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BUDGET ANALYSIS: Obama promotes repatriation

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With Barack Obama’s administration having announced that broad corporate tax reform will be dealt with separately in the coming weeks, and political turmoil stifling progress on US tax issues in general, there were no great expectations for the President’s 2013 budget, delivered today. But amid Obama’s rhetoric of hope and camaraderie, of fairness and responsibility, some meaningful tax changes were proposed.

Of course, the budget does not represent legislation, and many hurdles still stand between these proposals and actual implementation, but the President’s proposals include ending tax breaks for companies that ship jobs overseas, and a focus on manufacturing and energy.

Obama said he wanted to put an end to tax breaks being given to American companies shipping jobs overseas, and instead give them to those companies that create jobs in the US.

In another provision aimed at US job creation, Obama proposes the removal of a tax break presently available for moving expenses when a US company moves operations overseas. He would replace this with a 20% credit for the expense of moving operations back to the US.

He wants to implement a 10% tax credit for new hiring and wage increases, as well as dealing with bonus depreciation. He proposes a further one year extension of 100% expensing. This gives domestic companies the ability to benefit from 100% write-off of certain new capital and equipment investments.

Following legislation introduced last week by Senators Carl Levin (D-Mich) and Kent Conrad (D-ND) – the Cut Unjustified Tax Loopholes Act (CUT Loopholes Act) – Obama proposes foreign tax credit pooling, requiring that foreign tax credits from dividends paid to a parent company be determined on a pooling, rather than individual, basis. This is aimed at closing a loophole which allows companies to claim more in credits than they would be liable for in US taxes through strategic selection of which foreign subsidiaries pay out dividends.

One proposal likely to seamlessly pass into law is the extension of the R&D tax credit. This has bipartisan support and has been called for by numerous witnesses called before the Senate Finance Committee. Today’s proposal would make permanent the R&D credit of up to 20%. According to the budget document, this measure would cost the government $109 billion.

The budget also proposes an end to a number of oil subsidies and deductions, as well as a bank tax, a minimum overseas profits tax, tax hikes for the rich, and the extension of the payroll tax cut to prevent a tax hike on the middle class.

As previously promised, the budget also confirmed that the Obama administration will release documentation dealing with a proposal to reduce the 35% corporate tax rate later this month.

Further reading:

Congress tackles impact of accounting on US tax reform

Why the US reform of extender provisions cannot wait for tax code overhaul

COMMENT: The US emergency: corporate tax reform to define presidential election

Obama on tax code: “Let’s change it”

Boeing, FedEx and Nike demand lower US corporate tax rate

US Inbound: President’s international tax proposals

What the US Republican presidential candidates have to say about corporate tax



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