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February 6, 2009

Federal Headlines

Stimulus Package Stalls in Senate

 

Senate action on a $920-billion stimulus tax package on February 5 came to a standstill as Democratic leaders found themselves short of the necessary votes to ensure passage. The impasse led Senate Majority Leader Harry Reid, D-Nev., to declare that there would be no final vote that evening and that work would resume the following day. "I am cautiously optimistic that we can finish tomorrow," said Reid.

 

Sens. Susan M. Collins, R-Maine, and Ben Nelson, D-Neb., had been working on forging a compromise on the spending side and hoped to trim at least $50 billion from the package but, late in the evening, they said there was no deal. Democrats need at least two Republicans to vote for the measure and those votes are contingent upon reducing the overall spending. The deadlock could jeopardize Democratic leaders' plans to have the bill ready for President Obama by February 13.

 

Lawmakers moved on with the amendment process while leadership worked furtively outside of the chamber, hoping to find agreement on what and how much to cut from the package to make it more palatable to a handful of Republicans. As the night moved on, senators agreed on a number of changes, but the process seemed more notable for what was not accomplished, rather than what was approved.

 

Sen. John Ensign, R-Nev., offered a substitute amendment that would have lowered mortgage rates to 4 percent or 4.5 percent, in addition to a slew of tax cuts, including a cut in the 10-percent tax rate to 5 percent over a two-year period. The measure fell by a 62-35 margin, with Democrats universally panning the proposal as too expensive. A substitute amendment offered by Sen. John McCain, R-Ariz., that was comprised mainly of tax breaks coupled with less spending was also defeated by a wide margin, 57 to 40.

 

Democratic leaders again found themselves on the defensive against Republican charges that more tax breaks were needed, telling reporters earlier in the day that 36 percent of their package contains tax cuts and it does not require more. Sen. Charles E. Schumer, D-N.Y., said he that does not believe tax cuts are very stimulative and that Democrats put as many as they did in the bill as a gesture of bipartisanship. Schumer also called the Ensign amendment a "flawed" proposal, as most Democrats do not believe the refinancing of mortgages will help the housing market.

 

Executive pay took another hit as an amendment offered by Senate Committee on Banking, Housing and Urban Affairs Chairman Chris Dodd, D-Conn., that would reduce executive compensation at firms receiving Troubled Asset Relief Program (TARP) funds was approved by unanimous consent. The provision bolsters the administration's plans to limit excessive pay to those executives. It would also empower the Treasury Secretary to tighten existing provisions of the law to "claw back" any bonus or compensation paid to an executive based on false earnings reports or anything else later found to be materially inaccurate or a misrepresentation of that company's financial status.

 

Similarly, lawmakers approved an amendment by Sen. Claire McCaskill, D-Mo., that would prevent executives of companies receiving federal assistance from receiving compensation totaling more than the salary of the President of the United States --approximately $400,000 a year --until the company is no longer reliant on federal dollars. The provision applies to compensation in the form of salary, bonuses and stock options.

 

Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, said that he is planning to offer two amendments that would institute checks to ensure that nonprofit hospitals are providing free or reduced-cost care at a level that is in-line with the tax benefit they receive. One amendment would require the IRS to study the amount of uncompensated care provided by for-profit hospitals; the other would require the Centers for Medicare and Medicaid Services (CMS) to coordinate with the IRS and MedPAC and develop a single, uniform definition of uncompensated care and charity care.

White House Position

 

Vice President Biden on February 5 argued for an economic recovery package that is between $800 billion and $900 billion and said it would be "unreasonable" to settle for anything less. Biden, in remarks at the MARC train station in Laurel, Md., said the U.S. economy is "in the middle of the worst recession in decades" and that tax cuts alone will not turn the economy around and increase employment. He maintained that $100 billion in infrastructure improvements is the right amount to provide an immediate boost to the economy that will have "long-lasting effects."

 

White House Press Secretary Robert Gibbs defended the size and scope of the administration's plan, contending that the tax-cut proposals should be aimed at working families and the spending portion should create or save three million to four million jobs. The vice president said there is "a solid basis" to work with in both the $817-billion House bill and the significantly larger economic package under consideration in the Senate. Biden acknowledged that both the House and Senate bills contains provisions the White House would not have included but said that is the nature of compromise.

 

President Obama, in defense of his economic plan, maintained that the overall package will jump-start the economy and lay the groundwork for future economic growth. "This plan is more than a prescription for short-term spending --it's a strategy for America's long-term growth and opportunity in areas such as renewable energy, health care and education," Obama said in a "Washington Post" column on February 5.

 

By Jeff Carlson and Paula Cruickshank, CCH News Staff

SFC, Ways and Means Press Release: Baucus, Rangel, Grassley, Camp: Expanded Trade Adjustment Assistance Will Save Jobs, Help American Workers in Economic Recovery Bill

McCaskill Amendment to HR 1 to Limit Compensation to Officers and Directors of Entities Receiving Emergency Economic Assistance from the Government

Dodd Amendment to HR 1 to Impose Executive Compensation Limitations with Respect to Entities Assisted by TARP

JCT Estimated Budget Effects Of The Revenue Provisions Contained In Titles I And III of Sen 350, the American Recovery and Reinvestment Tax Act of 2009, As Reported by the Committee on Finance, JCX-09-16R

 

Treasury Security Rate Set for Computing Current Plan Liability for February 2009 (Notice 2009-16)

 

For pension plan years beginning in February 2009, the IRS has released the corporate bond weighted average interest rate, the permissible range of interest rates used to calculate current plan liability and to determine the required contribution under Code Sec. 412(l) for plan years through 2009, and the current corporate bond yield curve and related segment rates for the purpose of establishing a plan's funding target under Code Sec . 430(h)(2).

