On May 28th, the House passed the American Jobs and Closing Tax Loopholes Act (House amendment to Senate amendment to HR 4213) to help create or save more than a million American jobs by:
- restoring credit to small businesses
- extending tax incentives for American R&D and energy
- rebuilding American infrastructure
- expanding summer jobs for young people
- providing tax relief for middle class American families
To fully fund this job creation, the bill closes tax loopholes and enforces corporate accountability by:
- preventing corporations from shipping jobs overseas & sticking American taxpayers with the bill
- making Wall Street investment fund billionaires pay a fair tax on their income
- making the oil industry pay to ensure sufficient funds to clean up the Gulf of Mexico oil spill
The bill complies with the statutory pay as you go budget law, while addressing the emergency needs and crises left by the Bush Administration:
- ensuring seniors can keep their own doctors (SGR)
- extending a proven economy booster, unemployment relief for families
Compromises on the bill modified it to reduce the overall deficit impact to $54 billion, by shortening the extensions of UI (through November), SGR to 19 months, and dropping the extension of COBRA and health assistance to states. The provisions to prevent Medicare physician payment cuts will be a seperate vote.
Congressional Republicans oppose closing the loopholes that subsidize companies to move American jobs overseas and they want to cut off unemployment benefits who lost their jobs through no fault of their own. Democrats in Congress will continue to address the major issues confronting our nation and take America in a New Direction - creating good American jobs, the lowest taxes in 60 years for the middle class and small businesses, closing tax loopholes that send jobs overseas, and building a strong new foundation for the American economy.
More on the specific provisions:
Creating American Jobs
Small Business Lending ($500 million)
- Restores credit flow to small businesses who hire the bulk of America's workers by extending key Recovery Act provisions to make small business loans more affordable and available through the end of the year. That program:
- eliminates certain fees on Small Business Administration (SBA) loans to make them more affordable for small businesses, and
- encourages banks to lend to small businesses by raising to 90 percent (from 75 percent) the portion of a loan that the Small Business Administration will guarantee.
- Since its creation, the SBA program has supported nearly $26 billion in small business lending, which helped to create or retain over 650,000 jobs.
- Small businesses have always been a major engine of our economy - creating 65 percent of all new jobs over the past decade and a half; they must have access to capital to be at the forefront of our recovery.
Spurring American Innovation, U.S. Businesses, & Clean Energy (more than $20 billion)
- Extends the R&D Tax Credit to incentivize good jobs here in America and invent the technology that will power the global economy. This will spur innovation at nearly 11,000 American businesses and help create or save more than 117,000 American jobs.
- Spurs real estate development with tax incentives for certain developments such as retail stores and restaurants to support more than 292,000 construction jobs nationwide.
- Includes tax incentives to help U.S. multinational businesses compete in the global economy (special rules for active financing income).
- Strengthens American-made energy with tax incentives for the production of biodiesel and renewable diesel (supporting more than 35,000 jobs), and natural gas, propane, biogas and liquid fuels derived from biomass and electricity produced from biomass (open-loop biomass).
- Increases American energy efficiency with: provisions to make it easier for families to use tax credits for energy-efficient windows, tax credits for manufacturing energy efficient new homes, and direct payments -- in exchange for the current tax credit -- to help manufacturers of energy-efficient appliances during the Bush recession as they have no profits and owe no taxes.
Rebuilding America ($7.9 billion)
- Reinvests in America with Build America Bonds and Recovery Zone Bonds to make it less expensive for State and local governments to finance the rebuilding of schools, sewers, hospitals and transit projects, and extensions of tax-exempt bonds for water and sewers, private activity bonds, the low-income housing tax credit exchange program and tax provisions for redeveloping Brownfield sites.
- Extends Build America Bonds, which have been called “one of the economic recovery efforts biggest successes,” through 2012. These bonds have been an effective tool in job creation having helped finance more than $97 billion in infrastructure projects and supported 1.7 million jobs nationwide. Currently, the federal payments for these bonds expire at the end of the year.
- Extends Recovery Zone bonds for economically distressed areas through 2011, which will help local municipalities raise more than $25 billion of capital for infrastructure and economic development projects and will support more than 450,000 jobs nationwide. The bill would also ensure that each municipality receives an allocation of these bonds equal to at least its share of national unemployment.
- Restores Surface Transportation Funding Equity - by more equitably distributing highway funds under the National Corridors and Projects of National and Regional Significance Programs. Unlike the original agreement, it ensures that no state will lose any funds as a result of this change, while providing funds to the 21 states that currently receive no funding under these programs. It also ensures that all 13 surface transportation formula programs receive bonus formula funding -- including Safe Routes to School, the Appalachian Development Highway System and the Rail-Highway Grade Crossing Program - instead of just the six included in the HIRE Act.
