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Friday, February 24, 2012

President Obama's Budget Proposals and Corporations

On February 13, President Obama released his proposed budget for fiscal year 2013 and the “Green Book” of revenue proposals. The budget continues to call for economic stimulus provisions, such as extension of 100% bonus depreciation, as well as some international tax reforms and “loophole” closers. Key new items are proposals to encourage domestic job creation and retention. I have a short article in the AICPA Corporate Taxation Insider (2/23/12) on key items in the Greenbook relevant to corporations - here.

Subsequent to the release of the Greenbook, the White House and Treasury Department released "The President's Framework for Business Tax Reform" (Feb 2012). In this report, President Obama lays out his five principles of business tax reform:
  1. "Eliminate dozens of tax loopholes and subsidies, broaden the base and cut the corporate tax rate to spur growth in America: The Framework would eliminate dozens of different tax expenditures and fundamentally reform the business tax base to reduce distortions that hurt productivity and growth. It would reinvest these savings to lower the corporate tax rate to 28 percent, putting the United States in line with major competitor countries and encouraging greater investment in America.
  2. Strengthen American manufacturing and innovation: The Framework would refocus the manufacturing deduction and use the savings to reduce the effective rate on manufacturing to no more than 25 percent, while encouraging greater research and development and the production of clean energy.
  3. Strengthen the international tax system, including establishing a new minimum tax on foreign earnings, to encourage domestic investment: Our tax system should not give companies an incentive to locate production overseas or engage in accounting games to shift profits abroad, eroding the U.S. tax base. Introducing a minimum tax on foreign earnings would help address these problems and discourage a global race to the bottom in tax rates
  4. Simplify and cut taxes for America’s small businesses: Tax reform should make tax filing simpler for small businesses and entrepreneurs so that they can focus on growing their businesses rather than filling out tax returns. 
  5. Restore fiscal responsibility and not add a dime to the deficit: Business tax reform should be fully paid for and lead to greater fiscal responsibility than our current business tax system by either eliminating or making permanent and fully paying for temporary tax provisions now in the tax code."
I still need to read the report, but I have some initial observations and questions:
  • Why isn't this incorporated into the FY2013 revenue proposals ("Greenbook")?
  • What loopholes? If the Administration is referring to rules being used as intended, but that we just don't like anymore, they should just say they don't like them or be more specific as to why they are no longer needed.
  • How will the business reforms tie to overall reforms of President Obama's September 2011 report, Living Within Our Means and Investing in the Future?
  • Are the touted simplifications true simplifications? Too often that word gets used while the tax law gets more complicated with special rules, new definitions to add to the list of old definitions, new limitations, exceptions, etc. I see that on page 12 of the report, President Obama proposes different tax rates for manufacturing, advanced manufacturing and non-manufacturing. Most states (other than California) have a sales tax exemption for manufacturing equipment and there are often court cases addressing the meaning of "manufacturing."
I'll have more on that later as this weekend I'll work on an article comparing the February 2012 report on business tax reform, the September 2011 report on living within our means, and the FY2013 revenue proposals to see what the big picture of possible reform looks like and whether it moves our tax system into the 21st century and follows principles of good tax policy.

1 comment:

Roy J. Meidinger said...

2/22/12
Honorable President Obama
My goal has always been to bring the health care industry in line with what it gives to society and what it costs society. To this end I have worked to reduce the overall costs of health care by a trillion dollars a year for both private and public expenditures and move these funds into the manufacturing sector of our country. Along the way I have uncovered many harmful financial practices.
When the Medicare/Medicaid programs first started the health care costs represented 6.5% of our GDP; the health care costs have now moved to 18% of GDP. I find it completely unacceptable that one of the largest industries was able to grow this big because it has received special treatment by the Federal and State governments, by not enforcing our antitrust laws. To stop this in the future the McCarran-Ferguson Act must be repealed.
When the Social Security System was first introduced the original policy was to keep all the trust funds separate from the general tax funds. This policy did not last long and the funds were co-mingled with other federal income taxes and utilized to pay for the government’s expenditures. We now owe over $3.6 trillion to this fund and the only way to make up this obligation is to tax the same financial groups which originally paid into the fund. Although these obligations are owed for future payments, we should write off this $3.6 trillion and only tax our citizens for what is need for immediate distribution. Over a long period of time, the tax has become a tremendous burden on the middle class, with the actual results of wiping out a great portion of the Middle class.
This is completely unacceptable; the Social Security tax has to be converted from a regressive tax to at least a flat tax and have the higher income individuals pay their fair share; Keep in mind the higher income individuals benefited more when the Social Security funds were utilized to run our government, defend our country and secure our freedom. The benefits of such a tax are to lessen the burden on the middle class and lessen the burden on employees, place larger sums of money in the groups which will spend them.
I have also found it incredible that in the private health care sector the premiums charged by the health insurance companies are determined by what the health care providers charge. The hospitals in this country are now writing off 85% of the patients’ billed amounts, but the insurance companies determine their premiums on what is billed rather than on the actual 15% paid. If the health care providers were to bill the actual amounts collected, the health insurance premiums would be lowered by 85%. This tremendous reduction would not lower the quality of care received by the individual but give businesses a tremendous reduction of employee costs.
Respectfully yours,
Roy J. Meidinger