Post by Sapphire Capital on Oct 10, 2008 21:28:23 GMT 4
US bailout plan leans on tax
Source: Catherine Snowdon ITR
Tax provisions included in the US Emergency Economic Stabilisation Plan will cost more than $100 billion over the course of 10 years and include changes to Subpart F rules, tax breaks for energy producers and relief for financial institutions that invested in the Fannie Mae and Freddie Mac mortgage corporations.
The provisions received a mixed reaction.
"They had to include these tax breaks to get the thing passed," said one senior Washington DC adviser. "I see no other reason for them being included."
"The breaks gave some wavering members some political cover for voting for the bailout by saying 'we needed to get the AMT relief passed so I am helping taxpayers even though I am voting for this gigantic expensive bailout," said Chris Edwards director of tax policy studies at the Cato Institute.
"Extension of the Subpart F active financing exception and the Subpart F look-through rule in the bailout bill are critical and welcome steps in allowing US multinationals to remain competitive with foreign-based firms," said Marc Gerson, member at Miller and Chevalier in Washington DC. "Hopefully, Congress will consider extending them permanently, or at least on a longer term basis, in the near future."
The legislation provides energy incentives, extends many expired and expiring tax provisions, patches the individual alternative minimum tax (AMT) for one year and offers tax relief to victims of recent natural disasters in the Midwest and the Gulf Coast.
The bailout plan also includes tax provisions that would treat as ordinary income losses on sales of Fannie Mae and Freddie Mac preferred stock by financial institutions (referred to under section 582(c)(2)) or depository institution holding companies (as defined by section 3(w)(1) of the Federal Deposit Insurance Act).
For the energy industry there are some important changes. The law provides nearly $17 billion in incentives to promote renewable energy, carbon mitigation, alternative fuels, enhanced technology motor vehicles and energy conservation.
"Last week's legislation continues the Energy Policy Act of 2005's tact of awarding tax expenditures to a wide variety of investments that can reduce carbon emissions, extending a number of provisions set to expire, expanding some and creating new ones," said Janet Milne, director, Environmental Tax Policy Institute, Vermont Law School.
"The tax code is increasingly becoming an energy code. But this multi-billion dollar investment is also accompanied by a small but important measure that requires the identification [of] the provisions in the tax code that most affect greenhouse gas emissions—a carbon audit of the code that will cost at most $1.5 million," she said. "Under a new Congress and president, a comprehensive review of both the positive and negative effects of existing tax measures on climate change would be an important step in developing a comprehensive federal program for reducing emissions."
To raise revenue to fully pay for the energy incentives, the law makes changes to other taxes including freezing the section 199 deduction at 6% for all oil and gas companies, cancelling the scheduled rise to 9% for taxable years beginning in 2010.
The legislation provides extensions of dozens of other corporate tax provisions that expired at the end of 2007 or are scheduled to expire at the end of this year, such as the R&D credit, the New Markets Tax Credit and accelerated depreciation for qualified leasehold improvements and qualified restaurant improvements.
"Once again this shows that Congress doesn't have the backbone to permanently solve the situation," said Edwards. "They're just kicking the problem ahead one year at a time."
Source: Catherine Snowdon ITR
Tax provisions included in the US Emergency Economic Stabilisation Plan will cost more than $100 billion over the course of 10 years and include changes to Subpart F rules, tax breaks for energy producers and relief for financial institutions that invested in the Fannie Mae and Freddie Mac mortgage corporations.
The provisions received a mixed reaction.
"They had to include these tax breaks to get the thing passed," said one senior Washington DC adviser. "I see no other reason for them being included."
"The breaks gave some wavering members some political cover for voting for the bailout by saying 'we needed to get the AMT relief passed so I am helping taxpayers even though I am voting for this gigantic expensive bailout," said Chris Edwards director of tax policy studies at the Cato Institute.
"Extension of the Subpart F active financing exception and the Subpart F look-through rule in the bailout bill are critical and welcome steps in allowing US multinationals to remain competitive with foreign-based firms," said Marc Gerson, member at Miller and Chevalier in Washington DC. "Hopefully, Congress will consider extending them permanently, or at least on a longer term basis, in the near future."
The legislation provides energy incentives, extends many expired and expiring tax provisions, patches the individual alternative minimum tax (AMT) for one year and offers tax relief to victims of recent natural disasters in the Midwest and the Gulf Coast.
The bailout plan also includes tax provisions that would treat as ordinary income losses on sales of Fannie Mae and Freddie Mac preferred stock by financial institutions (referred to under section 582(c)(2)) or depository institution holding companies (as defined by section 3(w)(1) of the Federal Deposit Insurance Act).
For the energy industry there are some important changes. The law provides nearly $17 billion in incentives to promote renewable energy, carbon mitigation, alternative fuels, enhanced technology motor vehicles and energy conservation.
"Last week's legislation continues the Energy Policy Act of 2005's tact of awarding tax expenditures to a wide variety of investments that can reduce carbon emissions, extending a number of provisions set to expire, expanding some and creating new ones," said Janet Milne, director, Environmental Tax Policy Institute, Vermont Law School.
"The tax code is increasingly becoming an energy code. But this multi-billion dollar investment is also accompanied by a small but important measure that requires the identification [of] the provisions in the tax code that most affect greenhouse gas emissions—a carbon audit of the code that will cost at most $1.5 million," she said. "Under a new Congress and president, a comprehensive review of both the positive and negative effects of existing tax measures on climate change would be an important step in developing a comprehensive federal program for reducing emissions."
To raise revenue to fully pay for the energy incentives, the law makes changes to other taxes including freezing the section 199 deduction at 6% for all oil and gas companies, cancelling the scheduled rise to 9% for taxable years beginning in 2010.
The legislation provides extensions of dozens of other corporate tax provisions that expired at the end of 2007 or are scheduled to expire at the end of this year, such as the R&D credit, the New Markets Tax Credit and accelerated depreciation for qualified leasehold improvements and qualified restaurant improvements.
"Once again this shows that Congress doesn't have the backbone to permanently solve the situation," said Edwards. "They're just kicking the problem ahead one year at a time."