FinanceRegs.com » Obama puts you on alert: Big changes in store

Obama puts you on alert: Big changes in store

January 14, 2009 by Carol Katarsky
Posted in: Special report, Tax compliance

financial-disasters

Our next president will have to deal with the economic crisis immediately. Here’s what his proposed stimulus plan would mean for your company — if it gets approved by Congress. President-elect Obama’s proposed stimulus package has several benefits in store for companies of all sizes. But each one will likely require a little more effort on Accounting’s part to take advantage of.

Here are the business-related aspects of the proposal as it currently stands:

  • More than $100 billion (yes, with a b) in tax cuts for businesses — on top of another $200 billion or so for individual taxpayers.
  • A refund provision that would allow companies with recent losses to claim refunds for taxes paid as long as five years ago. (To get the refund, you’d have to refile the old returns and use the past year’s losses to offset prior gains.) Currently, you can only go back two years to claim those refunds.
  • New incentives (credits, bonus depreciation, etc.) for qualifying purchases of new equipment.
  • Companies that hire new workers could be eligible for a new one-year tax credit.

Most of the proposals are clearly aimed at stimulating spending — and giving companies a quick infusion of cash so they actually can do more spending.

But some of the proposals aimed at individuals could impact your procedures as well. Most notably, the stimulus package would provide a tax cut for workers (estimated to be $500 for individuals and $1,000 for couples).

The most likely way this would be implemented is by adjusting federal income tax rates. So Payroll needs to be prepared to not only make the switch — but to field a lot of questions from concerned and/or confused employees.

When’s it going to happen — if it happens?

Some Congressional Republicans are already raising concerns that the package has too much spending, not enough tax cuts. But the proposals aimed at businesses have been supported by a broad range of business and political interests.

With everyone nervous about where the U.S. economy stands, as well as their place in it, the passage of some stimulus shortly after Obama takes office seems likely.

The only real question is how close it will be to the one he’s outlined. We’ll keep you posted as the story develops.

Do you think the proposed stimulus package will work? What do you think needs to be done to right the economy? Share your two cents in the comments.

Update: You can see a fuller version of the President-elect’s stimulus plan here.

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21 Responses to “Obama puts you on alert: Big changes in store”

  1. Julianne B Miller Says:

    I am concerned about how this would help S-corps. All the taxes do not come out of the business but out of the profit on the owners taxes. If the company is cash basis then no losses are realized. How will this help our business? We are days away from laying off 2 workers. The Freddie-Mac and Fannie-Mae foreclosure stoppage has hurt our business since we do the foreclosure reports for the court. The judicial reports were all that was keeping us alive. We are the first title examining company incorporated in the State of Ohio. Most of the work we do has been out-sourced to India. Our industry is almost bankrupt.
    You need to actually give tax refund to people that buy American cars.

  2. Controller Says:

    Then make sure you pay it back when you buy your non american TV/Radio

  3. Peter Says:

    This is not going to work any better than the bail-out or tarp funds. It only gives government a stronger foothold on the American public, Corporations and all privately owned smaller businesses.

    If something is broken to the point of failure then IT SHOULD FAIL !! The government isn’t helping anyone by trying to avoid the inevitable and is only hurting it’s citizens by throwing good money after bad.

    The govn. needs to start listening to the American public!

