Special Report: California Implications of January 2009 Economic Stimulus Measures

House Ways & Means and Energy & Commerce Committee Items -- January 30, 2009


     On Wednesday, January 28, 2009, the House passed H.R. 1, the American Recovery and Reinvestment Bill of 2009 by a vote of 244-188. After adding an additional $3 billion for transit funding during floor consideration, the cost of the package is now estimated at $819 billion – $526.5 billion in spending and $275 billion in tax cuts, plus additional provisions to reach the total cost.

A significant portion of the bill was developed by the Energy and Commerce Committee (largely energy provisions).

     Below is a summary of some of the major provisions in the bill as approved by those two committees.

     In addition to the below narrative, the California Institute prepared a report detailing Appropriations components of the stimulus package. The Appropriations report is available at http://www.calinst.org/pubs/2009stimulus.shtml. A more basic pdf version of the table table is now available at http://www.calinst.org/pubs/2009stimulus.pdf.


SUMMARY OF WAYS AND MEANS TAX PROVISIONS

“Making Work Pay” tax credit.

Increase in earned income tax credit.

Increase eligibility for the refundable portion of child credit.

“American Opportunity” education tax credit.

Refundable first-time home buyer credit.

Extension of bonus depreciation.

Extension of enhanced small business expensing.

Work Opportunity Tax Credit Incentive to hire unemployed veterans and disconnected youth

Recovery for State and Local Governments

Recovery Zone Bonds

Reinvestment in Renewable Energy

SUMMARY OF ENERGY AND COMMERCE PROVISIONS

Provisions on Energy

Provisions on Health

COBRA/Medicaid Options for the Uninsured Unemployed

Medicaid Option

State Medicaid Fiscal Relief

Moratorium on Medicaid Regulations

Temporary Extension of Work Transition Coverage

State Option to Cover Family Planning Services

Health Information Technology

Amendments Approved by House on January 28, 2009

 

 

     On Wednesday, January 28, 2009, the House passed H.R. 1, the American Recovery and Reinvestment Bill of 2009 by a vote of 244-188. After adding an additional $3 billion for transit funding during floor consideration, the cost of the package is now estimated at $819 billion – $526.5 billion in spending and $275 billion in tax cuts, plus additional provisions to reach the total cost.

     The House Committee on Ways and Means on January 17, 2009 reported H.R. 598, its sections of the comprehensive economic recovery package. The legislation passed the Committee by a party-line vote of 24 to13. On January 22nd, the House Energy and Commerce Committee approved its sections of the bill dealing with energy, health care, and broadband. The energy title was approved by a vote of 34-17, the health insurance provisions by a vote of 32-12, the Medicaid provisions by a vote of 32-11, and the broadband and health information technology provisions by voice vote.

     The Ways and Means sections and Energy and Commerce sections were then combined with the Appropriations Committee provisions contained in H.R. 1, and that omnibus version was considered by the House.

     Below is a summary of the Ways and Means tax provisions and the Energy and Commerce provisions contained in the bill with significance to California. Also included are some of the amendments approved on the House floor. The Institute previously released an analysis of the California implications of the Appropriations portions of the economic stimulus bill, which can be found at: www.calinst.org .

 

SUMMARY OF WAYS AND MEANS TAX PROVISIONS

     The tax provisions are expected to provide approximately $275 billion in tax relief for individuals, businesses, and State and local governments.

“Making Work Pay” tax credit.

     For 2009 and 2010, the bill would provide a refundable tax credit of up to $500 for individuals and $1,000 for families. The tax credit would be calculated at a rate of 6.2% of earned income, and would phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 for married couples filing jointly). Taxpayers can receive this benefit through a reduction in the amount of income tax that is withheld from their paychecks, or through claiming the credit on their tax returns. The proposal is estimated to cost $145.309 billion over 10 years.

Increase in earned income tax credit.

