Senate "Jobs" Bill Tax Provisions

Feb 17, 2010

On Feb. 11, Senate Finance Committee Chairman Max Baucus (D-Mont.) and his Republican counterpart, Senator Charles Grassley (R-Iowa), unveiled an $85-billion bipartisan jobs bill with spending on roadways, the extension and creation of business tax credits, and other popular items. However, hours later Senate Majority Leader Harry Reid (D-Nev.) bypassed the powerful committee chairman and ranking member, and announced a much smaller jobs legislation that he hopes will pass the Senate later this month.

In addition to eliminating language to extend critical SBA lending provisions that are set to expire at the end of February, Reid's bill only contains four provisions of the Baucus-Grassley draft proposal—a payroll tax exemption, an extension of the increased 2008 and 2009 Section 179 expensing threshold, an expansion of Build America Bonds, and a one-year extension of the Highway Trust Fund. Reid also stripped Baucus’s bill of $31 billion in tax extensions including the research and development (R & D) tax credit. That and other tax cuts were included in the Baucus bill as a way to win Republican support, a move clearly not of concern to Reid.

Specifically, the Reid jobs measure provides $13 billion in job creation tax incentives, crafted by Finance Committee members Charles Schumer (D-N.Y.) and Orrin Hatch (R-Utah). This provision would offer private sector employers an exemption from Social Security payroll taxes for every worker hired in 2010 that has been unemployed for at least 60 days. The maximum value would be equal to 6.2 percent of wages up to the FICA wage cap ($106,800). Additionally, there would also be a $1,000 income tax credit for every new employee retained for 52 weeks to be taken on the employer’s 2011 income tax return. The proposal would cost an estimated $13 billion over ten years.

Another provision provides for an extension of the 2008 and 2009 Section 179 expensing thresholds, under which taxpayers to write off a maximum $250,000 of certain capital expenditures rather than depreciate those costs, with a phase-out for expenditures greater than $800,000. This proposal would cost an estimated $35 million over ten years.

Reid opted to remove from the Baucus-Grassley Hiring Incentives to Restore Employment (HIRE) Act the extension of several tax provisions that expired at the end of 2009. Besides the previously mentioned R&D tax credit, the HIRE Act also includes an accelerated 15-year depreciation schedule for leasehold, restaurant, and retail improvements; the new markets tax credit; the deferral for active financing under Subpart F; and controlled foreign corporations look-through rules. Grassley will attempt to move the tax extenders in a Republican alternative to the Reid bill.

Additionally, the HIRE Act extends several energy tax provisions, including credits for home efficiency and alternative fuel vehicles, as well as for biodiesel, renewable diesel and other alternative fuels. The total cost of the extenders provisions is approximately $31 billion over ten years.

Reid offered his jobs bill as a substitute amendment (S. Amdt. 3310) to legislation H.R. 2847 being used as the legislative vehicle for jobs, and he aimed at blocking additional amendments through a procedural move known as filling the amendment tree. H.R. 2847 originally was a House-and-Senate passed appropriations bill funding the Commerce and Justice Departments, but the appropriations language was replaced with the House’s own Jobs for Main Street Act of 2010. Reid has filed cloture on the substitute amendment and a vote is scheduled in the Senate for Feb. 22.