Obama stimulus plan boosts business tax refunds

[January 06, 2009]  WASHINGTON (AP) -- President-elect Barack Obama's proposed stimulus package would provide businesses with billions of dollars in refunds on taxes they paid several years ago.

The refunds are popular among business groups and could increase pressure on Republicans to support Obama's massive stimulus package, even though most of them are wary of government spending increases that could send its total cost to $800 billion or more.

"This gives companies an infusion of cash just when they need it," Dorothy Coleman of the National Association of Manufacturers said of the proposed refunds.

Obama's proposal to stimulate the economy includes tax cuts of up to $300 billion, including more than $100 billion for businesses.

The refund provision would enable some companies posting losses last year to get refunds for taxes paid as far back as five years earlier. The businesses could refile their old tax returns, using the losses suffered last year to offset profits made when times were good.

Under current law, businesses can use losses to offset profits the two previous years.

Obama's team has yet to provide estimates on what the refunds could total. When Congress considered the same idea last year, carrying back losses to offset profits in the previous five years would have provided businesses an estimated $25.5 billion in refunds.

With business losses mounting in 2008 because of the recession, the price tag on Obama's plan would probably be much higher, said Bruce Wein, who heads the U.S. tax practice for the law firm DLA Piper.

"I think it's creative, I think it's bold," Wein said. "It's going to get a lot of backing from Republicans for the obvious reasons."

Obama's tax package also targets individuals, providing a $500 tax cut for most workers and $1,000 for couples, at a cost of about $140 billion to $150 billion over two years. The individual tax cuts may be awarded through withholding less from worker paychecks, effectively making them about $10 larger each week.

Another provision brought to the negotiations by the Obama team would award companies that hire new workers a one-year tax credit at a total cost of $40 billion to $50 billion over two years. Businesses also would get additional incentives to invest in new equipment.

Obama takes office in two weeks. Meeting with congressional leaders Monday at the Capitol, he described the nation's economic condition as "precarious" and said he'd like Congress to have a stimulus package ready for signing into law by early February.

The ability to write off losses and apply them to tax bills retroactively was "at the top of the list from businesses' viewpoint," said Bruce Josten, the executive vice president for government affairs at the U.S. Chamber of Commerce.

Josten said the Obama transition team has held more than a dozen meetings with chamber officials to discuss a number of issues, with several of the meetings devoted to the economic recovery plan. The tax relief package detailed in press reports on Monday "fits the criteria that we've outlined," he said.

"It doesn't help autos, who haven't paid taxes previously. It probably doesn't help steel, probably doesn't help airlines," he said. "But the rest of the business community, I think it's safe to say that was at the top of their list."

Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee, said tax cuts could help boost the economy "if it's done right."

"It's tricky to make sure the relief is big enough to make a dent in our huge economy and done in a way that stimulates growth," Grassley said in a statement. "Business tax incentives should be strong enough to spur investment and create jobs."

House Republican leader John Boehner of Ohio said he is concerned the package could include "wasteful spending." But he is pleased Obama and congressional Democrats "agree with Republicans that tax relief for middle-class families and small businesses has to be a major part of this economic package."

[Associated Press; By STEPHEN OHLEMACHER]

Associated Press writer Jim Kuhnhenn contributed to this report.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.