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Obama's 2011 Budget A Mixed Bag for Business,
by Mike Godfrey, Tax-News.com, Washington
Wednesday, February 03, 2010
US President Barack Obama's 2011 budget blueprint, submitted to Congress on
February 1, is something of a mixed bag for the country's business taxpayers,
with new tax breaks proposed for small employers on the one hand, but a renewed
emphasis on ensuring that multinational corporations pay more tax to Uncle Sam
on the other.
Office of Management and Budget Director said ahead of President Obama's announcement
that while the budget takes the necessary steps to "jumpstart job creation"
and "strengthen the economic security of middle-class families," it
does not shy away from making the "tough choices" needed to ensure
fiscal discipline is maintained.
The White House is projecting a record federal deficit of USD1.56 trillion
in 2010. However, one of Obama's key policy pledges is to halve the deficit
he inherited from the George W. Bush administration by the end of his first
term, and he has been fairly ruthless in wielding the cost cutting axe in this
year's budget blueprint; more than 120 taxpayer-funded programs across government
will be terminated or reduced, generating USD20bn in savings. The budget also
institutes a three-year non-security discretionary freeze that will save USD250bn
over the next decade.
The budget raises an additional USD36bn over the next decade by eliminating
tax preferences and subsidies for producers of fossil fuels. In all, 12 tax breaks
for oil, gas, and coal companies, will be eliminated. The White House says that
this will not only further Obama's goal of encouraging higher investment in
renewable energy production, but will also "encourage prompter action by
the major emerging economies" to phase out their fossil fuel subsidies.
President Obama envisages that another USD122bn can be raised by tightening
the rules surrounding corporate income made overseas. This echoes similar proposals
contained in Obama's 2010 budget blueprint, but which have been relegated down
his list of priories as Congress grapples with health care reform.
A document entitled "Restoring Responsibility," one of a multitude
of fact sheets released alongside the budget, had this to say on the proposed
reform of the taxation of international income: "The American corporate
tax code is riddled with inefficiencies and loopholes, including the fact that
it allows companies to indefinitely defer the payment of US taxes on foreign
income while immediately benefiting from the tax deductions associated with
these activities. It also allows many companies to take advantage of transfer
pricing to shift income earned in the United States to lower-tax countries.
The budget will reform and end these practices."
The budget also raises an extra USD90bn through the recently-proposed 'Financial
Crisis Responsibility Fee,' to be imposed on the debt of the largest financial
institutions, and a further USD14bn by making permanent the federal unemployment
insurance surtax.
As is expected, the budget proves additional funds for the
Internal Revenue Service to fight tax evasion, and almost a quarter of a billion
will be spent on "a robust set of new revenue-generating enforcement initiatives"
that will increase recovery of tax debts and close the 'tax gap' by nearly USD2bn
a year from 2013.
The budget will raise even more by letting the temporary tax cuts enacted in
2001 and 2003 expire for families making more than USD250,000 per year. These
taxpayers will also have their itemized deduction write-offs reduced.
However, the 2011 budget is not unremittingly bleak for taxpayers, and additional
tax breaks for small businesses and low- and middle-income Americans have been
proposed. These include:
An additional USD5bn to provide the Advanced Energy Manufacturing Tax
Credit to many more advanced energy manufacturing projects.
A permanent R&E Tax Credit
An additional year of allowing companies (large and small) to immediately
deduct 50% of their qualifying investments
Extending enhanced small business expensing, allowing small businesses
to immediately write off up to USD250,000 of qualified investment in 2010.
Permanently eliminating capital gains tax on small business stock.
Extending the Making Work Pay Tax Credit.
Doubling the Child and Dependent Care Tax Credit for middle-class families
making under USD85,000 a year by increasing their credit rate from 20% to
35% of child care expenses.
While the budget is non-binding on Congress, it lays the framework for tax
and spending legislation over the next five years, and the House and Senate
will seek to agree a budget resolution later this year.
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