Saturday, September 10, 2005

Short-term Katrina-related Tax Breaks Coming

Senate Finance Committee sources indicate that Chairman Charles Grassley (R-IA) and ranking Minority Member Max Baucus (D-MT) apparently agree in principle on short-term tax breaks for those most affected by Hurricane Katrina. Among likely features would be provisions similar to those provided to NYC and DC taxpayers after the 9/11 attacks and a provision allowing contributions to Katrina-related charities to be deductible in 2005 even if made in early 2006--much the same as was done after the after-Christmas tsunami last year. The legislation could possibly include extensions of work opportunity and educational credits. Corresponding legislation in the House is at a more speculative point, but an emphasis there appears to be providing tax incentives for rebuilding homes, ports and energy-related infrastructure.

A particularly important aspect of the proposals are the rebuilding/work-opportunity and the educational provisions. As I see it, in the months ahead, the biggest potential problems will be disease (from wading in polluted waters and from decay of dead humans and animals), boredom/frustration from being unable to earn a living and lack of privacy. A rebuilding project (using the work opportunity and rebuilding incentives) can address many of the boredom issues, speed up relocation of evacuees from shelters to personal apartments or homes (addressing privacy) and potentially provide a starting point or renewal point for some evacuees in their work career. For others, the best choice will be to upgrade their human capital through education and the education incentives will help educational institutions cover the extra costs of providing education on the spur of the moment. Therefore, two of the three major issues are at least in part addressed.


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