THE PROBLEM FOR MAIN STREET:
WHY ECONOMIC STABILIZATION IS NECESSARY

Click here to read more.

Tax Provisions in the Economic Rescue Package

There has been a lot of confusing and misleading information about the tax provisions that were included in the final version of the Economic Rescue package.  I wanted to share some information on these tax provisions.

State and Local Sales Tax Deduction
This deduction allows taxpayers to elect to take an itemized deduction for State and local sales taxes for the 2008 tax year.  Without this provision, Texans wouldn’t be able to deduct their sales taxes from their federal tax returns for 2008 and reduce their tax burden.  This is a matter of fundamental fairness in tax treatment between states that have income tax and states that do not.

Research and Development Tax Credit
The research and development credit tax is 20 percent of a taxpayer’s qualified research expenses for a taxable year.  The bill extends the R&D tax credit through the end of 2009.  Extending this tax credit encourages companies to conduct cutting edge research here in the United States instead of overseas.  This keeps high paying jobs here in the U.S.

AMT patch
Provides a one-year “patch” for the Alternative Minimum Tax (AMT).  Without this patch, 21 million additional families will have to pay the Alternative Minimum tax on their 2008 income.  The total tax increase on American families will exceed $62 billion.  That’s $62 billion that families could be using to pay for college tuition, a new car, or improvements to their homes.

Energy Production Tax Provisions
This allows a tax credit of up to 35% of a renewable energy facility’s cost.  Wind, solar, and biomass energy production facilities are expensive to build, making it difficult for companies to invest.  This tax credit encourages investments and helps to build these facilities and produce cleaner, more affordable energy.

Retirement fund withdrawals in disaster areas
If an individual in a federally declared disaster area takes money out of their retirement account, the bill waives the 10 percent penalty tax if the funds are replaced within three years.  This will help those affected by the disasters use their money to rebuild and recover without the tax penalty.

Expensing property in disaster areas
Through 2011, the bill permits small businesses to deduct up to $350,000 of the cost of property used in business in a federally declared disaster area, instead of the $250,000 allowed under current law.  This allows more businesses to use this tax benefit in rebuilding and get businesses back on their feet.

Expensing demolition and clean-up costs
Under this bill, 50 percent of the costs related to site cleanup and demolition would be deductible by businesses.  This would apply to amounts paid or incurred beginning on the applicable disaster date through the end of 2010.  This allows businesses to quickly clean up and remove debris, including those in the 29 affected counties in Texas.

Mental Health Parity
The goal of this bill is to see fair, affordable, health coverage for all patients suffering from mental illness.  The provisions in this bill do not require insurance companies to offer mental health benefits, the bill simply requires insurance companies that provide coverage for mental illnesses to provide benefits that are equal in scope to those provided for medical and surgical problems. 

Film and Television Productions in the U.S.
This bill extends the current single-year deduction for all film and television productions up to $15 million, or $20 million if the costs are incurred in economically depressed areas.  This is designed to encourage small, independent film and television productions to be shot here in the United States rather than other countries that provide attractive tax incentives to lure them from the U.S.  These productions generate revenue and jobs in the communities where they are filmed.  This provision would apply to any production throughout the country, in any state.

Wooden Practice Arrows Excise Tax
This provision exempts wooden practice arrows from an excise tax.  This corrects a mistake made in the 2004 JOBS Act, when the excise tax on arrows was changed from a percentage tax to a flat tax of 39 cents each.  As a result, wooden practice arrows that cost just 30 cents are now subject to a 39 cent excise tax on each arrow, more than doubling the cost.  The fixed tax was intended for professional arrows that sell for up to $100 apiece, not for the wooden arrows used by summer camps and the Boy Scouts.  This provision won’t save any companies any money – it will save money for the Boy Scouts and summer camps across the country who use these arrows.

Victims of 1989 Exxon Valdez Oil Spill
Many of the commercial fishermen and other individuals who, through no fault of their own, had their livelihoods disrupted by the 1989 Exxon Valdez oil spill have received settlements in lump sum payments, making the taxes on those payments much higher than the taxes on the lost income would have been.  To make the amount of taxes they have to pay on these settlements more fair, this provision allows these individuals to average any settlement over three years.  It also allows these individuals to use these funds to make contributions to retirement accounts, like they would have been able to do with regular income.

Virgin Island and Puerto Rico rum excise tax
The provision extends current law, which requires the Treasury to return to Puerto Rico and the Virgin Islands the excise taxes collected on rum produced on those islands but sold in the fifty states.  This is not a handout to rum makers – the money is returned to their respective governments for general use.  This is consistent with general tax policy in the U.S.

Domestic Production Activities in Puerto Rico
Manufacturing businesses with qualified business activities can take a 3% deduction.  This deduction applies to all types of businesses with manufacturing income.  This provision extends the ability of businesses in Puerto Rico to take advantage of this deduction, putting them on the same footing as all other U.S. manufacturing businesses.

Motorsports Facilities
This extends a special 7-year cost recovery period for property used for land improvement and support facilities at motorsports entertainment complexes.  Without this provision, the cost recovery period would be 15 years.  This applies to hundreds of facilities across the country.  These facilities have a very large economic and job-creation impact on a regional and national level.  The bill does NOT cut taxes for these facilities.  It simply allows them to more quickly recover expenses that would be deductible in later years without the provision.  This gives them incentives to invest in these facilities and the jobs they create.