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— Treasury Secretary Tim Geithner“This set of tax reforms strikes a balance between targeted tax cuts to spur investments in job growth and innovation here at home, middle class tax relief to make our tax system more fair, measures to crack down on abuses that send jobs overseas, and long-term fiscal discipline.”
As part of the Administration's effort to restore prosperity and create an economy that works for all Americans, the U.S. Department of the Treasury today released the General Explanations of the Administration's Fiscal Year 2011 Revenue Proposals (Greenbook). The Greenbook outlines the Administration’s plan for short-term tax incentives to create jobs and encourage business investment, its proposals to deliver tax relief to middle class families and small businesses, and its blueprint for restoring fiscal discipline and responsibility to our tax code.
Key Administration Priorities in FY2011 Greenbook
Tax Cuts to Jumpstart Job Growth and Support the Economic Recovery
§ An Immediate Small Business Jobs and Wages Tax Cut in 2010
§ Tax Incentives for Small Businesses to Make Immediate Investments
§ Bonus Depreciation for Business Investment in 2010
§ Tax Credits for Investment in Advanced Energy Manufacturing Projects
§ Extending the Making Work Pay Tax Credit
Tax Cuts to Encourage Innovation, Investment and Sustained Economic Growth
§ Eliminating Capital Gains Taxes for Investments in Small Businesses
§ Making Permanent the Research and Experimentation Credit
§ Making Permanent the Successful Build America Bonds Program
Permanent Middle Class Tax Relief
§ $10,000 For a Four-Year College Education by Making Permanent the American Opportunity Tax Credit
§ Nearly Doubling the Tax Cut for Middle Class Families to Pay for Child Care Expenses
§ Increasing Matching Credits to Encourage Retirement Saving and Providing for Auto-IRAs
Reform, Responsibility and Fiscal Discipline
§ Financial Crisis Responsibility Fee to Recoup TARP Losses and Reduce Financial Risk
§ Reforming the International Tax System by Reducing Transfer Pricing Abuses, Tax Evasion, and Incentives to Shift Investment Overseas
§ Allowing the 2001 and 2003 Tax Cuts for Households Making more than $250,000 to Expire
§ Eliminating Inefficient Fossil Fuel Tax Subsidies and Closing Additional Loopholes to Make the Tax Code More Fair
THIS IS A START BUT WE WOULD STILL HAVE A MAJOR GAP IN FINANCING PROGRAMS FOR INNOVATIVE SMALL BUSINESSES IF THIS BUDGET PASSED AS PROPOSED. ADDITIONAL PROGRAMS OR GAPS THAT NEED ATTENTION TO STIMULATE ENTREPRENEURIAL JOB GROWTH ARE:YOUR COMMENTS OR SUGGESTIONS WELCOME. RICH BENDIS
- - A NEW EQUITY INVESTMENT PROGRAM TO ADDRESS THE GROWING "VALLEY OF DEATH" FOR HIGH GROWTH SME'S
- - PERMANENT REAUTHORITIZATION OF THE SBIR PROGRAM
- - CREATION OF A NATIONAL ANGEL CAPITAL INVESTMENT TAX CREDIT PROGRAM
The President’s Budget includes more than $130 billion over the next three years in temporary tax cuts designed to jumpstart job growth and support the economic recovery. The Budget includes more than $140 billion in tax cuts designed to ease the burdens that middle class families face in caring for children, paying for college and saving for retirement. And the Budget includes more than $90 billion over ten years in tax cuts to encourage investment in innovation and entrepreneurship by eliminating capital gains for small business investments and making the R&E credit permanent. Finally, the Budget promotes a new era of fiscal discipline by requiring the largest financial firms to pay a fee to recoup TARP losses, reducing tax incentives for businesses to shift production overseas, and rolling back the Bush tax cuts for households making more than $250,000.
Tax Cuts to Jumpstart Job Growth and Support the Economic Recovery
- An Immediate Small Business Jobs and Wages Tax Cut in 2010. In addition to tax incentives for job creation in the Greenbook, the President’s Budget sets aside $100 billion to pay for temporary initiatives to put Americans back to work. Last week, the President proposed to spend $33 billion of this total to give employers a tax credit of $5,000 or more for every employee they add in 2010, plus reimburse employers for payroll taxes on wage increases as well. This proposal is estimated to benefit over 1 million businesses, with the bulk of it going to small businesses.
