Transcript Tax legislative outlook

Tax legislative outlook
Washington Council Ernst & Young
February-March 2012
What’s on the horizon?
Longer-term extension of
payroll tax cut, UI, doc fix,
plus discussion of “tax
extenders”
Consideration of other
transportation programs,
such as FAA and highway
funding
Continued discussion of tax
reform: Camp draft, Enzi bill,
Obama framework
What to do about expiration
of Bush tax cuts, budget
sequester?
Page 2
Factors driving tax policy changes in the
new year
Politics
Page 3
Short-term tax Bush
provisions
tax cuts
Tax reform
Election year politics influences legislative
landscape
President, Congress already in campaign mode
►
►
Fight over payroll tax extension emblematic of difficulty reaching
bipartisan agreement
Obama calling for greater income equality, job creation
►
►
Enjoying spike in polls due to better unemployment numbers
Budget proposal to partly serve as campaign document, e.g.
proposals to require minimum tax rate on multinational companies
and millionaires won’t become law but may appeal to voters
Some controversial items may not be resolved until lameduck session of Congress, after election
►
►
►
Page 4
Tax extenders
Bush tax cuts
Budget sequester as a result of Super-committee failure
Legislative Environment for Energy Policy
► Jobs/ Economic Growth Dwarfs other topics
► Climate Change is No Longer a Policy Driver
► Skepticism regarding Green Jobs claims made by
stimulus recipients
► Renewables Under GOP Attack as Proxy for Stimulus,
Obama/Pelosi Agenda
Page 5
Post-election session likely to focus on tax
issues
► November elections may influence how the parties will address tax
issues in lame-duck session
► Allowing tax rates to go up is politically difficult for both sides
► Democrats inclined to let rates go up for higher income taxpayers, but
may not be able to achieve that and get extensions for middle and
lower income levels
► If attempt to offset costs, parties differ on revenue offsets—
spending cuts (Rs) v. tax increases (Ds)
► Congress/Obama may opt not to pay for extensions similar to 2010
► Deficit concerns put pressure on paying for bill
► Can acceptable offsets of sufficient magnitude be found?
► Compromise could be unpaid for short-term extension with
commitment to undertake tax reform in 2013
Page 6
Congressional profile
House
242 Republicans
Senate
192 Democrats
53 Democrats
47 Republicans
Plus 1 vacancy :
Giffords, D-AZ: Special election June 12
2 independents caucus with Democrats
► 87
►9
Republican freshmen in the
current Congress, 30 of whom
from districts Obama won in 2008
► 20 Democrats have announced
they won’t run this year: 12
retiring, 8 running for other office
► 15 Republicans have announced
they won’t run this year: 8
retiring, 7 running for other office
Page 7
current senators will not run
for re-election (6 Democrats, 2
Republicans, 1 independent)
► 10 Republican seats are up for
election in 2012 (Lugar, Brown,
Hatch, Heller seen vulnerable)
► 23 Democratic seats are up for
election in 2012 (many
vulnerable)
Current and future deficits and federal debt
$1.1 trillion
FY2012 deficit
Current
policies
Extending Bush tax
cuts beyond 2012
$3.1 trillion
FY2013–2022
deficit under
current LAW
AMT patch
Extending tax extenders
beyond 2011
Medicare payment rates
for physicians’ services
$11 trillion
FY2013–2022
deficit under
current
POLICIES
Spending reductions required
by BCA do not take effect
Federal debt, FY2012: $16 trillion
Page 8
Debt projection, 2022: $21.6 trillion
Budget deficit projections
2013-2022
Current Law Baseline Deficit
=
$4.7 trillion
Index to inflation 2011 parameters of AMT
+
$1.9 trillion
Continue 2001 and 2003 tax cuts
+
$2.2 trillion
Extend current estate, gift, generation-skipping taxes
+
$431 billion
Extend Medicare `doc fix’
+
Adjusted Baseline Deficit
=
Page 9
$429 billion
$9.7 trillion
Current policies could add trillions to deficit
over 10 year period
Extending the Bush tax cuts and AMT patch
+
$5.35 trillion
Extending other tax provisions like tax extenders
+
$1 trillion
Extending Medicare `doc fix’
+
$372 billion
=
$6.7 trillion
+
$1.2 trillion
=
$7.9 trillion
Rolling back BCA sequester
Notes: Estimated cost of extension over 10 years, FY2013-2022, including debt service
Source: Congressional Budget Office, CBO Budget and Economic Outlook:
Fiscal Years 2012 to 2022, January 31, 2012.
