Bundle of Goodies in the Bailout Bill
$110 Billion in Pork
When Treasury Secretary Paulson first submitted the socalled
economic bailout bill to Congress, it was just three
pages. But what President Bush signed into law last month
turned out to be 451 pages.
It even took on a fancy name: Emergency Economic Stabilization
of Act of 2008, though much of it had nothing to do
with any emergency. True to form, Congress loaded it with
self-serving “pork.” Samples:
• Re-establishes and extends for two years a lucrative tax
credit for doing research and experimentation in the
U.S. Companies that have benefited include Microsoft,
Boeing, United Technologies, Electronic Data Systems and
Harley-Davidson. Cost: $19 billion.
• Provides tax breaks for movie-makers if they film in the
U.S. Cost: $478 million.
• Provides special assistance to rum makers in Puerto Rico
and the Virgin Islands. Cost: $192 million.
• Extends enhanced charitable deductions for donations of
“apparently wholesome food.” Cost: $149 million.
• Provides tax relief to U.S. worsted wool fabric producers
that use imported fibers and yarns as inputs. Cost: $148
million.
• Allows stock car race tracks accelerated write-offs of their
costs. Cost: $100 million.
• Allows Exxon Valdez plaintiffs to average out their punitive
damages awards over three years to avoid being pushed
into a higher tax bracket. Cost: $49 million.
• Extends economic development credit for American
Samoa. Cost: $33 million.
• Provides fringe benefits for bicycle commuters, including
purchase and repair of a bicycle and bicycle storage.
Cost: $10 million.
• Transfers interest earned on money in the abandoned
mine reclamation fund to the United Mine Workers of
America Combined Benefit Fund. Cost: $9 million.
• Provides tax breaks for manufacturers of wooden arrows
used by children. Provision is worth $200,000 to one
archery establishment in Oregon. Cost: $6 million.
Affecting Your Clients
A bundle of non-emergency goodies from “extenders” to
new tax credits is tucked away in the Emergency Economic
Stabilization Act of 2008, a.k.a. the bailout bill.
It adds “about $150 billion of new tax breaks, but
only about $42 billion in revenue raisers,” according to
Mark Luscombe, a principal analyst with CCH, Inc. a tax
publisher.
Among those that could affect your clients:
• Extension of “mortgage forgiveness,” which excludes from
tax up to $2 million of a bank or lending institution’s mortgage
discharge.
• Another AMT “patch:” Raises the exemption amounts for
the alternative minimum tax to $46,200 (individuals) and
$69,950 (joint) for 2008.
• Extension through 2009 of the law allowing taxpayers to
take an itemized deduction for state and local sales taxes
in lieu of state and local income taxes.
• Extension through 2009 the above-the-line deduction
for qualified higher education expenses with a maximum
deduction of $4,000 – subject to a phase out
provision.
• Extends through 2009 the standard deduction for real
property taxes.
• Extends through 2009 the law allowing taxpayers to make
tax-free contributions from their IRA plans to qualified
charitable organizations.
• Requires securities brokers to report to the IRS investors’
cost basis on stock transactions. (While many taxpayers
report their cost basis to the IRS each year, Senate
staffers estimate that an additional $6.67 billion over
10 years can be collected with this extra check on the
process.)
FA
And, Incidentally, The Bailout Provisions
The bill created an office within the Treasury department
to purchase mortgage-related and potentially
other “troubled” assets. It provided for oversight, insurance
protection, taxpayer and homeowner protections.
Comprehensive Analysis Coming
Next month’s FA will have a comprehensive analysis
of recent federal tax legislation by Robert Goldfarb,
CPA, CFP of Schoenfeld, Mendelsohn & Goldfarb, Woodbury, NY.
Besides the above tax measures in the “bailout bill,”
Goldfarb will update FA readers on the Small Business
& Work Opportunity Tax Act of 2007, the Housing Assistance
Act of 2008, the Mortgage Forgiveness Debt
Relief Act of 2007 along with modified and re-modified
preparer penalties. This is to help financial planners and
tax preparers tool up for the coming tax season.
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