The House Leadership released an outline of its proposed stimulus package yesterday with few surprises. The total package is $825 billion with $550 billion in new spending and $275 billion in tax relief. On the spending side, the package includes $550 billion in spending, and $275 billion for tax cuts. Some of the tax highlights include:
- Making Work Pay Credit – offsets payroll taxes on the first $8,100 of earnings
- Expanded Earned Income Tax Credit
- Bonus depreciation
- A five year carry-back of net operating losses (excluding companies receiving TARP benefits, Fannie Mae, Freddie Mac)
- Extension of increased small business expensing
- Tax-exempt bond provisions to help state and local governments
- Energy tax incentives
As our conversations with folks in both the House and the Senate indicated, the House deferred mostly to the incoming President’s priorities for the stimulus package, while the Senate is likely to take a more critical view of both the size and the content of the package. Fiscal conservatives in the House are already bracing themselves to fight additional tax and spending items added in the Senate.
For example, Obama’s “Make Work Pay” tax credit is still included in the House package although it continues to be the focus of Congressional scrutiny, as economists and policymakers on both sides of the aisle have questioned its efficacy. It’s possible the House included the provision with the expectation that the Senate would replace it with other priorities.
As far as process goes, the Ways and Means Committee is expected to mark-up the legislation next week and have it on the House floor for a vote the week of the 26th. The Senate is expected to mark-up its version of the legislation late next week or more likely, the following week. Their goal is to get the bill finished and signed into law prior to the February recess.
Treasury Helps S Corp Banks as Congress “Approves” New TARP Money
Those watching President Bush’s press conference Monday might have caught this give-and-take:
Q. I’m wondering if you plan to ask Congress for the remaining $350 billion in bailout money. And in terms of the timing, if you do that before you leave office, sir, are you motivated in part to make life a little easier for President-Elect Obama?
THE PRESIDENT: I have talked to the President-elect about this subject. And I told him that if he felt that he needed the $350 billion, I would be willing to ask for it. In other words, if he felt it needed to happen on my watch.
The best course of action, of course, is to convince enough members of the Senate to vote positively for the — for the request. And, you know, that’s all I can share with you, because that’s all I know.
Q. So you haven’t made the request yet?
THE PRESIDENT: Well, he hasn’t asked me to make the request yet. And I don’t intend to make the request unless he specifically asks me to make it.
About thirty minutes later, the Obama team asked the President to make the request and he passed it on to Congress. Three days later, the Senate ratified the request by voting down a motion of disapproval 42-52. The House is expected to do the same next week, after which Treasury will have another $350 billion to invest (or waste if that’s your point of view) in shoring up the financial sector.
For S corporations, that’s important since Treasury also announced this week that it had worked out a plan to allow S corporation banks to access the TARP funds. As we reported earlier, the original construction of the Capital Purchase Program under TARP was for Treasury to inject capital into financial institutions in exchange for shares of preferred stock. Because S corporations are prohibited from issuing preferred shares, they couldn’t participate.
Our friends at the Independent Community Bankers of America made Treasury aware of this oversight and this week, just in time to take advantage of the extra $350 billion, Treasury issued a new term sheet that applies to S corporation banks.
S corporation banks wishing to take advantage of the Capital Purchase Program have until February 13th to apply.