Provisions in the recently signed $787 billion economic stimulus package - the American Recovery and Reinvestment Act of 2009 - will have a ripple effect across all industries, according to experts.
"In the long term, it will have a positive effect on many industries, especially accounting," said Andrew Reina, practice director at financial staffing concern Ajilon Solutions.
President Barack Obama signed the much-debated bill last month. Just three Republicans voted for it in the Senate, while the package received no GOP support in the House.
"My gut view is that the tax provisions are probably pretty good," said Tom Ochsenschlager, vice president for taxation at the American Institute of CPAs, who noted that much of the opposition to the bill is on the spending side, not the tax provisions.
The bill, which was heavily criticized by GOP lawmakers for an abundance of "pork projects," contains the Making Work Pay refundable tax credit that provides up to $400 for working individuals and up to $800 for couples for 2009 and 2010. It also includes a one-time payment of $250 to retirees, disabled individuals and Social Security recipients. The bill would also temporarily increase the Earned Income Tax Credit for working families with three or more children to 45 percent of the family's first $12,570 of earned income.
The bill would also increase the eligibility for the refundable child tax credit in 2009 and 2010. For 2008, the child tax credit is refundable to the extent of 15 percent of the taxpayer's earned income in excess of $8,500. The bill would reduce this floor for 2009 and 2010 to $3,000.
It also provides an "American Opportunity" tax credit for 2009 and 2010 of up to $2,500 of the cost of tuition and related expenses during the taxable year. It also includes roughly $150 billion in infrastructure spending.
"The tax provisions are certainly a step in the right direction," Ochsenschlager noted. "President Obama said he would cut taxes for 95 percent of Americans, and it looks as though this will fulfill that promise."
The economic downturn, coupled with the opportunities presented by the stimulus package, will cause many companies to move into government markets, opined Judah Lipschitz, Esq., co-president of Washington-based Shapiro, Lipschitz & Schram PC.
"The stimulus package is a cause for hope, but businesses need to recognize that success can only occur if they understand the fundamental differences between private sector and government sector contracting," he said. "At every step of the process, there are new components to be educated on, including procurement laws, a different set of accounting rules, Affirmative Action mandates, and perhaps most importantly, distinct cultural differences in business styles."
"There's a whole section in the stimulus package entitled 'transparency and oversight'," he said, "which applies on multiple levels. It's a whole statutory and regulatory scheme with auditing requirements. It's not only responsibility for the government agency and contractor, but an opportunity for the accounting profession."
Ajilon's Reina noted an upside to this. "Regulations and accounting for contract dollars will create the need for a tremendous amount of oversight," he said - and opportunities for accounting and auditing firms.
Ochsenschlager explained that the tax cuts will have a stimulative effect because they are targeted toward the people most likely to spend.
"Many of the people who will receive the Making Work Pay credit are people that need to spend the money because they are in difficult financial circumstances," he pointed out. "Much of that will be put into the economy in the next two years."
"Likewise, the increased EITC applies to relatively low-income individuals, so it's almost certain to be spent. And the refundable credit of people on Social Security and state employees on state pensions, $250 for 2009, is highly likely to be spent," he said.
"The First-Time Homebuyer Credit is almost too good to be true," he said. "For purchases before Dec. 1, 2009, it doesn't need to be repaid. It will stimulate the housing market, just as the sales and excise tax deduction for the purchase of new automobiles should give a shot in the arm to Detroit."
Ernst & Young tax partner Greg Rosica observed that small businesses can carry back 2008 losses up to five years, rather than the normal two. "However," he noted, "a small business is defined as one with gross receipts of $15 million or less."
"The final bill has limited business tax implications in it," said Rick Klahsen, national service line leader for tax advisory and compliance at RSM McGladrey. "Some provisions have favorable incentives, such as an additional year for bonus depreciation. But a business has to have cash or access to capital in order to place assets in service, and lending is restricted."
However, business incentives are not as important as tax cuts for individuals, according to Ochsenschlager. "The problem of the economy is not a problem of production, it's a shortage of consumption," he said.
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