Letter on the Chairman's mark of the "American Recovery and Reinvestment Tax Act of 2009"

January 26, 2009

The Honorable Max Baucus

Chairman

Committee on Finance

United States Senate

Washington, DC 20510

The Honorable Charles E. Grassley
Ranking Member
Committee on Finance
United States Senate
Washington, DC 20510

Dear Chairman Baucus and Ranking Member Grassley:

The U.S. Chamber of Commerce, the world's largest business federation representing more than three million businesses and organizations of every size, sector, and region, believes the Chairman's mark of the "American Recovery and Reinvestment Tax Act of 2009" is an important first step towards tackling the current economic crisis. However, the Chamber believes the Committee could do more in the legislation to restore liquidity, spur economic activity, and stimulate job growth. The Chamber echoes President Obama's priorities of a robust, timely, temporary, and targeted stimulus package which addresses the extreme economic challenges the United States is experiencing.

BUSINESS TAX PROVISIONS

The Chamber supports the tax relief provisions in this mark, notably:

• An extended net operating loss (NOL) carryback period. Further, the Chamber urges the inclusion of a 10 year carryback period for production tax credits for low-emissions energy technologies.
• Bonus depreciation and increased small business expensing provisions, which would promote investment and stretch scarce capital. Further, the Chamber urges the extension of the placed in service dates for communications satellites in the bonus depreciation provision to better comport with the realities of the build out and launch cycle for such property.
• One year delay of the 3% tax withholding on all government payments. While the Chamber appreciates the inclusion of this provision, we believe that this short delay does not appreciably help companies or federal, state, and local governments which still have to dedicate valuable time and money toward implementation. Thus, the Chamber urges full repeal of this requirement.
• The housing credit to first-time buyers, which would offer a refundable tax credit equivalent to an interest-free loan equal to 10% of the purchase of a home (up to $7,500).

The Chamber also believes the inclusion of the provision on cancellation of indebtedness (COI) is a step in the right direction. However, the Chamber believes this provision can be much more stimulative. By amending this language to include COI relief as contained in S. 31, which would completely waive taxation on COI income for two years, the Chamber believes this provision would be more effective in preserving jobs, facilitating the deleveraging of the U.S. economy, and strengthening financial institutions' balance sheets. Further, the amended provision would help prevent continued economic contraction and corporate bankruptcies, and would help stem job loss while strengthening financial markets by utilizing private capital, not public sector funds. Further, in today's economic conditions, the legislation must provide necessary flexibility and apply to all restructurings, including debt-for-debt, equity-for-debt, cash-for-debt, and similar exchanges. Without amendment, the Chamber does not believe that this provision would achieve its intended and needed objectives of increasing liquidity and unfreezing frozen credit markets.

In addition to modification of the COI provision, the Chamber believes the Committee should consider adding other provisions which could ease the liquidity problems plaguing the economy. Notably, the Chamber supports:

• Temporarily allowing foreign subsidiary earnings of U.S. companies to be repatriated at a reduced tax rate would ease liquidity challenges, relieve stress on the commercial paper market, help companies meet funding requirements in employee pension plans, and generally increase available funds. This could be achieved while generating revenue for the Treasury.
• Amending the FIRPTA rules would remove barriers that prevent foreign investors from injecting equity capital into commercial real estate, amending the REMIC rules would reduce limitations on the restructuring of commercial mortgage-backed securities, and modernizing the cancellation of indebtedness rules as applicable to REITs to facilitate loan restructuring and provide relief to the distressed real estate industry.

The Chamber believes the Committee should incorporate other provisions, which would have immediate short-term benefits while simultaneously helping businesses recover in the long term, specifically:

• Allow companies to responsibly address the financial crisis' impact on their pension funds and encourage reinvestment and reduce the potential negative consequences on workers' retirement security.
• Reduce the corporate capital gains rate to 15% to encourage unlocking of appreciated assets held by companies. This would generate substantial tax revenues for the government and provide much needed capital that would be redeployed more efficiently into the economy.
• Provide for a payroll tax holiday, which would put money in the hands of small business owners to invest in their business and would increase economic activity by allowing workers to take home more of their own paychecks.

OTHER PROVISIONS

The Chamber also supports the inclusion of certain trade and infrastructure provisions in this mark. Specifically, the Chamber regards the Trade Adjustment Assistance (TAA) as an essential part of federal efforts to help workers transition to new employment when jobs disappear, as is inevitable in any market economy. While the Chamber supports additional efforts to modernize and expand the TAA program, it applauds the inclusion of a two-year extension of this important program.

Further, the Chamber is pleased that the Committee has included provisions to exempt private activity bonds (PABs), which will benefit highways, aviation, and water infrastructure, from the Alternative Minimum Tax. However, the Chamber urges the Committee to improve upon this provision by lifting the cap on PABs for those categories in order to boost private investment in infrastructure.

While supportive of the trade and infrastructure provisions, the Chamber has concerns with the health care provisions in this mark. The COBRA provisions could be very costly to America's job creators. Expanding and subsidizing COBRA would raise health insurance costs for American workers because COBRA enrollees are generally more costly to insure. Further, this legislation contains no transition time for employers to develop methods to implement and administer subsidies and amend plan practices. The Chamber urges the Committee to improve the COBRA program by allowing those who elect COBRA to choose the most affordable plan offered by their employer, and by increasing the 2% administrative fee paid to employers to cover COBRA enrollees' true cost – which is closer to 45% more.

Further, the Chamber believes spurring development and adoption of health information technology (HIT) is an important step toward creating a more affordable, quality health system and that the propagation of national standards and codification of the Office of the National Coordinator of HIT are key steps in this process. However, the Chamber believes adoption of HIT could be greatly hindered by the implementation of onerous privacy standards, particularly if a patchwork of conflicting state rules, rather than uniform national standards, are allowed to govern. The Chamber believes these privacy issues should be addressed in a thoroughly- etted and debated piece of legislation.

The Chamber believes it is imperative that Congress move quickly to address the current economic crisis. The Chamber looks forward to working with the Committee and Congress on legislation, which is robust, timely, temporary, and properly targeted to jumpstart the economy, restore liquidity, and preserve jobs.

Sincerely,

R. Bruce Josten
Cc: The Members of the Senate Committee on Finance