Congress Cuts Big Business Tax Break in Stimulus Bill

From Bloomberg.com:

House and Senate negotiators all but eliminated the biggest tax cut for businesses in the compromise agreement on an economic stimulus bill, Senator Max Baucus of Montana said.

The provision, a top priority of business groups including the National Association of Manufacturers and the U.S. Chamber of Commerce, would let companies convert losses into tax refunds.

Baucus said today that the provision, under which companies could have claimed an estimated $67.5 billion in tax refunds this year and next, was sacrificed to help keep the final package under $800 billion.

“It was a casualty of the overall limit,” said Baucus, a Democrat and chairman of the Senate Finance Committee. Congressional negotiators announced today an accord on a plan totaling $789 billion.

The provision, which would have let companies of any size amend up to five years of tax returns to deduct net operating losses they realize now, had been Companies under current law can carry losses back only two years.

In its place, Baucus said, negotiators agreed to let small businesses with annual receipts under $5 million carry back losses for five years.

Congress Loads Up on Tax Cuts

From Kiplinger.com:

To get consumers spending, Congress will OK even more tax cuts. The $275 billion in breaks approved by the House in January as part of its economic stimulus package wasn't enough for senators, so they've added a few new easings to entice folks to buy houses, cars and so forth. When the dust settles, most of those add-ons will make it into the final bill that's supposed to land on President Obama's desk before end of February.

Among the Senate's goodies: a juicier credit for buying a primary home. Under the Senate proposal, the current credit of $7,500 for first-time home buyers would be expanded to 10% of the purchase price, but no more than $15,000, and would not be limited to first-time home buyers. In addition to that, unlike the current credit, the new one would not be phased out for higher-income taxpayers. The new credit also would not have to be repaid to IRS over a 15-year period, as long as the purchaser didn't turn around and sell the house within two years.

If you want to get a souped-up homebuyer's credit, don't jump the gun. The current credit, along with the repayment obligation and phase-out for upper-incomers, continues to apply until the stimulus bill is signed into law. Once it's in effect, taxpayers would have 12 months to buy a home before the credit expires. Another reason to wait: Because of the provision's $35-billion price tag, it's very possible that the break will be scaled down when the two chambers meet to hammer out a final version of the bill. Conferees could add any of several limitations: phasing out the break for high-incomers, limiting it to first-time homebuyers or reducing the maximum credit amount to $10,000.

Are you in the market to buy a car instead? You're in luck, too. The Senate is proposing to boost sagging auto sales by allowing interest paid on loans to buy autos or light trucks to be deductible for 2009, even if the purchaser doesn't itemize deductions. This would apply to vehicles bought after Nov. 12, 2008, and before Jan. 1, 2010, although the House may insist on moving the start date to 2009. The benefit would begin to phase out for married couples with adjusted gross incomes over $250,000 and single filers with AGIs over $125,000. The Senate also proposes to give car buyers an above-the-line deduction for any state sales tax or excise taxes that were paid on the vehicles. The income phase-out is the same for this break.

Relief from the alternative minimum tax (AMT) is another Senate add-on. To keep millions more filers off the AMT rolls in 2009, the Senate would increase the minimum tax exemptions to $70,950 for joint filers and $46,700 for single taxpayers. Right now, the 2009 exemptions are at pre-2001 levels: $45,000 for married couples and $33,750 for singles. Congress won't let that stand.

The Pros and Cons of President Obama’s New Stimulus Proposal

Although President Obama’s new stimulus bill has been on the table for a while now, it “new” bill nonetheless. Constant revisions and bi-partisan oppositions are making the bill an ever-changing and ever-controversial subject on Capitol Hill. Even politicians are having trouble keeping up on the status of the bill, and we as busy Americans have to rely on the media to provide information on the bill. To help some of my readers who are having trouble making a choice on how they feel about the bill, I have put together the following list of pros and cons.

Pro: Job Creation

The main goal of Obama’s stimulus proposal is to create jobs, however not everyone aggress that the package will do so. The Obama team compares the plan to Franklin D. Roosevelt’s “New Deal,” in that it will directly create millions of jobs by funding constructions projects such as repairing bridges, roads, water systems, levees, schools, and electric grids, etc. The idea is that by giving construction workers back the jobs they had lost due to canceled projects and stringent state budgets that they will leave their current positions creating other job openings for Americans to fill. However, decades later people are still debating whether FDR’s new deal was effective or not.

