Recovery Act 101

President Obama signed into law a $787 billion stimulus bill on Feb. 17, 2009. Formally called the American Recovery and Reinvestment Act of 2009 (Recovery Act), this bill has enough money to provide $2,570 for every man, woman, and child in the U.S. (Do the math and you’ll find it’s based on a population of about 306 million.) Instead of directly giving us that kind of stimulus, the government has tailored the bill with the objective of saving or creating millions of jobs to halt the deepening recession and get the economy back on track. Pennsylvania’s Republican Senator, Arlen Specter, provided one of the key swing votes that allowed passage of the bill. Senator Specter said, “I supported the economic stimulus package for one simple reason: The country could not afford not to take action. The unemployment figures, the latest earning reports, and the continuing crisis in banking made it clear that failure to act would have left the United States facing a far deeper crisis in the future.”

As it was finally enacted, the Recovery Act includes close to $300 billion in tax breaks to individuals and businesses. The remainder of the funding will be in the form of government spending through a host of federal agencies, and will support a laundry list of projects affecting infrastructure, energy, healthcare, education, and so on.

Benefits for printers

The Recovery Act has a number of provisions that could have a positive impact on the package-printing community—primarily in the form of opening up credit markets to sustain and grow businesses, and also in the form of tax breaks. A press release issued by The White House, Office of the Press Secretary, on March 16 stated, “The Obama Administration firmly believes that economic recovery will be driven in large part by America’s small businesses, which have generated about 70 percent of net new jobs annually over the past decade.”

To support this belief, $730 million of the Recovery Act was allocated to the Small Business Administration (SBA, www.sba.gov). According to the SBA, this money will be used to make it easier and less expensive for small businesses to get loans; provide incentives for private lenders to make more small business loans; and boost liquidity in the credit markets.

This funding includes $375 million that will be used to temporarily eliminate fees (that are passed on to borrowers) on SBA-backed loans and to raise the SBA guarantee to participating lenders to 90 percent for its 7(a) loan program. The SBA says this program is the most commonly used type of loan. These measures are in force retroactively from Feb. 17 through the end of 2009, or until the funding is used up. The maximum loan available through the 7(a) program is $2 million.

The SBA has also been authorized to spend $255 million on new business-stabilization loans, which will provide deferred-payment loans of up to $35,000 to help viable small businesses make payments on existing qualifying loans. These new loans would be 100 percent backed by the SBA and repayment would begin 12 months after disbursement.

These programs were viewed favorably by the Printing Industries of America. In a statement released March 17, it stated, “Printing Industries of America is encouraged by President Obama’s plan to unlock credit for small businesses. While some of Printing Industries of America’s members are larger corporations with plants around the globe, most are smaller, locally focused businesses.”

Tax relief

While the measures mentioned above are intended to open up credit channels for businesses to borrow money, there is also a number of changes to tax structures that will allow businesses to reduce their tax liabilities.

One of the primary benefits to businesses is the extension of the bonus depreciation allowance that had ended in 2008. With this additional depreciation allowance, businesses making a qualified capital investment can write off 50 percent of the investment (plus the normal percentage on the remaining amount) in the first year. The extension makes this applicable to equipment placed in service by the end of 2009. This provision benefits both equipment suppliers and those companies purchasing the assets (see sidebar p. 22).

A similar provision extends increased Section 179 expensing benefits for assets purchased and placed in service in 2009. This is primarily geared toward small businesses and allows the full expensing of otherwise depreciable assets in one year up to a maximum deduction of $250,000. This $250,000 maximum is reduced if a company acquires more than $800,000 of qualifying assets. Without the extension in the Recovery Act, the previous limits were a $128,000 deduction, reduced with $510,000 of acquired assets, according to the IRS.

Companies that report a net operating loss for 2008 will now be able to carry back this loss to five previous years versus the two years it had been. They can submit an amended tax return for any of these previous years and get a refund for taxes they may have paid during those years. This benefit targets smaller businesses with gross revenues of less than $15 million.

There are additional tax incentive programs in the Recovery Act that companies may consider. One program encourages the hiring of two additional categories of applicants under the existing Work Opportunity Tax Credit program—unemployed veterans and certain qualified youth between 16 and 25 years old. There are also several provisions to encourage the use of renewable energy.

An additional change that businesses need to know about is that employees laid off from Sept. 1, 2008 through 2009 can elect to pay 35 percent of the COBRA benefits. The employer will need to pay the remaining 65 percent, while getting a tax credit for the amount against income tax withholding and payroll taxes.

Seek expert assistance

The items highlighted above are a few noteworthy provisions in the Recovery Act. Relative to the tax provisions, businesses should consult a tax expert to both ensure compliance with the new law and to make sure it is taking full advantage of all aspects designed to provide tax relief and improve cash flow. Any printer struggling in this recession or in a position to make a capital investment to improve current and future operations should look into the enhanced programs offered through the SBA to open up the credit lines for qualified businesses. pP