Week of 2/1/10
2/4/10 — Senate Democrats to introduce jobs bill that includes tax incentives.
At a February 4 press conference, the Senate Democratic leadership said it would press for quick action on a jobs bill that would include the following tax incentives:
- A tax credit for employers that hire new workers during 2010.
RIA observation: It's unclear at this point whether the credit will be the Schumer-Hatch "Hire Now Tax Cut Act of 2010" (see Article #1703) or some other measure.
- Extensions of unemployment insurance and COBRA.
- Tax incentives for small businesses that make major purchases.
RIA observation: Presumably, these incentives will take the form of boosted Code Sec. 179 expensing and/or bonus first year depreciation.
The legislation also would change the rules for Build America bonds by providing "a much-needed funding mechanism for state and local governments at lower borrowing costs..."
The bill could include tax extenders. There's talk that the cost of the bill would be offset by offshore tax compliance crackdowns and the elimination of the black liquor tax credit currently being enjoyed by pulp and paper companies.
The Democratic leadership hoped to iron out the details of the package before this weekend and craft a bipartisan bill with Republican input. The bill could be before the Senate as early as Monday, February 8.
2/4/10 — House passes PAYGO with exemptions for various tax provisions.
On February 4, the House by a vote of 233-187 approved H.J.Res. 45, a bill to increase the statutory limit on the public debt. This Senate-passed bill includes a statutory pay-as-you-go (PAYGO) provision (see Article #1701). The measure is thus cleared for the President's signature.
PAYGO requires that new legislation affecting mandatory spending on tax revenue be budget neutral or not increase the deficit. In essence, it calls for any new tax cut or entitlement program to be paid for (i.e., Congress could only spend a dollar if it saves a dollar somewhere else). A number of tax measures would be exempt from the PAYGO requirement, including those providing an extension of the 2009 estate and gift tax law through 2011; a 2010 and 2011 alternative minimum tax (AMT) patch; making permanent certain middle class tax cuts (dealing with tax rates, credits for families, educational incentives, the special capital gains and dividend rates, the elimination of the limits on personal exemptions and itemized deductions) and permanently extending increased Code Sec. 179 expensing limits.
Senators Schumer and Hatch introduce "Hire Now Tax Cut Act of 2010."
2/3/10 — Senators Schumer and Hatch introduce "Hire Now Tax Cut Act of 2010."
On February 3, Senator Chuck Schumer (D-NY) and Orrin Hatch (R-UT) introduced the "Hire Now Tax Cut Act of 2010" to help stimulate the hiring of workers by the private sector. It would exempt employers that hire a worker who has been unemployed for at least 60 days from having to pay the employer's 6.2% of the Social Security payroll tax on that employee for the remainder of 2010. What's more, if the new hire is on payroll continuously for at least 52 weeks, and his pay for the second 26-week period is at least 80% of what it was in the first 26-week period, then the employer could claim a $1,000 credit for hiring the employee. Workers hired after the date of introduction would be eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after the enactment date would receive the exemption from payroll taxes.
A press release issued by Schumer and Hatch stressed that their measure would be simple to explain and administer, and give businesses an immediate incentive for hiring workers right away.
An employer couldn't claim the new tax breaks for hiring family members, or for replacing another worker who performed the same job for the employer (unless the prior employee left voluntarily or for cause). The bill would bar employers from claiming the new tax breaks as well as the Work Opportunity Tax Credit for the same new hire.
The text of a press release on the Schumer/Hatch "Hire Now Tax Cut Act of 2010" can be found on Checkpoint.
1/28/10 — President proposes credits for new jobs and increased payroll; jobs bills start to takes shape in the Senate.
On January 28, following his called for jobs growth incentives in his January 27 State of the Union address, President Obama has outlined the details of his proposed "Small Business Jobs and Wages Tax Cut." The proposal would provide two credits, one to create new jobs, and one to increase employees' wages and hours. Employers would have the option of receiving the tax credit on a quarterly estimated basis. The proposal includes:
- New jobs credit. Employers would receive a tax credit of up to $5,000 against their payroll taxes for every net new employee they hire in 2010. Non-profits would be eligible for the credit, and start-ups would be eligible for half the credit. The credit would be administered off an employer's unemployment insurance wage base (equal to 72% of the unemployment insurance wage base increase, or $5,000 credit for each additional worker who earns at least $7,000).