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CBO's annual deficit projections, fiscal
years 2011-2022
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
0%
-1%
-2%
Percent of GDP
-3%
-4%
-5%
-6%
-7%
-8%
CBO's Current Law Baseline
CBO's Alternative Scenario
-9%
-10%
Notes: 2011 is actual deficit. CBO’s alternative scenario the current law baseline with the following adjustments: all expiring individual and business
tax provisions are extended through 2022, Medicare payments to physicians are not reduced, and the sequestration does not occur as scheduled.
The current law baseline and the alternative scenario both assume that the current payroll tax cut expires on Feb. 29, 2012.
Source: Congressional Budget Office, CBO Budget and Economic Outlook: Fiscal Years 2012 to 2022, January 31, 2012.
Page 11
Long-run federal spending and revenue
projections
Composition of federal spending as a percent of GDP: 1970 to 2050
50
45
Percent of GDP
40
35
Discretionary and other
mandatory spending
30
Net interest
25
Social Security outlays
20
18.0% historical revenue level,
1970–2010
15
Medicare, Medicaid, Chip
and Exchange Subsidies
10
Receipts
5
0
1970
1980
1990
2000
2010
2020
2030
2040
2050
Sources: Congressional Budget Office, Long-Run Budget Outlook — Alternative Fiscal Scenario (June 2011); Monthly Treasury Statement
(September 2011, for FY 2011 only. Estimates do not take into account Budget Control Act of 2011.
Page 12
Sources and uses of federal revenues,
FY2011
Revenues
Estate and Gift
Taxes, 0.3%
Excise Taxes,
3.1%
Expenditures
Corporation
Income Taxes,
7.9%
Nondefense
discretionary
14.2%
Net
Interest,
6.3%
,
Medicare, 8.0%
Individual
Income Taxes,
47.4%
Other, 5.8%
Defense,
18.9%
Other
Entitlement,
25.2%
Medicare,
15.5%
Social Security,
27.4%
Total: $2.3 trillion
Social
Security,
20.3%
Total: $3.6 trillion
Source: Monthly Treasury Statement (Oct. 2011); OMB Supplemental Materials: Outlays; Medicare Trustees Report 2011
Notes: “Other” revenue includes Federal Reserve earnings, customs duties, and other miscellaneous receipts. “Other Entitlement” includes Medicaid,
unemployment compensation, housing assistance, food stamps, federal employee and military retirement, and veterans’ benefits. “Non-defense
discretionary” includes international affairs, transportation, commerce and housing credit, energy, education, science and technology, natural resources,
community and regional development, health, administration of justice, general government and allowances .
Page 13
The economy
Housing market
remains weak
Home values have dropped by
one-third since 2006 peak
► Inventory of foreclosures
continue to put downward
pressure on home prices
► Obstacles limiting access to
mortgage credit contribute to
weakness in housing demand
(Fed, 1/12)
►
Page 14
Unemployment
December 2011 unemployment
at 8.5%
► Trended downward in 2011
► 8.6% in November 2011
► 9.1% in August 2011
► CBO predicts will get worse in
2012 (1/12 budget outlook)
► 8.9% for 2012
► 9.2% for 2013
►
2012 timeline
► FEB
13
Obama FY2013
budget released
► END
OF 2011
Tax extenders
expired
2012JAN FEB MARCH APRIL
► JAN
24
President delivered
State of the Union
address
Page 15
► FEB
MAY
► NOV
► POST-
6
Election Day
JUNE JULY AUG SEPT OCT
29
► MARCH
31
Expiration of
Highway
► Payroll tax relief
funding
► Expanded
unemployment benefits expires
► Medicare physicians
payment rate
► SEPT
30
Government
funding
expires
with end of
fiscal year
ELECTION
Lame-duck
session
NOV DEC 2013
► 2013
Bush tax cuts expire;
Sequester with
9-10% cut in
discretionary
spending
Factors driving tax policy changes in the
new year
Politics
Page 16
Short-term tax Bush
tax cuts
provisions
Tax reform
2011 marked by partisan gridlock
►
►
Debt limit negotiations
►
$900 billion debt limit increase agreed
to, at last minute, in exchange for $917
billion in deficit reduction from
discretionary spending caps for period
from FY 2012-2021
►
Deficit reduction offsets for additional
debt limit increase delegated to Joint
Select Committee (“Super Committee”)
Super-committee
►
►
Bipartisan 12-member panel
announced Nov. 21 it could not reach
agreement on $1.2 trillion-plus in deficit
reduction
Payroll tax, other expiring items
►
Dispute over revenue offsets, etc.
