Daily Tax Update - April 10, 2013: FY 2014 Budget Released

FY 2014 Budget Released.  Today, the Administration released the FY 2014 Budget.  The Budget states, “To reach the goal of $4 trillion in total deficit reduction, the President is proposing more than $1 trillion in savings from spending cuts, entitlement reforms, and interest savings. But he is also proposing to do what leaders of both parties have suggested:  save hundreds of billions of dollars through tax reform that reduces tax benefits for high-income households.  Tax reform holds the potential to improve economic growth by reducing complexity for individuals and small businesses, improving efficiency, and lowering the deficit.”  The Budget continues, “The Administration believes in a balanced approach that cuts spending and reforms entitlements responsibly, but also raises revenue from tax reform that closes special interest loopholes and addresses deductions and exclusions that let some of the wealthiest members of society pay a smaller fraction of their income in taxes than many middle class families.”

The Budget includes the following tax offsets and other measures:

  • Reduce the value of itemized deductions and other tax preferences to 28% for families with incomes in the highest tax brackets;
  • Impose a 30% floor on income tax of millionaires after accounting for charitable contributions (the Buffett Rule);
  • Tax income from carried interests as ordinary income;
  • Prohibit individuals from accumulating over $3 million in tax-preferred retirement accounts;
  • Return estate tax to 2009 parameters and close so-called estate tax loopholes;
  • Establish financial crisis responsibility fee;
  • Expand, simplify, and make permanent the research and experimentation tax credit;
  • Provide a permanent tax incentive for renewable energy production and energy efficiency;
  • Reform the international tax system;
  • Eliminate fossil fuel tax preferences;
  • Reform the tax treatment of derivatives; and
  • Eliminate special depreciation rules for corporate purchases of aircraft.

On international tax reform, the Budget states:  “The international provisions of the corporate tax code create opportunities for U.S. companies to reduce their taxes by locating their operations and profits abroad instead of in the United States.  The tax system is also subject to gaming, as corporations manipulate complex tax rules to minimize their taxes and, in some cases, shift profits earned in the United States to low-tax jurisdictions.  At the same time, the tax system should properly balance the need to reduce tax incentives to locate overseas with the need for U.S. companies to be able to compete overseas; some overseas investments and operations are necessary to serve and expand into foreign markets in ways that benefit U.S. jobs and economic growth. The Budget proposes specific reforms to combat abuses as potential elements of broader business tax reform, which the President has proposed should also include a minimum tax on foreign earnings.  The specific proposals in the Budget would crack down on opportunities to shift profits on intellectual property to low-tax countries and restrict the ability of companies to claim interest deductions while deferring U.S. tax on the associated income.  The Budget also proposes to disallow deductions for moving production overseas, while providing a new tax credit for bringing production back to the United States.  Together, these reforms would save $157 billion over 10 years.”

The Budget can be accessed at http://www.whitehouse.gov/omb/budget/Overview.

The Green Book can be accessed via:

General Explanations of the Administration's Fiscal Year 2014 Revenue Proposals (Released April 2013)