- Increased payroll wage bonus. Businesses will receive an additional a payroll wage bonus, a 6.2% tax credit on aggregate wages in excess of inflation—reimbursing an employer for the Social Security payroll taxes that they pay on the payroll increases. The wage bonus would be calculated off the Social Security payroll tax base, so firms wouldn't get credit for increasing wages for employees making more than the current taxable maximum of $106,800.
All firms with net employment increases will be eligible for these credits, but to ensure that small businesses receive the bulk of the incentives, the maximum credit will be limited to $500,000 per business.
Anti-abuse provisions would apply. Businesses that reduce employment or payrolls in 2010 would be ineligible for both the $5,000 credit and the wage bonus. The credit would also include anti-abuse provisions designed to deny or limit the credit to employers that replace full-time employees with part-time employees. This will include limiting the maximum jobs credit amount to 25% of the increase in a firm's Social Security payroll wage base. Rules would also prevent businesses from renaming themselves or merging in order to claim the credits.
The text of President's Proposed Small Business Jobs and Wages Tax Credit can be found on Checkpoint.
Senate Job bills. Meanwhile, prior to the release of the President's proposal, Senate Majority Leader Harry Reid (D-NV) indicated on January 28 that a Jobs Bill agenda would be released next week. Reid said the Senate would be moving two bills—a short term and a long term Jobs Bill.
Shortly thereafter, Senate Majority Whip Dick Durbin (D-IL) said that Reid had asked his leadership team to move forward and gather ideas from the entire caucus on a Jobs Bill. Durbin and Democratic Policy Committee Chair Byron Dorgan (D-ND) have been working on finalizing the details of their Jobs bill, and at the same time Senate Finance Committee Chair Max Baucus (D-MT) was looking for an opportunity to move a jobs bill through the Finance Committee. According to Durbin some provisions are in both the Durbin-Dorgan bill and the Baucus bill. He said they were working with Reid to determine which package to move first, and what would be in it. Durbin said that there was interest in both bills, and that it was "an evolving agenda."
1/28/10 — Senate passes PAYGO with exemptions for various tax provisions.
On January 28, the Senate by a vote of 60-39 approved H.J.Res.45, a bill to increase the statutory limit of the public debt. A Reid amendment to the bill, which would reimpose a statutory pay-as-you-go (PAYGO) provision, was approved by a vote of 60-40. PAYGO requires that new legislation affecting mandatory spending on tax revenue be budget neutral or not increase the deficit. In essence, it calls for any new tax cut or entitlement program to be paid for (i.e., Congress could only spend a dollar if it saves a dollar somewhere else). A number of tax measures would be exempt from the PAYGO requirement, including those providing an extension of the 2009 estate and gift tax law through 2011; a 2010 and 2011 alternative minimum tax (AMT) patch; making permanent certain middle class tax cuts (dealing with tax rates, credits for families, educational incentives, the special capital gains and dividend rates, the elimination of the limits on personal exemptions and itemized deductions) and permanently extending increases Code Sec. 179 expensing for small businesses.
1/25/10 — President announces key tax initiatives for middle class families.
On January 25, President Obama and Vice President Biden announced several of their Middle Class Task Force's recommendations to help middle class families afford soaring child care costs, care for their aging relatives, cope with the challenge of saving for retirement, and pay for their children's college tuition. The Task Force's final report, and full recommendations, are to be released in February, but there were several tax changes among the proposed policy initiatives released in advance, including:
- almost doubling the Code Sec. 21 child and dependent care tax credit for middle class families making under $85,000 a year by increasing their tax credit rate from 20% to 35% of qualifying expenses. The value of the tax credit nearly doubles for all families making under $85,000 a year, and a family that makes under $115,000 will see a tax credit increase. For families struggling to join the middle class, there would be a $1.6 billion increase in child care funding to help an additional 235,000 children;
- creating a system of automatic workplace IRAs, requiring all employers to give the option for employees to enroll in a direct-deposit IRA; and
- simplifying and expanding the Code Sec. 25B saver's credit by expanding tax credits to match retirement savings and enacting new safeguards to protect retirement savings, making it easier for families to plan for retirement.
