The President is expected to sign the fiscal stimulus package on Wednesday. After two weeks of hand ringing and posturing, the Senate finally adopted a slightly modified version of the bill the House and the President originally had negotiated.
As sent to the President, the package would:
- Send checks of $600 per filer and $300 per child to families with joint incomes of less than $150,000. Actual amounts will be calculated based on income tax filings for 2007, so expect the actual checks to be in the mail by late spring and early summer.
- Encourage new business investment by increasing the limit on small business expensing from $100,000 to $250,000 as well as allow for 50-percent bonus depreciation. Both of these tax breaks are available for equipment placed in service in 2008 only.
- Allow for a temporary, 2-year increase, from $417,000 to $729,750, in the so-called conforming loan limit and limit on FHA-guaranteed loans.
Whether this package benefits the economy will have to be seen. Certainly the speed with which Congress and the Administration came together, even with the delay in the Senate, was impressive and should send a positive signal to families and businesses. The size of the package is significant as well. The short term cost of the family checks and increased expensing – not counting the mortgage relief – is about $150 billion in 2008, or slightly more than 1 percent of the economy.
The challenge, as always for fiscal stimulus, is how to get it done quickly enough to be effective. Under the current time frame, both the rebate checks and the mortgage relief will not be felt until well into the third and fourth quarter of 2008. The remaining question is whether the economy will still be in its mid-cycle slowdown or will be in a recession at that time.
Energy Tax Provisions Move Forward, Again
As expected, the introduction of the President’s budget for fiscal year 2009 fell flat last week, with few, if any, of its proposals getting serious attention.
A week later, in a bit of irony, the House is planning to take up a package of renewable energy tax provisions that were dropped from the President’s budget this year. Given the price of oil, why the Administration would pick this year to end its call for extending renewable energy tax incentives is slightly inexplicable.
The House action is curious as well, given the repeated failure of Congress and the Administration to agree how to pay for the extension of these and other tax items in 2007. Staff involved in the drafting expect the bill to look very similar to the House energy tax package from last year, despite the failure of that package to get past the Senate. As BNA noted this morning:
Democrats in both chambers produced energy tax packages in 2007 that were designed to encourage the use of alternative and clean energy at the expense of oil and gas producers. But resistance from Senate Republicans–and a firm stance by President Bush that he will not sign into law any bill that would raise taxes–killed Democratic efforts.
Absent the emergence of a new, non-controversial offset, the fate of this effort is likely to be similar to the energy tax packages considered late last year.
For S corporations, the lesson should be clear. The consensus that brought Congress and the President together on the stimulus package has vanished.
Tax extenders like the energy tax credits, AMT patch, and the R&E tax credit are considered to be “must-pass” items. To get them done, however, congressional leadership will need to bridge the competing interests of “pay-as-you-go” budgeting with the concerns of the President and others who oppose seeing the overall tax burden increase under their watch.
Moving the same energy tax package that failed previously suggests congressional leaders haven’t worked that out yet, and all the positive tax policy initiatives that benefit S corporations and other actors in the economy will have to wait until they do.