U.S. Department of the Treasury

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 “A credible fiscal plan for our country must include tax policies that promote growth and investment as well as fairness and fiscal responsibility. The revenue proposals included in the President's Budget responsibly balance the need to lower the deficit with the dual objectives of supporting economic growth and promoting fairness for the middle class.”

— Treasury Secretary Tim Geithner

The President’s Fiscal Year 2012 (FY2012) Budget is a comprehensive and credible plan to promote the nation’s growth and competitiveness, eliminate unnecessary spending wherever it exists, including in the tax code, and cut the deficit to sustainable levels by the middle of the decade.

Today, the U.S. Department of the Treasury released a crucial piece of that plan – the General Explanations of the Administration's FY2012 Revenue Proposals, or “Greenbook.”  The Greenbook explains the Administration’s revenue proposals, which are designed to provide incentives for innovation, infrastructure, and education; provide middle-class tax relief; reduce the deficit in the medium term; and ensure our tax code is fair and conducive to strong economic growth.

The President’s FY2012 Budget positions our nation to win the future and out-innovate and out-compete the rest of the world by including tax cuts to encourage needed investments in innovation, infrastructure, and education, including tax cuts for small business investment, clean energy, and research and development. While preserving these incentives, the President also believes that, to be competitive, we must pursue comprehensive corporate tax reform, and, as the President has announced, we are now looking at ways to lower the corporate tax rate and to pay for this by cutting corporate tax expenditures. 

The President’s FY2012 Budget also provides needed tax relief for middle-class families over the next 10 years, including tax credits to help families care for children, new incentives to save for retirement, and an expanded Earned Income Tax Credit for working families with three or more children and married couples. This is in addition to the permanent extension of existing tax cuts for families earning less than 250,000, as well as permanent relief from the Alternative Minimum Tax.

In keeping with the difficult choices the President has made in the Budget to cut spending as part of his plan to reduce the deficit, the Greenbook details responsible steps to pare back tax expenditures and includes a significant reduction in tax expenditures — by limiting itemized deductions for the wealthiest Americans to 28 percent.  The Budget also includes a fee on the largest financial firms to recoup the costs of the TARP program and to reduce financial risk, as well as other proposals to promote growth and investment in the United States. 

Finally, the Budget proposes 11 new measures to simplify the tax system, as well as measures to improve tax administration and close the tax gap – the difference between taxes owed and taxes paid timely and voluntarily.

Targeted Tax Incentives to Support Innovation, Infrastructure, and Education

INNOVATION

• Tax Incentives for Clean Energy:
 

• Tax Credits for Investment in Advanced Energy Manufacturing Projects.  The Budget proposes to provide $5 billion in additional authority to grant tax credits under the highly successful Section 48C advanced energy manufacturing program established by the American Recovery and Reinvestment Act.  The $2.3 billion in credits included in the Recovery Act funded less than one-third of the technically acceptable applications submitted.  The $5 billion in additional tax credits proposed in the President’s Budget will support at least $15 billion in total capital investments, creating tens of thousands of new construction and manufacturing jobs and helping to assure America’s role in manufacturing the next generation of clean energy products.

• Tax Credits for Energy-Efficient Commercial Buildings.  The Budget proposes replacing the current tax deduction for energy efficient commercial building property with a more generous and effective tax credit that will encourage building owners to retrofit their properties.  The new credit is part of the Administration’s Better Building Initiative, announced by the President in State College, Pennsylvania on February 3, to make commercial building space in the United States 20 percent more energy efficient through cost-effective upgrades.  The new tax credit would be available for property placed in service during calendar year 2012, saving taxpayers $1 billion.

• Renewable Energy Grants.  The Budget proposes to extend through 2012 the Section 1603 renewable energy grant program established under the Recovery Act and extended as part of the December tax package.  This program has been an essential tool in deploying renewable energy resources in the United States over the past two years.