1/25/10 — President signs into law bill allowing 2010 Haitian relief contributions to be deducted on 2009 returns; Public law number is assigned.
On January 22, President Obama signed into law H.R. 4462, a bill that allows donors to accelerate the income tax benefits of charitable cash contributions for the relief of victims of the earthquake in Haiti. The Senate had previously passed the bill by voice vote on January 21, and the House had similarly passed it by voice vote on January 20. The Act has been assigned a Public law number: P.L. 111-126.
For a fuller discussion of this legislation, see Weekly Alert - 01/28/2010.
The bill allows individuals who make charitable contributions to aid Haitian earthquake victims to elect to claim an itemized charitable deduction on their 2009 tax return (instead of having to wait until next year to claim the deductions on their 2010 tax return). The election applies only to Haitian relief contributions made in cash after Jan. 11, 2010, and before Mar. 1, 2010. If the election is made, Haiti relief donations are deductible on the 2009 return, not the 2010 return.
The bill also relieves recordkeeping requirements for Haitian relief contributions. For these contributions, a telephone bill satisfies the Code Sec. 170(f)(17) recordkeeping requirements if it shows the name of the donee organization, the date of the contribution, and the amount of the contribution.
RIA observation: There is precedent for this kind of legislation. In 2005, P.L. 109-01, was enacted to permit taxpayers to elect to claim a charitable contribution deduction in tax year 2004 for donations made in January of 2005 for the relief of victims in areas affected by the Dec. 26, 2004, Indian Ocean tsunami.
The following material can also be found on Checkpoint:
- the text of H.R. 4462 as passed by the House of Representatives; and
- the text of JCX-2-10, the Joint Committee on Taxation's Technical Explanation of H.R. 4462.
1/22/10 — Senate passes bill to permit 2010 Haitian relief contributions to be deducted on 2009 returns.
On January 21, the Senate by voice vote approved H.R. 4462, a bill that would allow donors to accelerate the income tax benefits of charitable cash contributions for the relief of victims of the earthquake in Haiti. The bill had previously been passed by the House on January 20 by voice (see Article #1695). Accordingly, the bill is now cleared for signature by the President, which is expected this week.
The bill would allow individuals who make charitable contributions to aid Haitian earthquake victims to elect to claim an itemized charitable deduction on their 2009 tax return (instead of having to wait until next year to claim the deductions on their 2010 tax return). The election would apply only to Haitian relief contributions made in cash after Jan. 11, 2010, and before Mar. 1, 2010. If the election is made, Haiti relief donations would be deductible on the 2009 return, not the 2010 return.
The bill also would relieve recordkeeping requirements for Haitian relief contributions. For these contributions, a telephone bill would satisfy the Code Sec. 170(f)(17) recordkeeping requirements if it shows the name of the donee organization, the date of the contribution, and the amount of the contribution.
RIA observation: There is precedent for this kind of legislation. In 2005, P.L. 109-01, was enacted to permit taxpayers to elect to claim a charitable contribution deduction in tax year 2004 for donations made in January of 2005 for the relief of victims in areas affected by the Dec. 26, 2004, Indian Ocean tsunami.
The following material can also be found on Checkpoint:
- the text of H.R. 4462 as passed by the House of Representatives; and
- the text of JCX-2–10, the Joint Committee on Taxation's Technical Explanation of H.R. 4462.
1/21/10 — Democrats weigh health care reform options after Republican's Massachusetts victory.
Following the upset win by Senator-elect Scott Brown (R-MA) in the January 19 special election to fill the late Senator Ted Kennedy's Senate seat, House and Senate Democratic leaders met throughout January 20, together and separately, with their respective leadership teams and caucus members to figure out a way to move heath care reform forward.
The House leadership has been discussing a number of approaches to moving the bill forward, including a scaled down health care bill that would include provisions that would get public support, House passage of the Senate bill followed by a second bill under reconciliation protection that would make House changes to the Senate bill. House Majority Leader Steny Hoyer (D-MD) said that Democratic leaders wanted to get a better gauge of what the Senate is able to do before making a decision on how to move forward on healthcare reform. On January 21, Speaker of the House Nancy Pelosi (D-CA) was reported to have opined that there weren't enough votes in the House to pass the Senate's bill.
