The House to Recess After Two Major Tax Bills Pass

Before breaking for a five-week summer recess, the US House of Representatives has passed two major tax bills. The first bill couples a minimum wage increase with estate tax reductions. The second bill looks to reform pension laws. According to House Majority Leader John Boehner (R-Ohio), the bill represents “the most sweeping changes to America’s pension laws in more than 30 years.”

The pension bill, which is likely to pass Senate this week, would force employers that have fallen behind in payments into defined-benefit pension schemes to catch up within seven years. Pension plans with under 80% funding would not be allowed to increase benefits during contract negotiations. Companies with poorly financed pensions would be restricted in increasing executive compensation. The bill will also strengthen 401(k) plans and give a legal basis to various “hybrid” defined benefit plans.

The minimum wage/estate tax bill is considered to stand little chance in the Senate, as Democrats have vocally spoke against the bill. The bill passed by 230-180 votes. It combines a $2.15 increase in the $5.15 hourly minimum wage over three years with increased exemptions and lower rates for estates.

The current estate tax is set to phase out in 2010, but will return at a 55% tax rate on estates larger than $1 million in 2011. The new bill would increase the exemption to $5 million, while taxing estates up to $25 million at capital gains rates. Estates over $25 million would be taxed at double the capital gains rate. The bill also includes an extension of the Research and Development credit for small businesses. Senate Minority Leader Harry Reid (D-NV) said that Democrats will likely kill the bill in the Senate, which has an additional week until summer recess.

“The Senate has rejected fiscally irresponsible estate tax giveaways before and will reject them again,” Reid said. “Blackmailing working families will not change that outcome.” The two bills had been combined into one bill earlier in the week. However, the House/Senate reconciliation negotiations broke down, leading to two separate packages.