     The bill would temporarily increase the earned income tax credit for working families with three or more children. Under current law, working families with two or more children currently qualify for an earned income tax credit equal to forty percent (40%) of the family’s first $12,570 of earned income. This credit is subject to a phase-out for families with adjusted gross income in excess of $16,420 ($19,540 for married couples filing jointly). The bill would increase the earned income tax credit to forty-five percent (45%) of the family’s first $12,570 of earned income for families with three or more children and would increase the beginning point of the phase-out range for all married couples filing a joint return (regardless of the number of children) by $1,880.This proposal is estimated to cost $4.663 billion over 10 years.

Increase eligibility for the refundable portion of child credit.

     The bill would increase the eligibility for the refundable child tax credit in 2009 and 2010. For 2008, the child tax credit is refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $8,500. The bill would eliminate this floor for 2009 and 2010. This proposal is estimated to cost $18.272 billion over 10 years.

“American Opportunity” education tax credit.

     For 2009 and 2010, the bill would provide taxpayers with a new “American Opportunity” tax credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year. Under this new tax credit, taxpayers will receive a tax credit based on one hundred percent (100%) of the first $2,000 of tuition and related expenses (including books) paid during the taxable year and twenty-five percent (25%) of the next $2,000 of tuition and related expenses paid during the taxable year. Forty percent (40%) of the credit would be refundable. This tax credit will be subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly). This proposal is estimated to cost $13.707 billion over 10 years.

Refundable first-time home buyer credit.

     Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the purchase of a home (up to $7,500) by first-time home buyers. The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit are currently required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The bill would eliminate the repayment obligation for taxpayers that purchase homes after January 1, 2009. The provision would retain the credit recapture if the house is sold within three years of purchase. This proposal is estimated to cost $2.562 billion over 10 years.

Extension of bonus depreciation.

     Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule allows by permitting them to immediately write-off fifty percent of the cost of depreciable property (e.g., equipment, tractors, wind turbines, solar panels, and computers) acquired in 2008 for use in the United States. The bill would extend this temporary benefit for capital expenditures incurred in 2009. This proposal is estimated to cost $5.074 billion over 10 years.

Extension of enhanced small business expensing.

     Small business taxpayers may elect to write-off the cost of certain capital expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Until the end of 2010, small business taxpayers are allowed to write-off up to $125,000 (indexed for inflation) of capital expenditures subject to a phase-out once capital expenditures exceed $500,000 (indexed for inflation). Last year, Congress temporarily increased the amount that small businesses could write-off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000. The bill would extend these temporary increases for capital expenditures incurred in 2009. This proposal is estimated to cost $41 million over 10 years.

Work Opportunity Tax Credit Incentive to hire unemployed veterans and disconnected youth.

     Under current law, businesses are allowed to claim a work opportunity tax credit equal to 40 percent of the first $6,000 of wages paid to employees of one of nine targeted groups. The bill would create two new targeted groups of prospective employees: (1) unemployed veterans; and (2) disconnected youth. An individual would qualify as an unemployed veteran if they were discharged or released from active duty from the Armed Forces during 2008, 2009 or 2010 and received unemployment compensation for more than four weeks during the year before being hired. An individual qualifies as a disconnected youth if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months. This proposal is estimated to cost $208 million over 10 years.

Recovery for State and Local Governments

     Tax provisions to help state and local governments include:

     - De minimis safe harbor exception for tax-exempt interest expense for financial institutions.

     - Modification of small issuer exception to tax-exempt interest expense allocation rules for financial institutions.

     - Eliminate costs imposed on State and local governments by the alternative minimum tax.

     - Qualified school construction bonds. The bill creates a new category of tax credit bonds for the construction, rehabilitation, or repair of public school facilities or for the acquisition of land on which a public school facility will be constructed.

     - Extension and increase in authorization for qualified zone academy bonds (QZAB).

     - Tax credit bond option for State and local governments.

     - Repeal three percent (3%) withholding on government contractors.

     Overall, the provisions would authorize $22 billion in school construction bonds, $25 billion in bonds for economically distressed recovery zones, $4 billion in energy bonds and $2 billion in tribal bonds.

 

Recovery Zone Bonds.

     The bill would create a new category of tax credit bonds for investment in economic recovery zones. The bill would authorize $10 billion in recovery zone economic development bonds and $15 billion in recovery zone facility bonds. These bonds could be issued during 2009 and 2010.

