How Does the TARP Fund the Tax Break Incentive?
The U.S. government offers a wide variety of funds to help communities, businesses and population segments throughout the country. These funds are controlled by a variety of government programs, which in turn are controlled by many different political decisions made by the president and Congress. In some cases, funds are moved around or "recommissioned" to make room for new, more politically favorable programs. The Troubled Asset Relief Program (TARP), a federal program to help struggling communities develop, is one of the programs from which money has been taken to fund these other programs.
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Funds Set Aside
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The federal government sets aside certain amounts of money for programs which it is currently running. This is how programs like TARP are funded, but also how tax breaks and incentives are funded. When the government wants to save money but at the same time start a new incentive, it can move money set aside for one purpose to another purpose, as long as the money has not actually been spent yet. This is how TARP funds were used for tax breaks in 2009 and 2010.
TARP
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The Troubled Asset Relief Program provides funding to many different types of businesses, but its primary job is to give banks in low income areas easier access to money that can be made available for small loans. The banking sector is only one of the places that TARP invests funds; it also works in the auto sector and other areas where relief funds are needed. Billions of dollars are set aside for TARP every year.
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Tax Breaks
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Tax breaks are specific acts of legislation that give temporary tax breaks, especially to certain groups, such as small businesses. These tax breaks take the form of refunds that are granted for a set period of time, usually one tax year. For instance, legislation was worked on to give employers a $5,000 hiring tax credit for each new employee hired, as long as they meet certain requirements in 2009/2010, with half that credit available in 2010.
Controversy
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While switching funds around for programs that currently have the most political support is very common in the federal system, moving money from TARP to business tax breaks created some controversy, as opponents protested that businesses, especially in low-income areas, would suffer even more now that local banks could not count on the same support from TARP. Approximately $30 billion is being moved from TARP to business tax break incentives in 2010.
Refund Caps
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To save the tax break funds and spread their use throughout many different types of struggling businesses in the United States, a cap will be put into place, a total of $500,000 of tax credit per firm. This is designed to direct the tax break toward smaller businesses that are under more pressure in trying economic times.
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References
- Photo Credit tax time image by Ray Kasprzak from Fotolia.com
