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USA: Katrina tax relief approved by U.S. House

By Donna Smith
WASHINGTON, Sept 21 (Reuters) - The U.S. House of Representatives on Wednesday unanimously approved a $6 billion temporary tax relief bill to help Hurricane Katrina victims and charities trying to cope with the disaster.

The bill that was approved would give people who provide temporary housing for Katrina victims for at least 60 days a $500 deduction for each person up to $2,000.

The legislation also raises limits on charitable donations by individuals and corporations and also raises limits on food and book donations by businesses.

The Senate was expected to quickly follow the House's action and send the measure to President George W. Bush for his signature.

Meanwhile House Republicans fought among themselves over whether to pay for the billions of dollars needed for federal disaster aid by expanding the deficit or cutting programs. If programs were to be cut, the question is which ones.

A group of conservative Republicans led by Rep. Mike Pence of Indiana offered a laundry list of options on Wednesday. Some of the most talked-about ideas have already been rejected by the White House and Republican congressional leaders.

Among the ideas presented were a one-year delay in a new Medicare prescription drug benefit and some projects authorized by highway legislation enacted this summer.

The conservatives, who oppose tax increases to cover the recovery effort, also would increase premiums on health care for the poor and elderly, cut farm subsidies and cancel Bush's proposed space missions to the moon and Mars. Other federal programs, such as legal services for the poor, public broadcasting and Amtrak, would be eliminated or cut.

House Speaker Dennis Hastert rejected the idea of delaying the drug benefit program for the elderly but promised to keep looking for ways to offset cleanup costs.

"We're willing to look at offsets if there are viable offsets," Hastert said.

Democrats have been calling for tax cuts to the wealthy to be scrapped and have criticized Republican proposals to cut spending for Medicare or Medicaid, saying full funding was even more essential following the hurricane.

OTHER MEASURES OF TAX BILL

The tax bill passed on Wednesday is aimed at providing quick relief to Katrina victims. Lawmakers are considering a longer-term package to help with reconstruction.

The bill ensures that victims are not taxed on forgiven debt and that child tax credits and other tax breaks are based on 2004 income instead of 2005 income that may be reduced because of unemployment due to the disaster.

The bill eases limits on property losses and also allows penalty-free withdrawals from retirement plans as long as the money is repaid to the account within three years.

Businesses will be allowed a tax credit for hiring Katrina victims. Small businesses whose operations have been disrupted by the disaster will get a tax break for keeping employees on the payroll.

"It's important that this tax legislation is signed into law quickly to help ease the burdens on those affected by Hurricane Katrina," said Ways and Means Chairman Bill Thomas, a California Republican(Additional reporting by Richard Cowan)