 

The corporate bond weighted average interest rate for plan years beginning in February 2009 is 6.32 percent; and the 90-percent to 100-percent permissible range is 5.69 percent to 6.32 percent. The annual rate of interest on 30-year Treasury securities for January 2009, used to determine the minimum present value of a participant's benefit under Code Sec. 417(e)(1) and (2), is 3.13 percent.

 

For plans electing not to use the transitional rule under Code Sec. 430(h)(2)(G), or for plans whose first year begins after 2009, the 24-month average segments rates for February 2009 are: 5.31 for the first segment; 6.49 for the second segment; and 6.69 for the third segment.

 

For plan years beginning in 2009, the funding transitional segment rates for February 2009 are: 5.65 for the first segment; 6.43 for the second segment; and 6.57 for the third segment.

 

For plan years beginning in 2009, the minimum present value transitional segment rates for February 2009 are: 3.96 the first segment; 4.60 for the second segment; and 4.40 for the third segment.

Notice 2009-16, 2009FED ¶46,264

Other References:

 

Code Sec. 401

 

CCH Reference - 2009FED ¶17,730.40

 

Code Sec. 412

 

CCH Reference - 2009FED ¶19,125.505

 

Code Sec. 417

 

Code Sec. 430

 

CCH Reference - 2009FED ¶20,161.30

 

Tax Research Consultant

 

CCH Reference - TRC RETIRE: 15,304.05

 

CCH Reference - TRC RETIRE: 15,304.10

 

CCH Reference - TRC RETIRE: 30,556

 

State Headlines

Connecticut --Corporate Income Tax: Combined Reporting Legislation Introduced

 

Legislation introduced in Connecticut would require combined reporting for corporate income tax purposes under certain circumstances. If enacted, the legislation would apply to taxable years beginning on or after January 1, 2009.

 

Subscribers can view the text of the bill as introduced in the Senate.

S.B. 807, introduced in the Connecticut Senate on February 3, 2009

 

Florida --Corporate Income Tax: Legislation Would Amend Decoupling for 2008

 

Both the Florida House (H.B. 459) and the Florida Senate (S.B. 1112) have proposed legislation that would change the way in which the state decouples from federal bonus depreciation and the IRC §179 expense election for corporate income tax purposes. The changes would be effective retroactively to January 1, 2008.

 

If one or both bills are enacted, 80% of any amount deducted for federal income tax purposes as bonus depreciation for the taxable year under IRC 168(k), as amended by the Economic Stimulus Act of 2008 (P. L. 110-185), for property placed in service in 2008, would have to be added back to federal taxable income. A subtraction from federal taxable income would be allowed for the four subsequent years equal to 25% of the amount by which taxable income was increased by the addback. Under current Florida law, the entire amount of bonus depreciation must be added back with no subsequent subtraction and the decoupling is effective for all tax years after 2007.

 

Similarly, an amount equal to 80% of any amount in excess of $128,000 deducted for federal income tax purposes for the taxable year under IRC §179, as amended by the Economic Stimulus Act, for the 2008 taxable year, would have to be added back to federal taxable income. A subtraction from federal taxable income would be allowed for the four subsequent years equal to 25% of the amount by which taxable income was increased by the addback. Under current Florida law, the entire amount of asset expense deduction in excess of $128,000 must be added back with no subsequent subtraction and the decoupling is effective for all tax years after 2007.

 

Because proposed federal legislation (American Recovery and Reinvestment Tax Act of 2009) would extend the bonus depreciation and increased IRC §179 asset expense deduction, it is likely that the two Florida bills will be amended prior to enactment.

 

Subscribers can view H.B. 459, as filed.

 

Subscribers can view S.B. 1112, as filed.

 

H.B. 459, as filed by the Florida House on January 20, 2009 and S.B. 1112, as filed by the Florida Senate on January 30, 2009

 

Ohio --Corporate Income Tax: State Supreme Court to Review Ohio Grocers Association

 

The Ohio Supreme Court has agreed to hear the appeal of Ohio Grocers Association v. Wilkins, (2008-Ohio-4420). The Ohio Court of Appeals held that the Ohio commercial activity tax (CAT), when applied to gross receipts from the wholesale sale of food and from the retail sale of food for human consumption off premises where sold, operates as, and is, an excise tax levied or collected upon the sale or purchase of food, and therefore violates Secs. 3 and 13 of Article XII of the Ohio Constitution. (TAXDAY, 2008/09/04, S.24)

Ohio Grocers Association. v. Levin, Ohio Supreme Court, No. 2008-2018, discretionary appeal accepted February 4, 2009

 
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