Overview
The President’s Fiscal Year 2017 Budget:Today, the Obama Administration (the Administration) released its final budget (FY2017). The accompanying Greenbook describes the revenue provisions, most of which are the same as FY2016. The Greenbook outlines a set of “business tax reform proposals that form the basis of a broad reform…” These include: limiting the ability of domestic entities to expatriate; imposing a 19% minimum tax on foreign income; enhancing and simplifying research incentives; providing a new category of qualified private activity bonds for infrastructure projects; and increasing limitations for deductible new business expenditures.
Additional new provisions include:
- Modification of Cadillac Tax
Under current law, effective for taxable years beginning after December 31, 2019, the tax on certain high-cost health insurance plans is equal to 40% of the cost of applicable coverage that exceeds a threshold amount. The Administration’s proposed budget would modify the tax’s threshold amount to reflect differences in the cost of health care between geographic regions. The proposal would increase the tax threshold to the greater of the current law threshold or a “gold plan average premium” that would be calculated and published for each state.
- Modify and Permanently Extend Renewable Electricity Tax Credits
The Administration again proposes to permanently extend the renewable electricity production tax credit at current credit rates and make it refundable. In addition to last year’s proposal, the Administration would also allow individuals who install solar electric and solar water heating property on a dwelling unit to claim the production tax credit in lieu of the residential emergency efficient property credit.
- Net Investment Income and Self-Employment Contributions Act (SECA) Taxes
The Administration added more detail to its fiscal year 2016 proposal to ensure that all trade or business income of high-income taxpayers is subject to the 3.8% Medicare tax, either through the net investment income tax or the Self-Employment Contributions Act, by amending the definition of net investment income to include gross income and gain from any trades or businesses of an individual that is not otherwise subject to employment tax.
- Community College Partnership Tax Credit
The Administration’s budget proposes a new tax credit to businesses that invest in community college programs and then hire their graduates. Qualifying employers would receive a $5,000 tax credit for each qualifying employee hired.
- Carbon Dioxide Investment and Sequestration Tax Credit
The Administration again proposed an investment tax credit for projects that capture and permanently sequester carbon dioxide. This year’s proposal would require projects to sequester at least 50% of the CO2 in the stream for projects treating the entire flue gas stream from an electric generating unit, and 80% of the CO2 in the stream for projects that treat only a portion of the flue gas stream. This year’s proposed budget would also allow for a longer time frame of two years for taxpayers submitting applications for the credit.
- Imposition of an Oil Fee
The budget includes a proposal to impose a $10.25 barrel fee on oil that would raise approximately $320 billion.
Proposals from the Administration’s fiscal year 2016 budget to eliminate capital gains tax on investments in small business stock and to reduce excise taxes on liquefied natural gas to bring into parity with diesel were not among this year’s proposals.
IRS, Treasury Issue Additional Proposed Regulations on Suspension of Pension Benefits: Today, the IRS and Treasury issued proposed regulations regarding the suspension of benefits applicable to certain pension plans (REG-101701-16). The proposed regulations provide guidance regarding a limitation on the ability of sponsors of certain multiemployer plans to reduce or suspend the plan benefits. The IRS is accepting comments on the proposed regulations until March 15, and a public hearing is scheduled for March 22.