Cutting Taxes for Middle-Class Families(more than $4 billion)
- Provides up to 30 million homeowners with property tax relief;
- Benefits 12 million families through the State and local sales tax deduction;
- Helps more than 4 million families better afford college with the tuition deduction;
- Saves nearly 4 million teachers money with a deduction for classroom expenses;
- Takes steps to make sure that activated military reservists do not suffer a pay cut by providing a tax credit for small businesses that continue to pay their National Guard and Reserve employees when they are called up to serve.
Pension Relief (saving taxpayers $3 billion)
- Provides temporary relief for private pension plans hard hit by the economic downturn with adjustments to funding requirements, so employers do not have to choose between making forced pension contributions, freezing pension plans, or cutting jobs. This will make up to $129 billion in cash available to employers over the next seven years, by giving them more time to make up losses and relief from funding-level restrictions.
- Includes key safeguards to protect the pension benefits that retirees worked for and deserve.
- Calls for clear, simple and complete 401 (k) fee disclosure for workers, prior to selecting a retirement savings options, as well as clear information for workers on the name, risk level, and investment objective of each investment option. Also requires disclosure of 401(k) fees to employers, and better quarterly statement information for workers with a list of total contributions, earnings, closing account balance, net return, and all fees subtracted from the account.
Summer Jobs for Young People & Job Creation for High Unemployment Areas (nearly $6 billion)
- Provides resources to support 350,000 jobs for youth ages 14 to 24 through summer employment programs. This age group has some of the highest unemployment levels, 25% for those aged 16 to 19, nearly 20% for those aged 16 to 24, and even higher for African American youth and Latino teens.
- Extends for one year the TANF Emergency Fund to help create jobs -- an emergency fund that 35 States are using or planning to use for a jobs program that subsidizes employers, including small businesses, who hire unemployed people. Supported by the National Governors Association, the National Conference of State Legislatures, and the National Association of Counties, this Fund is on track to put over 185,000 Americans back to work, but will expire September 30.
Haley Barbour, Republican Governor of Mississippi, said in supporting the extension, 'It's welfare to work.'[New York Times, 2/17/10]
- Help businesses and individuals to invest in and succeed in certain economically depressed areas with the extension of tax incentives for Empowerment Zones and Renewal Communities, as well as the new markets tax credit.
- Provides fund to pay for settlement of both the Cobell and Pigford class action lawsuits. The Cobell settlement concerns the government's management and accounting for over 300,000 American Indians trust accounts, and the Pigford settlement ends a decades old discrimination lawsuit brought by black farmers against USDA. ($4.6 billion)
- Provide a one-time capitalization of the National Housing Trust Fund (NHTF), which will provide communities with funds to build, preserve, and rehabilitate rental homes that are affordable for very low income households, including people who are unemployed. This tied with project-based vouchers is estimated to support the immediate production of 10,000 rental homes, creating 15,000 new construction jobs and 4,000 new jobs in ongoing operations. ($1 billion)
- Provides $1.5 billion in assistance for 2009 agricultural losses for crops, including specialty crops, livestock, sugar, aquaculture, cottonseed, and poultry - largely through supplemental direct payments to producers with a minimum 5-percent loss in production. American net farm income fell by more than one-third in 2009 and is at its lowest since 2002.
- Includes provisions proposed by President Obama taking a significant step toward ending the Disabled Veterans Tax for all medically retired service members with less than 20 years of service. This tax unjustly forces disabled military retirees to give up one dollar of their pension for every dollar of disability pay. These veterans were so severely injured in the service that they had to retire and deserve full retirement and disability benefits. The bill ends the tax and provides full retirement and disability benefits to 77,000 of these disabled service members for two years in anticipation of extending it to all medically retired veterans over four years. ($700 million)
CLOSING TAX LOOPHOLES & PREVENTING OUTSOURCING ($56 billion)
Making Wall Street investment fund managers pay a fair tax on their income ($18 billion)
- Closes the carried interest tax loophole that allows wealthy investment fund managers to pay capital gains tax rates (up to 15 percent) on income that they receive for providing investment management services. Every other American who works for a living is required to pay taxes at ordinary income tax rates (up to 35 percent) on their service income.
- Taxes 75% of investment fund managers' carried interest as ordinary income -- carried interest that does not reflect a return on their own invested capital - after several years of transitioning (with 50% of carried interest taxed as ordinary income).
- Hedge fund managers make hundreds of millions of dollars (and often billions) annually; the top 25 hedge fund managers made $25 billion in 2009, with one investor making a record $4 billion.
