Other Revenue Proposals
Provide tax credit for energy-efficient commercial building property expenditures in place of existing tax deduction. The president proposes to replace the existing deduction for energy-efficient commercial buildings with a credit for the cost of modifications placed in service during 2013 that reduce energy usage by at least 20 percent. The proposal would reduce receipts by $1.7 billion over the next decade.
Reform and extend Build America Bonds. Build America bonds were created by the 2009 stimulus act to provide an alternative to tax-exempt bonds as a means of financing state and local government projects. Rather than exempting bond interest from federal taxation, the federal government makes direct payments to issuing governments to subsidize interest payments on taxable bonds. The president proposes to make the program permanent with a 30-percent subsidy for bonds issued through 2013 and a 28-percent subsidy thereafter (which would be roughly equivalent to the subsidy for tax-exempt bonds). The president would also expand the range of activities for which governments could use the bonds. The proposal would increase receipts by roughly $66 billion over the next decade, since taxable bonds would replace tax-exempt ones. However, the new payments would increase outlays by about $67 billion. On net, the proposal would increase the deficit by $1.1 billion over the next decade.
Provide tax incentives for locating jobs and business activities in the United States and remove tax deductions for shipping jobs overseas. The Administration proposes to create a new tax credit equal to 20 percent of business expenses paid or incurred in connection with insourcing a U.S. trade or business and to deny deductions for the costs of moving U.S. jobs offshore. The motivation is to provide tax incentives to encourage U.S. companies to locate jobs at home instead of overseas. But the proposal as described in Treasury’s Green Book does not define what activities qualify as either expenses of insourcing or costs of moving jobs offshore. Moreover, when a U.S. corporation invests in activities in the United States, it is impossible to tell whether or not that investment is coming at the expense of an addition to its stock of overseas investments. Nor it is possible to tell whether an additional offshore investment is displacing domestic jobs. The Administration estimates this proposal would lose about $9 million per year through 2022.
Target the domestic production activities deduction to domestic manufacturing activities and double the deduction for advanced manufacturing activities. Under current law, companies are allowed to take a 9 percent deduction from taxable profits arising from domestic production activities. The deduction reduces the maximum federal corporate tax rate on profits from qualifying activities from 35 percent to 31.9 percent. The deduction rate is 6 percent for income from oil and gas production, refining, transportation, and distribution, making the top corporate rate on these activities 32.9 percent. The Administration proposes to eliminate completely the domestic production deduction for the production of oil and gas, hard mineral fossil fuels, and some other “nonmanufacturing” activities and to use the revenue gained to increase the deduction rate for manufacturing involving certain “advanced technology” property to 18 percent. Previous Administration budgets had also proposed to remove the domestic production deduction for oil, gas, and hard mineral fossil fuels, but had grouped the proposal along with other proposals to reduce fossil fuel tax preferences. (See write-up on fossil fuel tax preferences.) The proposals would have a negligible effect on revenues over the next decade.
Extend exclusion from income for cancellation of certain home mortgage debt.Forgiven debt generally is considered to be taxable income. One exception is qualified principal residence indebtedness (QPRI), debt incurred in buying a home. That exception for QPRI was created in 2007 and set to expire after 2009. Subsequent legislation extended the exception through 2012. The president proposes to further extend the exception through 2015 for debt discharge agreements made prior to 2016. The proposal would reduce receipts by $2.7 billion over the next decade.
Provide tax credits for the production of advanced technology vehicles and for medium- and heavy-duty alternative-fuel commercial vehicles and extend and modify certain energy incentives. The president proposes to provide tax credits for plug-in electric drive vehicles and for medium- and heavy-weight fuel cell vehicles produced during specified periods, all of which would end by 2020. He would also extend existing tax credits for wind facilities and associated properties placed in service during 2013. In combination, the three proposals would reduce receipts by $7.6 billion over the next decade.
Eliminate special depreciation rules for purchases of general aviation passenger aircraft. The president proposes to increase the recovery period for depreciating general aviation passenger aircraft from five years to seven years (12 years for alternative depreciation). The changes would bring the tax preference for corporate jets and similar airplanes in line with that for commercial and freight airlines.The proposal would increase receipts by $2.2 billion over the next decade.
Deny deduction for punitive damages. Taxpayers are currently allowed to deduct certain punitive damages from taxable income. The president proposes to disallow all such deductions and to count as taxable income any punitive damages paid by insurance. This provision would increase revenue by $0.3 billion over the next decade.
Increase Oil Spill Liability Trust Fund financing rate by one cent. The Oil Spill Liability Trust Fund is financed by an excise tax on certain crude oil and petroleum products. That tax is currently 8 cents per barrel, rising to 9 cents in 2017. The president proposes to increase the tax to 9 cents per barrel in 2012 and to 10 cents in 2017. The proposal would increase receipts by $0.7 billion over the next decade.
Reform inland waterways funding. The Inland Waterways Trust Fund finances locks, dams, and related infrastructure for use by inland barges. The fund is currently financed by a 20-cents- per-gallon excise tax on liquid fuels used in inland waterways commerce. The president proposes to reform laws governing the fund and to establish a new fee on commercial navigation users. The proposal would increase revenue by $1.1 billion over the 2013–22 period.
Increase certainty surrounding worker classifications. Businesses must distinguish between workers who are employees and those who are independent contractors. The president proposes to allow the Internal Revenue Service to provide greater guidance about appropriate worker classification and to require prospective reclassification of those who are misclassified. This proposal would increase revenue by $8.4 billion over the next decade.
Increase program integrity efforts. The president proposes to provide additional resources to the Internal Revenue Service for enforcement and compliance activities. Prior budgets have generally not recorded savings from such efforts, nor have they assumed a decrease in receipts when enforcement budgets have failed to keep up with increased workloads and labor costs. However, the current budget projects $43.6 billion in revenue increases from increased IRS enforcement over the next decade. Other, smaller program integrity efforts are credited with raising an additional $0.7 billion.