Obama Outlines Tax Stimulus Plans

by Leroy Baker, Tax-News.com, New York

12 January 2009

President-elect Barack Obama outlined his American Recovery and Investment Plan in a speech on Thursday which, as expected, contained plans for a middle class tax credit, incentives for businesses to create jobs and invest, and proposals to boost corporate cash flows, although the proposals have already run into opposition in the Senate.

In his address, delivered at George Mason University in Virginia, Obama said his plan will provide "immediate relief to states, workers, and families who are bearing the brunt of this recession." The centre-piece of the plan is a USD1,000 tax cut, which, according to Obama, will be available to 95% of working families.

Also figuring in the recovery plan are proposals for a USD3,000 job creation tax credit, an extension to higher business expensing limits and bonus depreciation, and extended loss carry back to allow firms to deduct losses against a higher number of previous tax years. But, with certain aspects of the tax plan already being picked apart by his former Democratic colleagues in the Senate, Obama did not speak of these proposals in his speech.

While there appears to be widespread support for most of the tax relief proposals, lawmakers and economists have questioned the most controversial element, namely the job credit: why, critics are asking, would a business want to take on extra staff at a time when sales and earnings are plummeting, just to gain a few thousand extra dollars?

On Thursday, after emerging from the first meeting of the Senate Finance Committee, which will draft the tax legislation, Sen. Edward Kennedy revealed that he was "not excited" about this element of the plan, while Sen. Chuck Grassley, the ranking Republican on the committee, reported that many questions have been raised about the economic benefit of the tax plan.

Nonetheless, Congress is committed to passing some form of recovery legislation quickly, and proposals are expected to be announced by the finance committee early next week. Senate Majority Leader Kent Conrad is aiming for legislation to be passed before the Presidents' Day Congressional recess on February 13.

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