Both sides in Congress may have to compromise to get a tax plan through the House before the end of the year, but critics on both sides are not compromising at all.
Mitt Romney, the former Republican presidential candidate, wrote an op-ed in USA Today: "While the tax deal will succeed in temporarily putting more money in the hands of consumers, it will fail to deliver its full potential for creating lasting growth."
Meanwhile, from the other side came the Service Employees International Union, which blasted the Republican party, saying the plan's tax cuts for the affluent are too steep.
"CEOs and the wealthiest Americans get rewarded with millions more in tax breaks to pad their already hefty profits and bonuses while the American people get fewer jobs and increased hardship," said union president Mary Kay Henry in a statement. They've come after our jobs, our healthcare, and our retirement. What next?"
Ryan Ellis, tax policy director with the conservative group Americans for Tax Reform, said that he was supportive of the tax plan, though he and many Republicans had hoped the tax cuts would be permanent instead of simply a two-year extension.
"We are happy that it doesn't appear anyone's taxes will be going up next year," said Ellis. The "worst" part of the tax package, according to Ellis, is the extension of unemployment insurance, which he believes should be offset with spending cuts elsewhere.
The Senate voted 83-15 on Monday to extend the Bush-era tax cuts and special provisions for everything from tax credits for Hollywood producers to breaks for rum production in Puerto Rico and the Virgin Islands.
There are 60 or so such benefits, or business "extenders" in the bill to assist specific industries. They added substantially to the estimated $858 billion cost of the bill over the next two years.
"These extenders come up every year or so in Washington, just when you think they're going to expire," said Mark Robyn, staff economist with the Tax Foundation. He said the extender provisions are meant to stimulate the economy and investment but there are ongoing debates about whether they work.
More than two dozen amendments to the Senate bill have been filed addressing breaks for even more sectors -- it's unclear if or when these will come to a vote. The House has yet to get its collective hands on a bill.
Here are some of the special-interest provisions in the Senate bill:
"Special expensing rules for certain film and television productions" allow studios to deduct up to $15 million of movie production property costs if at least 75 percent of the total compensation for production is in the country. If a significant amount of production expenses take place in low-income or distressed communities, studios can deduct up to $20 million.
Rumming it Up
Puerto Rico and the Virgin Islands will receive the increase of rum excise tax revenues from $10.50 to $13.24 per proof of gallon. It is a temporary excise tax imposed on distilled spirits produced or imported into the U.S., but does not apply to distilled spirits exported from the U.S.
Gentlemen, Start Your Tax Engines
The bill calls for a special accounting provision for motorsports entertainment complexes like NASCAR to have a 7-year "cost recovery period" instead of standard depreciation.
More Green With Your Green
The ethanol tax credit, known as the volumetric ethanol excise tax credit, or VEETC, will continue at its current level of 45 cents per gallon through Dec. 31, 2011. The tariff on imported ethanol will continue at its current level of 54 cents. None other than Iowa's Republican Sen. Chuck Grassley pushed for that provision, which will help the corn farmers of his home state.
Other energy tax credits and programs include a grant program for renewable energy developers and a "renewable electricity production credit" of 1.1 to 2.2 cents per kilowatt-hour for production from solar, geothermal and wind power among others.
Tax incentives for investment in the District of Columbia include a 20 percent wage credit for employers for the first $15,000 of qualified wages to each employee who is a D.C. resident and works within a particular zone.
A zero-percent capital gains rate from the sale of "certain qualified D.C. Zone assets" where the poverty is at least 10 percent.
Here are the main provisions of the Senate bill:
Temporary extension of unemployment insurance
The bill extends unemployment insurance for an additional 13 months.
The normal, maximum duration of state unemployment benefits has been 26 weeks, according to Joe Minarik, a member of the Bipartisan Policy Task Force. "The economy has been deemed so weak that they are going beyond the normal 26 week increment to add another 13 months, to a maximum of 99 weeks per person," he said. "The whole notion of having so many important provisions involving so much money for a tax code on a temporary basis is really unprecedented."
Social Security payroll tax cut
Workers earning $50,000 would get a $1,000 tax break while those making $100,000 would get a $2,000 break. Employees would contribute 4.2 percent to the Social Security payroll tax rather than 6.2 percent before wages reach $106,800.
"This provision helps low income people the most," said Nick Kasprak, programmer and analyst at the Tax Foundation.
Republicans would have preferred a tax cut in a more "pro-growth" area, such as cutting capital gains tax, according to Ellis of Americans for Tax Reform.
Lower taxes for those in lower-income range
Increase in earned income tax credit, or EITC, a refundable credit for certain low-income taxpayers. This is an extension of tax relief enacted in 2003 and President Obama's stimulus bill in 2009. The new bill would extend the EITC rate for families with three or more children of 45 percent through 2012, which was set to expire in January.
The bill retains the child tax credit at $1,000.
The "dependent care tax credit" increases the credit rate to 35 percent, and increases "eligible expenses" to $3,000 for one child and $6,000 for two or more children.
Return of the estate tax
The estate tax could return at 35 percent, with the first $3.5 million of a person's holdings exempted.
"The exemption is a lot higher and the estate tax is still lower than it has ever been," said Kaspark.
If Congress does not act formally, the estate tax could return in January at 55 percent, with a $1 million exemption.