After a week of debate and a round of stumping from President Obama, the Senate passed its version of the economic stimulus package on Tuesday afternoon.
The bill outlines $840 billion in spending and tax relief, and just after the votes were tallied, Citizens for Tax Justice released its list (PDF) of the six worst tax cuts—costing $123 billion more than the House bill—in the Senate’s stimulus:
- The Alternative Minimum Tax “patch”: Halts the Alternative Minimum Tax for one year, but steers most of the cuts toward the richest 10 percent of taxpayers, who will receive 69 percent of the $70 billion cut and will be the least likely group to spend that money. The AMT began as a way for the government to force the ultra-rich to pay taxes, even if they found enough loopholes in the tax code to pay next to nothing.
- The Home Ownership Tax Credit: Proposes a non-refundable credit to stimulate the housing market. Any family of four with more than $116,500 in income that purchases a home is eligible for a maximum $15,000 one-year tax break. If the family elects to take the credit over two years, it must show $78,250 in income. But since the tax is not refundable, it only benefits those who make enough money to have a tax liability.
- Deduction for Automobile Purchases: Anybody who bought a car (maximum sticker price: $49,500) after November 12, 2008, and through the end of this year can deduct the loan interest and excise taxes on the car. That is if you can secure a loan.
- Halting the Tax on Unemployment Benefits: Workers pay taxes on their unemployment benefits, so it sounds like a good idea, but it ultimately benefits high-income earners who receive unemployment assistance. The Senate provision reduces taxes on the first $2,400 of benefits, but the size of the cut varies based on the recipient’s tax bracket. For example, someone earning $200,000 normally pays a 28 percent income tax. If that person also received unemployment benefits on his or her way to making $200,000, he or she would receive a 28 percent tax cut on the first $2,400 of unemployment benefits. Another worker with $42,000 in total earnings pays a 10 percent income tax. If that worker receives unemployment assistance, he or she only sees a 10 percent tax cut on the first $2,400 in benefits.
- Five-year Retroactive Tax Cut on Net Operating Losses: Lets companies receive refunds against taxable earnings going back five years, instead of the normal two-year period. The provision doesn’t create incentives for companies to use the refunds to hire new workers or expand their businesses.
- Cancellation of Indebtedness Income Tax Deferment: The Senate bill offers a tax cut that will allow businesses to defer paying taxes on canceled debt. The IRS sees canceled, or forgiven, debt as income (if you take out a $20,000 loan, and your creditor cancels the debt, the IRS considers you $20,000 richer), and canceling this tax rewards businesses who take on heavy debt loads, one of the symptoms of the recession.