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Jobs and Tax Extenders Bill Advances in Senate

March 9, 2010

A Senate bill that extends unemployment benefits and a set of tax breaks that expired last year has passed a key procedural hurdle.

The Senate voted 66 to 34 to invoke cloture and avoid a filibuster. The $149 billion package includes $25 billion worth of tax breaks that expired at the end of 2009, including the Research and Development Credit and the ability to deduct state sales tax on federal tax returns. Unemployment benefits would be extended to the end of the year, as well as the 65 percent federal subsidy for COBRA health insurance assistance for the unemployed.

However, the two chambers are continuing to go back and forth on various iterations of the jobs legislation. The House first passed a $154 billion jobs bill last December, but the Senate went its own way and put together its own series of bills (see House and Senate Seesaw on Jobs Bill). The Senate passed a $15 billion jobs bill last month and introduced separate legislation containing the tax extenders and the unemployment assistance extension. Last week, the House passed its version of the Hiring Incentives to Restore Employment (HIRE) Act, but it modified several provisions, requiring the Senate to again pass the legislation.

“The extenders are important tax incentives,” said Tom Windram, managing director and national leader of federal tax credits and incentives at RSM McGladrey. “Some of those have been part of the Tax Code for many, many years. They have to be extended every year because there’s never enough money, the way they score the budget, to make those incentives permanent. But they are the types of incentives that a lot of taxpayers rely on. One in particular, the Research Credit, is very important to maintain competitiveness for U.S. manufacturing and U.S. high-tech industries. It’s really turned into more of a jobs credit because it’s a vital component of economic policy to keep R&D jobs within the U.S. It’s essentially competing with the R&D incentives offered by all the other industrialized countries.”

Other tax extenders in the bill aim to allow restaurant owners to depreciate new construction and improvements and retail store owners to depreciate improvements over 15 years rather than 39.5 years; small businesses to continue to pay employees who have been called to active duty in the military; teachers to buy classroom supplies; families to afford college tuition and make their homes more energy efficient; and businesses to invest in low-income communities, among other provisions.

The Senate is expected to pass the bill in the next few days and again send it back to the House. Several differences remain, especially in the way the tax incentives are paid for, according to Windram.

“In the Senate bill, as it currently stands, the way that they’re going to be paid for is by eliminating a tax credit for black liquor, which is a byproduct of paper manufacturing,” he said. “They’re eliminating that from the cellulosic biofuels credit, which is kind of viewed as a windfall to the paper industry, and then the other one being codifying the economic substance doctrine.”

The health care bill, as usual, is having unintended effects on other legislation facing Congress. “The House had those same two revenue raisers in their health care bill, so when it goes back to the House, the House may pull those two and substitute their own revenue raisers because they may want to keep it in their health care legislation, so that’s something we don’t know at this point,” said Windram. “But I think either way they’re going to find a way to pay for it and they’re going to pass it. A lot of these tax extenders are among the few ways where Republicans and Democrats agree they’re good for the economy and they should be extended. The only thing they usually disagree on is how to pay for them.”

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