Senate OKs raft of tax breaks

WASHINGTON – The Senate voted Wednesday night to give a tax break of up to $15,000 to homebuyers in hopes of revitalizing the housing industry, a victory for Republicans eager to leave their mark on a mammoth economic stimulus bill at the heart of President Barack Obama’s recovery plan.

The tax break was approved without dissent and came on a day in which Obama pushed back pointedly against Republican critics of the legislation even as he reached across party lines to consider a reduction in the spending it contains. Democratic leaders have pledged to have legislation ready for Obama’s signature by the end of next week.

The provision for homebuyers is one of a number of the ways Americans might cut their tax bills under the economic stimulus package Congress is crafting. Other proposals could help people send their kids to college, purchase a new car or make their home more energy efficient.

The biggest tax breaks target the working poor, especially those with children, but many apply to middle-income and even wealthy taxpayers.

Most workers would see about a $20 a week increase in their take-home pay, starting around June, from a new tax credit. Millions of additional low-income workers who don’t make enough money to pay income taxes would get checks from the government when they file their 2009 tax returns.

The $819 billion economic recovery package approved by the House last week includes about $188 billion in tax breaks for families and individuals over the next two years. The Senate package, which has topped $900 billion, has about $263 billion in tax breaks for families and individuals.

The goal is to get people to spend money at a time when most are cutting back and saving more. It makes sense to be frugal when the economy is in such bad shape, but it hurts the economy when everyone does it.

Here are some ways taxpayers could save money:

•The centerpiece of the tax package provides credits of up to $500 for individuals and $1,000 for couples, in 2009 and 2010, hence the increase in take-home pay. Individuals making more than $75,000 and couples making more than $150,000 would receive reduced amounts. The Senate bill phases out the credit quicker for families with incomes of more than $150,00.

•Parents with children in college – and some adult students – could get expanded tax credits of up to $2,500 to help cover tuition and related expenses in 2009 and 2010. Families making between $160,000 and $180,000 can get reduced credits. Those making more are ineligible.

•The Senate voted Wednesday to give homebuyers a tax credit of 10 percent of the value of new or existing residences, up to $15,000. The proposal would cost an estimated $19 billion. The House limits the tax credit up to $7,500 for first-time homebuyers who purchase homes before July 1, 2009. Current law requires the credit to be repaid over 15 years. The stimulus package would repeal the repayment requirement.

•Existing homeowners could get a tax credit of up to $1,500 by making their homes more energy-efficient in 2009 or 2010. Numerous projects would qualify, such as installing energy-efficient windows, doors, roofs, furnaces, water heaters and air conditioners, or adding insulation. Homeowners can get back 30 percent of their expenses, up to $1,500.

•People who buy new cars in 2009 can deduct the interest payments and sales taxes from their taxable income under the Senate bill. The House bill doesn’t have that tax break.

•The Senate bill would spare about 24 million taxpayers from being hit with the Alternative Minimum Tax in 2009. On average, the change would save mainly upper middle-income families of four about $2,300. The House bill does not contain this annual AMT “fix,” but Congress is unlikely to let 2009 lapse without doing it.

•The Earned Income Tax Credit would be expanded for poor families with three or more children who pay no income taxes. The maximum check they could receive from the government would rise $5,028 to $5,656.

•Poor families would have greater access to the $1,000 child tax credit. The Senate bill lowers the earnings threshold to qualify from $12,550 to $6,000. The House bill would eliminate the earnings threshold, saving families $18.3 billion.