Details of Obama’s current stimulus tax plan continue to dribble out. Here are some of the proposals so far (from the WSJ):
- Income subsidy disguised as tax cut. Families that earn too little to pay taxes would get a portion of the $1,000 per child tax credit (i.e., an income subsidy). From the WSJ: “The plan would grant an estimated 5.5 million poor children access to the credit for the first time, and expand the tax benefit for millions more poor children who currently qualify for only a partial credit, according to its advocates. The change has been sought by Democrats and some moderate Republicans for years. As of Jan. 1, a household must earn $12,500 a year to be eligible to claim any of the child credit. The proposal under discussion would lower that threshold, likely to $3,000, a level favoured by top House Democrats, at a possible cost to taxpayers of $18 billion, said individuals familiar with the discussions. Currently, a part-time working mother earning $5,000 a year would get no child credit. With a $3,000 threshold, she would get $300.”
- $500-per-worker break for businesses on payroll taxes.
- Immediate tax-loss carrybacks for companies that lost money last year. Businesses that lost money last year (e.g., Wall Street, home builders) will be able to file for an immediate tax refund against earnings from the prior five years. They would get this money anyway, by taking the usual loss carryforwards in future years, but this will get them the cash immediately. This will mean billions of tax dollars immediately returned to Wall Street.
- Pay companies to lose money (seriously). “Some called for Congress to support a proposal to give rebates to companies of up to 20% of a net operating loss, whether the company had paid taxes in the past or not.” We money-losing startups certainly support that one! (But let’s call it what it is: a business subsidy).
- Accelerated depreciation on capital expenditures. A renewal of the stimulus from the last crash, which didn’t really work. Allows companies to spend money on capital equipment and write it off immediately against taxable income instead of depreciating it over several years.
Most of these will suffer from the same problem that the TARP has: You can fill a horse’s water trough, but you can’t make him drink. Except for the subsidy that pays companies to lose money, many of these stimuli will likely go right into companies’ bank accounts, instead of into the economy.
Which begs the question: Will Obama also allow consumers to immediately write off losses over income from the past five years?