US Stimulus Plan To Include USD300bn In Tax Cuts

by Mike Godfrey, Tax-News.com, Washington

06 January 2009

It is understood that tax cuts worth more than USD300bn, targeted towards both individual and business taxpayers, will make up just under half of President-elect Barack Obama's economic recovery plan, which is currently being worked on by senior Congressional Democrats.

Aides to Obama revealed over the weekend that, as reported last month, Obama is seeking to incorporate aspects of his election campaign tax plan into the stimulus plan, the centrepiece of which is likely to be the Making Work Pay tax credit that would provide a USD500 credit for single workers earning less than USD200,000 annually, and USD1,000 for couples. This credit could also be made retroactive to the 2008 tax year. Those who do not currently earn enough to pay income tax would also receive some kind of payment to offset their social security and Medicare taxes, it is believed.

As the economic recovery plan slowly begins to take shape, more details are emerging from the Obama camp about plans for business tax breaks, said to be worth USD100bn to USD150bn and targeted specifically towards job creation. Again, Obama's preferred method for providing tax relief seems to be through the use of tax credits, and it is thought likely that his campaign pledge to provide a job creation tax credit worth USD3,000 per new employee will form part of the tax cuts in the recovery plan. A tax credit could also be given to firms to encourage them to retain staff as unemployment figures begin to rise sharply.

In addition, Obama’s campaign team are examining the possibility of building upon business tax relief granted under the smaller-scale economic stimulus package signed by President Bush last February. This could mean that bonus depreciation allowing a taxpayer to depreciate 50% of the cost of an asset in the year in which the asset was acquired could be extended, along with the increased Section 179 elective expensing limit, which now stands at USD250,000 as a result of the Bush package. Indeed, there is already support for such a move in Congress, with a bipartisan group of Senators having introduced legislation in November to extend these tax breaks for an additional year, to the end of 2009.

The Obama plan could also improve loss carryback rules to allow businesses to claim refunds by offsetting current losses against prior tax years.

Obama is expected to announce a progress report on the proposed tax and spending measures to be included in the recovery plan later this week. However, with Congress expected to deliberate long and hard on the finished proposals, the stimulus package is not expected to be passed into law until well into February.

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