Details of the revised conference agreement have finally come out today (Feb. 12). See Full summary of Provisions from Senate Finance, House Ways & Means Committees, Feb. 12, 2009 (Senate Finance Committee website); JCT Estimate. The bill is expected to be on the floor of the House on Friday, the 13th.
Tax breaks were trimmed back somewhat from the Senate version.
- The two-year refundable Making Work Pay credit was reduced to $400 for individuals, $800 for couples, phasing out at $75,000 individuals, $150,000 couples;
- After extensive lobbying, the NOL carryback--which negotiators originally agreed to limit to companies that had revenues of $5 million of less--was extended to 5 years for businesses with less than $15 million in annual revenues;
- The cap for the new 10%-of-purchase-price homebuyer credit was cut almost in half, down to a more manageable (but still foolish) $8000. It will be available for any purchases this year prior to Dec 1, 2009. In a major improvement over the Senate bill, the credit will be applicable only to first time homebuyers. Anyone buying a home this calendar year will not have to repay the credit unless they sell the home within three years of purchase;
- The deductions in connection with new vehicle purchases--including recreational vehicles!-- were limited to state, local sales and excise taxes through 2009, phasing out only at AGI greater than $125,000 for individuals and $250,000 for joint returns. (Note that this isn't for "green vehicles" or even for "American-made vehicles"--what in the world were they thinking on this one???);
But Max Baucus got through the conference agreement the much-lobbied-for cancellation of debt income provision. See this earlier ataxingmatter posting on the reasons forgiving the tax on debt forgiveness does not make sense as a stimulus. In brief, the only companies that will buy back their debt will be those with liquid assets and no need to borrow more, so they are not the companies the government should be underwriting through tax breaks during a recession that is making huge demands on government funding. Second, the companies that can afford to buy back their debt can afford to pay the tax that is due on the real income from debt forgiveness. (Remember that when you borrow $100 but only have to pay back $80, you have effectively been handed income of $20 at that point. That income is real income and should be in the tax base.) Third, the companies that borrowed a lot in the past and can benefit from buying that debt back will rightly see this as just one more benefit of having been too highly leveraged--they got the interest deduction then, and now they will get a relief from taxes due on income. The provision inserted by Baucus provides for a 5 year holiday from paying the tax due on the income from repurchasing debt anytime between the end of 2008 and the end of 2010. It permits companies to pay the tax due on an installment plan over the next 5 years. That's 10 years after the income was received before the full tax is paid--a huge break for companies that are already liquid enough to be able to take advantage of the market disruption to buy back their debt on the cheap.
Another provision that makes no sense whatsoever--the exclusion of even more capital gain income for owners of stock. Section 1202 current excludes half the gain from small business stock held from issuance for more than 5 years. The temporary (2009-2011) "stimulus" provision will exclude 75% of that gain. That's an investor break that is poorly targeted to stimulate the economy (most owners of that stock will be among the more affluent) and it is one that will be very difficult not to make permanent when the economic shock is over, as has generally been the case with investor tax breaks.
And the Senate's AMT patch is still in there, making up about $70 billion (almost one-tenth) of the entire stimulus package. That's oxymoronic. The AMT patch is not a stimulus. It means less taxes and more money generally for the upper middle class. It is not well targeted to those in the lowest income distributions who will spent their tax savings in ways that serve as a stimulus to the economy.
Even financial institutions--one of the primary causes of our current economic meltdown due to their greedy speculation--got targeted tax breaks in the "stimulus" package. First, they will be permitted to deduct interest on debt used to purchase tax-exempt municipal bonds (i.e., they will get an interest deduction on money they borrowed to buy an investment that gives them a kind of income that is excluded). This tax break is limited (for now, anyway) to bonds issued in 2009-2010 and to the extent those investments are less than 2% of the average adjusted bases of all assets of the financial institutions. Second, another provision that excepts certain issuers from the interest disallowance provision is broadened by increasing the dollar threshold. The two provisions are expected to cost $3.2 billion over 10 years.
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