The Renewable Energy and Job Creation Act of 2008 includes a wide-range of tax provisions along with a measure to ensure parity in insurance coverage of mental health and addiction services. The legislation prevents the extension of the Alternative Minimum Tax (AMT) to more than 25 million taxpayers in 2008 by increasing the exemption and the credits that offset AMT liability. The exemption is temporarily raised to $46,200 for individuals and to $69,950 for joint filers. The one-year extension will cost approximately $79 billion in 2009.
The bill expands eligibility for the child tax credit by lowering the income level at which taxpayers qualify for the refundable portion of the credit (from $12,050 per year to $8,500). It extends the federal income tax deduction for State and local sales taxes and extends several other deductions, such as the higher education tuition deduction, the classroom expenses deduction, and a property tax deduction that was included in recent housing legislation. The Research and Development tax credit for business investment is also extended for two years. Closing a tax loophole that benefits hedge fund managers will partly offset these provisions by generating $25 billion over the next ten years.
The Act also includes approximately $17 billion in tax incentives for energy efficiency and the production and use of renewable energy. The bill temporarily extends and expands tax credits for the production of renewable energy from wind, solar, and other sources and for energy-efficient appliances and buildings. The legislation creates new bonds to finance facilities that generate electricity from renewable sources and for state and local initiatives to reduce greenhouse gas emissions. Tax credits for plug-in electric vehicles and alternative fuels are also incorporated. The tax provisions are offset by delaying the implementation of a tax deduction for oil and gas companies, among other revenue-raising measures.
Additionally, the Renewable Energy and Jobs Creation Act includes the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act. This provision mandates that group health plans provide mental health and “substance use disorder” benefits that are at least equivalent to benefits offered for medical and surgical procedures. Thus, plans that offer both mental health and medical benefits must apply equivalent financial requirements – such as deductibles, co-payments, and out-of-pocket expenses – and treatment limitations – such as frequency of visits, number of visits, and days of coverage – to both types of benefits. Many insurers currently impose stricter requirements on mental health benefits. The provision exempts group health plans of employers with less than 50 employees.
Finally, the measure includes tax relief and funds for disaster recovery from recent floods and storms in the Midwest, the Gulf Coast, and other areas.
The Middle-Class Position:
The Middle Class Supports. The Renewable Energy and Job Creation Act includes a wide range of tax cuts and legislative initiatives, but the overall thrust of the bill is highly positive for the middle-class. Indeed, middle-class Americans are increasingly feeling the effects of an energy policy that favors large oil companies over the economic and environmental benefits of sustainability. The energy tax credit expansions and extensions in the Renewable Energy and Job Creation Act are part of a long-term strategy to alleviate high gas and heating costs, make the country more energy efficient, and ensure that the economy retains jobs in renewable energy and technology. With the middle class already feeling the effects of weak employment, Congress must strengthen a renewable energy and energy efficiency industry that benefits both the environment and the economy.
Additionally, the Renewable Energy and Job Creation Act’s changes to the child tax credit would make 2.9 million additional children eligible for the benefit and would increase the benefit for 10.1 million more. Expanding the income floor for the tax credit means that very low-income aspiring middle-class families, who currently benefit less from the credit than higher-income families, will receive the support they need to make ends meet.
The mental health and “substance use disorder” parity provisions of the Act not only do much to remedy the discriminatory practices of insurers, but will increase access to mental health care services for middle-class Americans already struggling with high health care costs. Temporarily raising the Alternative Minimum Tax exemption ensures that middle-class Americans are not overwhelmed by a tax that they were never intended to pay. An increase in tax payments for more than 25 million American homes – exposing fully 46% of households with incomes between $75,000 and $100,000 to the AMT by 2010– would be disastrous for families already reeling from home foreclosures, high gas prices, and nearly stagnant wages.
From the Experts:
“These tax breaks would not only help consumers and businesses lower their energy bills, they also would provide longer-term benefits for our economy by encouraging investment in new technologies that will, in turn, create new jobs, improve our environment, and protect our national energy security.” – Kateri Callahan, President, Alliance to Save Energy (9/18/2008)
“As currently formulated, the child tax credit excludes millions of children in low-income working families. Because of differences in income, family composition, and employment status, nearly half of Blacks and 46 percent of Hispanics receive no or reduced benefits from the CTC [child tax credit] because their incomes are too low. By comparison, only 18 percent of White children are in that category… Racial disparities would persist with [a] lower floor on earnings, but they would likely become smaller over time as increases in nominal earnings push more and more low-income families above the threshold for the refundable credit.” – Leonard E. Burman and Laura Wheaton, Tax Policy Center (10/17/2005)
Beyond this Bill:
Though the Renewable Energy and Job Creation Act is a positive step in moving the United States toward a renewable energy policy that puts sustainability and energy efficiency before the profits of oil companies, much is left to be done. Congress must pass a measure, such as the Global Warming Pollution Reduction Act, that mandates emissions reductions to levels that help the nation avoid the worst impacts of global warming.
The relief from the Alternative Minimum Tax provided in the Act suffers from an important flaw: it is temporary. Although complete abolition of the AMT has been proposed as a means to prevent the tax from swallowing the middle class, this proposal is a red herring that would permit the wealthiest Americans once again to avoid paying taxes. A study showed that if the AMT had been repealed in 2007, 96% of the tax cut would be enjoyed by only the top fifth of the income distribution, while at least $850 billion in tax revenue would have been lost by 2017. The appropriate solution is a permanent AMT fix that shields the middle class and is indexed to inflation.
Percentage of the benefits of the child tax credit that went to families in the top 40% of the income distribution in 2005: 60
Maximum percentage of the benefits of the child tax credit that went to families in the lowest 20% of the income distribution in 2005: 1
Estimated number of children that the child tax credit provision in the legislation would benefit: 13 million
Estimated number of jobs that could be lost if federal tax credits for solar and wind energy are not extended: 116,000
Percentage by which the cost-sharing for addiction benefits exceeded that for medical or surgical benefits, according to a 2007 Health Affairs study of employer-provided benefits: 46
Number of taxpayers subject to the alternative minimum tax in 1970: 20,000
Number of taxpayers projected to be subject to the alternative minimum tax in 2010, absent changes in current law: 33 million
Number of taxpayers subject to the alternative minimum tax in 2007, after Congress passed a temporary alternative minimum tax patch: 4.1 million
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