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Tax Reform Plan Released by White House, Treasury; Key Points For Financial Exec's

The President's Framework for Business Tax Reform, (the 'Framework') released earlier today by the White House and the U.S. Treasury Department, focuses on five elements. The jist of the proposal, as framed in the title of Treasury's press release, is that the Framework would 'Enhance America's Competitiveness...' by "Simplify[ing] the Tax Code, Eliminat[ing] Dozens of Tax Loopholes and Subsidies, and Incentiviz[ing] Job Creation [and] Investment at Home."  See also the related Statement issued by President Barack Obama, and the related Remarks of  U.S. Treasury Secretary Tim Geithner.

Framework's Five Elements

The five elements emphasized in the Administration's tax reform Framework, as summarized in Treasury's press release, are:  

  1. Eliminate dozens of tax loopholes and subsidies, broaden the base and cut the corporate tax rate to spur growth in America: The framework eliminates dozens of different tax expenditures and fundamentally reforms the business tax base to reduce distortions that hurt productivity and growth. It reinvests these savings to lower the corporate tax rate to 28 percent, putting the United States in line with major competitor countries and encouraging greater investment.  
  2. Strengthen American manufacturing and innovation: The framework would refocus the manufacturing deduction and use the savings to reduce the effective rate on manufacturing to no more than 25 percent, while encouraging greater research and development and the production of clean energy.  
  3. Strengthen the international tax system, including establishing a new minimum tax on foreign earnings, to encourage domestic investment: Our tax system should not give companies an incentive to locate production overseas or engage in accounting games to shift profits abroad, eroding the U.S. tax base. Introducing the principle of a minimum tax on foreign earnings would help address these problems and discourage a global race to the bottom in tax rates.  
  4. Simplify and cut taxes for America’s small businesses: Tax reform should make tax filing simpler for small businesses and entrepreneurs so that they can focus on growing their businesses rather than filling out tax returns.  
  5. Restore fiscal responsibility and not add a dime to the deficit: Business tax reform should be fully paid for and lead to greater fiscal responsibility than our current business tax system by either eliminating or making permanent and fully paying for temporary tax provisions now in the tax code.

 Key Points for Financial Executives
 
FEI President and CEO Marie N. Hollein released the following statement in response to the Administration's tax reform proposal:  

Corporate tax reform can ensure long-term job creation in this country, but to be effective, our tax policy must be globally competitive. While lowering the corporate tax rate to 28 percent is a good solid step towards making the U.S. more competitive globally, examining the international tax landscape makes clear that an unspecified new minimum tax on overseas earnings and the absence of a territorial tax system will continue to place the U.S. at a considerable disadvantage to other nations. 

While corporate tax reform is important, it should not be tackled in isolation. After all, privately-held and family-owned businesses are drivers of innovation and job creation as well, and it is essential that these firms be included in any comprehensive tax package. Under today’s proposal, many of these businesses would see their taxes go up as tax preferences they currently enjoy are eliminated and their individual tax rates remain well above 28 percent and are set to increase still further.
 
Additional points of interest to financial executives and others can be found in an FEI Summary entitled Treasury Department Releases Corporate Tax Reform Package, Proposes 28 Percent Corporate Rate. Included among the points noted in the FEI summary, authored by Karen Lapsevic, Director, Government Affairs, in FEI's Washington DC office, are that the Framework proposed by the Administration would:

  • Eliminate “last in first out” (LIFO) method of accounting
  • Expand, simplify, and make permanent the R&D tax credit
  • Require greater disclosure of annual corporate income tax payments
  • Lower top effective rate on manufacturing income to 25 percent by reforming the domestic production activities deduction
  • Remove tax deductions for moving production overseas and provide new incentives for bringing production back to the United States, including a 20 percent income tax credit for insourcing
  • Allow small businesses to expense up to $1 million in investments
Read the full FEI summary for additional details.
 
 

 
Posted: 2/22/2012 3:57:29 PM by Edith Orenstein | with 0 comments
Filed under: Karen Lapsevic,Marie Hollein,President Barack Obama,tax reform,Tim Geithner,Timothy Geithner,U.S. Treasury Secretary,White House,Obama,Treasury,FEI


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Edith Orenstein