Oh, it’s going to be a long January…
President Elect Barack Obama has proposed tax cuts for individuals and small businesses as part of his massive economic stimulus package. The price tag on the cuts? About $300 billion. With a b.
Don’t get too excited just yet. These are just proposed cuts. There’s a lot to hammer out first – not the least of which is that Congress is just now being seated (Minnesota and Illinois notwithstanding) for the new year. And there’s that little detail of Obama not yet being the sitting President…
So take these proposals for what they are: a quick wish list. We’ll see what shakes out in the next few weeks.
But for now, here’s what’s being considered:
Tax cuts for working folks. The tax cuts that are being considered would equal $500 a year for working individuals and $1,000 for working couples. The cuts would be in the form of a payroll tax credit. That’s good news for workers because it’s an immediate benefit – no wait for IRS checks. Employers will make the adjustment during the year by reducing federal tax withholding; workers not subject to withholding will likely be able to apply for a refund at the end of the tax year. And yes, there will likely be phaseouts and caps – meaning at an as yet unmentioned income level, the credits would be reduced or not apply. Whispers are that the income level cap will be around $200,000 but don’t hold me to it.
Business tax breaks. Okay, tax break is a strong word. What’s actually being considered is extending the net operating loss (NOL) carryback to five years (from the current two year limit). That means that businesses that have a bad year or two now can use those losses to offset tax burdens from other years.
Obama would also extend the increase in Section 179 deductions (more or less, immediate tax deductions as opposed to writing them off over a period of time) for small businesses through at least 2010. The limit has been $125,000 but was doubled for one year as part of the Economic Stimulus Act of 2008. The proposal would extend the $250,000 limit for 2009 and 2010.
Finally, to stem off rising unemployment, businesses that create jobs here in the US or avoid future layoffs would receive a tax credit.
So, it’s a lot. Is it too much? Is it enough? Will it stimulate the economy? Or just throw money away. I suspect these questions will be debated for weeks now. But what are you waiting for? Chime in now. Vote in our poll (psst, feed readers, you can’t see it unless you click onto the site) and then tell us what you really think!
I’m even more interested to hear what cuts in spending he will make to account for the tax cuts…
Kelly-
Way to go BO!
I like the “payroll tax credit” concept a lot. The cost to the government will be minimal and the distribution of cash will be immediate.
I hope, as you mention, a similar credit will be allowed on the first quarterly estimated tax payment for the self-employed.
I am curious to see just how this will work, both now and on the 2009 Form 1040.
TWTP
Two more suggestions for BO
1) Provide relief from the 10% excise tax on early retirement withdrawals when those funds are used to refinance a primary residence. People trying to do the right thing rather than just hand the keys back to the bank are getting killed.
2) Increase the amount of capital gains losses that can be used to offset ordinary income. Three grand is a drop in the bucket that may never be used up for some boomers and retirees who’ve taken a bath during the past year.
Give tax cut and increase gov spending?
Does this ring anybody bells anymore?
There is no such thing as a cost to the government when you are referring to tax cuts. Since the government does not produce anything or actually earn any money, the money they don’t collect is not a cost when they never had it in the first place.
If you took your neighbor’s money and bought a new car for yourself, would you consider that a cost to you or your neighbor? I understand that revenues to the government change when they give tax cuts but typically the revenues increase after the tax cuts have had an effect on the economy. Historically, reducing taxes has increased economic activity and actually increased revenue to the government over time so saying that tax cuts cost the government is a misnomer.
I agree with JB — the capital loss deduction limit of $3,000 has been unchanged since forever, and is a grim joke; $30,000 or $100,000 would be more like it. Indeed, why limit capital loss deductions at all, especially since all capital gains are taxable? As for eliminating the 10% early withdrawal penalty for buying (or refinancing) a house: anything that can help bring stability to the housing market is a big plus in this economy.
What about us folks that are RETIRED? Hows that going to work, since in most cases we don’t make enough to have taxes with held from our retirement pay?
Colin,
Here’s hoping there are some… Though I’m not terribly optimistic. He’s been left with a pretty awful hand of cards. Medicare and jobless payments, up. Infrastructure needs, up. States are begging for money. Industry is begging for money. Not sure where spending cuts will come from though agree they need to be made.
GT,
It’s my understanding that the proposed cuts will only benefit employed persons. But since this is still in the early stages of planning, the details are not 100% clear.
WHAT ABOUT THE PEOPLE WHO SAVED AND LIVED WITHIN THEIR MEANS? tHEY ARE BEING TAXED BEYOND BELIEF ON RETIREMENT INCOME,(SAVINGS , social security and pension). THEY ARE BEING TAXED TO GIVE TO THOSE WHO SPENT, VACATIONED, AND LIVED THE HIGH LIFE.
I could use my tax rebate now. Should I wait to hear about the tax cut? or should I just file now?
ron if everybody did that there wouldnt be an economy. It’s those people who spend that support the economy. And those who are so well off should be the ones spending and not leaving it for the poor and lower middle class.
RON IS CORRECT. IT’S TIME TO STOP TAXING PEOPLE ON SOCIAL SECURITY. THEY WORKED AND PAID ALL THEIR LIVES AND NOW THEY ARE TAXED AGAIN
How about those in their twenties who are paying into social security for your retirements. But I do agree with ron and sam as well on the part of social security only, its a government benefit and as such shouldn’t be taxed via the government. How about we chat up the hugh pension federal senators and reps get after so many years?
Jason,
I’d go ahead and file. I’m sure any cuts will have a retroactive component.