.e., small business expensing).
• Expensing of brownfield remediation costs. In addition to the extension, the definition of a contaminated site is expanded to include sites contaminated by petroleum products.
• Active financing exception under Subpart F. In addition to the extension, certain cross-border payments of dividends, interest, rents, and royalties between related foreign subsidiaries are also exempted from Subpart F.
• Reduced tax rates on capital gains and dividends.
• Codification and extension of IRS treatment relating to the ability to use the "Permanent University Fund" to finance the activities of State universities.

Miscellaneous Provisions:

• Simplifies the application of the active trade or business test applicable to corporate spin-offs by applying the active trade or business test on an affiliated group basis. Thus, the same standard is used for businesses owned by holding companies and businesses that are owned directly.
• Clarifies that environmental cleanup "settlement funds" are treated as governmentally owned, and therefore not subject to tax, if certain standards and requirements are met. Provides capital gains tax treatment for self-created musical works that are sold by the artist. Under current law, such sales are taxed as regular income.
• Reduces the threshold for application of the tonnage tax from 10,000 pounds under current law to 6,000 pounds.
• Repeals the current-law requirement that veterans must have served before 1977 to be eligible for mortgages financed with State-issued qualified veterans' mortgage bonds.