Democrats anxious about high unemployment have shifted gears and are poised to expand a stimulus provision that would quickly put $33 billion in the pockets of businesses.
The Senate on Wednesday approved a tax break that allows firms to carry back losses to get refunds on taxes paid over the past five years, and the House is expected to follow. The tax provision is packaged with a bill extending unemployment benefits.
Business groups had pushed for the five-year carry-back provision during the debate over the 2008 stimulus bill signed by President George W. Bush, but were blocked by House Democrats who argued it would have helped businesses more than individuals.
Now, with unemployment expected to hit 10 percent this fall and possibly as early as Friday’s jobs report, Democrats have embraced the provision as a way to spark employment ahead of next year’s elections.
A five-year carry-back “is one of the very few ways in the tax system you can actually put cash into the hands of business very quickly,” said Clint Stretch, director of tax policy at Deloitte & Touche.
In an interview, Rep. Richard Neal (D-Mass.), a senior member of the House Ways and Means Committee, cast the provision as an economic tool that should be used immediately.
He acknowledged that a number of businesses, including real estate agencies, bankers and retailers, will benefit from the tax break, but he said that it would also help individuals because it would prevent layoffs.
“It might not be a job creator, but it will save an awful lot of jobs,” Neal said.
House Democratic leaders plan to take up the package including the carryover provision the Senate passed Wednesday, Neal said.
Businesses may already carry back losses for two years. The $787 billion economic stimulus bill approved earlier this year expanded that provision to allow small businesses with less than $15 million in gross receipts to get refunds on profits from the past five years.
Under the measure written by Senate Majority Leader Harry Reid (D-Nev.) and Senate Finance Committee Chairman Max Baucus (D-Mont.), all businesses would get carry-back for five years.
The Joint Committee on Taxation said that the broader carry-back provision would save businesses $33 billion in 2010 and would cost the government $10.4 billion over the next decade.
The carry-back expansion along with a tax credit for homebuyers will be paid for by delaying by seven years another tax break for U.S.-based international corporations that was scheduled to start in 2010.
Neal noted that White House economists Lawrence Summers and Jason Furman offered support for the plan this week when he spoke with them. The Obama administration included an expanded carryover provision in its budget proposal.
Still, some liberal lawmakers remain uneasy over broadening the tax provision. Rep. Earl Blumenauer (D-Ore.) said that it’s not as critical as extending unemployment benefits that directly help out-of-work Americans.
“Things like the operating loss provision actually are slightly different,” Blumenauer said. “That just shifts revenue.”
The carryover won’t serve as stimulus and will only give more money to businesses, said liberal economist Dean Baker, the co-director of the Center for Economic and Policy Research.
“It will have almost no impact on investment or employment,” Baker said. “It would be hard to think of expenditures that will have less impact on the economy.”
Business groups ramped up their campaign for a broader tax break after this year’s stimulus only provided the benefit to smaller businesses.
Homebuilders had been among the first to push for the tax provision, but a broader range of manufacturers, Realtors, restaurants, newspapers and other business interests took up the campaign in the late winter and spring. Lobbyists sent a letter to congressional lawmakers in April that was signed by more than 80 CEOs, and they held more than 100 fly-ins with tax executives and CEOs.
That helped lobbyists round up congressional supporters for the broader provision.
Support has been building steadily.
When a standalone carry-back bill was introduced in the House in May, it had five co-sponsors. The measure now has more than 180 co-sponsors. A companion bill started in the Senate with seven co-sponsors; it now has wide bipartisan backing from more than 44 senators.
House Republicans called for a five-year carry-back provision, among other stimulus measures, in a letter to President Barack Obama last month. Soon after, House Speaker Nancy Pelosi (D-Calif.) said that the carry-back idea “has some currency.”
Sources: The Hill
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