Congress Finalizes Katrina Tax Relief, Turns to Reconstruction Funding

By Stephen Cooper and Jeff Carlson, CCH Washington Staff Writers

Following the lead of the House of Representatives from the previous week, the Senate advanced its version of Hurricane Katrina tax relief on December 16, 2005. In a flurry of legislative activity, both chambers then quickly moved to unify a $7.8 billion package of tax incentives to help in rebuilding the hurricane-ravaged Gulf Coast, clearing the legislation for the President's desk just as Congress moves toward year-end adjournment.

After approving the tax incentives, then Congress moved to fund reconstruction efforts for the region.

Hurricane Tax Relief

Senate lawmakers had removed much of the original House language and had replaced it with provisions culled from the Senate version. The Senate approved the measure by unanimous consent, and hours later the House voice-voted its approval of the Senate-amended bill.

The legislation contains a partial exclusion of tax benefits for some Gulf Coast businesses, including casinos, massage parlors, and liquor stores. However, that exclusion has been modified from original proposals. Businesses such as hotels and restaurants will not be excluded from tax benefits simply because they are attached to casinos.

The Gulf Opportunity Zone Bill of 2005 also includes tax technical corrections provisions related to the American Jobs Creation Act of 2004 and other recently enacted tax legislation, as well as creating additional tax-exempt bond authority to help rebuild infrastructure in the Gulf GO Zone.

In addition, the measure permits businesses to claim an additional first-year depreciation deduction equal to 50 percent of the cost of new property investments made in the Zone, doubles the small business expensing deduction to $200,000 for qualifying expenditures made in the disaster area through 2007, and provides partial expensing for demolition and cleanup costs.

"The President needs to put pen to paper as soon as possible and get these important tax provisions into law," said Senate Finance Committee ranking member Max Baucus (D-Mont.). "The sooner the people, businesses and communities affected by the hurricane get the help they need, the sooner real rebuilding can start."

The White House received the legislation on December 19 and is expected to sign the measure within the next few days.

Hurricane Reconstruction Aid

Meanwhile, the House of Representatives on December 19 approved a series of non-tax aid measures for rebuilding the infrastructure of the Gulf Coast region, dedicating $29 billion to the effort. Most of the money for reconstruction will be supplied from the $62 billion Congress originally set aside after the disaster for the Federal Emergency Management Agency (FEMA), of which only about half has been spent so far.

The measure was attached to a defense spending bill for fiscal 2006, and the Senate will consider the legislation later this week.

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Posted December 9, 2005.