Senate Majority Leader Harry Reid (D-NV) said on January 20, that reconciliation was one of the things that Senate Democrats needed to look at, but that no decisions had been made. Senate Budget Committee Chair Kent Conrad (D-ND) stated that he didn't support the use of reconciliation for healthcare reform package, but that if the House passed the Senate bill the use of reconciliation might be appropriate to "fix things that might be approved upon."
Reid also said, "We're not going to rush into anything. As you've heard, we're going to wait until the new senator arrives before we do anything more on health care. Remember, the bill we passed in the Senate is good for a year. There are many different things that we can do to move forward on health care, but we're not making any of those decisions now."
President Obama said that he would advise moving quickly to "coalesce around those elements of the package that people agree on."
1/20/10 — Republican win in Massachusetts special election puts health reform plan at risk.
The fate of healthcare reform appears uncertain following the victory of Massachusetts State Senator Scott Brown (R) in a special election held on Jan. 19 for the Senate seat held by the late Senator Ted Kennedy (D-MA). Now that the Democrats have lost their 60 seat majority in the Senate, one possible option for health reform is for the House to pass the Senate health care reform bill, thereby avoiding the need for the Senate to vote again on the bill. Still another option would be to try and move a more modest package of health reform proposals than either the House or Senate bills contemplated.
1/20/10 — House passes bill to permit 2010 Haitian relief contributions to be deducted on 2009 returns.
On January 20, the House today approved by voice vote H.R. 4462, a bill that would allow donors to accelerate the income tax benefits for charitable cash contributions for the relief of victims of the earthquake in Haiti. Also on January 20, a companion bill was introduced in the Senate with the promise of swift passage.
The bill would allow individuals who make charitable contributions to aid Haitian earthquake victims to elect to claim an itemized charitable deduction on their 2009 tax return (instead of having to wait until next year to claim the deductions on their 2010 tax return). The election would apply only to Haitian relief contributions made in cash after Jan. 11, 2010, and before Mar. 1, 2010. If the election is made, Haiti relief donations would be deductible on the 2009 return, not the 2010 return.
The bill also would relieve recordkeeping requirements for Haitian relief contributions. For these contributions, a telephone bill would satisfy the Code Sec. 170(f)(17) recordkeeping requirements if it shows the name of the donee organization, the date of the contribution, and the amount of the contribution.
RIA observation: There is precedent for this kind of legislation. In 2005, P.L. 109-01, was enacted to permit taxpayers to elect to claim a charitable contribution deduction in tax year 2004 for donations made in January of 2005 for the relief of victims in areas affected by the Dec. 26, 2004, Indian Ocean tsunami.
The following material can also be found on Checkpoint:
- the text of H.R. 4462 as passed by the House of Representatives; and
- the text of JCX-2–10, the Joint Committee on Taxation's Technical Explanation of H.R. 4462.
1/15/10 — Agreement on high-cost health plan tax clears the way for release of health reform package.
The Administration has reached a tentative agreement with labor unions about the excise tax on "Cadillac" health plans, thus clearing the way for a quick release of the entire compromise health-care reform package.
On January 14, the Administration reached a tentative agreement with labor unions on shape of the 40% excise tax on "Cadillac" plans, that is, high-cost health insurance plans, that will be part of the House-Senate health care reform bill. The excise tax, which was in the Senate-passed bill but not the House bill, raised the ire of union leaders who feared the tax would negatively affect members' generous health insurance plans that had been the subject of hard-fought collective bargaining agreements.
According to the AFL-CIO, a tentative agreement reached with the Administration would raise the threshold for family coverage from $23,000 to $24,000 for families, and from $8,500 to $8,900 for individuals, with an additional increase for those in high-risk professions and non-Medicare retirees older than 55. Dental and vision coverage would be exempt starting in 2015. Collective bargaining agreements, including state and local employee plans, would be exempt from the tax until Jan. 1, 2018. The 40% excise tax would be indexed to the Consumer Price Index for all urban consumers plus 1 percentage point.
