Grassley Highlights Tax Relief for Families, Individuals
Iowa Senator’s Legislation Prevents Tax Increase by Extending Current Tax Laws
WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, said the tax relief bill approved by his committee this week and advancing through the full Senate will keep 14 million families from paying the unfair alternative minimum tax, allow millions of low-income savers a continued benefit for retirement, preserve the college tuition deduction for millions offamilies and students, and give new incentives for charitable giving for those who don’t itemize on their taxes.
“If Congress does its job, taxpayers won’t suffer any tax increase,” Grassley said. “If we don’t do our job, and let these provisions lapse, taxpayers will see a tax increase. We owe it to taxpayers to get the job done. These items keep middle-class families from paying the alternative minimum tax, which they weren’t supposed to pay in the first place, and help parents send their kids to college. Today’s approval is an important step. I hope these tax benefits will get final approval as soon as possible and reach the President’s desk before the year’s end.”
The Tax Relief Act of 2005 includes the following provisions:
Alternative minimum tax. The largest provision in the bill -- about $32 billion of tax reliefor more than half of the net tax package – is designed to keep people out of the alternative minimumtax, Grassley said. This piece of the package affects 14 million American families in every state,including roughly 132,000 families in Iowa.
The alternative minimum tax was designed decades ago to prevent the wealthy from avoidingmost or all taxes by using exemptions, credits and other income deductions. Because the tax is notindexed to inflation, Congress has had to adopt a series of stop-gap measures to blunt its impact onthe middle class. The latest such patch is scheduled to expire this year. Grassley has worked hardto enact temporary relief every year.
“The AMT is terrible and we need to repeal it,” Grassley said. “Until then, we owe it to American taxpayers to ensure that they’re not hit by this tax.”
Low-income savers credit. The Economic Growth and Tax Relief Reconciliation Act of2001 provided a temporary nonrefundable credit for contributions made by eligible taxpayers tocertain qualified retirement plans (e.g., 401(k), 403(b), annuity, SIMPLE, SEP, traditional and RothIRAs) through the end of 2006. The maximum annual contribution for the credit is $2,000. Thecredit rate depends on the adjusted gross income of the taxpayer. Only taxpayers with AGI of$25,000 or less ($50,000 for married couples) are eligible for the credit. The credit is in addition toany deduction or exclusion that would otherwise apply with respect to the contribution. The new taxrelief bill extends that provision through the end of 2009. Nationwide, 5.5 million taxpayers –including 95,889 taxpayers in Iowa – benefit from this provision.
“The national savings rate is very low, and some people don’t have much spare income tosave,” Grassley said. “Every incentive that helps to increase savings is important.”
Tuition deduction. The 2001 tax act created a new above-the-line tax deduction for qualifiedhigher education expenses paid during tax years 2002 to 2005. Currently, the maximum deductionis $4,000 for taxpayers with AGI of $65,000 or less ($130,000 for married couples) or $2,000 fortaxpayers with AGI of $80,000 or less ($160,000 for married couples). The new tax bill extends theprovision through the end of 2009. Across the country, 3.6 million taxpayers – including 37,364taxpayers in Iowa – benefit from this provision. “This is an example of using the tax code topromote positive activity, like going to college,” Grassley said. “Society benefits from an educatedworkforce, and every bit helps toward college affordability.”
Non-itemizer/itemizer deduction. The bill provides for a charitable deduction for cashdonations made by taxpayers who do not itemize their deductions – approximately 74 percent offilers currently cannot take a charitable deduction because they do not itemize. The bill creates afloor of $210 for single filers ($420 for joint filers) that applies to both taxpayers who do not itemizeand those who do. The new deduction is not subject to an income cap. “A lot of taxpayers don’t filecomplicated tax returns but still donate to charity,” Grassley said. “They should get the same taxbreak as those who file long returns.”
Charitable deduction for contributions of food inventory. For donations of food inventoryby qualifying businesses, the bill provides an enhanced deduction equal to the lesser of the fairmarket value or twice the taxpayer’s basis in the contributed inventory. In general, farmers andranchers will be able to treat the basis of the contributed food as being equal to 25 percent of thefood’s fair market value. The enhanced deduction is available only for food that qualifies as“apparently wholesome food,” which is defined as food intended for human consumption that meetsall quality and labeling standards imposed by federal, state, and local laws and regulations eventhough the food may not be readily marketable due to appearance, age, freshness, grade, ,surplus, or other conditions. “It’s a shame to waste food when people go hungry,” Grassley said.“This provision helps the needy as well as farmers who don’t want their good food products to goto waste.”
Deduction for certain expenses of elementary and secondary school teachers. In 2002,Congress began permitting teachers and other school professionals to deduct $250 (above-the-line)for expenses paid or incurred for books, supplies (other than non-athletic supplies for courses ofinstruction in health or physical education), computer equipment (including related software andservices), other equipment, and supplementary materials used by the educator in the classroom. Thisprovision expires at the end of 2005, and the proposal would extend the provision for an additionalyear. Nationwide, 3.3 million teachers – including 33,812 in Iowa – benefit from this provision.“Teachers who subsidize classroom supplies out of their own pockets deserve at least thisdeduction,” Grassley said.
Small business expensing. The 2003 tax act increased the amount that small businesses mayexpense from $25,000 to $100,000 for three years (through the end of 2005). The American JobsCreation Act of 2004 (the “JOBS” Act) extended a slightly expanded version of small businessexpensing (with higher phase-out levels for small business) through 2007. The new tax bill extendsthat enhanced provision through the end of 2009. “Small businesses create most jobs in ourcountry,” Grassley said. “We need to encourage them to keep up the good work.”
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