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House OKs tax breaks for Katrina victims
By MARY DALRYMPLE, AP Tax Writer
Published 11:24 am PDT Wednesday, September 21, 2005
WASHINGTON (AP) - The House approved $6.1 billion in tax breaks Wednesday to help families recover from Hurricane Katrina and to encourage Gulf Coast businesses to reopen their doors, or at least keep employees on the payroll.
The House passed the bill 422-0 as the Bush administration urged residents to get out of the way of another approaching storm, Hurricane Rita, threatening Louisiana and Texas.

The vote sent the bill to the Senate, where lawmakers hoped for quick final approval.

"This aid comes at exactly the right time to help victims of Hurricane Katrina as they rebuild their lives," said Treasury Secretary John Snow.

Rep. Jim McCrery, R-La., said tax writers aimed most of their assistance at individuals and donors. The tax breaks for businesses mean "those businesses, we hope, will be employing and paying residents of the affected area," he said.

Lawmakers intend to follow the immediate aid with a broader package of tax breaks to encourage rebuilding, particularly in New Orleans. President Bush proposed creating a Gulf Opportunity Zone with about $2 billion in special tax breaks encouraging businesses to build or expand in the region.

Congress first responded to the hurricane's devastating blow by approving more than $62 billion for recovery and rescue. The price tag, expected to increase, has caused wrangling within the GOP over whether to cut government spending elsewhere to defray Katrina's costs.

Speaker Dennis Hastert, R-Ill., rejected calls to delay a Medicare prescription drug benefit or rescind recently passed "pork barrel" highway projects, but a band of almost two dozen conservatives announced proposals to take both steps.

"We do not have to raise taxes" to finance the recovery from Katrina, said Rep. Jeb Hensarling, R-Texas. "We do not have to pass debt onto our children."

The group of House conservative stalwarts acknowledged they had no agreement among themselves on a more than $500 billion roster of ideas, many of which - such as cutting public television subsidies - have been resoundingly rejected.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, suggested Wednesday that an across-the-board federal spending freeze, in one year or several years, could help pay for Hurricane Katrina recovery costs.

Blocking automatic adjustment of federal programs to inflation also could generate more revenue, Grassley said, noting that the standard deduction on income taxes also is indexed to inflation. "If we did that, it would bring in X number of dollars. That would bring in some revenue. That would be a tax increase," Grassley said.

The tax breaks passed Wednesday would waive penalties for hurricane victims who need cash for expenses and recovery and want to use money stashed in protected retirement accounts like IRAs. The Treasury Department had already ruled the storm qualified as a hardship and permitted early withdrawals of retirement funds.

Also under the bill, families that rely on the child tax credit and the earned income tax credit could protect those benefits throughout job losses, residency changes and family separations caused by Katrina. The bill would let taxpayers use 2004 income to calculate the credits, which can mean a bigger benefit.

Other assistance lets taxpayers recoup more of their unreimbursed and uninsured losses, and waives taxes imposed when debts, such as mortgages, are forgiven.

Two tax credits encourage Gulf Coast businesses hit by the storm to keep going. One offsets wages paid to employees hired in the region over the next two years. Another helps small businesses hurt by the storm who continue paying their employees through the end of the year.

Most of the tax help is directed specifically at those hit by Hurricane Katrina and would not necessarily apply in other regions hit by hurricanes before the end of the storm season.

The House also approved a measure that would assure that legal immigrants don't lose their status as a result of the disaster.

The bill allows spouses and children of citizens and legal permanent residents who died in the hurricane to continue their immigration petitions, expedites procedures to replace lost green cards or other work authorization documents, allows employers to hire aliens while they are replacing lost documents, and allows aliens on student visas at hurricane-closed schools to transfer to other schools.