Con: Use of Scare Tactics

Unfortunately, in order to get the legislation passed as quickly as possible the Democratic leadership has resorted to using a wide variety of scare tactics. I’m sure everyone has heard about Nancy Pelosi’s gaffe the other day where she said that 500 million Americans lose their jobs every month and that this legislation needed to be passed as soon as possible. Keep in mind that there are only 300 million Americans currently living in the country.

The point is that with the amount of money being put into the stimulus proposal it should not be rushed using scare tactics. Look what happened with the federal bailout of the banking industries. Congress rushed legislation and to this day there are still billions of dollars in funds that are unaccounted for. Additionally, news just came out the other day showing that the federal government wasted billions of dollars by purchasing the assets at highly inflated prices.

Pro: Obama Open to Compromise

While there are plenty of disagreements on certain aspects of the proposal, on January 27th, Obama stated that he was "open to compromise". While this may not seem like a pro to some, it is definitely a good thing that the President publicly announced that he was open to compromise. Unfortunately, he was quite hesitant to actually make changes to the legislation.

Con: Lack of Support

Although Obama was able to get his proposal to pass the House of Representatives, without a single Republican vote, many are worried about the fate of the bill in the Senate, where the Democrats do not have a filibuster proof majority. Additionally, according to a recent Rasmussen Reports survey, about half of Americans think that the package will make the economy worse instead of better.

Pro: Mortgage Relief

One of the largest problems Republican leaders had with Obama’s original stimulus package was that it did not do enough to provide relief to the house and mortgage industry, which was a leading cause of the recession. Fortunately, Obama’s team listened to the suggestions, and have added multiple different measures to help struggling homeowners including a $15,000 credit for anyone who purchases a house in 2009.

Con: Strong Conservative Opposition

The Republican leadership has been fighting hard against the bill since before it was officially drafted. They argue that spending upwards of a trillion dollars is a dangerous move in our country’s current economic state, and have been working to reduce the total cost of the legislation.

Pro: Energy Efficiency

As part of Obama’s proposal, $54 billion is being dedicated to clean power and energy efficiency. Although it may seem like wasteful spending to some, this is the first step in many steps Obama promised during his campaign to reduce our reliance on oil. The plan will include $32 billion for renewable energy, smart grid technology, and transmission lines, $16 billion to make essential eco-friendly retrofits and repair public housing, and $6 billion to efficiently weatherize modest-income homes. Weather or not you agree with Obama’s plan to reduce our dependence on oil, it is definitely good that he is following up on a campaign promise.

Con: The Looming Trillion

The goal for the stimulus package is to stay "under the trillion dollar mark". However, as the package price tag creeps up in to the $900 billion area, financial experts are beginning to worry. New changes and discrepancies arise every day, as new sections are being reviewed every hour. However, it seems like although changes are being made, the total cost is increasing, not decreasing.

Pro: Computer Centers at Community Colleges

Although there has been some controversy about the $200 million for public computer centers at community colleges in the bill, there is good reason to support it. Providing more computer access to community colleges will provide students with the unlimited resources that the Internet has to offer. Obama has said that we need create more scholars and promote growing minds if we want to get this country back on track.

Con: Buy America

Unfortunately, when Obama launched his campaign to get the legislation passed, he angered international groups including the European Union with his “Buy America” package. The idea behind it would be to encourage people to purchase and use American made products, however this is bad news for international trade and intensified international fears of a trade war. Fortunately, Obama was quick to remove this section from the legislation once it garnered international criticism.

Senate Adds Homebuyer Tax Credit to Stimulus Bill

Last night the United States Senate added yet another revision to Obama’s massive stimulus package. To help gain bi-partisan support, Democratic leaders have listened to conservative experts and added new credits for taxpayers who purchase a home in 2009. The New York Times posted an article this morning discussing the revisions, check out a section of the article below.

The Senate on Wednesday voted to expand the economic stimulus package with a tax credit for homebuyers of up to $15,000, a provision championed by Republicans as addressing a root cause of the recession.

The vote to add the tax credit, at a cost of about $18.5 billion, came as Senate leaders seemed to be nearing completion of negotiations. The majority leader, Senator Harry Reid of Nevada, suggested that a final vote on the stimulus plan could come on Thursday.

