United States President Barack Obama’s budget proposals for 2012 are unlikely to be acceptable to his Republican opponents in Congress as, while containing only moderate spending cuts to reduce the country’s fiscal deficit, he has also included increases to taxes that they have already rejected.
On the one hand, he is calling on Congress to work with the Administration on corporate tax reform that would simplify the system and eliminate special interest loopholes, and use the savings to lower the corporate tax rate. But, on the other, he also repeats that the Bush tax cuts for those with household income above USD250,000 a year, which Republicans had insisted on renewing, should not be extended beyond 2012, along with the tax cut for the largest estates.
In addition, he is proposing to pay for a three-year patch to prevent an increase in taxes on middle-class families through the Alternative Minimum Tax (AMT) by an across-the-board 30% reduction in itemized deductions for high-income taxpayers. This provision, it is said, would be the largest single reduction in revenue-spending since the 1986 tax reform.
With regard to innovation, the President supports making the research and development tax credit permanent “to give businesses the certainty they need to make these important investments.” In addition, he wants to expand the credit by about 20%, the largest increase in the credit’s history, and simplify it so that it is easier for firms to take the credit.
To help fund his “green” goals of putting one million electric vehicles on the road by 2015; doubling share of electricity from clean energy sources by 2035; and reducing buildings’ energy use by 20% by 2020, he suggests the elimination of twelve tax breaks to oil, gas and coal companies in the US to raise USD46bn over 10 years. Furthermore, royalties paid by oil and gas companies for offshore production are forecast to increase 68% to almost USD6bn per year.
The Administration also proposes new investments in Internal Revenue Service tax compliance activities, aimed at closing the tax gap, while businesses operating abroad would lose tax breaks, to raise USD129bn over the next ten years. Such companies, in the budget, would lose “loopholes” related to deferral, foreign tax credits, transfer pricing, reinsurance premiums paid to offshore affiliates, expatriated entities and dual capacity taxpayers.
With a five-year non-security discretionary spending freeze, the budget does include more than USD1 trillion in deficit reduction – two-thirds of it from cuts – and, it was said, “puts the nation on a path toward fiscal sustainability so that by the middle of the decade, the government will be paying for what it spends and debt will no longer be increasing as a share of the economy.”
Nevertheless, at the same time, public debt would carry on increasing in absolute terms. The government’s statistics merely show a forecast budget deficit next year of USD1.09 trillion, falling to USD846bn in 2013 and USD770bn in 2014. However, it never falls below that level in later years. That is unlikely to satisfy Obama’s Republican opponents, who have consistently accused him of not controlling federal government spending sufficiently.
John Boehner, the Republican Speaker of the House, has already replied to the President by stating that his budget “will destroy jobs by spending too much, taxing too much, and borrowing too much. By continuing the spending binge and imposing massive tax hikes on families and small businesses, it will fuel more economic uncertainty and make it harder to create new jobs.”
The budget is, in fact, only a list of suggestions to start a debate in Congress, where the actual budget is formed. A budget for 2011 was never agreed, and any formulation of a 2102 budget is only likely after months of argument, if at all. The President, at this stage, can only say that “it’s going to require Democrats and Republicans coming together to make it happen.”
On the one hand, he is calling on Congress to work with the Administration on corporate tax reform that would simplify the system and eliminate special interest loopholes, and use the savings to lower the corporate tax rate. But, on the other, he also repeats that the Bush tax cuts for those with household income above USD250,000 a year, which Republicans had insisted on renewing, should not be extended beyond 2012, along with the tax cut for the largest estates.
In addition, he is proposing to pay for a three-year patch to prevent an increase in taxes on middle-class families through the Alternative Minimum Tax (AMT) by an across-the-board 30% reduction in itemized deductions for high-income taxpayers. This provision, it is said, would be the largest single reduction in revenue-spending since the 1986 tax reform.
With regard to innovation, the President supports making the research and development tax credit permanent “to give businesses the certainty they need to make these important investments.” In addition, he wants to expand the credit by about 20%, the largest increase in the credit’s history, and simplify it so that it is easier for firms to take the credit.
To help fund his “green” goals of putting one million electric vehicles on the road by 2015; doubling share of electricity from clean energy sources by 2035; and reducing buildings’ energy use by 20% by 2020, he suggests the elimination of twelve tax breaks to oil, gas and coal companies in the US to raise USD46bn over 10 years. Furthermore, royalties paid by oil and gas companies for offshore production are forecast to increase 68% to almost USD6bn per year.
The Administration also proposes new investments in Internal Revenue Service tax compliance activities, aimed at closing the tax gap, while businesses operating abroad would lose tax breaks, to raise USD129bn over the next ten years. Such companies, in the budget, would lose “loopholes” related to deferral, foreign tax credits, transfer pricing, reinsurance premiums paid to offshore affiliates, expatriated entities and dual capacity taxpayers.
With a five-year non-security discretionary spending freeze, the budget does include more than USD1 trillion in deficit reduction – two-thirds of it from cuts – and, it was said, “puts the nation on a path toward fiscal sustainability so that by the middle of the decade, the government will be paying for what it spends and debt will no longer be increasing as a share of the economy.”
Nevertheless, at the same time, public debt would carry on increasing in absolute terms. The government’s statistics merely show a forecast budget deficit next year of USD1.09 trillion, falling to USD846bn in 2013 and USD770bn in 2014. However, it never falls below that level in later years. That is unlikely to satisfy Obama’s Republican opponents, who have consistently accused him of not controlling federal government spending sufficiently.
John Boehner, the Republican Speaker of the House, has already replied to the President by stating that his budget “will destroy jobs by spending too much, taxing too much, and borrowing too much. By continuing the spending binge and imposing massive tax hikes on families and small businesses, it will fuel more economic uncertainty and make it harder to create new jobs.”
The budget is, in fact, only a list of suggestions to start a debate in Congress, where the actual budget is formed. A budget for 2011 was never agreed, and any formulation of a 2102 budget is only likely after months of argument, if at all. The President, at this stage, can only say that “it’s going to require Democrats and Republicans coming together to make it happen.”