• Improved Tax Credits for Plug-in Electric Vehicles.  The Budget proposes to reform the current credit for purchasers of electric vehicles by allowing dealers to claim it, with clear transparency requirements to ensure the benefit of the credit is passed on to consumers.  Shifting the responsibility for claiming the credit from buyers to sellers will enable sellers to offer point-of-sale rebates to consumers, simplify individual tax preparation, and reduce the potential for taxpayer error.

•  Expanding the Research and Experimentation Credit and Making it Permanent. The Budget proposes expanding the Research and Experimentation (R&E) Tax Credit by nearly 20 percent and making it permanent to encourage innovation and reward businesses that continue to invest in research projects. The credit has never been made permanent – instead, it has been extended on a temporary basis 14 times since its creation in 1981 – and is scheduled to expire at the end of 2011.  Making the credit permanent would remove uncertainty about whether the R&E credit will be extended, giving businesses greater confidence to invest in innovation that creates jobs in the United States.  Expanding the R&E credit and making it permanent would cost $106 billion over the next 10 years.

• Tax Incentives to Support Small Business Investment:
 

• Permanently Eliminating Capital Gains Taxes for Investments in Certain Qualified Small Businesses.  The Budget would write into permanent law the President’s proposal to completely eliminate the capital gains tax for investors in certain qualified small businesses, which the President signed into law as part of the Small Business Jobs Act and successfully extended through 2011 as part of the December tax compromise.  Making this provision permanent would save small business owners $5 billion over the next 10 years.

• Tax Incentives for Small Businesses to Make Immediate Investments.  The Budget would make permanent the policy of allowing small businesses to immediately write off up to $125,000 of qualified investment, providing a continued tax incentive to invest in plant and equipment and create jobs while cutting small business taxes by $44 billion over the next 10 years.  Without this measure, the cap on eligible investments would drop to just $25,000 in 2013.

INFRASTRUCTURE 

• Extending and Expanding the Successful Build America Bonds Program.  As part of his commitment to rebuilding our infrastructure to make America a better place to set up a business and create jobs, the President proposes to make permanent the successful Build America Bonds (BABs) program, which has accounted for more than $180 billion in bond issues in all 50 states.  Enacted as part of the Recovery Act, BABs have lowered the cost of borrowing for municipalities, helping to restore a badly damaged municipal finance market and supporting job creation through new infrastructure projects.  The President’s Budget proposes to make the BABs program permanent at a 28 percent subsidy rate, which would make the program revenue-neutral, meaning it will not have any effect on the Federal Budget deficit. The Budget proposal also expands the program to cover a broader set of investment such as capital infrastructure projects and financing for nonprofit colleges and hospitals.  A permanent BABs program offers a more efficient direct municipal borrowing subsidy, a broader market, and a more sustainable long-term financing option for State and local governments.

EDUCATION

• Providing up to $10,000 Over Four Years of College by Making the American Opportunity Tax Credit Permanent. The Budget proposes permanent extension of the American Opportunity Tax Credit to help make college affordable. The American Opportunity Tax Credit, which was created under the Recovery Act and extended as part of the December tax compromise, is worth up to $2,500 per student per year for four years of college and is partially refundable to reach more low-income families. Making the credit permanent would save American families $94 billion over the next 10 years.
 
• Providing Relief to Certain Responsible Borrowers who Receive Loan Forgiveness on their Education Debt.  The Budget proposes to allow borrowers who receive loan forgiveness on certain student debt to exclude that forgiveness from income for tax purposes, provided that the borrowers have met their repayment obligations for the 25-year period required by the Federal repayment programs.  For many students on income-contingent or income-based repayment plans, at the end of their payment plans any outstanding balance on their loans is forgiven.  Under current law, those forgiven amounts are taxable, potentially deterring borrowers from accepting loan forgiveness.  The Budget would change this policy, helping former students with their student loan burden. 