Reinvestment in Renewable Energy

     Tax provisions to encourage renewable energy investment include:

     - Long-term extension and modification of renewable energy production tax credit.

     - Temporary election to claim the investment tax credit in lieu of the production tax credit.

     - Repeal subsidized energy financing limitation on the investment tax credit.

     - Removal of dollar limitations on certain energy credits.

     - Clean Renewable Energy Bonds (“CREBs”).

     - Qualified Energy Conservation Bonds.

     - Tax credits for energy-efficient improvements to existing homes.

            The bill would extend the tax credits for improvements to energy-efficient existing homes through 2010. Under current law, individuals are allowed a tax credit equal to ten percent (10%) of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during the taxable year. This tax credit is capped at $50 for any advanced main air circulating fan, $150 for any qualified natural gas, propane, oil furnace or hot water boiler, and $300 for any item of energy-efficient building property. For 2009 and 2010, the bill would increase the amount of the tax credit to thirty percent (30%) of the amount paid or incurred by the taxpayer for qualified energy efficiency improvements during the taxable year. The bill would also eliminate the property-by-property dollar caps on this tax credit and provide an aggregate $1,500 cap on all property qualifying for the credit. This proposal is estimated to cost $4.275 billion over 10 years.

     - Tax credits for alternative fuel pumps.

     - Enhanced R&D credit.

            The bill would provide for an enhanced twenty percent (20%) R&D credit in taxable years beginning in 2009 and 2010 for research expenditures incurred in the fields of fuel cells, battery technology, renewable energy, energy conservation technology, efficient transmission and distribution of electricity, and carbon capture and sequestration. This proposal is estimated to cost $18 million over 10 years.

 

SUMMARY OF ENERGY AND COMMERCE PROVISIONS

Provisions on Energy

     Reliable, Efficient Electric Grid. The legislation seeks to jumpstart smart grid demonstration projects in geographically diverse cities, suburbs, and rural areas. Federal matching grants for smart grid technology will increase from 20% to 50%. Grantees will be required to utilize open internet-based protocols and standards when available and lessons learned during demonstration projects will be available to help others to deploy smart grid infrastructure.

     Renewable Energy Loan Guarantees

     Expands Home Weatherization Assistance Program

     Conditions the award of State Energy Program funding from the Economic Recovery Act upon a notification to the Secretary of Energy by the Governor of a state that the governor will seek to adopt certain utility regulatory policies to encourage utility-sponsored gains in energy efficiency and updated energy-efficient building codes.

     Waives Caps on Energy Sustainability and Efficiency Grants and Loans for Institutions.

Provisions on Health

COBRA/Medicaid Options for the Uninsured Unemployed

     COBRA Premium Assistance. To be eligible for COBRA a worker must have worked for an employer with 20 or more employees, have been enrolled in the employer’s health plan, and have lost his/her health coverage due to termination of employment for reasons other than gross misconduct. Under COBRA, workers must pay 100% of the premium plus 2% in administrative costs. The bill would provide a 65% subsidy for COBRA continuation premiums for up to 12 months for workers who have been involuntarily terminated (and their families). To qualify for COBRA premium assistance, a worker must be involuntarily terminated between September 1, 2008, and December 31, 2009. The subsidy would terminate upon offer of any new employer-sponsored coverage.

     In addition to this short-term subsidy, the bill would also provide that those COBRA-eligible workers who are 55 and older, or who have worked for an employer for 10 or more years, would be able to retain COBRA coverage, at their own expense, until they become Medicare eligible at age 65 or secure coverage through a subsequent employer.

     Medicaid Option. The bill would give State Medicaid programs a temporary option of covering one or more of the following groups of unemployed individuals without health insurance (and their uninsured spouses and dependents): (1) individuals receiving unemployment benefits and individuals who have exhausted unemployment benefits; (2) individuals who are receiving food stamps and are not otherwise eligible for Medicaid; and (3) individuals in families with gross incomes below 200% of the poverty level.