- Many economists, including Greg Mankiw, former chair of the Council of Economic Advisers under President Bush, tax officials in the Bush and Reagan Administrations, and the Congressional Budget Office have agreed that carried interest should be taxed at the same rate as other compensation for services.
- 'It's amazing to me that at the same time the U.K. is imposing a 50% excise tax on bankers' bonuses, the private-equity guys aren't even willing to pay the usual ordinary income rate,' Mr. Fleischer [University of Colorado tax law professor Victor Fleischer] said. 'You would think they would recognize a fair deal when it's offered.' [Wall Street Journal, 1/7/10]
- At a Congressional hearing on the subject, Warren Buffett said, “If you believe in taxing people who earn income on their occupation, I think you should tax people on carried interest.”
- Republicans and Wall Street and financial industry lobbyists have blocked closing this loophole for years. It is time for investment fund managers to pay a fair tax on their income.
Preventing corporations from shipping jobs overseas and sticking U.S. taxpayers with the bill ($14 billion)
- Eliminates tax provisions that encourage companies to ship jobs overseas.
- The foreign tax credit is designed to prevent double taxation (i.e., full taxation by both a foreign country and by the United States) of income earned abroad. However, companies have devised schemes essentially shifting the burden of their foreign income tax onto the U.S. Federal government. These transactions enable companies to operate offshore with essentially little or no tax liability to either the U.S. or the foreign government.
- This abuse of the foreign tax credit encourages companies to move jobs offshore to avoid U.S. taxation.
- Foreign tax credit abuse is among the IRS's top compliance concerns for large corporate taxpayers.
- In 2004, U.S. multinational corporations paid an effective U.S. tax rate of just 2% on their $700 billion of foreign active earnings.
- Includes Obama Administration provisions to crack down on corporations that split foreign tax credits from the income subject to foreign tax, allowing them to take advantage of the foreign tax credit to reduce their U.S. taxes even though the foreign income remains overseas.
- Also eliminates unintended tax incentives for companies to move U.S. assets overseas, ensuring that foreign tax credits are not provided for income that is not subject to U.S. tax.
- Limits the use of aggressive tax planning techniques that take advantage of anti-abuse rules in the tax code to avoid U.S. tax and generate additional foreign tax credits.
- Republicans have fought to keep, and even expand, these kinds of loopholes for years.
Stop Professionals from Evading Employment Taxes ($11 billion)
- Closes a tax loophole that allows wealthy attorneys, lobbyists and others to avoid paying their fair share of Medicare and Social Security taxes.
- These professionals, key players in S Corporations, pay themselves a nominal salary and claim that remaining S Corporation earnings they receive are exempt from employment taxes. (Only the wages that S corporation partners pay themselves are subject to Social Security and Medicare taxes.)
- Addresses this abuse in situations where (1) an S corporation is engaged in a professional service business that is principally based on the reputation and skill of 3 or fewer individuals or (2) an S corporation that is a partner in a professional service business.
- Preserves the basic rule that S corporation earnings are generally not subject to employment tax.
Corporate Accountability: Protecting Coastal Economies by requiring Oil Companies to Strengthen the Solvency of the Oil Spill Liability Trust Fund--instead of Passing the Bill on to Taxpayers ($11 billon)
- Among the provisions, the bill takes a first step to hold the oil industry accountable in the face of the largest oil spill since the Exxon Valdez.
- After a decade of record profits for the oil industry, the bill increases fees the oil industry must pay into the Oil Spill Liability Trust Fund -- the rainy day fund for handling the immediate costs of dealing with oil spill disasters and compensating individuals, businesses and communities damaged by these spills -- from 8 cents per barrel to 34 cents. Even as analysts estimate that damages associated with the oil spill in the Gulf of Mexico could exceed $14 billion, the Trust Fund has only $1.5 billion. While we are working to make sure that BP makes good on their financial responsibilities for this cleanup, it is critical that the Trust Fund adequately funded so that the oil industry and not American taxpayers that are on the hook for the damages caused by this massive spill if BP does not.
- To ensure that damages are fully recovered by American families, businesses and communities, the bill would also increase the $1 billion cap on individual claims against the fund to $5 billion, and increase the $500 million cap on natural resource damage assessments to $2.5 billion.
- In other legislation, Congress is working to raise the cap (up from $75 million) on the responsible party's liability for economic damages, including lost business revenues from fishing and tourism, natural resources damages, or lost local tax revenues. Senate Republicans are obstructing progress on this, siding with BP over taxpayers and Gulf Coast businesses devastated by the spill.