The new tax law signed by President Barack Obama is covered with trimmings for businesses. The business tax breaks are a Bush era tax cut extension for income level families up to 2012. The $858 billion measure was signed a week ago, providing wage earners new payroll tax cuts plus extended benefits for long-term unemployment.
The almost 50 tax breaks are part of package to expire in 2011 and leave tax planners uncertain but with opportunities for lobbyists. A lot of these tax breaks that have existed for years are for the 2009 year end expiry but lawmakers have yet to arrive at payment agreement. The new law for these tax breaks which will be paid with borrowed money extends most until 2011, some until 2012.
An alliance of almost 1,300 business and trade groups wiles Congress to extend the business tax breaks. Some lobbied for exact provisions such as liberal tax breaks for research & development and alternative energy production. Generous tax breaks also for banks and insurance companies, railroad track upkeep, for motorsport race tracks upgrade, more for firms that donate books and computers to public schools and libraries.
Designed to cheer economic activity, the last-minute passing of tax breaks or skips each year and passing them retroactively, isn’t terribly efficient according to Deloitte Tax LLP expert, Clint Stretch, saying it gives a lot of dignity to be called a system.
Non-renewal is a yearly risk of losing favored tax breaks for taxpayers. Millions of 2008, 2009 homeowners who didn’t itemize deductions got extra deduction aside from standard deduction for local property tax payment. Tax reduction is nearly $500 for individuals and $1,000 for couples.
The new tax law left out the provision that saved homeowners $1.6 billion yearly and expired 2010.
Senator Max Baucus, who sponsored the original tax break, said a lot of Americans don’t make a lot of money to itemize tax returns but they own property and that they too should have the ability to deduct it, adding it is a matter of equity.
There are 2/3 of taxpayers who don’t itemize but those who do will still be able to deduct local property taxes.
Some Provisions of the New Law:
• Tax break for companies to immediately write off large capital expenditures.
Known as depreciation, this tax break benefits: automakers, utilities, heavy equipment makers, air freight companies and wireless companies. Washington Research Group director Anne Mathias said this will save companies nearly $21 billion over the next decade. It may also be availed by race horse buyers and farmers who buy breeding or dairy cattle according to the IRS depreciation list.
• Exemption allowing banks, insurance companies and other financial firms to be protect U.S. taxes for foreign profits until 2011 cost of which is $9.2 billion. Mathias says this will benefit multinational banks and financial firms like Citigroup, Bank of America, Goldman Sachs and Morgan Stanley and financing operations of other international companies.
Research & Development – to benefit many industries like pharmaceutical and high tech firms; tax credit is extended until 2011 at $13.3 billion cost.
• Rum tax increased rebates for Puerto Rico and the Virgin Islands.
Currently, U.S. imposes $13.50/proof-gallon tax, proceeds of which go to the said U.S. territories. Former rebate was $10.50/gallon, under the new law, its $13.25/gallon until 2011 cost of which is $262 million.
• A cost of $3 billion for wind solar and other renewable energy programs grant extension until 2011.
Denise Bode, American Energy Wind Association CEO said it to be a great holiday present for the 85,000 American workers in this industry, where thousands will be able to get back to work in a sector that has been in a recession bright spot.
• A cost of a $331 million tax credit extension for railroad track upkeep expenses until 2011.
• A cost of $537 million enhanced deductions through 2011 for companies donating food, books or computers.
• A cost of $101 million tax break for TV and movie productions to write off expenses quickly until 2011 excluding sexually explicit production.