TAX NEWS - DECEMber 2009

U.S. Tax: Congressional Democrats, White House push for December jobs bill with business tax incentives

Responding to double-digit unemployment figures, Democratic lawmakers and President Obama hope to make progress this year on yet-to-be-introduced legislation that would spur job growth through certain business tax incentives and infrastructure spending, among other possible provisions. But with a crowded agenda in both the House and Senate, and only limited time left in 2009, the legislation could be delayed until early in 2010.

In a December 8 speech, President Obama offered a few possible tax proposals for a jobs bill, including:

- Extending the 50 percent bonus depreciation rules that allow 50 percent of the basis of qualified property to be deducted in the year the property is placed in service, and the remaining 50 percent to be recovered under otherwise applicable depreciation rules. This provision was most recently extended in the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5).

- Extending through 2010 the enhanced small business expensing limit of $250,000 and investment phase-out of $800,000 under section 179. These limits were also extended in the ARRA.

- Eliminating for one year capital gains tax on new investments in small business stock. The ARRA allows a 75 percent exclusion from capital gains tax on certain small business stock through 2010.

The president also suggested expanding ARRA programs related to industrial energy efficiency investments and tax incentives for U.S. renewable manufacturing facilities. Finally, Obama proposed creating a new short-term tax incentive to encourage small businesses to hire additional employees. He also left open the possibility for additional provisions to be included during debate.


Possible House legislation

House Majority Leader Steny Hoyer, D-Md., recently indicated that the House will likely consider a jobs bill in the near future. Hoyer and Speaker Nancy Pelosi, D-Calif., have said it could at least include an extension of unemployment insurance benefits and COBRA benefits, as well as some as-yet-unspecified tax incentives for businesses.

House leaders may likely pay for any potential package with up to $200 billion from the Troubled Asset Relief Program (TARP), which was created by the Emergency Economic Stabilization Act of 2008 (EESA, P.L. 110-343) in October 2008 to purchase "troubled assets" from financial institutions. Prompting this proposal is a recent Treasury Department report stating that TARP is likely to cost taxpayers significantly less than the $700 billion authorized under the EESA. Read here.

Senate support for using TARP money is unclear, but select Democratic senators including Finance Committee member Kent Conrad, D-N.D., said such an option is possible.


Little time left for action this year

Hoyer stopped short of laying out a timeline for a House bill because with just about 10 working days left in 2009, the House calendar may be the most significant obstacle to passing legislation this year. Nonetheless, Pelosi said earlier this month that she hopes to complete jobs legislation before the House leaves for its Christmas recess. Pelosi also said she expects to see additional initiatives in 2010 related to sustainable job creation.

For its part, the Senate remains consumed by the health care reform debate. Still, Majority Leader Harry Reid, D-Nev., said in November that he plans to bring up a jobs bill, but did not specify timing for consideration. This year, the Senate is still hoping to consider legislation addressing appropriations, expiring tax breaks, and possibly the estate tax regime.