In an effort to help individuals and small businesses along the Gulf coast, a bipartisan group of six lawmakers have put together a package of tax breaks for those hit hard by the Deepwater Horizon oil spill.
The bipartisan nature of the group -- six senators coming from across the political aisle and across the Gulf - sends a strong signal to congressional leadership that there is broad support for such a measure, which is a rarity in Washington these days but something necessary for any legislation to pass.
The senators' proposal, spearheaded by Sens. Bill Nelson (D-FL) and Roger Wicker (R-MS), is similar in aim to one offered just yesterday in the House by U.S. Rep. Jeff Miller, a Republican from Chumuckla, Fla. The House plan would offer assistance mainly to property owners, while the senators would target job creation through tax incentives to employers and for tourism.
Representing Florida, Mississippi and Louisiana, the senators outlined their proposed Gulf coast recovery plan in a letter they sent this morning to Senate Finance Committee Chairman Max Baucus and ranking minority member Sen. Chuck Grassley, urging them to consider quickly enacting the package. "Protecting and preserving our coastal economies requires a bold vision and decisive action," the senators wrote.
Their proposal is intended to provide relief for struggling small businesses, to create jobs and give a boost to travel and tourism in the Gulf region. Some highlights from the package: it would allow for tax credits for Gulf coast businesses that hire workers displaced by the oil spill, as well as enact a temporary program to reimburse Gulf states for revenue losses if they adopt a hotel or car rental tax holiday.
"This is by no means going to solve the economic woes created by the BP spill, but it should help many of the folks who've been hit so hard," said Nelson, the measure's lead Democratic sponsor.
"I am glad my colleagues are joining Sen. Nelson and me in this important effort to provide economic relief to those impacted by the Gulf oil spill," said Wicker, the measure's lead Republican sponsor. "Unfortunately, the disaster created by the oil spill will have a lasting impact. These proposals will encourage investment and tourism along the coast and support Gulf residents whose livelihoods have been devastated."
Sen. Mary Landrieu (D-LA) said, "Small businesses in Louisiana and the rest of the Gulf Coast have faced unprecedented obstacles over the last five years. Make no mistake of it, BP will be on the hook for all losses and damages caused by this disaster, but, in the meantime, thousands of small businesses are struggling to keep their doors open and workers are being let go by no fault of their own. Right now, Congress must do everything within its power to make sure that not a single Gulf Coast business is bankrupted by this oil spill."
Sen. George LeMieux (R-FL) said, "It is going to take time for our coastal communities to recover. We should do all we can to help that process along."
Sen. David Vitter (R-LA) said, "The oil spill is hurting business owners in every sector along the Gulf Coast. Tax relief for struggling families and businesses and targeted tax incentives to promote investment and tourism in the affected areas are vital to an overall effort to help Gulf Coast residents weather this horrible crisis."
Sen. Thad Cochran (R-MS) added, "This proposal would help create a more favorable environment for some small businesses to survive the economic hardships being caused by the oil spill."
Following is a summary of the group's recovery plan:
Tax relief for struggling Gulf coast small businesses
* Tax deferral for small business reimbursements that are reinvested in an oil spill recovery zone trade or business. Under current law, a small business owner may incur significant tax liability on payments from BP for lost profits. Tax liability may also arise if the payment from BP is for property damage and the amount paid exceeds the adjusted basis of the damaged property. BP claims and business interruption insurance proceeds paid to Gulf coast small businesses should be deferred from income tax to the extent the payment is reinvested in a trade or business located in the oil spill recovery zone within 6 months of receipt.
* Extension of the net operating loss (NOL) carryback period. Congress should amend the tax law to provide a 5-year carryback period for business losses related to the oil spill and incurred by a commercial or charter fishing, or tourism-related, business in the oil spill recovery zone. An extended carryback period would allow Gulf coast small businesses suffering severe economic losses through no fault of their own to receive a capital infusion by receiving a refund of past taxes paid. Eligible losses should be reduced to the extent the taxpayer receives BP or insurance reimbursement for lost profits or earnings.
* Hardship access to retirement savings. Small business owners and other taxpayers suffering economically as a result of the oil spill should be permitted to take penalty-free early withdrawals from their retirement plans. In addition, to the extent the withdrawal is taxable, taxpayers should be able to recognize the income ratably over a 3-year period. The period in which a taxpayer may have a nontaxable 401(k) loan outstanding should be extended. Lastly, in the event of a rapid economic rebound, taxpayers should be allowed to re-contribute their early withdrawals to their retirement plan as a roll-over contribution.
Stimulating investment and job creation in the oil spill economic recovery zone
* Oil spill recovery zone job creation tax credit. Regrettably, the oil spill is displacing thousands of workers from their traditional areas of employment. Congress should amend the tax law to provide that employers hiring new employees in the oil spill recovery zone qualify for the Work Opportunity Tax Credit (WOTC), a 40 percent tax credit on up to $6,000 of first-year wages paid to employees from targeted groups. Extension of WOTC to the affected region would provide a valuable incentive for job creation.
* Enhanced small business expensing allowance for oil spill recovery zone. Under current law, certain taxpayers can elect to deduct the cost of new investment in business equipment, rather than gradually recover the cost through depreciation of the property. The small business expensing allowance does not apply to buildings, permanent structures, and their improvements. In order to promote the region's economic recovery, Congress should expand the small business expensing allowance to cover the cost of new buildings, permanent structures, and improvements in the oil spill recovery zone.
* Special allocation of New Markets Tax Credits for the oil spill recovery zone. New Markets Tax Credits (NMTCs) are a powerful and proven tool for encouraging private sector investment in targeted areas. Special allocations of NMTC authority were made following Hurricanes Katrina and Rita. A similar allocation, spread over a 2-year period, should be made to the oil spill recovery zone to contribute to the region's economic recovery.
Sustaining tourism along the Gulf coast
* Gulf coast hotel tax holiday. A reduction in hotel and other tourism-related taxes along the Gulf coast would help attract out-of-state visitors and offset the decline in tourism related to the oil spill. Without federal assistance, however, such relief would be difficult for cash-strapped state and local governments to afford. Hotel occupancy taxes contribute an estimated $831 million in annual tax revenue to state and local governments in the four affected Gulf States (Florida, Alabama, Mississippi, and Louisiana). Car rental taxes are another major tourism-related revenue source. Congress should enact a temporary program to reimburse Gulf States and localities for revenue foregone as the result of adopting a hotel or car rental tax holiday. The long-term challenges posed by the Deepwater Horizon oil spill are difficult to overstate. The economic dislocation caused by the worst environmental disaster in United States history has brought us together across party lines and political ideology to identify real and meaningful solutions. Tax incentives to promote the region's economic recovery are part of the answer.