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Washington Watch - February 4, 2009

Update: Senate Considers Stimulus Package, Offers Amendment
The Senate Finance and Appropriations Committees unveiled a $884.5 billion stimulus package this week, showing increased tax cuts for working families and small businesses. The heavier price tag for the Senate version of the American Recovery and Reinvestment Act of 2009 (H.R.1) is attributed to the inclusion of temporary “patch” for the alternative minimum tax (AMT). The House version did not include the measure.

With concerns about injecting additional funds into the economy more quickly, lawmakers made efforts to include additional tax incentives. As a rate of comparison, nearly 80 percent of the Senate bill could be spent by the end of fiscal 2010, compared to about sixty-five percent for last week’s House-passed version, according to the Congressional Budget Office (CBO).

Congressional leaders have indicated that they wish to clear the bill by mid-February, before President’s Day. While there were enough House Democrats to pass the original legislation without a single Republican vote, Senate Democrats are vying for, and must receive, GOP support in order to approve this package.

The Senate amendment includes the following tax provisions:

— $21 billion in small business tax relief and incentives including increased expensing amounts, the ability to
include more losses on their business tax return and cash in unused tax credits;

— $730 million for small business loans;

— $208 million in Work Opportunity tax incentives to increase the hiring of disabled veterans and youths from
underserved populations;

— Tax credits amounting to $500 per working individual and $1000 for married couples filing jointly;

— $15 billion
in tax cuts through an expansion of Earned Income Tax Credit for families with three or more
children, as well as additional marriage penalty relief for couples and increased eligibility for the Refundable
Child Tax Credit for lower-income families;

— $4 billion
for first-time homebuyers with additional enhancements to the existing $7,500 homebuyer
tax credit;

— $300 per person tax credit for seniors on Social Security, low-income recipients of Supplemental Security
Income, disabled veterans and veterans on pensions, Railroad Retirement beneficiaries and those who may
not qualify for other tax credits.

For additional information on the Senate amendment to the House stimulus bill, visit the Senate Finance Committee online. Details on the original House-passed version can be found here.



National Taxpayer Advocate Presents Report to Congress on Issues Facing Taxpayers
Nina E. Olson, the National Taxpayer Advocate, recently released the Advocate’s 2008 Annual Report to Congress. The Annual Report outlines the most serious problems encountered by taxpayers, as well as IRS responses and the Advocate’s recommendations for further action.

Although not the responsibility of the IRS to solve, the report states that the complexity of the tax code is the biggest problem for taxpayers. According to Olson, “IRS data show that taxpayers and businesses spend 7.6 billion hours a year complying with tax-filing requirements. To place this in context, it would require 3.8 million full-time employees to work 7.6 billion hours.”

The complexity of the code imposes additional burdens on taxpayers, many of whom pay professionals to prepare their returns or purchase tax software to assist with filing (60 percent and 22 percent, respectively). In the report, the National Taxpayer Advocate recommends that Congress substantially simplify the tax code to help taxpayers and therefore increase compliance.

The report recommends allowing self-employed individuals to deduct health insurance costs when determining net earnings for self-employment tax purposes. Currently, no other business entity with the exception of sole proprietors must pay taxes on health costs.

Other recommendations in the annual report include improving worker classification through the development of an electronic classification tool as well as outreach, and repealing the Alternative Minimum Tax for individuals as part of fundamental tax reform.

For more information on the report, please click here.



Many Ideas For Ways to Help Entrepreneurs At Small Business Hearing
The House Committee on Small Business recently held a forum on the state of the small business economy and policies to help promote economic growth. Witnesses ranged from representatives from the St. Joseph, Mo. Chamber of Commerce and the US Women’s Chamber of Commerce to a small business owner in the electrical contracting industry to representatives from the telecom industry.

Chairwoman Nydia Velazquez (D-N.Y.) expressed concern that, although small businesses have been helped in past downturns by loans from the Small Business Administration (SBA), lending is down almost 60% since last year.

“It doesn’t have to be this way. The resources of the SBA loan program could be leveraged to help break the financing logjam,” said Rep. Velazquez. “Our nation should use targeted tax incentives to increase investment, generate cash flow and encourage small firms to hire workers.”

Many witnesses had similar recommendations to the committee for action that could help small businesses survive the current downturn. Some suggestions included tax incentives for renewable energy technologies and funding for “green” infrastructure improvements; repealing the 3% withholding tax on government contracts; extending the net operating loss carry-back period and encouraging private sector investment in broadband infrastructure. Witnesses also recommended increased SBA lending and even giving the SBA the authority to directly process small business loans.

Lawmakers and media outlets across the country rely on and regularly cite the NASE as a source of small and micro-business expertise. Help the NASE make sure the micro-business perspective is heard by taking this month’s poll.

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