  4. Merrill McCracken Says:

    The Mortgage problem exists because money was too easy to get for people who did not qualify for loans or for whatever reason were in over their heads. Now with the contraction of such loose credit and because the value of homes has gone south, many homeowners have given up. Many have gone bankrupt and lost their homes. While this hasn’t happened in our area so much, we are somewhat affected by this reversal of fortune in other areas.
    Most bankruptcies occurred because homeowners simply could not afford the payments. With a contraction of home values came also a contraction of jobs and or pay. And this is a very real problem, is that many people are moving from one location to another for work but cannot buy a new home until they sell their old one. And their old home is not selling. This has created a lot of illiquidity in the housing market. I’ll bet you know several people right now who cannot buy another home in their new location because they cannot sell their old. Now the government is scratching their heads and wondering what to do about these problems.
    The problem of foreclosed homes creates several other problems. Other homes have to compete with them for pricing. Even in a good market, foreclosed homes always sell for less because banks are not in the business of selling homes and will sell them for losses. While I have seen certain small privately owned banks sit on properties for some time until values increased, I have seen the opposite with larger banks as well.
    The government’s solution thus far is simply to help those who are delinquent on their payments. It doesn’t take a genius to figure out how to miss a few payments and then apply for help. Throwing money at a problem and hoping it lands in the right hands is typical of the government. And their target seems to be whatever squeals loud enough. Don’t even get me started on the big three.
    It doesn’t really teach responsibility or address the real problems at hand. For many however, the help is too little too late. Other homeowners who are struggling and making sacrifices are left wondering why they are working so hard to keep their homes. Likewise, taxpayers are wondering why they should pay the price for someone else’s poor investment decisions. I have never had an offer from the government when I’ve made a bad investment decision in stocks for example.
    For these reasons and others, it is important to the extent possible, that people remain in their homes. But perhaps even more importantly, the homeowner must be made to be financially responsible.
    For those who must leave their home for work elsewhere, this leaves them with two mortgages or renting and paying off their old mortgage or worst case, going bankrupt. The following is in my opinion a good solution to this important problem.
    Homeowners who find themselves in these tight situations should be offered one of two solutions. The first is bankruptcy, which has always been available. With bankruptcy, the homeowners lose their home, their assets and any future credit. I propose that if a homeowner goes bankrupt they truly cannot obtain credit to buy another home for 10 years. The laws as they exist should simply be enforced. After all the term Bankrupt means the banks will not lend you money again right? Case Closed.
    The homeowner’s second option would be much better for all involved, however more in depth as well. It would go something like this. Homeowners would not file bankruptcy or lose their home. Or if they had already filed bankruptcy they could reinstate their credit and reverse the bankruptcy as far as their home debt was forgiven in bankruptcy. The process would be administered by an accountant from the government who would examine their economic situation. The idea would be that if they could make payments to the extent possible that they would be allowed to remain in their homes.
    This solution would involve a second mortgage carried by the government with the so called bailout billions they’ve already set aside for this. The first mortgage payments would continue to go to their bank just as they always have. To the extent the homeowner could show that they cannot afford their first mortgage payments, their payments would be subsidized by way of this second mortgage. This second mortgage would work like a revolving line of credit for the sole purpose of making up the balance of the payments on the first mortgage. The homeowner would be expected to pay some 31% of their gross income. Amounts would accrue at a reasonable rate of interest in the second mortgage funded by the government. Payments subsidies would continue until the homeowner no longer needed help making payments or until the home is sold and the debt paid off.
    Additionally, for the bank to qualify their client for subsidized government payments, they would first be required to re-write existing mortgage loans to a reasonable rate. In other words sub-prime loans or higher rate loans would first need to be refinanced at the going mortgage rate and life terms, for example, 30 years at 6%. I think banks would go along with this as opposed to receiving another foreclosed home and very little from a bankruptcy. The banks would still make money on the loan and payments would be assured.
    Due to the urgency of the situation and our Government’s inability to handle this mess in an efficient manner, there are already a substantial number of bankruptcies and foreclosures. If the homeowner has already filed bankruptcy, they would be granted the right to reverse their bankruptcy as far as their home debt is concerned and receive back their home. In other words they would take back their debt and their home and be subsidized by the 2nd mortgage government payments along with all the conditions attached with it.
    This program of subsidizing by way of a 2nd mortgage would only apply to their existing home and then only once. Hopefully, better borrowing restrictions will be in force to help insure these disasters don’t happen again.
    If the homeowner sells the home for a gain, the existing first and now second mortgages are paid off with excess as a gain to them. . If they sell for a loss, the remaining debt from both the first and 2nd mortgages remains with them until paid. This debt would be attached to the borrower and carried forward until paid. The debt would become a factor in obtaining a new loan as they would be required to pay it off as well. It could not be forgiven in a future bankruptcy. This is nothing new; student loans cannot be discharged in bankruptcy unless there is undue hardship on the family.
    I would also extend this program a little further and create special considerations for those homeowners who have a home in one location but are forced to find work in another. To qualify, homeowners must move more than 100 miles from their old home to their new work place. The program would buy their old home at the then fair market value. The purchase by the program would be treated just like a sale to another buyer. Any additional debt the homeowner owes would carry with them to their next home just like a regular sale. The government would then be responsible for reselling the home at a fair market price and not dump it on the market at a cheap price. The government also should not plaster the home with tags that smell of foreclosure. If a government program bought homes for this purpose it would substantially increase liquidity in the housing market.
    In summary, the distressed homeowner would be afforded one of two options. The homeowner could go bankrupt and afforded the forgiveness of their debt through that system. He would lose his home and would not be allowed mortgage credit through the banks for at least ten years. OR
    He would have his payments made by way of a second mortgage sponsored by a government program that would work like a line of credit used to make up the difference in payments. He would keep his home and his credit rating. He and not the taxpayers would ultimately be responsible to pay back all debt arising from the situation either through the sale of the home or through other means. Just like student loan debt, the debt under the program would not be forgiven in bankruptcy. If he were forced to move and were having difficulty selling his home, he could sell his home at the then fair market value to the program and carry the debt to his next purchase. This would help to improve liquidity in the market again. It would also offer him another avenue besides bankruptcy. This program would be allowed only for an existing home and not any future homes purchased. The hope is that better restrictions would be placed on obtaining mortgages in the future and that in better times; he would once again gain positive equity.