Moderate lawmakers in both parties are pushing to reduce the overall cost of the measure and to focus it more tightly on provisions that will quickly spur spending and create jobs. The vote came as President Obama met with centrist lawmakers to address concerns about the package.

Mr. Obama, while expressing willingness to compromise, also issued a warning to some Republican critics who have said they will press for major changes to the bill, including the removal of many spending programs in favor of wider tax cuts.

“I’ve heard criticisms of this plan that echo the very same failed theories that helped lead us into this crisis, the notion that tax cuts alone will solve all our problems, that we can ignore the fundamental challenges like energy independence and the high cost of health care and still expect our economy and our country to thrive,” he said.

“I reject that theory,” Mr. Obama continued, “and so did the American people when they went to the polls in November and voted resoundingly for change. So I urge members of Congress to act without delay.”

Stimulus and your Taxes

From CNNmoney.com:

What kinds of tax savings will the stimulus plan offer Americans?

Deloitte Tax crunched some numbers to come up with an initial answer.

To be sure, the data is preliminary. Congress is still hashing out the final terms of President Obama's economic recovery package and a full picture won't emerge until the tax lady sings.

Most of the savings are accounted for by the Make Work Pay Credit, which was a centerpiece of Obama's election campaign. It would be worth up to $500 a year for individuals and up to $1,000 for couples.

The full credit would be available for 2009 and 2010, but is limited to those making $75,000 or less ($150,000 or less for workers filing joint returns).

The Make Work Pay Credit also would be refundable, meaning that even tax filers without any income tax liability -- typically very low-income workers -- would receive one.

An amendment to the Senate bill this week would protect middle- and upper middle-income taxpayers from the Alternative Minimum Tax. The AMT was intended primarily for high-income taxpayers but has in recent years threatened to engulf those lower down the income scale. That provision is not in the current House bill, but may make its way to the final bill.

The amount of savings an individual or family receives from the stimulus bill will depend in part on how many children they have. Changes to the Earned Income Tax Credit and the child tax credit will offer big tax savings to very low-income families with three kids or more.

NY Times Deconstructs the US Economic Stimulus Plan

Obama’s new U.S. economic stimulus proposal has been a hot topic in the blogging community lately, and for good reason. New York Times author Lee Teslik recently took a detailed look at the plan and has put together offering great insight. You can find an excerpt of it below, but the full text can be found here.

Obama's plan aims to stimulate employment, certain critical economic sectors, and U.S. consumer spending. It specifies $550 billion in spending on new projects and $275 billion in tax cuts. The initial plan (PDF) includes investments for:

Energy, including $32 billion to transform the U.S. energy grid to make it more efficient; $16 billion to repair public housing and make it more energy efficient; and $6 billion to weatherize low-income homes;

Science and technology, including $10 billion for new scientific facilities and $6 billion to improve broadband Internet access in rural areas;

Infrastructure, including $30 billion for highways; $31 billion to modernize federal buildings and other public infrastructure; $19 billion for clean water, flood control, and other environmental investments; and $10 billion to improve public transit and rail infrastructure;

Education, including $41 billion for local school districts, $79 billion in outlays to states to prevent educational service cutbacks; $15.6 billion to broaden the federal Pell Grant program, which gives need-based grants to fund education; and $6 billion to modernize higher education programs;

Health care, including $87 billion for Medicaid; $20 billion to improve health information technology; and around $4 billion to improve preventative care.

The plan also includes $140 billion directed toward tax cuts of $500 per worker or $1,000 per family over two years; expanded tax credits for working poor with children; and a $2,500 college tuition credit. The House Ways and Means Committee approved the tax portion of the bill on January 22, though it has yet to pass the entire House of Representatives.

Some analysts say the Obama administration's spending on economic stimulus will be broader than what is included in the stimulus spending plan. "You've got to look at the whole picture," said Adam Posen of the Peterson Institute for International Economics in a January 2009 interview (PDF). Posen and several other analysts have noted that stimulus spending could come in many ways beyond what's in the plan, including:

The Treasury's $700 billion in TARP funds, initially aimed at stabilizing the financial sector, seems likely to be used to provide relief to other industries and "for things that look more like stimulus and less like asset purchases," according to Posen;