Obama's Tax Cut Extension Bill
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 Signed Into Law
Congress passed and President Obama just signed a multi-billion tax cut package. It provides vital tax relief and investments in our workers that will create jobs and accelerate economic growth. The bill has three key accomplishments:
- Working families will not lose their tax cut. A typical working family faced a tax increase of over $3,000 on January 1st. That avoided under this bill, and working families won't see their tax cuts go away next year.
- Focused on high impact job creation measures. The bill includes some of the best measures for jump-starting growth and job creation, including a full year of emergency unemployment insurance benefits, a 2% payroll tax cut for working families and a continuation of tax credits for working families. This is on top of growth generated by extension of the middle-class income tax rates.
- Does not worsen the medium- and long-term deficit. These are responsible, temporary measures to support our economy that will not add costs by the middle of the decade. The President does not believe it is affordable to make the high-income tax cuts permanent and will continue to make his case for why we cannot extend these measures beyond 2012.
Overview of the Bill
- Extending the 2001/2003 Income-Tax Rates for Two Years. The bill includes a mutually agreed upon solution to the impasse over taxes by extending the 2001/2003 income tax rates for two years and reforming the AMT to ensure that an additional 21 million households will not be hit with a tax increase. These measures will provide relief to more than 100 million middle-class families and prevent a tax increase of over $2,000 for the typical family.
- Additional Provisions Designed to Promote Vigorous Economic Growth. In addition to the 2001/2003 rates, the Administration secured several provisions that are vital for our economy's growth, which would not have been possible without this agreement: $56 billion in unemployment insurance, an $112 billion payroll tax cut for working families, about $40 billion in tax cuts for our hardest hit families and students; and 100% expensing for businesses next year.
1) GROWTH-ORIENTED PAYROLL TAX CUT FOR WORKERS
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act includes an about 2%, employee-side payroll tax cut for over 155 million workers providing tax relief of $112 billion next year.
This tax cut will have a major impact on jobs and growth creating substantial numbers of jobs. It is widely recognized by economists across the political spectrum as an efficient way to boost growth and was cited by both major deficit reduction commissions as consistent with long term fiscal discipline. And, as economist Nouriel Roubini wrote earlier this year, a payroll tax cut would spur growth because "for employees, the increased take-home pay would boost much-needed economic consumption and advance the still-crucial process of deleveraging households."
2) BUSINESS TAX CUTS TO INCREASE INVESTMENT AND GROWTH
The legislation extends a set of important tax measures to encourage businesses to invest and create jobs in America.
- The largest temporary investment incentive in American history: The bill includes the proposal the President announced in September to temporarily allow businesses to expense all of their investments in 2011. According to the Treasury Department, complete expensing could generate more than $50 billion in additional investment in the U.S. in 2011. The provision will provide a crucial incentive to 2 million businesses to invest and create jobs in the U.S.
- Extension of the renewable production credit: The Recovery Act included a provision to provide a grant in lieu of the tax credit for renewable energy production. The 1603 program has helped encourage more than 4,000 clean energy projects and tens of thousands of new jobs. This agreement will now include a one year extension of the 1603 program.
- R&D credit: The agreement includes a 2-year extension of the R&D tax credit and other tax incentives to support business expansion.
- Empowerment Zones: The agreement also extends for two years the Empowerment Zones program, which provides special tax incentives to businesses and individuals in designated economically depressed areas.
For details on the Tax Relief Act of 2010, click on the following links --
Short Version: http://www.journalofaccountancy.com/Web/20103647.htm
Long Version (177 page PDF file from Joint Committee on Taxation): http://www.jct.gov/publications.html?func=startdown&id=3716