A package of tax cuts for individuals and businesses aimed at
spurring economic recovery grew to more than $340 billion, as it
won approval by the Senate Finance Committee Tuesday.
The panel backed the measure on a 14-9 vote, with all
Republicans opposing it except for Sen. Olympia Snowe, R-Me. The
Senate could vote on broader legislation that also includes
infrastructure and other spending by this weekend.
The most significant addition to the bill was a $70 billion,
one-year provision to protect most middle-income taxpayers from the
alternative minimum tax in 2008. That could push the cost of the
overall Senate package above $900 billion, and sets up a
negotiation with the House, which rejected including the AMT patch
in its version of stimulus legislation.
At its core, the bill approved by the Senate Finance panel today
is similar to the tax provisions in a plan now pending before the
House of Representatives. It would provide a $500 credit against
payroll taxes to all but the wealthiest 5% of Americans, a key
Obama campaign proposal. The Senate bill would cut taxes for
businesses by allowing quicker depreciation of equipment, and help
businesses convert losses into tax refunds by allowing them to use
current year losses to offset tax liability as far back as five
years.
Like the House bill, the temporary 5-year loss carryback
provision would not be available to recipients of Treasury
Department bailout funds. The Finance panel rejected, 9-14, an
amendment from Sen. Jim Bunning, R-Ky., to let bailout firms claim
the tax benefit.
The Senate loss provision is a little more generous than the
House version, which would reduce eligible losses by 10%.
In total, tax benefits for businesses reach $25 billion over 10
years in the Senate bill, compared to $20 billion in the House
legislation.
"We think that the provisions in this bill represent the best
ways to address spending slowdowns and rising unemployment," Baucus
said at the committee session.
Divvying Up The Pot
The bill also boosts federal Medicaid payments to states by $87
billion. Baucus steered around a contentious debate among Democrats
regarding how that pot of funds is divvied up, but the issue is
likely to surface again when the bill comes before the full
Senate.
The fight pits rural states against more populous ones that have
seen more dramatic increases in unemployment. Under the Senate bill
as originally proposed by Baucus, 60% of the Medicaid payments
would have come from a flat 5.6% increase in federal payments to
each state. The remaining 40% would be distributed according to a
formula that favors states that have seen the largest increases in
jobless rates.
That is already kinder to rural states than the House Medicaid
provision, which reflects a 50/50 split.
Sens. Jeff Bingaman, D-N.M., Kent Conrad, D-N.D., and others
sought to eliminate the second, formula-based part and distribute
the whole pot of $87 billion by the same percentage increase across
the board.
"My hospitals are going right down the drain, because they are
getting half as much money as the big states in this country," said
Sen. Kent Conrad, D-N.D.
Retorted Sen. Robert Menendez, D-N.J., "We would love not to be
in the position of having higher unemployment rates than other
states."
Baucus persuaded committee members on a provisional compromise
of 80% distributed based on percentage increase and 20% tilted to
states hit harder by the recession. That 80/20 split was added to
the bill. But panel members indicated they will revisit that debate
on the Senate floor.
Canceled Debt Tax Break
The Finance panel agreed to sweeten a tax break for businesses
that buy back debt, similar to a change sought by firms including
U.S. Chamber of Commerce and companies including Dish Network Corp.
(DISH), Lennar Corp. (LEN), Qwest Communications International Inc.
(Q), and Tenet Healthcare Corp. (THC).
Those firms wanted a two-year suspension of taxes on income
recognized because of canceled debt. Such income could arise as
firms repurchase shares to shore up their balance sheets.
Instead, the revised Senate bill would allow them to spread
recognition of that income over eight years. That is up from four
years in the bill as introduced last week. The House bill does not
grant businesses relief on the debt cancellation income.
The debt repurchase provision may undergo further changes by the
time the bill passes the full Senate.
Sen. John Ensign, R-Nev., said that provision did not go far
enough to help businesses restructure debt, and criticized the bill
for not doing enough to address housing directly. "I believe this
'mark' has missed the mark," said Ensign.
Sen. Kent Conrad, D-N.D., proposed suspending taxes on half of
such income from cancellation of indebtedness, and spreading the
rest over an eight-year period. He said he hoped to discuss the
change further with Baucus prior to Senate floor consideration.
First-time Homebuyer Credit
In another difference with the House approach, the Senate bill
would extend the period for first-time home buyers to qualify for a
tax break. Under last year's housing legislation, first-time home
buyers that purchase homes before July 1, 2009 can qualify for a
$7500 tax credit, which they must repay to the federal government
over 15 years.
The bill approved by the Finance Committee would extend
eligibility for the credit to homes purchased before Sept. 1, 2009,
and would waive the repayment requirement for homes purchased
between Jan. 1 and Sept. 1, 2009.
The bill would spend $31 billion over 10 years for investment in
renewable energy, including a 3-year extension of production tax
credits for wind, geothermal and biomass energy.
Democrats turned back GOP amendments to boost tax benefits for
wind energy, and alternative fuels. Under Democratic-imposed
budgeting rules, each amendment must to be offset by raising
revenue or reducing spending elsewhere in the bill. Republicans
proposed reducing funding to state Medicaid programs to fund their
proposals, which Democrats objected to.
Besides tax and state aid provisions, the bill would spend $27
billion to help workers who are laid off retain COBRA
health-insurance coverage. It includes $39 billion to extend and
augment unemployment benefits and $4 billion for welfare and child
support programs.
-By Martin Vaughan, Dow Jones Newswires; 202-862-9244;
martin.vaughan@dowjones.com
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