Tax News

CCH (cch.taxgroup.com) reports:

  President-elect Obama made his strongest argument yet for a massive stimulus package, warning that government intervention is necessary to stop the downward economic spiral. Without bold and swift action by Congress, Obama warned that the United States could "sink deeper into a crisis that, at some point, we may not be able to reverse."

  Obama, in a January 7 speech at George Mason University in Fairfax, Virginia, urged Congress to pass a plan "in the next few weeks," working through weekends, if necessary, to get the work done. However, congressional leaders have already put the brakes on completing action the first week of February and are aiming for final passage by the Presidents Day recess that begins on February 13.

  The forthcoming plan will not solve all economic problems, but any package must include measures to fix the broken financial system and take sweeping measures to avoid the mounting number of home foreclosures, Obama asserted. Any efforts to prevent the collapse of financial institutions must provide "maximum protections for taxpayers" and put "significant restrictions" on companies that receive government help, he stressed.

  To implement reform of the financial and housing market will require an overhaul of the existing "weak and outdated regulatory system," Obama said. Regulatory reform is necessary to "withstand financial shocks and better protect consumers, investors, and businesses from reckless greed and risk-taking," he maintained.

  In an effort to appease lawmakers who are wary of proposals for greater government spending on public infrastructure and assistance to states, Obama emphasized that the economic plan "won't just throw money at a problem but will invest in what works." The president-elect said the real test of his policies will be whether they "create jobs, grow our economy, and put the American Dream within reach of the American people." He added, "that's why our goal is not to create a slew of new government programs, but a foundation for long-term economic growth."

  Obama also reaffirmed his commitment to provide a $1,000 tax cut for 95-percent of working families, calling it the "first stage" of middle-income tax relief that he promised during his presidential campaign and which will be included in his February budget proposal. He also called for a further extension of unemployment insurance for the jobless who cannot find new employment and continuation of health care coverage "to help them through this crisis."

House Reaction

  House Speaker Nancy Pelosi, D-Calif., reaffirmed that action on the economic stimulus legislation called for by Obama might not be finished until the Presidents Day recess. Following Obama's speech, Pelosi told reporters that unless Congress completes its work on a stimulus bill by Presidents Day, Congress's week-long recess would be cancelled. She said she expects House committees to begin marking up legislation later in January.

  House Majority Leader Steny H. Hoyer, D-Md., promised that Congress would not sit idly in the face of the current economic crisis. He predicted that lawmakers would face difficult choices as they attempted to cut entitlement spending, but the economic turnaround depends on reforming how Washington meets its fiscal responsibility. House Minority Leader John A. Boehner, R-Ohio, noted that GOP lawmakers are ready to work with the new Obama administration and Democrats, but they are especially concerned about the size and scope of the plan. Boehner expressed concern about adding billions of dollars to the federal debt, which will be repaid by future generations of Americans.

  Meanwhile, House Ways and Means Committee members and economic advisors to Obama have begun holding meetings on the upcoming economic recovery package, Chairman Charles B. Rangel, D-N.Y., announced. Rangel said that he was excited by the prospect of working with an administration that shared his goals of providing tax relief for middle- and lower-income Americans and small businesses, and boosting spending on education, health care and infrastructure.

SFC Members Cool to Obama Tax Plan

  Senate Finance Committee members on January 8 emerged from a closed-door meeting on the economic stimulus plan unified on the principle that swift action is necessary, but determined to avoid spending large sums of taxpayers' money without seeing a real return on their investment. Many lawmakers panned Obama's centerpiece tax-relief legislation that would provide $500 tax rebates for most individuals and $1,000 for couples by withholding less from paychecks over a five-month period, instead of mailing checks to taxpayers. They likened it to President Bush's rebate checks, which they believe failed to provide a significant stimulus for the economy. Most agreed that any money spent must serve as an investment in future productivity and competitiveness. Moderate Republican Sen. Olympia J. Snowe, R-Me., who often provides a key swing vote, told reporters her vote depends on the overall mix and policy direction of the stimulus package.

  Senate Finance Committee Chairman Max Baucus, D-Mont., said he had tentative plans to mark up a tax package following the January 20 inauguration. The senior tax writer said that he believed housing assistance would become an "integral" part of the package. Lawmakers acknowledged that the legislation would undergo many changes before they reached final agreement. Baucus found himself down playing talk of adding a one- or two-year patch for the alternative minimum patch to the bill, a proposal that Rangel dismissed the day before as being too expensive a proposition.

  Senate Budget Committee Chairman Kent Conrad, D-N.D., said that Obama's proposed $3,000 tax credit for businesses as an incentive to hire and retain workers also did not go over well with committee members. Moreover, he cast doubt over a proposal that would allow firms incurring losses (NOLs) in 2008 to take a credit against profits dating back five years instead of the two years presently allowed. Conrad said he supports more investment in energy conservation and home-buying assistance. He believes the stimulus package should provide a first-time homebuyers' tax credit and a more attractive interest rate near 4.5 percent.

  Republican reaction to the Obama speech carried a cautious warning against throwing money at the problem without thinking through the cost benefits. "How much debt are we going to pile up on future generations?" Boehner asked. Republicans praised Obama for reaching out to them for advice on stimulus needs, but they said their support depends on how much their input is actually heeded. Senate Minority Leader Mitch McConnell, R-Ky., said he believes cutting the middle-class tax rate from 25 percent down to 10 percent would provide a boost to the economy. On the spending side, McConnell said he wanted to make aid to states through a loan process, rather than grants, in order to assure that states spend the money wisely. He suggested a 5 percent interest rate over five years and then 9 percent. McConnell said Congress should complete the bill by mid-February.

Subcommittee Assignments

  Also on January 8, Rangel announced the assignments of Democratic lawmakers to various Ways and Means subcommittees. The leadership recommendations have been transmitted to the Democratic Caucus for ratification. In a press release, Rangel noted, "The 111th Congress begins during a time of historic opportunity and challenge." He added that lawmakers "have already hit the ground running, and will continue working in the coming weeks, drawing on the knowledge and experience of our Members to develop a robust economic recovery package and tackle the challenges facing hardworking Americans today."

  By Jeff Carlson, Stephen K. Cooper, Paula Cruickshank and Chantal Mahler, CCH News Staff

Ways and Means Release: Rangel Remarks on President-Elect Obama's Speech on the Economy, Recovery Efforts

Ways and Means Release: Ways and Means Committee Announces Subcommittee Assignments for 111th Congress