The Six Worst Tax Cuts in the Senate’s Stimulus

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After a week of debate and a round of stumping from President Obama, the Senate passed its version of the economic stimulus package on Tuesday afternoon.

The bill outlines $840 billion in spending and tax relief, and just after the votes were tallied, Citizens for Tax Justice released its list (PDF) of the six worst tax cuts—costing $123 billion more than the House bill—in the Senate’s stimulus:

  • The Alternative Minimum Tax “patch”: Halts the Alternative Minimum Tax for one year, but steers most of the cuts toward the richest 10 percent of taxpayers, who will receive 69 percent of the $70 billion cut and will be the least likely group to spend that money. The AMT began as a way for the government to force the ultra-rich to pay taxes, even if they found enough loopholes in the tax code to pay next to nothing.
  • The Home Ownership Tax Credit: Proposes a non-refundable credit to stimulate the housing market. Any family of four with more than $116,500 in income that purchases a home is eligible for a maximum $15,000 one-year tax break. If the family elects to take the credit over two years, it must show $78,250 in income. But since the tax is not refundable, it only benefits those who make enough money to have a tax liability.
  • Deduction for Automobile Purchases: Anybody who bought a car (maximum sticker price: $49,500) after November 12, 2008, and through the end of this year can deduct the loan interest and excise taxes on the car. That is if you can secure a loan.
  • Halting the Tax on Unemployment Benefits: Workers pay taxes on their unemployment benefits, so it sounds like a good idea, but it ultimately benefits high-income earners who receive unemployment assistance. The Senate provision reduces taxes on the first $2,400 of benefits, but the size of the cut varies based on the recipient’s tax bracket. For example, someone earning $200,000 normally pays a 28 percent income tax. If that person also received unemployment benefits on his or her way to making $200,000, he or she would receive a 28 percent tax cut on the first $2,400 of unemployment benefits. Another worker with $42,000 in total earnings pays a 10 percent income tax. If that worker receives unemployment assistance, he or she only sees a 10 percent tax cut on the first $2,400 in benefits.
  • Five-year Retroactive Tax Cut on Net Operating Losses: Lets companies receive refunds against taxable earnings going back five years, instead of the normal two-year period. The provision doesn’t create incentives for companies to use the refunds to hire new workers or expand their businesses.
  • Cancellation of Indebtedness Income Tax Deferment: The Senate bill offers a tax cut that will allow businesses to defer paying taxes on canceled debt. The IRS sees canceled, or forgiven, debt as income (if you take out a $20,000 loan, and your creditor cancels the debt, the IRS considers you $20,000 richer), and canceling this tax rewards businesses who take on heavy debt loads, one of the symptoms of the recession.

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DEMOCRACY DOES NOT EXIST...

without free and fair elections, a vigorous free press, and engaged citizens to reclaim power from those who abuse it.

In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily bluster—Mother Jones' journalism is driven by one simple question: Will America move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

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