Jan. 5 (Bloomberg) -- President-elect Barack Obama’s economic stimulus package will include hundreds of billions of dollars worth of tax breaks for individuals and businesses, according to a transition official and Democratic aides.
Obama is asking that tax cuts make up 40 percent of a stimulus package, the people say. The measure may be worth as much as $775 billion, a Democratic aide says, meaning tax cuts may constitute more than $300 billion of the legislation.
The dollar today rose to the highest level in almost three weeks against the euro and also surged against the yen on speculation that the Obama plan would help the U.S. economy recover from recession.
Making tax cuts such a large part of the stimulus may help win support from congressional Republicans. Senate Minority Leader Mitch McConnell, a Kentucky Republican, said his party would support an immediate middle-class tax cut as part of any stimulus package.
“Republicans, by and large, think tax relief is a great way to get money to people immediately,” McConnell said yesterday on ABC’s “This Week.”
The plan would attempt to boost consumer demand by spending $140 billion on tax breaks worth $500 for individuals and $1,000 for couples, according to a House Democratic aide. The change would come by altering tax-withholding rules, rather than through a rebate check as with the previous stimulus plan enacted last year, so that workers would see an immediate increase in their take-home pay.
The $500 tax credit would apply to the first $8,100 of wages, meaning a worker who earns $24,400 a year and is paid twice a month would get about $60 extra per paycheck for four months.
Business Tax Breaks
For businesses, the aide said, lawmakers will use similar measures they’ve employed in past stimulus bills, such as allowing companies to get refunds for taxes paid in any or all of the past five years by deducting losses they’ve incurred now; those losses can currently only be carried back two years.
Congress is also likely to include incentives such as accelerated depreciation to encourage companies to buy equipment now rather than defer such investments. The plan also attempts to combat joblessness by offering companies tax breaks for hiring more workers, the aide said.
The tax provisions are also likely to repeal the alternative minimum tax on municipal bonds issued to build airport runways, sewer systems and other privately run facilities that benefit the population at large, another aide said. Congress is unlikely to enact a new round of incentives for U.S.-based multinational corporations to repatriate foreign earnings at a discounted tax rate as urged by business groups such as the Chamber of Commerce, that aide said.
Accelerated Tax Breaks
Many of the business tax incentives would be accelerated so that any dollar written off now would not be able to be claimed in future years, the aide said. That would reduce the long-term impact of the tax cuts on the federal budget deficit.
Obama is slated to meet today with congressional leaders from both parties to discuss the plan. Democrats said Congress probably won’t be able to complete work on the plan by January 20, the day of the inauguration, as some had hoped.
“It’s going to be very difficult to get a package put together that early,” said House Majority Leader Steny Hoyer in an interview on “Fox News Sunday.” “We want to do this right.” He said he expects the House to pass the bill by the end of the month and get the legislation through the Senate and signed into law in February.
Urgency
Senate Majority Leader Harry Reid, in an interview yesterday on NBC’s “Meet the Press,” downplayed the importance of what he called a “false” deadline. “The urgency of this, everyone knows about -- but I’m not going to have some false deadline,” Reid said. “It’ll take as much time as it needs to get done.”
Obama has called on lawmakers to quickly pass legislation to prop up the economy, which is in its worst slump in decades and could deteriorate further without significant fiscal stimulus. Economists surveyed by Bloomberg last month projected gross domestic product would shrink in the fourth quarter by 4.3 percent, the biggest decline since 1982.
To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net ; Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net
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