- Tax Incentives for Small Businesses to Make Immediate Investments. The Budget would extend the Recovery Act provision allowing small businesses to immediately write off up to $250,000 of qualified investment, providing an immediate tax incentive to invest in plant and equipment and create jobs while cutting small business taxes by $1 billion in 2009 and 2010.
- Extending Bonus Deprecation for Business Investment in 2010. The Budget proposes to extend bonus depreciation, providing an added incentive for immediate investment and saving businesses $38 billion in 2010 and 2011.
- Tax Credits for Investment in Advanced Energy Manufacturing Projects. In order to foster investment and job creation in clean energy manufacturing, the American Recovery and Reinvestment Act included $2.3 billion in tax credits for investments in manufacturing facilities for the most promising clean energy technologies. While the program will support investments in 183 manufacturing facilities for clean energy products across 43 states, many additional projects did not receive funding due to the limited credits available. The President’s Budget proposes $5 billion in additional tax credits – supporting at least $15 billion in total capital investments – so that additional businesses can benefit from this highly successful program.
Extending the Making Work Pay Credit. The Administration’s Budget would extend the Making Pay Credit one year to provide a tax cut of up to $400 per person ($800 per family) to 95 percent of working Americans to help jumpstart the economy.
Tax Cuts to Encourage Innovation, Investment and Sustained Economic Growth.
- Eliminating Capital Gains Taxes for Investments in Small Businesses. Following up on the Recovery Act provision to exempt from taxation 75 percent of the capital gains for investors in small businesses, the Budget proposes to completely eliminate the capital gains tax on small business stock, saving small business owners $8 billion over the next 10 years.
- Making Permanent the Research and Experimentation Credit. The Budget proposes making permanent the Research and Experimentation (R&E) Tax Credit to reward businesses that invest in U.S. competitiveness. The credit provides an important incentive for job creation, with more than 75 percent of credit dollars attributed to wages. But the credit has never been made permanent – instead, it has been extended on a temporary basis 13 times since its creation in 1981 – and was allowed to expire at the end of 2009. Making the credit permanent would remove uncertainty about whether the R&E credit will be extended, giving businesses greater confidence to invest in innovation that creates jobs in the United States.
- Making Permanent the Successful Build America Bonds Program. Build America Bonds (BABs) were a successful reform enacted as part of the Recovery Act, with more than $70 billion in BABs issued. By allowing state and local governments to receive direct payments to subsidize part of their interest costs, Build America Bonds have expanded the investor base for municipal bonds. This has lowered the cost of borrowing for municipalities, helping to restore a badly damaged municipal finance market and supporting job creation through new infrastructure projects. The President’s Budget proposes making Build America Bonds permanent after the program expires at the end of this year, with a 28 percent subsidy rate in place to make the program revenue-neutral. The budget also proposes expanding the eligible uses of BABs, allowing them to support financing for nonprofits and a wider range of municipal borrowing, including refunding and short-term notes.
Permanent Middle Class Tax Relief
- $10,000 For a Four-Year College Education by Making the American Opportunity Tax Credit Permanent: The Budget proposes permanent extension of the American Opportunity Tax Credit to help make college affordable. The American Opportunity Credit is worth up to $2,500 a year for four years of college, and is partially refundable to reach more middle-class families. Making the credit permanent would save American families $75 billion over the budget window.
- Nearly Doubling Tax Credits for Child Care for Middle Class Families. Since 2000, child care costs have grown twice as fast as the income of families with children. Meanwhile, the Child and Dependent Care Tax Credit has increased only once in the last 28 years and is not indexed for inflation. The Budget proposes to increase the credit for all families earning up to $113,000 a year, and nearly double it for families making under $85,000. The maximum credit for a family with two children making $80,000 a year would increase by $900.
