TO: Government Affairs Committee
FROM: Charles Symington, SVP of Government Affairs
John Prible, AVP of Federal Government Affairs
Tom Koonce, AVP of Federal Government Affairs
Joe Wall, Senior Director of Federal Government Affairs
Date: February 17, 2009
RE: H.R. 1 - American Recovery and Reinvestment Act of 2009
Today, President Obama signed into law H.R. 1 – the American Recovery and Reinvestment Act (a.k.a. the “economic stimulus package”). The legislation will inject $787.2 billion into the ailing economy, including $298 billion in tax relief. The total cost of the final product reflects a $34 billion decrease from the House-passed bill and a $54 billion decrease from the Senate-passed bill.
While not a top legislative priority for the IIABA, the economic stimulus bill will impact small businesses in certain ways. In particular, several business tax provisions as well as new temporary COBRA health care regulations for terminated employees are of interest to insurance agents and brokers.
Ø Five Year Net Operating Loss (NOL) Carryback Extension (estimated cost = $947 million): Small businesses (defined as businesses with less than $15 million in annual receipts) that experienced net operating losses in 2008 may apply their losses to the past five tax years (2003-2007). Under current law, businesses are allowed to carryback their losses for the past two years (2006-2007). Small businesses can use their NOLs to offset future taxes or as a refund of taxes paid from 2003-2007.
Ø One Year Extension of Bonus Depreciation (estimated cost = $5 billion): Businesses may continue to write-off 50% of depreciable property (e.g. equipment, tractors, wind turbines, solar panels and computers) purchased in 2009 for use in the United States.
Ø One Year Extension of Enhanced Small Business Expensing (estimated cost = $41 million): Small businesses may continue to write-off up to $250,000 of capital expenditures incurred in 2009 subject to a phase out once capital expenditures reach $800,000.
Ø Two Year Reduction of S Corporation Built-In Gains Holding Period From Ten Years to Seven Years (estimated cost = $415 million): When a taxable corporation converts into an S corporation, the S corporation must hold its assets for ten years to avoid a tax on gains that existed at the time of the conversion. This provision shrinks the holding pattern from ten years to seven years for sales occurring in 2009 and 2010.
Ø Nine Month COBRA Extension and Subsidy (estimated cost = $25 billion): Employees who are involuntarily terminated between September 1, 2008, and December 31, 2009, are eligible to receive a 65% government subsidy on their COBRA premium for up to nine months. The subsidy phases out for individual filers with incomes above $125,000 and joint filers with incomes above $250,000.
o Of note, there was much talk in the media of including a provision in the bill that would have extended COBRA coverage of terminated employees above the age of 55, or those with ten-plus years of service with their employer, until they became eligible for Medicare. This provision is not included in the bill.
On the individual tax side, the legislation includes a number of provisions to assist individuals and families during this difficult economic period. Of note:
Ø Making Work Pay Tax Credit (estimated cost = $116 billion): For 2009 and 2010, American workers are eligible for a tax credit of up to $400/individual and $800/families. The tax credit phases out for individuals with incomes above $75,000 and joint filers with incomes above $150,000.
Ø First-Time Homebuyer Refundable Tax Credit (estimated cost = $6.6 billion): First-time homebuyers are eligible to receive a refundable tax credit equal to ten percent of the cost of the home (up to $8,000) on homes purchased from January 1, 2009 to December 1, 2009. The tax credit phases out for individuals with incomes above $75,000 and joint filers with incomes above $150,000.
Ø One Year Sales Tax Deduction For New Vehicle Purchases (estimated cost = $1.6 billion): Individuals who purchase new cars, light trucks, recreational vehicles and motorcycles in 2009 may deduct state, local and excise taxes paid on the purchase (up to $49,500). The deduction phases-out for individuals with incomes above $125,000 and joint filers with incomes above $250,000.
Ø One Year AMT Patch (estimated cost = $70 billion): The one year fix protects an estimated 26 million middle-class Americans from paying the alternative minimum tax this year. The bill increases the AMT exemption to $46,700 for individuals and $70,950 for joint filers.