The inspiring inauguration of President Barack Obama marked a historic moment and is sure to signal some broad tax policy changes in his administration.
Obama left the nitty-gritty of tax policy for other speeches and talked about lofty goals instead. "The state of our economy calls for action: bold and swift," he said. "And we will act not only to create new jobs but to lay a foundation for growth."
In recent days, though, Obama's transition team has moved swiftly to cobble together an economic stimulus package containing $275 billion in tax cuts and $550 billion worth of spending on renewable energy, infrastructure projects, education and other initiatives.
House Democrats introduced the bill last week. While Obama is riding a wave of good feeling on both sides of the congressional aisle, Republicans have already begun to object to various provisions in the package, and swift passage is far from assured.
Also complicating matters are the tax troubles of Treasury Secretary-designate Timothy Geithner. His confirmation hearings had to be delayed while he comes up with a better explanation for why he owed more than $42,000 in taxes, penalties and interest to the very IRS he may soon be managing.
In the meantime, the stimulus package is likely to undergo changes as Democrats, Republicans and assorted interest groups thrash out the details. One of the most common complaints is that many of the provisions aren't likely to have an immediate stimulative effect on the economy. Obama has been tamping down expectations, saying he will probably need at least a year for the economy to recover. Many people expect it to take a lot longer.
One of the most promising provisions, though, is the "Making Work Pay" tax credit, which would provide a refundable tax credit of up to $500 for working individuals and $1,000 for working families. The best thing about the provision is that taxpayers could opt to receive the benefit through a reduction in the amount of income tax withheld from their paychecks, instead of waiting to claim it on their tax returns. However, the credit would phase out for individuals who make more than $75,000 in adjusted gross income.
One of the more promising proposals that so far hasn't made it into the bill came from the National Retail Federation a few weeks ago, just as the dismal holiday shopping season limped to a close. The NRF suggested that the stimulus package include a series of three nationwide sales tax holidays lasting 10 days each. They estimated that the average family would save nearly $175. However, it's easy to imagine many consumers spending and saving much more.
The retail industry has been sputtering badly, with many chains declaring bankruptcy, and in some cases, such as Circuit City, announcing plans to liquidate entirely. Not only the retail sector would benefit. Many other industries now charge sales taxes on both goods and services of various kinds, and state governments are proposing to add to the list in an effort to close their yawning budget gaps. The federal government obviously needs to prod consumers to keep spending, and a nationwide sales tax holiday is a good place to start.