The President and House and Senate Democratic leaders and their staffs met late in the evening of January 14 to work out the final details of a House and Senate health care package. Lawmakers were expected to reach an agreement on January 15 or 16, followed by a submission of the health reform package to the Congressional Budget Office (CBO) for scoring.
1/15/10 — Bill would permit 2010 Haitian relief contributions to be deducted on 2009 returns.
On January 15, Ways and Means Committee Chair Charles B. Rangel (D-NY) and Ranking Member Dave Camp (R-MI) joined Majority Whip James E. Clyburn (D-SC) and House Republican Whip Eric Cantor (R-VA) in announcing their intent to introduce legislation allowing individuals who make charitable contributions to aid Haitian earthquake victims to elect to claim an itemized charitable deduction on their 2009 tax return (instead of having to wait until next year to claim the deductions on their 2010 tax return). The election would apply only to Haitian relief contributions made after Jan. 11, 2010, and before Mar. 1, 2010. If the election is made, Haiti relief donations would be deductible on the 2009 return, not the 2010 return.
RIA observation: There is precedent for this kind of legislation. In 2005, P.L. 01/07/2005, was enacted to permit taxpayers to elect to claim a charitable contribution deduction in tax year 2004 for donations made in January of 2005 for the relief of victims in areas affected by the Dec. 26, 2004, Indian Ocean tsunami.
RIA observation: For deduction tips for contributors to the Haitian earthquake relief effort, see Weekly Alert - 01/21/2010.
The text of a bill that would accelerate income tax benefits for charitable cash contributions for the relief of Haitian earthquake victims can be found on Checkpoint.
1/14/10 — President proposes financial institution TARP payback fee, to be collected by IRS.
On January 14, President Obama proposed to levy a "Financial Crisis Responsibility Fee" on the debt of the largest financial firms that received assistance under the Troubled Asset Relief Program (TARP) of the Emergency Economic Stabilization Act of 2008 (EESA, P.L. 110-343). The fee would be collected by IRS and be contributed to the general fund to reduce the debt.
The "Financial Crisis Responsibility Fee" would apply only to financial institutions with more than $50 billion in consolidated assets and is intended to assure that TARP related costs are paid back in full. The fee would be 15 basis points (0.15%) of a financial institution's covered liabilities (to be defined as assets minus "Tier 1 capital," minus FDIC assessed deposits (and/or insurance policy reserves, as appropriate).
Details of the plan will be released in conjunction with the President's budget. The Administration will have to work with Congress to craft a bill putting the TARP payback fee in place.
The text of a fact sheet on the President's proposed "Financial Crisis Responsibility Fee" can be found on Checkpoint.
1/14/10 — Democratic leadership close to agreement on health care reform.
On January 14, House Ways and Means Committee Chair Charlie Rangel (D-NY) said that Democrats were "close" to reaching an agreement on healthcare reform. Although he would not go into specifics, Rangel did acknowledge that it was a combination of the House and Senate tax proposals. He said that the tax part of the package would be ready by Friday, January 15, and that Democratic leaders hoped to send a bill to the Congressional Budget Office (CBO) for scoring on Friday as well. Rangel also said that progress was being made by President Obama with union leaders on subjecting high-cost health care plans to an excise tax, a proposal that the union leaders object to.
1/14/10 — CRS issues report on private health insurance provisions in House-Senate bills.
Ahead of news that Congressional leaders will shortly begin releasing elements of a reconciled House-Senate health care bill to the Congressional Budget Office (CBO) for scoring, the Congressional Research Service (CRS) released a report titled "A Comparative Analysis of Private Health Insurance Provisions of H.R. 3962 and Senate-Passed H.R. 3590." The report covers reforms in the House and Senate before and after full implementation and presents a detailed look, in flowchart form, at all proposed changes for private health insurance in the two bills. The report concludes that the largest changes in the House and Senate bills would occur in the private health insurance market for small businesses and for non-group coverage (currently, insurance obtained directly from an insurance company, broker or agent).
The text of CRS's report titled "A Comparative Analysis of Private Health Insurance Provisions of H.R. 3962 and Senate-Passed H.R. 3590" can be found on Checkpoint.
1/13/10 — House bill would hit Wall Street bonuses with 50% tax.
