Senate Passes Economic Stimulus Legislation

On February 10, 2009, the Senate passed an economic stimulus bill, titled the American Recovery and Reinvestment Act of 2009 (H.R. 1), by a vote of 61 to 37. The tax portion of the legislation includes $366 billion in tax breaks over ten years, heavily loaded toward the 2009 and 2010 period. The House-passed version of the legislation included $275 billion in tax breaks. The Senate version includes most of the provisions in the House-passed version, with a variety of modifications, plus several additional provisions. Provisions unique to the Senate bill include an AMT patch for 2009, a $15,000 homeowner’s credit, suspension of income tax on certain unemployment benefits, expansion of eligible expenses for 529 plans, an above-the-line deduction for interest and taxes related to the purchase of a new automobile, and an expanded credit for alternative vehicles. On the business side, new provisions include delayed recognition of cancellation of debt income, an increase in the exclusion of gain on small business stock, a reduction in the S Corporation built-in gain holding period, and a penalty for compensation in excess of $100,000 for participants in the TARP program.

Areas of modification of House-passed benefits include adding a $300 one-time payment to social security beneficiaries and disabled veterans and a different phase-out for the Making Work Pay Credit, different income threshold for the refundable child tax credit, and a different refundable percentage for the education credit. On the business side there are differences in how the net operating loss carryback would apply, the time period for changes to the Work Opportunity Tax Credit, amount of the COBRA premium subsidy, the limits of recovery zone and school construction bonds, and timing of the withholding requirement for government contractors.

The House and Senate are expected to try to resolve their differences within the coming few days. President Obama is supporting the legislation and encouraging passage as soon as possible.