On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act, a bill that extends the Bush-era tax cuts for another two years. While the heart of the bill provides relief by maintaining current marginal income tax rates, extending jobless benefits for 13 months, and reducing the Social Security payroll tax by 32% to 4.2%, additional provisions in the form of subsidies and tax credits flew in under the radar. Here are five of the add-ons that snuck into the 2010 Tax Relief bill. (For related reading, also take a look at 8 Tax Cuts Set To Expire In 2011.)
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- Ethanol Subsidies
Ethanol producers will continue to receive 45 cents for every gallon of ethanol blended into the gasoline supply. This subsidy, which the bill states will last throughout 2011, is expected to cost approximately $6 billion. Opponents of the extension criticize that the subsidy pays oil companies to use 12 billion gallons of corn ethanol that they are already required to use per the Federal renewable Fuels Standard. The bill also includes provisions to protect against ethanol imports via a continuing tariff. Most ethanol in the United States is made from corn, and the increased demand for corn has a ripple effect, raising the cost of corn not only for consumers, but for farmers who use it for feed. This, in turn, makes meat more costly to consumers. In response, Congress has set limits on the amount of ethanol that can be produced from corn.
- Commuter Tax Breaks
The tax break for commuters was extended, allowing train and bus riders to use up to $230 per month in pre-tax dollars to purchase fares. For a commuter in the 35% tax bracket, this adds up to approximately $460 in savings each year. The deduction is available only to those commuters whose employers partake in a benefit program; the employee is not taxed on the money the employer sets aside for commuting expenses. The extension is especially valuable to workers in commuter-rich cities such as New York City, San Francisco, Chicago, Seattle and Boston. Environmental groups such as the Sierra Club support the tax breaks since they promote public transportation, which reduces road congestion, thereby improving air quality.
- Wind and Solar Grants
The U.S. Department of the Treasury's 1603 cash grant program for the solar and wind industries was extended through 2011. The program was established under section 1603 of the American Recovery and Reinvestment Act of 2009 (ARRA), and provides cash grants in lieu of tax credits for certain, qualified energy properties. Cash grants are awarded, covering 10% or 30% of the total cost basis of the qualified property. According to the Solar Energy Industries Association, the grant program has supported more than 1,100 solar projects in 42 states, creating enough new solar capacity to power 200,000 homes. (For related reading, see Green Energy: Why We're Still Not Using It.)
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- Gulf Opportunity Zone
Federal and state tax incentives for regions affected by hurricanes Katrina and Rita have been extended for one year. The Gulf Opportunity Zone Act of 2005 (GO Zone) provides a 50% bonus depreciation for qualified properties in the Louisiana GO Zone, and special tax-exempt bonds for the financing of construction and rehabilitation of residential, non-residential and public utility properties in the GO Zone.
- Energy-Efficient Homes
The New Energy Efficient Home Tax Credit was extended through 2011. This tax credit is the sole federal incentive that exists to encourage efficiency in new home construction. The program offers $2,000 in tax credits to developers and builders who build homes that are constructed with a 50% or greater improvement in energy efficiency over the 2004 International Energy Conservation Code. The extension applies to new homes that are built during 2010 and 2011. (See Home Improvements: Does It Pay To Go Green? for more on the topic.)
The Bottom Line
Large bills are generally pushed through with the help of add-ons intended to appeal to certain groups. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act was no exception, as a number of tax credits and subsidies slid in under the radar as part of the bill. These five add-ons, despite their inherent controversies, are intended to provide additional tax incentives for individuals and businesses, as well as encourage the development and growth of environmental practices.
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