Senate Panel Explains Tax Relief

by Mike Godfrey, Tax-News.com, Washington

11 February 2009

The Finance Committee of the United States Senate has announced that almost all of the tax breaks contained in the pending American Recovery and Reinvestment Act 2009 will come in the first two years of the legislation.

The Finance Committee's plan, set for consideration by the full Senate, contains USD522bn in tax cuts targeted towards job creation. This includes USD342bn in tax cuts for families and businesses, with a focus on creating jobs in the green energy, highway, and school building sectors, and approximately USD180bn in unemployment insurance improvements, health care assistance and investments, and other measures.

According to the Congressional Budget Office and Joint Committee on Taxation, when Finance Committee provisions and Appropriations Committee provisions are combined in the final American Reinvestment and Recovery Act of 2009, the overall effects will be immediate. This will mean that 99% of the Finance Committee portion is felt in the remainder of FY 2009 and in FY 2010, and 79% of the total plan (Finance and Appropriations) is felt in FY 2009 and in FY 2010.

A key provision of the legislation is the 'Making Work Pay Tax Credit.' Unlike last year's once-off stimulus payments, this credit will work by withholding less from taxpayers' pay checks and will be spread out over the year. It will cover 95% of American families. According to the Finance panel, this will increase GDP by at least USD1.22 for every dollar spent. A host of other tax credits will be available for families with children, college students, social security recipients and disabled veterans.

The energy provisions in the Finance plan reward companies for working on projects to advance energy independence, energy security, and clean energy. Measures to give an immediate boost to renewable energy development and energy job creation in the US include: a 20% R&D credit for companies doing research and developing new renewable energy technology; a new manufacturing incentive for companies to locate their factories for clean technology in the United States; a provision designed to jumpstart the tight tax equity market for investment in alternative energy; and incentives to expand wind power across the country.

Provisions to help small business, namely extended loss carryback, bonus depreciation and increased Section 179 expensing, remain in the legislation.

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