Tax Topics Feature Prominently in State of the Union Address

Published by Michael Novogradac on Wednesday, January 25, 2012 - 12:00am

In last night’s State of the Union address, President Barack Obama focused much of his time on taxes, energy and employment. He also touched briefly on the housing crisis, but did not mention affordable rental housing.

Tax Reform – Corporate

President Obama spoke about tax reform in two different sections of his address. He spoke first about corporate tax reform and later about personal tax reform.

The president advocated for a new emphasis on American manufacturing and tied that effort directly to corporate tax reform. He said, “We should start with our tax code.  Right now, companies get tax breaks for moving jobs and profits overseas. Meanwhile, companies that choose to stay in America get hit with one of the highest tax rates in the world … From now on, every multinational company should have to pay a basic minimum tax. And every penny should go towards lowering taxes for companies that choose to stay here and hire here in America.”

He also pressed for American manufacturers to get new and bigger tax cuts. “If you’re a high-tech manufacturer, we should double the tax deduction you get for making your products here,” he said. “And if you want to relocate in a community that was hit hard when a factory left town, you should get help financing a new plant, equipment, or training for new workers … It is time to stop rewarding businesses that ship jobs overseas, and start rewarding companies that create jobs right here in America. Send me these tax reforms, and I will sign them right away.”

A document released by the White House in conjunction with the State of the Union address called “The Blueprint for an America Built to Last,” proposes the creation of a new tax credit that would provide support for companies seeking to finance new factories, equipment, or production in communities that have been hardest hit by a company choosing to relocate or a military base shutting down.

In a fact sheet released today, the White House provided additional details. The proposed Manufacturing Communities Tax Credit would provide $6 billion in tax credits – $2 billion per year for three years – to encourage investments in communities affected by job loss. The sheet says the credit would be available for qualified investments that help finance projects in communities that have suffered a major job loss event. The document defines a major job loss event as when a military base closes or a major employer closes or substantially reduces a facility or operating unit, resulting in permanent mass layoffs.  The tax credit would support qualified investments in this affected community – made in conjunction with State Economic Development Agencies and other local entities – that improve local economic growth.

The president is also proposing to extend for all of 2012 a provision that allows businesses to expense the full cost of their investments in equipment, spurring investment in the United States.  The administration says that over the next two years, this would provide businesses with $50 billion in tax relief.

A related proposal would make permanent, enhance and simplify the Research and Experimentation Tax Credit. The administration says that about 70 percent of the benefit directly supports jobs in the United States, and every dollar spent encourages U.S.-based investment, as only research and experimentation performed in the United States is eligible.

Tax Reform – Personal

Later in his remarks, the President addressed the payroll tax holiday that is set to expire at the end of February as a segue to an appeal for personal tax reform. In those remarks he echoed earlier calls to end the so-called Bush tax cuts enacted in 2001. He said,  “Right now, we’re poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2 percent of Americans … Do we want to keep these tax cuts for the wealthiest Americans?  Or do we want to keep our investments in everything else …? [we] need to change our tax code so that people like me, and an awful lot of members of Congress, pay our fair share of taxes.”  

He recommended that tax reform should follow the Buffett Rule, which he defined as anyone making more than $1 million or more a year paying at least 30 percent in taxes. He also expressed support for a proposal put forward by Republican Sen. Tom Coburn: banning special tax subsidies or deductions for anyone making $1 million or more a year. 

Energy

In his remarks about energy issues, the president announced that he was directing the administration to allow the development of clean energy on enough public land to power 3 million homes.

He also acknowledged that deep political differences would make it difficult for Congress to pass comprehensive energy legislation. But nonetheless, he called for the creation of clean energy jobs. Specifically, he urged lawmakers to “double-down on a clean energy industry that never has been more promising. Pass clean energy tax credits. Create these jobs.”

In the fact sheet released today, the White House revealed that the administration also supports extending the Advanced Energy Manufacturing Tax Credit. The administration proposes providing an additional $5 billion in temporary tax credits that it estimates would drive nearly $20 billion in domestic clean energy manufacturing. The fact sheet says this would ensure new windmills and solar panels will incorporate parts that are produced and assembled by American workers. The Advanced Energy Manufacturing Tax Credit was created by the Recovery Act and oversubscribed more than three times over during the application process.

Employment

To boost employment, the president proposed efforts to promote new skills and better education.  Among the proposals he suggested were:

  • a partnership between community colleges and businesses to help train and place 2 million skilled workers,
  • a Veterans Jobs Corps that would help communities hire veterans as cops and firefighters,
  • and reforming job training and Unemployment Insurance to help dislocated workers get back to work.

During these remarks, he referenced new tax credits for companies that hire veterans.  The Returning Heroes Tax Credit provides businesses that hire unemployed veterans with a credit of up to $5,600 per veteran, and the Wounded Warriors Tax Credit offers a credit of $9,600 per veteran for businesses that hire veterans with service-connected disabilities.

Housing

The mention of housing in the State of the Union address was focused on the mortgage crisis and the impact it had on the nation’s homeowners. President Obama said he planned to submit a plan to Congress that would give “every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing. “ To pay for the plan without adding to the deficit, he is proposing a “small fee on the largest financial institutions.”

What These Proposals Mean for Tax Credits

An emphasis on job creation, manufacturing and energy could strengthen support for programs such as the new markets tax credit, historic tax credit, low-income housing tax credit and renewable energy tax credit. It will be important, however, for the tax credit community to monitor tax reform efforts closely to ensure that changes to the tax code don’t weaken or eliminate these tools, which have documented track records of boosting employment and revitalizing communities.

Proposal Details

Limited, additional details were provided in the “The Blueprint for an America Built to Last” document and fact sheet.

Beyond that, it is likely that further details on these proposals will be included in the President’s proposed fiscal year 2013 budget, which the administration is scheduled to release on February 13.

So stay tuned in the coming weeks as additional information becomes available.