resulted in 2-month extension just
before Christmas
Page 17
Gridlock attributable to opposing views on
how to achieve deficit reduction
Republicans
-No tax increases, unless
Bush tax cuts are
extended, with reduced
rates
-Focus on spending cuts
Page 18
Democrats
-Entitlement cuts must be
accompanied by tax
increases for high
incomes
Payroll relief, UI, doc fix extended through
2012
Extension through remainder of 2012 (10 months):
► Payroll tax relief
► not paid for
► Expanded unemployment benefits
► offset by revenue from spectrum auctions and a change to Federal
employee pension contributions
► Medicare ‘doc fix’
► paid for with various Medicare-related offsets
► Tax extenders and bonus depreciation not included
Page 19
Tax extenders
Package of 60 business
and individual “tax
extenders” expired
31 Dec 2011
Efforts to attach extenders
to payroll bill were
unsuccessful
Estimated cost of 1-year
extension: $37 billion
Precedent exists for the
provisions to expire, then
be seamlessly extended
Page 20
Select corporate tax provisions expired at
end of 2011
R&D credit
Active financing exception
CFC look-through
100-percent bonus depreciation
Indian employment tax credit
New markets tax credit
Mine rescue team training credit
Employer wage credit for military reservists
Credit for maintaining railroad tracks
Work opportunity tax credit
Qualified zone academy bonds
15-year cost recovery for leaseholds, restaurants
7-year recovery for motorsports complexes
Accelerated depreciation for Indian reservation
Enhanced charitable deduction for food inventory
Enhanced charitable deduction for book inventory
Enhanced charitable deduction for computers
Small business expensing
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Election to expense advanced mine safety
equipment
Expensing rules for film and television
Expensing of “brown fields” remediation
Deduction for domestic production activities in
Puerto Rico
Modification of tax treatment of certain payments
to controlling exempt organizations
Basis adjustment to stock of S corporations
making charitable contributions of property
Reduction in S corporation recognition period for
built-in gains tax
Treatment of certain dividends of regulated
investment companies (“RICs”)
RIC qualified investment entity treatment under
FIRPTA
Rum excise tax
American Samoa economic development credit
Energy provisions expired at end of 2011
Page 22
►
Credit for certain non-business energy property
►
Conversion credit for plug-in electric vehicles
►
Alternative fuel vehicle refueling property
►
Incentives for alcohol fuels
►
Incentives for biodiesel and renewable diesel
►
Coal production credit
►
Credit for construction of new energy efficient
homes
►
Credit for energy efficient appliances
►
Grants for specified energy property in lieu of tax
credits
►
Suspension of percentage depletion for oil and
gas from marginal wells
►
Incentives for alternative fuel and alternative fuel
mixtures
Energy provisions expiring at end of 2012
Cellulosic biofuel producer credit
► Place-in-service date for wind
facilities to claim electricity
production credit
► Election to claim the energy
credit in lieu of the electricity
production credit for wind
facilities
► Special depreciation allowance
for cellulosic biofuel plant
property
►
Page 23
Energy Extenders: What’s stopping them?
► Cost of Entire Extender Package: Over $30 Billion/ year
► Inability to agree on whether/how to offset the cost
► Controversial Items: Ethanol blenders credit, Treasury
section 1603 Grants
► House and Senate Tax Writers Vow to Delay Extension
until package “scrubbed” of outdated provisions
Page 24
What’s new in the Obama FY2013 budget?
Dividends to be taxed
as ordinary income for
incomes over $250,000
►
Previous budgets set 20%
top rate
►
20% top rate still proposed
for capital gains
►
Would raise/save $206
billion/10 years
Insourcing/outsourcing
proposals
Buffett Rule proposed to
replace alternative
minimum tax
►
“Buffett Rule” to require
30% minimum tax on
annual incomes over $1
million
Page 25
►
Eliminate deduction for
moving operations
overseas, new credit to
relocate back to U.S.