Increasing Matching Credits to Encourage Retirement Savings and Providing for Automatic IRAs. The Budget proposes to help working families save for retirement by simplifying and expanding the Saver’s Credit to match 50 percent of a contribution up to $500 per individual ($1,000 per couple) for families earning up to $65,000 (with smaller credits for those earning up to $85,000). The Budget would make this credit refundable to ensure that lower- and moderate-income families can benefit. The Budget also proposes creating a system of automatic workplace IRAs to expand access to tax-favored retirement savings. Employers automatically enrolling their employees in IRAs would receive tax credits of up to $250 a year for two years. In addition, to encourage employers to sponsor retirement plans, the budget would double the maximum credit for small employers that establish new retirement plans to $1,000 per year for three years.
Reform, Responsibility and Fiscal Discipline
A Financial Crisis Responsibility Fee to Recoup TARP Losses and Reduce Financial Risk. The budget includes President Obama’s proposed Financial Crisis Responsibility Fee, which would require the largest and most highly levered Wall Street firms to cover the ultimate costs of TARP so that it does not add to the deficit. The Fee would be levied on the liabilities, net of deposits and certain insurance policy reserves, of qualified firms with more than $50 billion in assets. It would remain in place for at least 10 years, or longer if necessary to fully pay back TARP. The Fee is expected to raise $90 billion over the next 10 years, and $117 billion – the Administration’s current, conservative, estimate of TARP’s cost – over 12 years. This proposal fulfills President Obama’s commitment to provide a plan for repayment of TARP three years earlier than required under the Emergency Economic Stabilization Act (EESA).
Reforming the International Tax System by Reducing Transfer Pricing Abuses, Tax Evasion and Incentives to Invest Overseas.
- Combating Transfer Pricing Abuses: President Obama and Secretary Geithner are committed to rolling back incentives to shift investment overseas. A prime example is “transfer pricing” abuse – when multinational corporations transfer intangible assets like copyrights and trademarks to subsidiaries in overseas tax havens at artificially low prices, thereby shifting profits overseas while avoiding the taxes they would pay on a fairly priced transaction. Under a proposal developed by the Treasury Department, excessive profits shifted offshore using transfers of intangibles would be taxable in the United States, thus restricting the tax incentive to engage in transfer pricing abuses. Along with a related proposal to clarify the definition of intangible assets, this proposal would raise almost $17 billion over the budget window.
- Other Reforms to Reduce Tax Evasion and Incentives to Shift Investment Overseas: Transfer pricing reform is part of a broader package of international tax reforms that has been modified from last year to better meet the goals of taking on international tax evasion and cutting back tax incentives for shipping jobs overseas. For example, the proposal to deny an immediate deduction for deferred expenses has been modified to increase its focus on eliminating the incentive to create jobs overseas. Under current law, businesses that borrow money and invest it overseas can claim the interest they pay as a business expense and take an immediate deduction on their U.S. taxes, even if they pay little or no taxes on their overseas profits. The Budget would eliminate this tax advantage for overseas investment by requiring that the deduction for the costs of overseas investment be delayed, saving $26 billion over the budget window. The Budget also includes a package of provisions to reduce tax evasion through the use of offshore accounts and entities to hide income and assets from the IRS. The full package of international proposals would raise $122 billion over the budget window.
Allowing the 2001 and 2003 Tax Cuts for Households Making Over $250,000 to Expire. The last decade saw trillions of dollars in tax cuts targeted at the most affluent Americans. These tax cuts made our tax system less fair, and they are unaffordable in light of our fiscal situation. The President has proposed rolling back, beginning in 2011, most tax cuts for families earning more than $250,000, saving $678 billion over the budget window. The Budget would also increase the fairness of our tax system by limiting the tax subsidy for itemized deductions for these high-income families to 28 percent – the same level that was in place at the end of the Reagan Administration.
Eliminating Inefficient Fossil Fuel Subsidies and Other Loopholes: The Budget proposes eliminating tax preferences for oil, gas and coal companies, providing savings of $39 billion. In addition, the Budget proposes more than $200 billion in additional loophole closers and compliance measures to make the tax system fairer. These provisions include targeting a loophole used by those facing estate and gift taxes that allows them to undervalue transferred property, denying a tax deduction for bad-actor firms hit with punitive damage claims and repealing preferential tax treatment for commodities dealers and day traders.
