Legislation introduced into the House of Representatives on Wednesday proposing tax breaks for families, business, and clean energy production, is to be partly paid for by a provision that would deny certain tax benefits to executives receiving deferred compensation.
The Energy and Tax Extenders Act of 2008 (H.R. 6049), introduced by House Ways
and Means Committee Chairman Charles Rangel (D - NY), would extend tax credits
and deductions that expired last year or would expire at the end of this year.
The bill was scheduled to be considered by the Ways and Means Committee on 15th
May.
“This bill provides critical tax relief to American families and businesses
without burdening future generations with an increase in the national debt,”
explained Chairman Rangel.
“By extending these provisions, we help reassure
families and businesses that their tax bills will not increase this year. This
bill would also help companies move forward with critical investments to build
new technologies and provide incentives for renewable energy and energy conservation
to help reduce our nation’s dependence on foreign oil.”
The bill would provide tax relief for individuals and families, including:
- Deduction of State and local sales tax
- Deduction of tuition and other education expenses
- Deduction of out-of-pocket expenses by teachers
- Deduction of property taxes for non-itemizers, and
- Relief for more than 12 million children through an expansion of the refundable
child tax credit to taxpayers earning USD8,500 a year.
The bill also aims to provide tax incentives for businesses to invest in new technology
by extending the research and development credit and active financing provisions.
Rangel’s legislation would also help reduce America’s dependence
on foreign oil by encouraging the use and production of renewable energy through:
- A six-year extension of the investment tax credit (ITC) for solar energy
- Three-year extensions of the production tax credit (PTC) for energy derived
from biomass, geothermal, hydropower, landfill gas and solid waste
- A one-year extension of the PTC for energy derived from wind
- Tax incentives for coal electricity plants that capture and sequester carbon
dioxide.
- Incentives for the production of renewable fuels such as biodiesel and
renewable diesel and cellulosic biofuels
- Incentives to encourage energy efficient products, such as plug-in hybrids
cars, and incentives for energy conservation in both commercial buildings
and residential structures, and
- Tax credit bonds providing State and local government with funds to make
energy conservation investments in public infrastructure and invest in research
The bill is to be paid for by two major revenue provisions: closing a tax loophole
connected to the payment of deferred compensation; and delaying the implementation
of worldwide allocation of interest.
The first of these measures would tax individuals on a current basis if such
individuals receive deferred compensation from a tax indifferent party.
At present, the law generally allows executives and other employees to defer paying tax on compensation
until the compensation is paid. This deferral is made possible by rules that
require the corporation paying the deferred compensation to defer the deduction
that relates to this compensation until the compensation is paid.
Matching the timing of the deduction with the income inclusion ensures that
the executive is not able to achieve the tax benefits of deferred compensation
at the expense of the Treasury.
Instead, the corporation paying the compensation
bears the expense of paying deferred compensation as a result of the deferred
deduction.
Where an individual is paid deferred compensation by a tax indifferent
party (such as an offshore corporation), there is no offsetting deduction that
can be deferred.
As a result, individuals receiving deferred compensation from
a tax indifferent party are able to achieve the tax benefits of deferred compensation.
This proposal is estimated to raise USD24.3bn over 10 years.
The second revenue provision would delay the implementation of a liberalized
rule for allocating interest expense between United States sources and foreign
sources for the purposes of determining a taxpayer’s foreign tax credit limitation.
Although enacted in 2004, this election is not available to taxpayers until
taxable years beginning after 2008. The bill would delay the phase-in of this
new liberalized rule for nine years (for taxable years beginning after 2017).
This proposal is estimated to raise USD29.962bn over 10 years.
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