    Merrill McCracken
    Accountant and General Contractor

  5. Rick Says:

    We all need a 6 month tax hiatus. No payroll tax, no sales tax, no income tax, no unemployment tax, no utility tax, no (fill in the blank) tax.

  6. Dwight Malott, CPA, Controller Says:

    In my opinion the key to our recovery is confidence and jobs. You have to be confident that you will retain your present job before you are going to spend money on anything other than necessities. I can still get 90 days, 6 months and 12 months same as cash credit to buy large items if I wanted to do that.
    Job creation is the key to improving the national economy. We all know about the ripple effect of creating, as well as losing, a job. If the new stimulus law does not creat jobs or help to retain existing ones, don’t bother.

  7. Cathy Says:

    Mr. McCraken you are a very wise man, every consider running for president?

  8. Carol Katarsky Says:

    Great comments, everyone, keep ‘em coming.
    Just to clarify, this report wasn’t intended to be a breakdown of the entire stimulus package. The article only discusses the parts of the proposal that would directly impact Accounting. I’ve updated the story with a link to the full plan if you want more details.

  9. Lisa Rayl Says:

    Why don’t we make our government officials function with the same rules and taxes that we have. Make them retire with just Social Security as the rest of us and see how fast the social security system gets fixed. What this country needs is for the American people to revolt against the bail-outs for the big 3 and mortgage/banks….how are the bail out helping us the “American people’. They could have given each family money so they could pay their mortgage, car payment etc which would have helped a hell of a lot more people.

  10. Tammy S. Walker Says:

    I truly believe that we absolutely CANNOT bailout anybody. If all the CEOs, CFOs, would ook at their books on a monthly basis, review the red flags, and make the appropriate changes, SMART changes, we would have a better economy. Shame on the banks for their lending decisions, we the taxpayer now will have YEARS of higher taxes to pay for their careless mistakes.

  11. robbie nichols Says:

    i agree with lisa rayl….i have always thought we need term limits for those who go to “serve the people” , but become millionaires on our dime. there is too much “good ole boy” politics going on now. Term limits is the answer to a lot of this financial mess we are in right now. lets get the term limits slogan going right now.

  12. Langmuir Says:

    Every dollar that the government spends represents a loss of liberty for the population. Every crisis, even the govenment caused ones like the sub-prime, gives government permission to grow larger, more powerful, and less responsive.

    The only way to solve this problem is to succeed from the union and start over with liberty.

    Put in the constitution that no-one who recieves money from the government can vote. This will
    eliminate the government incentive to create a dependent class that arch-villan FDR is responsible
    for. And make the goodies-to-the-bureacracy policy beholden to the taxpayers.

  13. Lisa Rayl Says:

    Langmuir, Am I understanding what you are saying?? Anyone receiving money from the government ie: welfare, food stamps, medicare, medi-cal, etc….all those who suck off the government (so to speak) should not be able to vote??? I kind of like that idea. That would not include those who have paid into the system and are now collecting what they deserve in the way of social security and the elderly with their small help from medicare right??