Middle-Class Tax Relief

•  Increasing Tax Credits for Child Care and Dependent Care Expenses by up to 75 Percent.  Since 2000, child care costs have grown twice as fast as the income of families with children.  Meanwhile, the Child and Dependent Care Tax Credit has increased only once in the last 29 years and is not indexed for inflation.  The Budget proposes to increase the credit for most families earning up to $103,000 a year, and to increase it by 75 percent for families making between $15,000 and $75,000.  The maximum credit for a family with two children making $70,000 a year would increase by $900.  This provision would reduce taxes for families with children by $10 billion over the next 10 years.

• Permanently Expanding the Earned Income Tax Credit for Families with Three or More Children and Reducing the Marriage Penalty.  The bipartisan tax cut compromise in December included a two-year extension, through 2012, of an expansion in the Earned Income Tax Credit for families with three or more children that was originally passed as part of the Recovery Act. The Budget continues to support these families by making this expansion permanent.  This proposal would provide $12 billion in tax relief for working families over the next 10 years.  The Budget would also permanently reduce the EITC marriage penalty.

• Providing for Automatic IRAs and Tax Credits for Employers that Help Workers Save for Retirement.  The Budget proposes creating automatic workplace IRAs to expand access to tax-favored retirement savings to tens of millions of American workers.  Employers automatically enrolling their employees in IRAs would receive tax credits of up to $250 a year for two years.  In addition, to help small businesses sponsor retirement plans, the Budget would double the maximum credit for small employers that establish new retirement plans to $1,000 per year for three years.  This proposal would provide tax relief worth $14 billion over the next 10 years.

A Responsible and Credible Plan to Address Budget Deficits

•  Allowing the 2001 and 2003 Tax Cuts to Expire for Households Making More Than $250,000 Per Year and Restoring the Estate Tax to 2009 Levels.  The last decade saw massive tax cuts targeted disproportionately at the most affluent Americans.  While the President accepted a temporary extension of the high-income tax cuts as part of a compromise to protect the middle-class tax cuts, these tax cuts do very little to support economic growth.  Moreover, they give an average of over $100,000 in tax breaks to those earning over $1 million per year, making our tax system less fair, and are unaffordable in light of our fiscal situation.  The President’s Budget would return to fiscal responsibility by allowing the expiration, beginning in 2013, of the tax cuts that exclusively affect upper-income families, as well as restoring the tax on large estates to 2009 levels.  Allowing these temporary tax cuts to expire as scheduled at the end of 2012 will avoid increasing the deficit by nearly $1 trillion over the next 10 years.
 
•  Limiting Certain Tax Expenditures for the Most Affluent by Capping Itemized Deductions at 28 Percent: As a down payment on individual tax reform, the President is proposing a significant reduction in tax expenditures. The Budget limits the tax subsidy for itemized deductions for high-income families to 28 percent – the same level that was in place at the end of the Reagan Administration.  This proposal would raise $321 billion over the next 10 years.  That revenue is devoted to paying for the first three years of relief from the Alternative Minimum Tax (AMT), which prevents tens of millions of Americans from being subjected to the AMT.
• Closing Loopholes and Limiting Other Tax Expenditures:
 

• Eliminating the Carried Interest Loophole for Hedge Fund Managers and other Professional Investors:  This year’s proposal updates a previous proposal to specifically address investment partnerships, which present the greatest opportunity for highly compensated service providers to be taxed on their services income (the earnings they receive for performing services) at capital gains rates, which are lower than the tax rates most moderate-income Americans pay on their earnings.  Closing this loophole would raise $15 billion over the next 10 years.

• Eliminating Inefficient Fossil Fuel Subsidies and Other Loopholes: Instead of subsidizing yesterday’s energy, the President’s Budget invests in the energy of tomorrow. Part of this commitment includes a proposal in the Budget to eliminate tax preferences for oil, gas and coal companies, providing savings of $46 billion.  In addition, the Budget proposes additional loophole closers and compliance measures to make the Tax Code more fair.  These include: eliminating a loophole used by those facing estate and gift taxes that enables them to undervalue transferred property, denying a deduction for firms that pay punitive damage claims, and reforming the treatment of certain insurance products.

