Tax News

CCH (cch.taxgroup.com) reports:

  Senate Finance Committee Chairman Max Baucus, D-Mont., on January 23 unveiled an economic recovery tax package, the American Recovery and Reinvestment Act of 2009, which includes $275 billion in tax cuts for individuals and businesses, in addition to investments in renewable energy, infrastructure projects, and health care. The release came a day after the House Ways and Means approved a slightly different version of the economic stimulus legislation (HR 598) (TAXDAY, 2009/01/23, C.1), setting the stage for more negotiations before Congress can approve the measure and send it to President Obama before the President's Day recess beginning on February 13.

  Most provisions in the competing bills are the same. Differences in ideology and costs explain the differing provisions. The total dollars in tax cuts are the same in the House and Senate versions, but Baucus lays out almost $11 billion more than his counterpart Charles B. Rangel, D-N.Y., does for green energy incentives. A tax break highly favored by the business community that allows companies to carry back net operating losses (NOLs) over two years, was increased to five years in the Baucus mark. Rangel made a last-minute change in his mark and offered companies the five-year option with a permanent 10-percent reduction in the value of their NOLs.

  During the Ways and Means markup on January 22 House Democrats defeated a Republican amendment that would have temporarily cut taxes on jobless benefits for two years, but the Senate version includes an altered version of the proposal that would temporarily suspend federal income tax on the first $2,400 of unemployment benefits per recipient. The provision would be in effect only for 2009 and is estimated to cost $4.7 billion over ten years. In the Senate bill the income threshold for the refundable child tax credit would be lowered to $6,000, while the House bill would eliminate the threshold.

  Notably missing from both bills is a fix for the alternative minimum tax (AMT). Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, said that he will be fighting during the markup on January 27 to include an AMT patch in the legislation. "Without it, at least 24 million middle-income families will face a tax increase, and that's the last thing anyone needs right now," he said.

  Additional business tax cuts and investments include delayed recognition of certain cancellation of debt income, extension of bonus depreciation, elective expensing (Code Sec. 179), and monetization of accumulated AMT and R&amp credits in lieu of bonus depreciation, an expansion of the work opportunity tax credit (WOTC), new markets tax credit and industrial development bonds, and an increase in the exclusion for small business capital gains.

  Tax breaks for individuals include the making work pay credit which would provide an individual tax credit in the amount of 6.2 percent of earned income, expansion of the earned income tax credit and the refundable child tax credit, creation of a $2,500 higher education tax credit, inclusion of computers as qualified education expenses in Code Sec. 529 education plans, and a homeownership tax credit.

JCT Description of the American Recovery and Reinvestment Tax Act of 2009, JCX-10-09

JCT Estimated Budget Effects of the American Recovery and Reinvestment Tax Act of 2009, Scheduled for Markup by the Senate Finance Committee on January 27, 2009,
JCX-11-09

SFC Release: Stimulus Legislation Memorandum