Some of the most substantial deductions in the federal tax code are the itemized deductions for state and local income, sales, and real estate taxes. This map shows the variation, by county, in the amounts of...
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- This Morning's News and Views on Obama Tax, Stimulus...
This Morning's News and Views on Obama Tax, Stimulus Plan
This morning, the New York Times and the Wall Street Journal outlined President-Elect Barack Obama's economic stimulus package worth anywhere between $675 billion to $775 billion, both news organizations saying that the tax cut proposals are there largely to woo Republican support for the entire plan. The NYT's Peter Baker and Carl Hulse describe individual income side of the approximately $300 billion in tax cuts Obama is proposing:
The economic package under consideration by the president-elect and his Congressional allies would commit $675 billion to $775 billion over two years. If the tax cuts represent 40 percent of that, as Mr. Obama’s advisers said Sunday, that would mean about $270 billion to $310 billion.
About half of that would go to workers under what Mr. Obama during his campaign called the Making Work Pay credit, worth up to $500 for individuals and $1,000 for families. The Obama campaign estimated that about 150 million Americans making less than $200,000 would qualify, including those who make too little to pay federal income taxes but would receive a check that would offset Social Security and Medicare payroll taxes.
Mr. Obama’s advisers said Sunday that they were searching for a way to get that credit into Americans’ pockets quickly to help stimulate spending, but would not duplicate the rebate checks sent last year as part of an economic package signed by President Bush. Instead, they said, they were discussing making the credit retroactive to the 2008 tax year and adjusting withholding formulas so paychecks would start reflecting that right away.
As for the business tax package, a key provision would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years. Obama aides note that businesses would have been able to claim most of the tax write-offs on future tax returns, and the proposal simply accelerates those write-offs to make them available in the current tax season, when a lack of available credit is leaving many companies short of cash.
A second provision would entice firms to plow that money back into new investment. The write-offs would be retroactive to expenditures made as of Jan. 1, 2009, to ensure that companies don't sit on their money until after Congress passes the measure.
Another element would offer a one-year tax credit for companies that make new hires or forgo layoffs, which could be worth $40 billion to $50 billion. And the Obama plan also would allow small businesses to write off a broad range expenditures worth up to $250,000 in 2009 and 2010. Currently, the limit is $175,000.
With this news, there are of course plenty of views to go around on any potential tax and stimulus plans:
- In a Wall Street Journal op-ed today, Senator Judd Gregg (R-NH) encourages the Congressional Democratic majority and the President-Elect to choose investment projects wisely with any stimulus money while also cutting taxes for job creators.
- Robert Samuelson describes any stimulus package as just a "pump primer" for the economy, not a cure to the economic downturn, in this morning's Washington Post.
- Harvard University Professor Martin Feldstein gives his views on a stimulus plan and provides an historical perspective for CNBC's Steve Liesman.
- Art Laffer shares his views on the Obama tax plan on TheStreet.com TV.
Bloggers are also making their views known:
- Russell Roberts of Cafe Hayek argues that Obama's plan is "an increase in spending coupled with lower tax collections is an INCREASE in taxes. AN INCREASE in taxes. NOT A TAX CUT. If I spend more money and collect less, the government is promising to collect more taxes in the future."
- Yves Smith of Naked Capitalism observes a problem with past stimuli: "The problem with tax cuts is they may not be spent. And the degree to which they are saved means the stimulus was ineffective. In other words, reliance on tax cuts runs the risk that greater spending will be required to achieve the same result than via government spending."
- Jim Lindgren of The Volokh Conspiracy says that "as with most proposals that include income tax cuts for those who don't pay income taxes, it might be better to call this class of cuts welfare payments, rather than tax cuts, but the theory of the earned income credit is that it's sort of a refund of federal payroll taxes."
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