  14. Strapper Says:

    Hey McCracken
    What about the people who had to move with excellant credit rating but the economy has turned their former residence into a virtual ghost town. I am one of those and still make faithfull mortgage
    payments and pay rent at my new location. It is not my fault I had to reduce my asking price by 100K on a brand new home which is not at all overpriced to begin with but the governments blind eye to assisting companies ensure they can make it so not to displace hundreds of people. I can’t afford to keep paying for both places and I refuse to allow my credit rating to be wiped out due to greed and ignorance of others. The whole situation sickens me.

  15. Fred Says:

    A number of the posts on this thread seem to bemoan the role of government in the situations we find ourselves in so I’ll just add my 2 cents to the mix. Government seems to thrive on complexity in solutions because it tries to accommodate too much at once. This is the feeling I get from what I’ve seen so far in the new administration’s offerings on curing the economy. We have been and are now being told that we have to act NOW! and we have to do it “government’s way” or “hellfire and brimstone will rain down on us…” basically… it already has.

    Mr. McCracken’s plan is probably the most simple and workable solution to the housing mess that I’ve seen thus far yet the “great minds” in our government couldn’t figure this out. Then again … “simple and workable” are not terms familiar to the government. True, at first glance, Mr. McCracken’s solution appears to only address the housing situation, however, the housing crisis is basically what triggered this whole mess so I truly feel his approach is a good one… attack the root cause, solidify the working class/home owner situation and work from there. It is truly better than any “entitlement to fix everything at once, and worry about paying for it later” program the government seems to throwing at us now. Whatever the case, rebuilding on a solid foundation is usually more effective than trying to fix everything at once, especially when you don’t have a solid plan to pay for it. Oh “deficit spending” is necessary right now? Remember “hellfire and brimstone…?” Sorry, I forgot.

    On the surface, it appears that the government has made a positive move by “pledging” $100B of the remaining TARP money toward assisting in the homeowner crisis… but can government be trusted to properly administer this “aid”? Look what happened to the first $350B… better yet, look before this mess started and see what government did (or didn’t do) to make it happen.

  16. Karlee Says:

    Not going to be nearly enough and not going to have an immediate effect. As a small business accountant, money has virtually dried up in the market over the last couple of months. I talk to dozens of people everyday in a variety of industries. Everyone has the same refrain, “if our customers would pay us, we would pay you.” Money is just not moving and a thought of future tax cuts over the next year, is not going to be of much help today. Might help a major corporation if they have spare cash.

  17. » Obama puts you on alert: Big changes in store | FinanceRegs.com … » Second Mortgage Calculator Says:

    [...] news by unknown « Home equity line for real estate investing? | 103 Loans Posts about Mortgage Market [...]

  18. Frank Greene Says:

    I almost hate to see the ‘Government’ get involved in anything anymore. I agree with Lisa Rayl and also agree with term limits. This line says it perfectly – “The government cannot give to anyone anything that it does not first take from someone else.”

  19. Nancy J Knobloch Says:

    McCracken, my hat is off to you! How simple it could be if the powers that be listen to your suggestions. I am so upset that there is even a possibly that these people who got in over there heads would get bailed out. They all should of learned a tough lesson, “you can not get something for nothing”. I have always saved and sacrificed to own my home and on many occasions have gone without to pay my mortgage. People are just too ignorant, they made bad decisions and now they need to pay for it. If they get bailed out, what incentive is there for people to have made the sacrifice and have saved

  20. Merrill McCracken Says:

    Hello Strapper,

    Under a program such as this, the government would buy your home at the then market price which in your case unfoirtunately would be below what you paid for it. However, your home would be sold and you would then be able to keep your credit and buy another home in your new work location. Hopefully the new home would be cheaper for you to buy as well. If so, you would be better off because although still indebeted, you would have to pay for just one home, plus the loss which you have already absorbed on your last home. I know its not great but I think its better than the alternative of bankruptcy. Eventually, as the market becomes more liquid, your equity will increase again.

  21. SJ Says:

    I agree with peter in that the government is not helping any one. There is just too much spending happening. The loss of tax revenues is disproportionate to the gov’t spending. I feel the new administration has not taken that reality into account how much loss of income through retail business, loss of corporate taxes from non-existent companies just in the financial world. Soon Obma and the treasurey will be printing money and we know where that leads…


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