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2010 Legislative Update - A Stimulus Bonanza
The 2010 Tax Relief Act includes a variety of significant tax relief measures for individuals. Key measures for individuals include a two-year extension of the 2001 and 2003 tax cuts, an extension of the alternative minimum tax "patch" through 2011 and a one-year payroll tax reduction ("holiday") for employees. The new payroll tax holiday is expected to inject over $110 billion into the economy in 2011, according to the Treasury Department's latest press release, "The Impact of the 2011 Payroll Tax Cut on Working Americans". For businesses, the 2010 Tax Relief Act provided significant tax incentives in the area of capital investments. Taxand US investigate how these provisions will impact multinationals and why there are more changes yet to come on the horizon.
Three provisions in the law related to capital investments:
- The introduction of 100 percent bonus depreciation for qualified investments
- An increase in the capital expense deduction under Section 179 for 2010 and 2011
- The extension of the federal research tax credit through 2011
While consumption accounts for roughly 70 percent of gross domestic product, total investment by businesses accounts for approximately 15 percent of GDP. At the latest tally, corporations were hoarding almost $2 trillion in cash and liquid assets -- truly a staggering figure. Clearly, the capital expenditure incentive provisions in the 2010 Tax Relief Act and the Small Business Jobs Act are aimed at loosening up the corporate coffers and motivating large corporations to make capital expenditures now, which will stimulate GDP. The 2010 Capital Spending Report released by the US Census Bureau on 23 June 2010 indicated that total capital spending by all US nonfarm businesses was the same in 2008 as in 2007; however, indications are that total capital expenditures increased in 2009 and 2010 thanks in part to the tax incentives mentioned here.
Chris Edwards, Director of Tax Policy Studies at the Cato Institute, has provided this insight:
"The right tax policy can speed up the economy's return to growth...we need small businesses and entrepreneurs to take up the slack by starting new businesses and investing. Let's make these risky decisions easier for them by cutting their tax burden move to expensing which would eliminate many investment distortions. Workers would be the beneficiaries as more capital investment would raise worker productivity and produce higher wages."
In 2010, a hot topic of conversation for tax policy analysts was the scheduled expiration of tax incentives and eagerly anticipated tax reform. This will continue to be a relevant topic given the extension of the tax cuts to 2012, a presidential election year. With the landscape continually changing, consult your tax advisor to ensure that you are taking full advantage of the new opportunities for tax savings and plan accordingly.
When President Obama spoke to the US during the State of the Union address on 25 January, he called upon Democrats and Republicans alike to "get rid of the loopholes" and "level the playing field," concluding that doing so will allow a decrease in the corporate tax rate to 25 percent -- without increasing the deficit. How this will be accomplished remains to be seen; however, one thing is certain -- we can expect more changes on the horizon.
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