Get ready for another round of tax cuts to boost the economy. Although Congress passed an economic stimulus bill a year ago, Democrats nervous about the November elections now want to try another tax-fueled jolt to help get the jobs market humming.
Senate tax writers are leading the charge. They’ve proposed a package of tax breaks that has bipartisan support and is already starting to move through the chamber, albeit piecemeal. All of the key elements have enough bipartisan backing to suggest they will pass at some point this year.
First out of the box: A break to get businesses to hire the unemployed. The Senate approved that bill Wednesday and sent it on to the House. It would give employers an exemption from Social Security taxes for each new worker hired in 2010 who has been unemployed for at least 60 days. The break would equal 6.2% of wages paid this year, up to the FICA wage limit of $106,800. But those firms would still owe 1.45% Medicare tax on the new hires. To encourage businesses to keep those workers on board, the firms would also receive a $1,000 tax credit for new hires retained at least 52 weeks. The credit would be taken on 2011 returns.
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Also in the first bill: An extension through this year of special expensing limits. Businesses would be able to write off up to $250,000 on assets placed into service in 2010, and full expensing would be available until $800,000 of assets was put into use.
Other breaks will get Congress’ OK in the coming months:
•Another extension of the COBRA health subsidy law, which gives involuntarily terminated workers a 65% subsidy toward their premium for continued health care coverage for up to 15 months. The proposed extension would cover employees terminated after Feb. 28, 2010, and before June 1, 2010. The proposal would also fix a glitch in the current rules governing the subsidy that prevent employees from qualifying for the subsidy if they lose health coverage because of a reduction in hours, and then are involuntarily terminated later.
•Funding relief for pension plan sponsors so firms could avoid big hikes in contributions to underfunded plans this year. The measure would ease a rule that requires the plan’s underfunding to be made up with extra contributions over seven years. Sponsors would be given two options: Spread payins over 15 years or delay the start of the seven-year period by two years. The relief will comes with strings: Firms that take advantage of it will have to agree to bigger contributions if their executive pay is deemed too high, and they’ll have to rule out an early closing of pension plans.
•Reviving several popular expired tax provisions and continuing them through 2010. Among them: Allowing folks who are at least 70½ to avoid tax on their IRA distributions by donating those amounts to charity. The add-on to the standard deduction for state and local property taxes. Tax breaks for state sales tax, college tuition and teachers’ supplies. 15-year write-offs for restaurant renovations and leasehold improvements. And the research and development tax credit.
Also on tap: An estate tax fix. It’s not in the Senate bill, but lawmakers plan to revive the estate tax retroactive to Jan. 1, when it expired. The problem, though, is that there is no consensus on where to set the exemption amount or the top rate. Democrats support a $3.5-million exemption amount and a 45% rate, the levels for the estate tax in 2009. Republicans want $5 million and 35%, and they may have the votes. Without action, the 2011 exemption amount will be $1 million with an effective 60% top rate.
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