Today the President unveiled a few more details about some of the revenue proposals in his budget–what he’s hoping are some of those rare tax increases that might sound good because they seem to punish “bad” behavior (you know, sort of like trying to tax away those AIG bonuses). This time it’s not exactly the bad behavior (ivory-towered) economists would prefer to tax (such as using carbon-intensive energy which contributes to global warming), but it’s the kind of bad behavior genuine American manufacturing workers (including maybe some autoworkers who have very recently lost their jobs) would like to see taxed and gone away. These are “anti-offshoring” tax increases, as the President explained:
Now, understand, one of the strengths of our economy is the global reach of our businesses. And I want to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens. This is something that I talked about again and again during the course of the campaign. The way we make our businesses competitive is not to reward American companies operating overseas with a roughly 2 percent tax rate on foreign profits; a rate that costs — that costs taxpayers tens of billions of dollars a year. The way to make American businesses competitive is not to let some citizens and businesses dodge their responsibilities while ordinary Americans pick up the slack…
For years, we’ve talked about ending tax breaks for companies that ship jobs overseas and giving tax breaks to companies that create jobs here in America. That’s what our budget will finally do. We will stop letting American companies that create jobs overseas take deductions on their expenses when they do not pay any American taxes on their profits. And we will use the savings to give tax cuts to companies that are investing in research and development here at home so that we can jump start job creation, foster innovation, and enhance America’s competitiveness…
[T]hese and other reforms will save American taxpayers $210 billion over the next 10 years — savings we can use to reduce the deficit, cut taxes for American businesses that are playing by the rules, and provide meaningful relief for hardworking families…
Today’s proposals elaborate on one line in Table S-6 (page 122) of the President’s initial budget blueprint issued in February–the line labeled “Implement international enforcement, reform deferral, and other tax reform policies” which contained unusually round numbers and added up to a revenue increase/deficit decrease of $210 billion over ten years (which incidentally offsets only about one-tenth the cost of Obama’s proposal to extend the bulk of the Bush tax cuts). Here’s how the $210 billion revenue increase was broken down for us today:
- a revenue increase of $103.1 billion from reforming deferral rules ($60.1 billion) and “closing foreign tax credit loopholes” ($43.0 billion)–both provisions taking effect in 2011 (note: after the recession is expected to end);
- a revenue decrease of $74.5 billion from making the research and experimentation tax credit “for investment in the United States” (which would otherwise expire at the end of this year) permanent;
- a revenue increase of $95.2 billion from “getting tough on overseas tax havens”….”getting tough” by 2011 at least;
- which adds up to $123.8 billion in tax increases, leaving 210.0 - 123.8 = $86.2 billion still to be explained in the next (more complete) version of the President’s budget coming out later this month.
Note that it really helps (politically) to throw in a popular tax cut such as the R&E credit (a little “treat” of sorts) even within a “tax reform” proposal that’s supposed to emphasize a broadening of the tax base.
Also note that although this was a line item in the President’s budget, this was a line in the budget that the Congressional Budget Office and the Joint Committee on Taxation did not do a revenue estimate on, presumably because there were not enough details on these proposals specified in the early budget document. It will be interesting to see how the CBO/JCT revenue estimates on these proposals eventually compare with the $210 billion the Obama Administration is hoping for, yet considers a “conservative” (low-balled) number.