On Tuesday, January 12, Rep. Peter Welch (D-VT) introduced the "Wall Street Bonus Tax Act" to crack down on excessive Wall Street bonuses. The bill would tax bonuses at firms that have received assistance through the federal government's Troubled Asset Relief Program (TARP) at a 50% rate for all bonuses in excess of $50,000. The tax would be paid by the employee or former employee of the TARP recipient. Revenues generated through the tax would fund a new direct lending program to be administered by the Small Business Administration (SBA).
A press release from Rep. Welch said his bill follows similar actions taken by Great Britain and France to tax excessive bonuses.
The text of the "Wall Street Bonus Tax Act," as introduced in the House of Representativescan be found on Checkpoint.
1/12/10 — JCT estimates federal tax expenditures for fiscal years 2009 through 2013.
The Joint Committee on Taxation (JCT) has released its report, Estimates of Federal Tax Expenditures for Fiscal Years 2009-2013 (JCS-10-1), detailing the federal government's tax expenditures for individual and corporations for fiscal years 2009 through 2013. For this purpose, a tax expenditure includes any reduction in income tax liabilities resulting from special tax provisions or regs that provide tax benefits to particular taxpayers (e.g., an exclusion, exemption, deduction, credit, or preferential rate). Some of the big ticket items are (in billions): $572.9 for the home mortgage deduction; $568.2 for the exclusion for employer's contribution for health care, health insurance and long-term care insurance premiums; $418.7 for the preferential dividends and capital gains rate; $285.8 for the exclusion for Medicare benefits; $275.7 for defined benefit plans; $261.3 for the earned income credit; $250.2 for the exclusion for state and local income, sales, and personal property taxes; $184.1 for charitable contributions (other than education and health); $172.7 for the exclusion for cafeteria plans; $160.4 for the credit for children under age 17; $159.4 for the exclusion of capital gains at death; $149.4 for the exclusion on state and local bonds; and $125.7 for the real property tax deduction.
The JCT's estimates are based on tax law enacted through Sept. 30, 2009, and so don't include the Worker, Homeownership, and Business Assistance Act of 2009 (PL 111-92, 11/6/2009) or the Department of Defense Appropriations Act (PL 111-118, 12/19/2009) (or the Andean Trade Preference Extension Act of 2009 (PL 111-124, 12/28/2009)). Some tax expenditures weren't excluded by JCT because the estimated revenue losses for fiscal years 2009 through 2013 were below a $50 million de minimis amount.
The text of the Joint Committee on Taxation's Estimates of Federal Tax Expenditures for Fiscal Years 2009-2013 (JCS-10-1), Jan. 11, 2010. can be found on Checkpoint.
1/6/10 — Congressional leadership to skip formal conference in attempt to fast track health reform bill.
House Democratic leaders met on January 5 to map out their strategy on healthcare reform, and reached a consensus to bypass a formal conference to iron out differences between the House and Senate passed health reform bills. Instead, they decided, with the President's support, that the House will take up the Senate passed bill, amend it, and send it back to the Senate for consideration.
The House will return from the Christmas recess on January 12, followed by the Senate on January 20.
The text a side-by-side comparison of the House and Senate health reform bills, prepared by Tri-Committee House staff can be found on Checkpoint.
1/6/10 — Public Law number assigned to Andean Trade Act.
A public law number has been assigned to H.R. 4284, the Andean Trade Preference Extension Act of 2009, which was singed into law on Dec. 28, 2009. It is P.L. 111-124.
Sec. 4 of the Act provides that for large corporations (those with $1 billion or more in assets), the required payment of estimated tax otherwise due in July, August, or September of 2014 under sec. 202(b) of the Corporate Estimated Tax Shift Act of 2009, as in effect on the enactment date, is increased by 1.5%. The amount of the next required installment will be appropriately reduced to reflect the amount of the increase in the earlier installment.
RIA observation: This latest adjustment is one in a long list of estimated tax modifications for large corporations. The last one was made by the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92); see Weekly Alert - 11/12/2009. And the extenders bill approved by the House of Representatives earlier this month would make a much bigger adjustment for 2014; see Weekly Alert - 12/17/2009.
The legislative text of H.R. 4284, as passed by the House and Senate can be found on Checkpoint.
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