State Medicaid Fiscal Relief

     Temporary Medicaid FMAP Increase. The bill would provide, on a temporary basis, additional federal matching funds to help states maintain their Medicaid programs. Three types of temporary assistance would apply during the period October 1, 2008, through December 31, 2010. First, states that would otherwise experience a drop in their federal medical assistance percentages (FMAPs) under the normal FMAP formula would be held harmless against any decline. Second, all states would receive an increase in their FMAP by 4.9 percentage points. Finally, states with large increases in unemployment would receive an additional increase in their FMAP directly related to the increase in their unemployment rates. This high unemployment percentage point adjustment would automatically adjust upward to reflect increases in state unemployment rates if the recession worsens.

     Title IV-E foster care and adoption assistance would also receive the 4.9 percentage point increase. The additional federal assistance would apply to the costs of Medicaid benefits but not to the costs of Medicaid disproportionate share payments, administration, or CHIP. In addition, DSH allotments were increased by 2.5 percent in FY 2009 and 2.5 percent in FY 2010.

     Moratorium on Medicaid Regulations. Current law imposes a moratorium on six Medicaid regulations relating to cost limits on public providers, graduate medical education (GME) payments, provider taxes, rehabilitative services, targeted case management services, and school administration and transportation services. The bill would extend the current law moratorium on these six regulations, which expires on March 31, 2009, through June 30, 2009. The bill would also expand this moratorium to include a seventh Medicaid regulation relating to outpatient hospital services.

     Temporary Extension of Work Transition Coverage.

     Under current law, individuals who leave welfare to go to work receive up to one year of Medicaid coverage so long as they continue working. This current transitional medical assistance (TMA) expires on June 30, 2009. The bill would extend the current law provision through December 31, 2010. In addition, the bill would give states the option of simplifying TMA eligibility determinations to reduce administrative burden and turnover.

     State Option to Cover Family Planning Services. Under current law, the Secretary has the authority under section 1115 of the Social Security Act to grant waivers to states to allow them to cover family planning services and supplies to low-income women who are not otherwise eligible for Medicaid. The bill would give states the option to provide such coverage without obtaining a waiver. States could continue to use the existing waiver authority if they preferred.

     Health Information Technology

     The bill encourages the use of health information technology (Health IT), such as electronic health records by:

     Requiring the government to develop standards by 2010 that allow for the nationwide electronic exchange and use of health information to improve quality and coordination of care.

     Investing $20 billion in health information technology infrastructure and Medicare and Medicaid incentives to encourage doctors and hospitals to use HIT to electronically exchange patients’ health information.

     Saving the government an estimated $10 billion and generating additional savings throughout the health sector, through improvements in quality of care and care coordination and reductions in medical errors and duplicative care.

     Strengthening Federal privacy and security laws to protect identifiable health information from misuse as the health care sector increases use of Health IT.

 

Amendments Approved by House on January 28, 2009

     During floor consideration of the bill, the House adopted by voice vote several amendments to the bill. Among those approved were:

     - an amendment by Rep. James Oberstar (MN), Chair of the Transportation and Infrastructure Committee, that would set up a “use it or lose it” provision in the bill. The amendment would require that 50 percent of the money for highway, aviation, transit and rail projects be obligated within 90 days (as opposed to the 180 days previously proposed).

     - an amendment by Rep. Jerrold Nadler (N.Y) that would boost transit spending in the bill from $9 billion to $12 billion. Half the additional money would be spread across all states and the other half would go to new mass transit projects. The amendment increased the total cost of the bill from $816 billion to $819 billion.

     - an amendment offered by Rep. Bill Shuster (PA) that clarifies that federal funds received by States under the bill for highway maintenance can not be used to replace existing funds in place for transportation projects.

     - an amendment by Rep. Maxine Waters (Los Angeles) to provide that job training funds may be used for broadband deployment and related activities provided in the bill. The amendment was agreed to by voice vote.

     - an amendment by Rep. Larry Kissell (NC) vote that requires the Homeland Security Department to buy American-made uniforms for the Transportation Security Administration.

     - an amendment by Reps. Todd R. Platts (PA) and Chris Van Hollen (MD) that strengthens whistleblower protections for federal employees.


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