The American Recovery and Reinvestment Act has been misrepresented by some in the week since it became law as only a spending measure. In fact, this legislation is a balanced package of tax cuts and investments.
Of the total package, 36 percent ($288 billion) of the package is dedicated to tax cuts that will put money in the hands of families and businesses to spread throughout the economy, while 64 percent ($499 billion) is targeted to job-creating investments.
In unanimously voting NO against this legislation on February 13, House Republicans voted against $288 billion in key tax cuts for both working families and businesses.
Indeed, under the bill, 129 million working households will receive a tax cut--about 95% of all working households. The legislation includes the most significant expansion in tax cuts for low- and moderate-income households ever.
In voting NO, House Republicans were also voting against a package that was strongly endorsed by the National Association of Manufacturers and the U.S. Chamber of Commerce. The business tax cuts were one of the key reasons these groups supported the package.
In endorsing the legislation, on February 13, the National Association of Manufacturers wrote:
“The National Association of Manufacturers … urges you to support the conference report on H.R. 1, the American Recovery and Reinvestment Act, because this legislation is essential to economic revitalization and the creation of jobs… The overall plan balances tax cuts and investment and is designed to help working Americans and those who provide their jobs.”
Similarly, in endorsing the legislation, on February 13, the U.S. Chamber of Commerce wrote:
“Since the elections, we've vowed to work with the President to quickly develop and pass a stimulus bill that would apply a defibrillator to our economy and shock it back to life… We support the cancellation of indebtedness tax provisions that will encourage businesses to restructure and reduce debt, enabling them to preserve jobs, renew investment, and begin to grow once again. … By offering tax incentives to first-time homebuyers and new car purchasers, this bill could provide much needed liquidity to the market while jumpstarting critical industries. We urge both chambers of Congress to swiftly pass the bill.”
Here is a brief overview of some of the key tax cuts for individuals and businesses included in the Economic Recovery package.
Tax Cuts for Individuals
- Making Work Pay Tax Cut. Provides immediate and sustained tax relief to about 95 percent of workers and their families through a refundable tax credit of $400 per worker and $800 per couple.
- Expanding Child Tax Credit. Cuts taxes for the families of nearly 16 million children through an expansion of the child tax credit.
- Expanding Earned Income Tax Credit. Expands the Earned Income Tax Credit by providing tax relief to families with three or more children and increasing marriage penalty relief.
- Creating A New, More Generous College Tax Credit. Helps more than 4 million additional students attend college with a new, $2,500 tax credit for families, which is partially refundable.
- Protecting from Alternative Minimum Tax. Protects 26 million middle-class families from being hit by the alternative minimum tax.
- Improving Tax Credit for First-Time Homebuyers. Increases the first-time homebuyer's tax credit from $7,500 to $8,000 and removes the current repayment requirement.
- Tax Deduction for Vehicle Purchases. Provides a tax deduction for state and local sales taxes paid on the purchase of new cars, including light trucks and SUVs.
- Suspending Taxes on Portion of UI Benefits. Temporarily suspends federal taxes on the first $2,400 of unemployment benefits.
Tax Cuts for Businesses
- Bonus Depreciation. Helps businesses quickly recover costs of new capital investments by extending the increased bonus depreciation for businesses in new plants and equipment in 2009.
- Cancellation of Indebtedness. Provides assistance to companies looking to reduce their debt burdens by delaying the tax on businesses that have discharged indebtedness.
- Small Business Expensing. Extends enhanced small business expensing, which doubles the amount small businesses can immediately write off their taxes for capital investments and purchases of new equipment made in 2009 from $125,000 to $250,000.
- Small Business Loss Carrybacks. Increases cash flow by providing a 5-year carryback of net operating losses for small businesses.
- Spurring Investments in Small Businesses. Spurs investments in small businesses by cutting the capital gains tax on investors in small businesses who buy stock (in the next two years) and hold it for more than five years.
- 3% Government Withholding. Delays the mandate that federal, state, and local governments withhold 3 percent of payments to businesses for goods and services, which is supported by the National Small Business Association.
- Jobs for Unemployed Veterans and Youth. Provides businesses with a tax credit for hiring recently discharged, unemployed veterans and youth that have been out of work and out of school for the 6 months prior to hire.