Tax cuts a big part of Obama's $775B plan

WASHINGTON — Facing a global economic crisis and U.S. job losses, President-elect Obama and congressional leaders agreed Monday on broad aspects of what's sure to be the largest short-term economic-stimulus plan the nation has ever seen. They promised to pass legislation quickly.

Democratic leaders said they'd immediately push the ambitious package. The president-elect is proposing a $775 billion, two-year package that includes about $300 billion in tax cuts or credits, with an emphasis on low- and middle-income earners.

The plan got a boost from Republicans, who lauded the tax cuts.

"There's likely to be widespread enthusiasm for that portion of it," said Senate GOP leader Mitch McConnell, R-Ky.

He and other Republican leaders, however, were more guarded about the spending provisions. Instead of giving direct aid to states, for instance, McConnell said the government should consider lending the money. Specifically, he said, it should be repaid within five years at an interest rate of 5 percent.

Under Obama's plan, the key tax provision would be $500-per-individual or $1,000-per-couple rebates for most taxpayers. Instead of mailed checks — the rebate method that the Bush administration used in a failed bid to spark the economy last year — the amount would be distributed by withholding less from paychecks over a period of months.

The net result, however, would be cash in the pockets of millions of Americans.

Perhaps most important was the day's tone. Obama met first with Democrats at the Capitol, then GOP leaders joined the session. Obama, participants said, didn't attempt to negotiate and didn't express specific views of specific proposals.

Congress convenes today

Still, the tone was upbeat.

"We all recognize the country is in a financial difficulty that we've never seen, maybe in the history of the country," said Senate Majority Leader Harry Reid, D-Nev., saying at a news conference that Congress will pass a stimulus plan "as quickly as possible."

The 111th Congress convenes at noon today, and Democrats will have large majorities. Obama will be sworn in as the 44th president two weeks later on Jan. 20. Democrats once hoped to have the stimulus ready by that date, but it now appears that their goal is to have it on his desk before members leave Feb. 13 for a Presidents Day recess.

Earlier in the day, Obama painted a grim picture of a rapidly deteriorating economy that he'll soon inherit.

"The most important message is that the situation is getting worse. We've got to act boldly and we've got to act swiftly," Obama said in a question-and-answer session after he met with his economic team.

Tax credit defended

Obama defended the middle-class tax credit. He disputed assertions that it amounts to a political ploy, saying that it was a principal theme of his campaign.

"There is a happy convergence with what I pledged during the campaign and what is required right now," he said.

Obama's plan reportedly contains a number of tax breaks that would allow small businesses to deduct the costs of their inventories and depreciation of equipment more quickly from their taxes.

Significantly, it doesn't include a tax break sought by the U.S. Chamber of Commerce and other big employers that would encourage larger American corporations to bring back their foreign earnings and invest them in the United States.

Still, the fact that Obama is adding a number of tax provisions pleased big business and Republicans. For example, in a bid to attack rising joblessness, Obama and Democratic lawmakers are exploring the possibility of a one-year tax credit to businesses for hiring new workers, at a cost of about $40 billion to $50 billion.

"I'm a little more encouraged that 40 percent of the package is going to be tax cuts, or tax reductions, or tax incentives," said Bruce Josten, the vice president of government affairs for the U.S. Chamber of Commerce.

Changes predicted

Congressional officials, who spoke only on the condition of anonymity because they weren't authorized to discuss the legislation that's being drafted, said that any plan was sure to change as more congressional members weighed in. Many of the tax ideas bouncing around could change dramatically, they cautioned.

In one scenario widely discussed Monday, the middle-class tax credit would apply to the first $8,100 of wage income. It was unclear whether this credit would apply to all Americans but disproportionately benefit poorer workers or whether there would be some sort of wage cap that determines eligibility.

One idea that's circulating is capping eligibility at around $102,000 per worker, the cutoff point for paying Social Security taxes. That would allow a two-earner family to make up to $204,000 and still receive the tax credit.

Traditionally, Congress has capped tax credits at $75,000 per individual tax filer and $150,000 for joint tax filers, but during the presidential campaign Obama suggested that his tax plan would benefit anyone who makes less than $200,000.

"I have a hard time believing that that will be the level," said Pete Sepp, vice president of the National Taxpayers Union, a group that advocates less taxation.

Given the high levels of spending being proposed in the economic-stimulus plan, Congress is likely to limit tax credits to those who most need them, Sepp said.