• A Financial Crisis Responsibility Fee to Recoup TARP Losses and Reduce Financial Risk. The Budget includes a revised version of President Obama’s proposed Financial Crisis Responsibility Fee.  The law that created the Troubled Asset Relief Program (TARP) requires the President to propose an assessment on the financial sector to pay back the costs of these extraordinary actions.  This proposal is intended to recoup the costs of the TARP program as well as discourage excessive risk-taking, as the combination of high levels of risky assets and less stable sources of funding were key contributors to the financial crisis.  The structure of this fee would be broadly consistent with the principles agreed to by the G-20 leaders and similar to fees proposed by other countries.

• Reforming International Tax Rules that Drive Income and Assets Overseas:
 

• Combating Transfer Pricing Abuses: President Obama and Secretary Geithner are committed to rolling back incentives to shift income and assets overseas.  A prime example is “transfer pricing” abuse – when multinational corporations effectively transfer intangible assets like copyrights and trademarks to subsidiaries in overseas tax havens at artificially low prices. Transfer pricing abuse shifts profits overseas while avoiding the taxes they would pay on a fairly priced transaction.  Under the Budget proposal, excessive profits related to the offshore use of transferred intangibles would be taxable in the United States, thus restricting the tax incentive to engage in transfer pricing abuses.  This proposal, along with a related proposal to clarify the definition of intangible assets, would raise more than $22 billion over the next 10 years. 

• Other Reforms to Reduce Incentives to Shift Income and Assets Overseas: In addition to transfer pricing reform, the Budget includes a broader package of international tax reforms that has been designed to reduce incentives to shift income and assets overseas. For example, U.S. businesses that borrow money and invest it overseas can claim the interest they pay as a business expense and take an immediate deduction to reduce their U.S. taxes under current law, even if they pay little or no U.S. taxes on their overseas investment.  The Budget would eliminate this tax advantage for overseas investment by requiring that the deduction for the costs of overseas investment be delayed, saving $38 billion over the next 10 years.  Overall, the Budget’s proposals to reform international tax rules will raise $129 billion over the next 10 years.

Moving Towards a Simpler, More Fair, More Efficient Tax System

• Simplifying the Tax Code to Make Compliance Easier.  The Budget proposes 11 new measures that are designed to simplify specific aspects of the tax code.  For example, it proposes to eliminate the requirement that retirees over age 70 make minimum annual withdrawals from their IRAs or other retirement accounts if they have $50,000 or less in tax-favored retirement savings when the minimum withdrawal requirements would otherwise first apply.  This proposal would relieve a substantial number of retirees from the burden of making complex calculations to comply with the tax code and would permit them greater flexibility in determining when to draw down their limited retirement savings.  The Budget would also simplify the rules for transferring retirement accounts upon death by allowing a broader set of rollovers to be used, and in addition includes a number of targeted proposals that would simplify provisions of the tax code relating to partnerships, real estate investment trusts, private foundations, and tax-exempt bonds.  These measures will have little impact on revenue but will make tax compliance and filing significantly simpler for certain taxpayers.

• Closing the Tax Gap for a More Fair Tax System.  The Budget includes more than a dozen proposals intended to help close the tax gap – the difference between taxes owed and taxes paid timely and voluntarily.  The new proposals include making it easier to catch prisoners who file fraudulent returns, increasing criminal penalties on those who repeatedly and willfully fail to pay taxes, and a five-fold increase in penalties on paid tax preparers who violate due diligence requirements when filing claims for the EITC. Together, these proposals are expected to raise $1.3 billion over the next 10 years.  The Budget also includes a related proposal to make it easier to withhold payments to federal contractors and Medicare providers with delinquent tax debt, raising another $1.5 billion.

• Improving Tax Administration for Added Efficiency.  The Budget proposes to strengthen tax administration through a number of common-sense measures that will increase the efficiency of our tax system.  Proposals include allowing the IRS to accept credit and debit card payments without a fee to give taxpayers more choices and increase compliance, modernizing the tax system by expanding the use of bar codes on tax returns prepared using software, and requiring more electronic filing.

 

To view the 2011 Green Book, visit link.