Millions affected by congressional delay on reviving tax breaks

WASHINGTON -- Millions of entrepreneurs, teachers and parents with children in college have a financial stake in whether Congress, in the dying hours of Republican rule, revives tax breaks that expired 11 months ago.

If Congress fails to act, teachers no longer will be able to deduct up to $250 for the books and supplies they pay for out of their own pocket.

Residents of Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming -- each without an income tax -- will miss out on an average $1,500 deduction for state and local sales taxes.

Lawmakers have tried all year to renew the diverse mix of targeted tax breaks. Ironically, it is their popularity that has stalled passage.

The breaks, which expired last Jan. 1, enjoy wide support in both parties. Precisely because of this, lawmakers have sought to add them as a "sweetener" to contentious legislation in hopes of getting that legislation through.

Before the election, Republicans tried unsuccessfully to link the tax cuts to a bill that would reduce the estate tax, which most Democrats find unacceptable, and raise the federal minimum wage, which many Republicans dislike.

Lawmakers will make one more shot when they return this week to wrap up their work for the year. Yet they may not have the time or will to agree on a compromise.

Negotiators say they have agreed that the proposal will cover two years, retroactive to 2006 and through 2007.

Businesses could be big losers if Congress fails to renew the research and development tax credit, which offers a 20 percent credit for new activities. One estimate puts the value of the credit to businesses at $16.5 billion.

Also in 2004, an estimated 4.7 million families claimed $10.7 billion in deductions for college tuition and fees. In the legislation that Congress failed to pass before the November election, taxpayers could claim above-the-line deductions of up to $4,000, depending on their income, for higher education expenses.

Congressional dalliance has assured that, even if the tax bill advances this year, there will be inconveniences for taxpayers.

The IRS, when it sent its basic forms and instructions for the 2006 filing season to the print vendor in early November, was unable to include lines, such as tuition and fees deduction, for items that as of now are no longer in tax law.

The tax agency included a cautionary note to taxpayers in its forms that the legislation was pending at the time of printing, and would have to provide special instructions later if the legislation becomes law.

Waiting for the new Congress to act next year could cause further complications. Many taxpayers, anticipating refunds, file their returns in February, and this group would have to file amended returns if the tax breaks are not on the books by then.

Delay, said Senate Finance Committee Chairman Charles Grassley, R-Iowa, "will cause hardship, tax compliance problems and confusion for the millions of taxpayers who claim these widely applicable tax benefits."