►
Tax credit for investments in
distressed areas
►
Double 199 deduction for
advanced manufacturing
New int’l proposals
►
Tax gain from the sale of a
partnership interest on a lookthrough basis
►
Extend Sec. 338(h)(16) to certain
asset acquisitions
►
Remove foreign taxes from a
Sec. 902 corporations foreign tax
pool when earnings eliminated
►
Prevent leveraged distributions
from related foreign corporations
to avoid dividend treatment
FY2013 budget revenue-raising proposals
Insurance
►
►
►
Source: OMB FY2013 Budget
Modify rules that apply to sale of life insurance contracts
Modify proration rules for life insurance company general and separate accounts
Expand pro rata interest allowance for COLI
$811 million
$7.7 billion
$7.3 billion
Financial institutions
►
►
►
►
Impose financial crisis responsibility fee
Require accrual of income on forward sale of corporate stock
Require ordinary treatment of income from day-to-day dealer activities
Modify definition of “control” for purposes of Section 249
$61.3 billion
$303 million
$192 million
$12.9 billion
Estate and gift
►
►
►
►
►
►
►
Restore 2009 parameters
Require consistent valuation for transfer and income tax purposes
Modify rules on valuation discounts
Require a minimum term for grantor-retained annuity trusts
Limit duration of generation-skipping transfer tax rules applicable to grantor trusts
Coordinate certain income and transfer tax rules applicable to grantor trusts
Extend the lien on estate tax deferrals provided under Section 6186
Energy
►
►
►
►
Page 26
Repeal preferences for oil and gas industry
Repeal preferences for coal industry
Reinstate Superfund excise taxes
Reinstate Superfund environmental income tax
$119 billion
$2 billion
$18 billion
$3.3 billion
Negligible
$910 million
$160 million
$36.3 billion
$4.4 billion
$6.5 billion
$12.9 billion
Revenue offsets that were in play for payrollplus package
Democrats
Both Parties
- X % surtax on income
over $1 million
-Increased GSE guarantee
fees (financed 2-month
bill)
- Corporate tax loophole
closers (proposal likely
to emerge week of
Feb. 6)
- Means testing for
unemployment benefits,
food stamps
Republicans
- Federal civilian
workforce pay freeze
- changing the co-pay
structure for civilian
federal retirees
- spectrum auctions
- Revenue from drawing
down forces in Iraq and
Afghanistan?
- flood insurance reform
- ensuring illegal
immigrants who are not
eligible to work in the US
do not get IRS checks
- requiring SSN to collect
child tax credit
Page 27
Factors driving tax policy changes in the
new year
Politics
Page 28
Short-term tax Bush
tax cuts
provisions
Tax reform
Major year-end tax changes if Congress does
not intervene
►
Expiration of the 2001/2003 tax relief at the end of 2012
►
►
►
►
►
►
►
►
Page 29
Highest marginal income tax rates will rise to 36% and 39.6% from
33% and 35%, respectively.
10% rate bracket will be eliminated.
Maximum rate on qualified dividends will rise from 15% to 39.6%.
Maximum rate on long-term capital gains will rise from 15% to
20%.
Phaseouts of itemized deductions and personal exemptions will be
reinstated for high-income individuals.
Marriage penalty relief will expire.
Child tax credit will decline from $1,000 to $500.
Maximum estate tax rate will rise from 35% to 55% and exemption
will fall from $5 million to $1 million.
