U.S. Treasury Secretary Timothy Geithner on February 22 released the Obama Administration’s framework for corporate tax reform. Among other things, it calls for making the renewable energy production tax credit permanent and refundable. The plan outlines the following five elements for legislation to reform the taxation of businesses:
- 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.
- 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.
- 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.
- 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.
- Restore fiscal responsibility and not add a dime to the deficit.
The plan does not specify many specific tax expenditures or tax breaks to eliminate or cut back, and does not include many proposals directly related to real estate. However, it calls for taxing carried interest for “managers in investment services partnerships” at ordinary income tax rates. It also mentions, as one option, “addressing depreciation schedules,” noting that “…accelerated depreciation may be a less effective way to increase investment and job creation than reinvesting the savings from moving towards economic depreciation into reducing tax rates.”
The Obama Administration, in its FY 2013 budget request, included a number of tax proposals, including proposed amendments to enhance the low-income housing tax credit, the renewal and improvement of the new markets tax credit, and extension of the renewable energy production and investment tax credits along with renewal of the Section 1603 renewable energy cash grant program.