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Before leaving town for Memorial Day, the Senate defeated a pair of bills that would have extended the current 3.4-percent interest rate on federal student loans; Congress is deadlocked on how to offset the $5.9-billion cost (Sen 2366 & Sen 2343.). Within Sen 2343, the Democrats proposed requiring S corporations with three or fewer employees who earn more than $250,000 primarily from services, to be liable for payroll taxes.  Within Sen. 2343, the Republicans proposed repealing certain unobligated funds connected to the Patient Protection and Affordable Care Act.  To be continued in June.


The latest “showdown” over the student loan interest bill seems representative of a pattern that may continue throughout the summer for other tax legislation as well, large and small: a predisposition on both sides not to compromise until reaching the edge of the cliff.  Each side seems to be betting that the other will be viewed by the public as irresponsible; Both sides for now don’t seem to be seeing the edge of any cliff until after Election Day.


Next up for testing this reoccurring scenario is another push to get tax extenders passed, followed by the introduction of competing plans to extend the Bush-era tax cuts.  There are some sincere efforts reportedly being made to get extenders moving through quiet discussions; efforts to extend the Bush tax cuts seem more subject to political theater.  Health care excise tax provisions may also be up for consideration in June, with or without Supreme Court approval of the individual mandate.


Last week, House Minority Leader Nancy Pelosi called for passage of a permanent extension of the middle-income tax cuts when the House returns after Memorial Day. Speaker John Boehner earlier had called for a vote on full extension of the Bush-era tax cuts in July.  Of course, nothing will get through the Senate without some compromise. That “grand bargain” remains unlikely until after Election Day.


Earlier passage of the now-annual extenders package, however, seems a bit more likely but only if both sides can agree to keep discussions at a low profile. One problem, however, is that extenders are no longer being thought of as a “package” in the new, cost-focused environment. June hearings are now being planned on the House side to discuss the value of each provision up for renewal.  These hearings could polarize discussions just enough to doom any compromise before November.  W&M Chairman Camp said he could not commit to a vote on extenders before the elections, although he has not signaled yet that an earlier date is impossible. Senate Finance Committee staff are also reportedly working on a pre-election extenders package. Certain one-off provisions, such as the income exclusion for principal residence mortgage debt forgiveness that expires at the end of 2012, may nevertheless pass as separate, smaller bills –although tested against the experience of the small student loan bill so far, even that may be wishful thinking.


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