Scheduled 2013 individual tax rates
Description
Current rates
Scheduled rates for 2013
Other additions
Individual income
tax rates
10%; 25%; 28%; 33%;
35%
15%; 28%; 31%; 36%;
39.6%
Individuals with income over
$250,000 (joint) or $200,000
(individual) face tax increases
of:
►
0.9% on wages (on
amounts exceeding
threshold) and
►
3.8% on investment
income (e.g., interest,
dividends, capital gains) if
AGI exceeds threshold
Reinstate personal
exemption phase-out (PEP)
and Pease limitation on
itemized deductions
Qualified dividends 0%; 15%
Individual income tax rate,
with top rate of 39.6%
Long-term capital
gains
0%; 15%
20%
Estate tax
35% top rate; $5 million
exemption
55% top rate; $1 million
exemption
Page 30
Political perspectives on expiring Bush tax
cuts
1 Allowing tax rates to go up is politically difficult
2 Parties differ on revenue offsets—spending v. tax
3 Democrats want to let cuts expire for high incomes
4 Congress could opt not to pay for bill like 2010
55 Deficit concerns put pressure on paying for bill
6 Fundamental reform could avoid fights over
expiring tax rates and provisions, though coming
to agreement on reform will be difficult
Page 31
Factors driving tax policy changes in the
new year
Politics
Page 32
Short-term tax Bush
provisions
tax cuts
Tax reform
Major drivers of tax reform
►
►
►
The United States has among the highest
corporate tax rates and is among the few nations
with a worldwide system of taxing foreign
earnings
► Economists believe this hampers the
competitiveness of US firms
The system is complex, largely due to the
temporary nature of many tax provisions
► Desire to `clean out junk’ in Code
Uncertainty of provisions, including Bush tax cuts
Page 33
Corporate tax rates in the OECD, 2011
Percent
45
40
35
GDP-weighted Average (excluding US) – 29.9%
30
Simple Average (excluding US) – 25.1%
25
20
15
10
5
0
Note: Includes both national and sub-national statutory corporate tax rates.
Source: OECD, IMF
Page 34
This year in tax reform
What happened in 2011?
►
Loose consensus about
broadening the tax base (i.e.,
removing many provisions) to
lower tax rates
►
►
►
Several hearings in Ways &
Means, Senate Finance
Chairman Camp discussion draft
►
►
►
2010 Bowles-Simpson panel
backed this approach
25% rate envisioned, territorial
system outlined
Treasury White Paper on
corporate reform was expected
but not released
Wyden-Coats
Page 35
What do we expect in 2012?
Obama tax reform plan coming in February
►
Wants Congress to act on insourcing
reforms immediately
Camp draft
►
►
►
Further meetings with stakeholders
More hearings expected
Version 2.0?
Sen. Portman plan expected by spring
►
Comprehensive plan to achieve 25%
rate expected
Senate Finance Committee
►
►
Chairman Baucus could release tax
reform draft of his own
More hearings expected
The President’s Framework for Business Tax
Reform
Cut provisions to Manufacturing
cut corp. rate
Incentives
►
28% corporate rate
►
No comprehensive list of
provisions to be cut, but a
few are highlighted:
►
►
LIFO, oil/gas, carried
interest, jet depreciation
Depreciation, deductibility of
interest expense should also
be considered
►
Cut effective rate for
manufacturers to 25% by
refocusing Sec. 199
manufacturing deduction
►
Increased to 10.7%
►
Permanent R&D credit
►
Energy incentives
Small business
►
Make tax filing simpler
►
Allow expensing up to $1 million in
investments
►
Allow cash accounting on businesses
with up to $10 million in gross receipts
Page 36
International tax
►
►
►
Appears to call for
retention of the
worldwide system of
taxing foreign earnings
Comes out against pure
territorial system
US-based companies
to pay an unspecified
minimum tax on foreign
earnings
Fiscal responsibility
►
Plan is revenue neutral, but $250 billion
required to make permanent temporary
provisions that are routinely extended,
►
Temporary provisions must be paid for
or eliminated
The President’s Framework for Business Tax
Reform
► Cut Provisions, Broaden Base, Cut Corporate Tax Rate
► Rate lowered to 28%
► No comprehensive list of provisions to be cut, but some highlighted
► eliminating “last in first out” (LIFO) accounting
► eliminating oil and gas tax preferences
► reforming treatment of the insurance industry and products
► taxing carried (profits) interests as ordinary income
► eliminating special depreciation rules for corp. purchases of aircraft
► Other changes should be considered: elimination of depreciation
schedules limiting deductibility of interest expense
► Strengthen American Manufacturing and Innovation
► Cut effective rate for manufacturers to 25% by increasing Sec. 199
manufacturing deduction to 10.7%
► Make permanent R&D credit, energy tax incentives
Page 37
The President’s Framework for Business Tax
Reform (continued)
► Strengthen the International Tax System
► Appears to call for retaining worldwide system for foreign earnings
► Comes out against pure territorial system
► US-based companies to pay unspecified minimum tax on foreign
earnings
► Simplify and Cut Taxes for America’s Small Businesses
► Make tax filing simpler
► Allow expensing up to $1 million in investments
► Cash accounting on businesses with up to $10 million in gross
receipts
► Restore Fiscal Responsibility
► Plan is revenue neutral, but $250 billion required to make
permanent temporary provisions that are routinely extended
► Temporary provisions must be paid for or eliminated
Page 38
President’s Framework for Business Tax Reform Energy-Related Provisions
The President’s “Framework for Business Tax Reform” was released on February 22nd. It would eliminate “dozens of tax
loopholes and subsidies” and reform the business tax base to reduce the corporate tax rate from 35% to 28% (with a 25%
rate on manufacturing income). Most tax expenditures for specific industries would be eliminated, with only a few exceptions
“that are critical to broader growth or fairness.”
