Obama Releases Details Of Full Budget

by Mike Godfrey, Tax-News.com, Washington

12 May 2009

President Barack Obama has released his full budget providing all the details for the blueprint that Congress recently approved in the Budget Resolution.

The budget cuts USD1.8 trillion in taxes for middle-income taxpayers by extending the 2001 and 2003 income tax cuts for those making under USD250,000 per year. It also protects American families who would be hit with the alternative minimum tax in 2010. Among the tax reliefs included in the budget is an expansion of the Earned Income Tax Credit, which provides tax relief to millions of American families with three or more children.

Congress approved the budget resolution on the evening of April 2, but the President failed to achieve bipartisan support as Republicans rejected his proposals for unprecedented levels of spending on health, energy and job-creating initiatives, fearful that it would saddle the country with debt for generations to come.

The plan also envisages the tightening up of the US tax code in respect of corporations, particularly those investing overseas. Further to this, the Treasury Department released an outline of comprehensive international tax reform proposals on May 4 which would reduce the effectiveness of the ‘deferral’ rules which allow multinationals to deduct foreign investment expenses in the US before paying taxes on foreign profits, and tighten up foreign tax credit rules. He is also targeting corporations with subsidiaries in low-tax jurisdictions and wealthy individuals with offshore investments.

Obama has boasted of the USD17bn in savings that his ‘Terminations, Reductions, and Savings’ program will make to the federal bottom line over the next year, by stripping out redundant and ineffective spending items, including the Earned Income Tax Credit. However, he plans to spend more than USD12bn in funding the Internal Revenue Service in fiscal year 2010 and more than quadruple the agency’s enforcement budget to over USD2bn. Much of this will be directed towards policing the international tax system.

“The scope, complexity, and sheer magnitude of the international financial system pose significant enforcement challenges for the IRS in carrying out its tax administration responsibilities,” the budget overview states.

“The 2010 budget includes funding for a robust portfolio of IRS international tax compliance initiatives, and sustains and improves IRS efforts to narrow the annual tax gap of over USD300bn,” it added.

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