President’s Budget on Tax Proposals

As part of the administration’s FY 2014 Budget Request to Congress, the Department of the Treasury released the General Explanations of the administration’s FY 2014 Revenue Proposals, or “Greenbook.” President Obama’s budget maintains a focus on taxing the wealthy by reiterating his plan to let the Bush-era tax cuts expire for households that earn more than $250,000 a year, including reinstating the limit on itemized deductions (Pease) and Personal Exemption Phase-out (PEP), as well as taxing qualified dividends at ordinary income rates and capital gains at a 20 percent rate. The president spells out his plan to implement a new “Fair Share Tax” as a follow-up to his Buffett Rule concept. The administration seeks to impose a new minimum tax, called the Fair Share Tax (FST), for high-income taxpayers. The tentative FST equals 30 percent of adjusted gross income (AGI) less a charitable credit. The tax is phased in linearly, starting at $1 million of AGI and fully at $2 million. The Greenbook lists the extension of 100 percent depreciation for one additional year and an authorization of an additional $5 billion in credits for investments in eligible property used in a qualifying advanced energy manufacturing project. Furthermore, the budget calls for the conversion of the deduction for energy efficient commercial building expenditures to a tax credit in order to accomplish the goals under the Better Buildings Initiative. It also makes permanent a modified version of the Build America Bond program now known as America Fast Forward Bonds. The plan makes a provision for a contractor to require the use of certified Taxpayer Identification Numbers (TIN) and allow certain withholding from contractors providing services, as well as a stronger enforcement regime around independent contractor classification. The budget would alter the permanent “Death” or Estate Tax rate – recently agreed to under the American Tax Relief Act (ATRA) – by increasing the rate to 45 percent, lowering the exemption to $3.5 million, and calling for the repeal of the last-in, first-out (LIFO) accounting method.  The budget also includes modified tax rules for oil and gas companies and reforms the treatment of financial and insurance industry institutions. The president included placeholder language for revenue-neutral tax reform that lays out a framework for business tax reform, which contains the following five elements: (1) eliminate loopholes and subsides, broadening the base and cutting the corporate tax rate; (2) strengthen American manufacturing and innovation; (3) strengthen the international tax system; (4) simplify and cut taxes for small businesses; and (5) restore fiscal responsibility and not add a dime to the deficit. Democrats and Republicans are both calling for comprehensive tax reform; however, there are no specifics in the administration’s proposal that would bridge the debate in Congress on how to provide relief to individuals and businesses. AGC continues to consult with congressional leaders and members of the tax writing committees on proposals and legislation to address large and small businesses’ priorities for reforming the tax code. In addition, the administration offered the following, which would alter provisions for small businesses: eliminate capital gains taxation on investments in small business stock; double the amount of expensed start-up expenditures; and expand the group of employers who are eligible for a tax credit to help small employers provide health insurance for employees under the Affordable Care Act. For more information, please contact Brian Lenihan at (202) 547-4733 or lenihanb@agc.org.