The Framework would repeal all tax preferences for fossil fuels, including expensing of intangible drilling costs and
percentage depletion for oil and natural gas wells.
President’s Framework Retains Incentives for Clean Energy.
► Unlike the approaches to fundamental tax reform offered by the Republican Presidential candidates, the President’s
Framework retains “key incentives to encourage investment in clean energy.” For example, the Framework would make
permanent the “tax credit for the production of renewable electricity, in order to provide a strong, consistent incentive to
encourage investments in renewable energy technologies like wind and solar.” The Framework would make the production
tax credit refundable.
Page 39
Broad interest in restricting tax expenditures
to lower rates
“Right now, companies get tax breaks for moving jobs and profits overseas. Meanwhile,
companies that choose to stay in America get hit with one of the highest tax rates in the
world. It makes no sense, and everyone knows it.” – President Obama, Jan. 24, 2012.
“”What I'd like to see is — and we're working on a structure to do that — is how low can
we get rates? And that means where is the political consensus on how many — and
you can call it tax provision, or loophole or expenditure, whatever you want to describe
it as — how many of those can we change so we have a more constant effective rate?
We also need to move, I think, to a territorial tax system so that we can compete
around the world.” – House Ways and Means Committee Chairman Dave Camp (RMI), June 21, 2011.
“Just lowering the rate only and eliminating a lot of tax expenditures is not going to
provide enough revenue to get the rates down to a low enough level to make a
difference that most people are looking for. So we are going to have to maybe look at
pass-throughs and say they have got to be treated as corporations if they earn above
a certain income.” – Senate Finance Committee Chairman Baucus (D-MT), May 4,
2011.
Page 40
Obama framework out week of Feb. 20
More specific than
principles, but not as
detailed as legislative
language
• Geithner says effort to allow
lawmakers to capitalize on
the common ground that has
already emerged in Congress
on corporate reform
Calls for broad reform • Will preserve a limited
that will lower rates,
number of tax preferences
broaden the base and
aimed at improving incentives
eliminate “dozens of
for designing, creating and
special tax preferences
building in the United States
for businesses.”
Page 41
Political difficulties of reform proposals
►
A base-broadening effort could disadvantage certain industries,
favor others
►
►
Likely losers: manufacturers
Likely winners: financial companies, retailers, transportation
►
Base-erosion provisions like those in Camp discussion draft
could cost companies billions of dollars
►
What to do about pass-through entities?
►
►
Many, particularly Republicans, feel individual reform should
accompany corporate reform to avoid disadvantaging pass-throughs
Others see changing pass-through taxation as a revenue source
►
►
►
Obama administration
Senate Finance Committee Chairman Baucus
Will ‘reform’ get bogged down by tax fairness argument?
Page 42
JCT memo on reducing corporate rate
Roughly, a 1%-point
reduction in the US
corporate tax rate
costs $100 billion$110 billion/10 years
• Thus, reducing the statutory
corporate rate from 35% to
25% requires “base
broadening” of up to $1.2
trillion/10 years
October 2011 JCT
• $650 billion derived from
Memo to Rep. Levin:
repealing expenditures for
reduction in corporate
manufacturers: accelerated
depreciation and domestic
tax rate to 28%
production activities deduction
estimated to cost
$717 billion/10 years
Page 43
OMB Largest Tax Expenditures, Fiscal Year
2013
Employer-provided health exclusion
Mortgage interest deduction
401(k)-type plans
Capital gains
Employer plans
Rental income exclusion
State and local tax deduction
Deferral
Charitable deduction
State and local bond exclusion
Acclerated depreciation
Social Security
Exclusion of interest on life insurance savings
Step-up basis capital gains at death
Capital gains on home sales
$ billions
Source: Analytical Perspectives FY2013
Page 44
$0
$50
$100
$150
$200
Highlights of JCT estimates on repeal of corporate tax
expenditures– memo to Cong. Levin (D-MI) 27 Oct.
