From The Hill, “Lawmakers face daunting tax agenda when they return for lame-duck session“:

 If Congress does nothing on taxes by the end of the year:

- The estate tax will return to pre-2001 levels, socking estates worth more than $1 million with a 55 percent tax.
- The capital gains tax on most assets will jump from 15 percent to 20 percent.
- Dividends currently taxed at 15 percent will skyrocket to individual tax rates that go as high as 39.6 percent.
- The Making Work Pay tax break will cease to exist.
- The Alternative Minimum Tax will hit the middle class for 2010 tax returns.
- A slew of tax breaks that expired last year, including credits for research and development expenses and relief for college tuition, will not be available for 2010 tax returns.
- The Child Tax Credit will revert from $1,000 to $500.

Hat tip: Veronique de Rugy

Washington Post, “Senate passes $140 billion in tax breaks, aid to unemployed“:

Beyond those provisions, the bill carries renewals of several expired tax credits, including those for research and development, biodiesel, energy-efficient home improvements, and the deduction of state and local sales taxes. Those extensions helped attract the support of Republicans and the praise of business groups.

Dorothy Coleman, vice president of tax and domestic economic policy for the National Association of Manufacturers, said the research-and-development credit extension will be a particularly effective job creator. “Going ahead and acting on these [tax extensions] gives companies some certainty” about how they can spend money in the future, she said.

NAM President John Engler also issued a statement in support of the Senate action, with some exceptions. Excerpt:

The NAM’s “Jobs for America” report finds that by increasing the R&D credit and making it permanent, we would encourage innovation and boost total employment by hundreds of thousands of jobs this decade. Similarly, by providing additional time for companies to make required pension payments, the retirement security provisions will put cash back in the hand of employers, allowing them to grow and create jobs. We are also pleased the Senate bill broadens the tax credit for energy efficient windows, doors and skylights by allowing them to meet the 2010 Energy Star standards. And, we welcome the provision that will allow companies to use their unused Alternative Minimum Tax (AMT) credits based on hiring workers or making investments.

While we are pleased that the tax extenders and retirement provisions are included in the Senate-passed bill, we are disappointed that it also includes industry-specific taxes that will pile more costs on manufacturers and make them less competitive. We will continue to work with members of Congress to improve this critical bill so that it can foster job creation and global competitiveness without putting undue burdens on specific industries. It is important for lawmakers to remember throughout this jobs debate that government doesn’t create jobs, business does.

From Forbes.com, “Congress Lets 50 Tax Breaks Expire”

Among the disappearing breaks are the research tax credit and an annual alternative minimum tax “patch,” which keeps 23 million additional middle-income Americans from being forced into calculating and paying the dreaded AMT. (For 2009, with the patch in place, 4 million upper-middle- and high-income families will pay AMT.)

Wasn’t the AMT fix one of the major issues in Congress of 2007, roiling the political waters with claims and counterclaims about tax increases and irresponsible legislating? And it’s just an afterthought this year. Strange.

For manufacturers, the R&D tax credit is a major issue.

For businesses, the lapsing of the R&D credit–a $7 billion a year break–is a particular problem, since companies must plan for long-term research commitments amid uncertainty. Since its enactment in 1981, the credit has been extended 13 times; in the mid-1990s there was a one-year gap when it wasn’t extended retroactively.

“Companies are sensitive to that,” says Monica McGuire, executive secretary of the R&D Credit Coalition in Washington, which represents such research heavyweights as 3M, AT&T, Genentech, Hewlett-Packard, and Xerox. “If Congress is serious about jobs in this jobless recovery, they ought not to treat the credit like a yo-yo,” she adds.The lapse could also affect companies’ reported earnings, since they won’t be able to assume the credit will be extended.

The expiring estate tax is a particularly complicated case, full of questions of life and death and retroactivity. Forbes.com covered the issue in a good story last week, “Congress Throws Estate Plans Into Disarray,” anticipating litigation and administrative nightmares. To say the least.