Corporate Tax Bill Will Have Minimal Impact On Deficit, Says CBO

by Mike Godfrey, Tax-News.com, Washington

01 November 2004

The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) have made estimates of the budgetary cost of the American Jobs Creation Act of 2004 (HR 4520), but conclude that it will have only a minimal effect on deficits over the 2005-2014 period.

Estimates show that the legislation will decrease federal revenues by about $4.9 billion in 2005, $10.1 billion over the 2005-2009 period, and $6.8 billion over the 2005-2014 period. CBO estimates that HR 4520 will increase outlays resulting from direct spending by $764 million in 2005, but will decrease direct spending by about $1.4 billion over the 2005-2009 period and $6.8 billion over the 2005-2014 period. On balance, HR 4520 will increase deficits by an estimated $5.7 billion in 2005 and $8.7 billion over the 2005-2009 period, and have a very small effect on deficits over the 2005-2014 period—excluding effects on discretionary spending and debt service.

CBO and JCT estimate that the provisions of HR 4520 will decrease federal revenues by about $4.9 billion in 2005, $10.1 billion over the 2005-2009 period, and about $6.8 billion over the 2005-2014 period.

The provisions related to the repeal of the Exclusion for Extraterritorial Income are estimated to increase federal revenues by about $16.4 billion over the 2005-2009 period and $49.2 billion over the 2005-2014 period. The repealed exclusion is replaced by a deduction related to income attributable to US production activities, which JCT estimates will decrease governmental receipts by about $22.5 billion over the 2005-2009 period and $76.5 billion over the 2005-2014 period. On balance, these provisions will decrease revenues by almost $6.1 billion over the 2005-2009 period and by about $27.3 billion over the 2005-2014 period.

The provisions relating to domestic businesses, including changes to depreciation rules, small business expensing, community revitalization, and the tax treatment of S corporations will decrease revenues in 2005 by about $700 million, by $10.8 billion over the 2005-2009 period, and by a little more than $7.3 billion over the 2005-2014 period. The decrease in revenues is concentrated in the first several years as the result of extending through 2007 the special rules for expensing of investments by small businesses. JCT estimates those provisions will reduce governmental receipts by nearly $11 billion between 2005 and 2007, and then increase receipts by almost $10 billion from 2008 through 2014.

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