Provision to be repealed
$raised/10 years*
Repeal MACRS/apply ADS
$507 billion
Expensing of R&D expenditures
$152 billion
Domestic production activities deduction
$127 billion
LIFO
$63 billion
Low-income housing tax credit
$33 billion
Deferral of gain on like-kind exchanges
$16 billion
Completed contract rules method
$14 billion
Percentage depletion for oil and natural gas wells/coal
$10 billion
Exclusion of interest on private activity bonds
* Portion of revenue attributable to C corps
Page 45
$9 billion
Highlights of JCT estimates on repeal of corporate
tax expenditures (cont.)
Provision to be repealed
$raised/10 years*
Repeal MACRS/apply ADS
$724 billion
Domestic production activities deduction
$164 billion
Expensing of R&D expenditures
$160 billion
LIFO
$70 billion
Low-income housing tax credit
$35 billion
Deferral of gain on like-kind exchanges
$18 billion
Completed contract rules method
$14 billion
Percentage depletion for oil and natural gas wells
$11 billion
Exclusion of interest on private activity bonds
* Portion of revenue attributable to C corps AND pass-through entities
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$9 billion
Key elements of recent tax reform proposals
Camp Discussion
Draft
Fiscal Commission
report
Bipartisan Policy
Center (DomeniciRivlin) plan
Rep. Ryan’s Road Map
for America’s Future
(2010)
Corporate tax
rate
25%
28%
27%
Corporate income tax
replaced with 8.5%
subtraction-method VAT
Corporate tax
expenditures
Unspecified
Eliminated
Many eliminated
Repealed
Repealed; retains
expensing for R&D
expenditures
Territorial—95%
exemption, thin
capitalization rules and
anti-abuse provisions.
Territorial system,
current taxation of
passive foreign
income retained
Retains deferral and
worldwide system with
FTC
Unspecified
Individual tax
brackets: 12%, 22%,
28%. Capital gains
and dividends taxed
as ordinary income
Research
credit
International
taxation
Individual tax
changes
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Unspecified
Individual tax brackets:
Individual tax brackets:
15%, 27%. Capital
10%, 25%. Zero tax rate
gains and dividends
for interest, capital gains
taxed as ordinary
and dividends
income
Potential tax reform winners/losers under
Fiscal Commission’s Proposal
Winners
Drivers
Retail (MNC, domestic)
Corporate rate reduction
Wholesale (MNC, domestic)
Repeal of accelerated
depreciation
Repeal of Sec. 199 deduction
for domestic production
Finance and insurance
(domestic)
Renewable energy
Utilities (MNC only)
Mining & agriculture
Transportation (MNC, domestic)
Manufacturing (MNC, domestic)
Information (MNC, domestic)
Repeal of special industry
tax rules
Real estate (MNC, domestic)
Services (MNC, large
domestic)
Move to territorial
international tax system
Analysis uses a 28% corporate tax rate and is based on broad description of territorial tax regime
(and assumes adoption of some international base broadeners); analysis could be altered
depending on exact shape of territorial regime.
*Fiscal Commission’s tax reform proposal was released in December 2010.
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Services (small domestic
only)
Losers
Energy & Energy Tax – Longer Term
► Electricity and Liquid Fuels rules to be harmonized as electricity
becomes a transportation fuel
► Technology neutrality to harness environmental performance and
energy density to allocate incentives
► Federal statutes may need adjustment to reflect fact that
commercial aviation & military becoming strong markets for
biofuels;
► Bipartisan push to wean renewables off of permanent incentives
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Where do we go from here?
► Short Term:
► Retroactively extend current tax incentives in first available vehicle
► Medium Term:
► Reform renewable energy tax incentives
► Long Term:
► Play role in assembling new tax code during debate on the Tax
Reform Act of 2014
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