New bill offers tax relief to Katrina victims and those who help them out

Author: Anchor Scott Jagow, Reporter Scott Tong

Published: September 13, 2005

SCOTT JAGOW, anchor: Tax breaks for Katrina victims.

Announcer: The MARKETPLACE MORNING REPORT is produced in association with the University of Southern California.

JAGOW: From American Public Media in Los Angeles, I'm Scott Jagow.

Financial experts will tell you never dip into your 401(k) plan early unless as an absolute last resort. Well, perhaps when you've lost your home, your job, and your car, that qualifies. Many Katrina victims are thinking about tapping into their retirement plans to get them through this difficult time and Congress may give them a hand. One measure announced yesterday would offer tax relief not only to victims but also to people who helped them out. Here's MARKETPLACE's Scott Tong.

SCOTT TONG reporting:

The bill would let Katrina victims tap into their IRAs and 401(k) plans without paying early withdrawal penalties. Tax breaks would also go to folks who share their homes and donate to charity. The measure is bipartisan in the short term and then passed quickly through the Senate. Democrat Max Baucus says it helps employers, too.

Senator MAX BAUCUS (Democrat, Montana): Any company in the affected areas that continues to hire somebody gets a 40 percent tax credit on their first $6,000 of wages.

TONG: The bill focuses on people and companies paying taxes. But what's in it for low-income evacuees that don't?

Mr. WILLIAM GALE (The Brookings Institution): The answer is: Not a whole lot. This is really not oriented toward those households.

TONG: Economist William Gale of The Brookings Institution says the bill is nosubstitute for direct spending to provide victims with adequate food and shelter and cash in their pockets. In Washington, I'm Scott Tong for MARKETPLACE.