There hasn’t been a federal budget in three years, so what’s to worry about the just-released budget for fiscal year 2013?
Well, there’s the fact that the budget proposal is a blueprint of the legislation the administration intends to pursue, and it reflects the general philosophy of the “thinkers” in the executive branch.
That said, there are a few things to cheer, but much to dismay those who are concerned about the economic welfare of the nation.
On the plus side, there’s the proposal to extend 100 percent first-year depreciation for qualified property, which expired at the end of 2011. Then there’s the payroll tax, which will resume its rate of 6.2 percent at the beginning of March if no action is taken—and it looks as though a compromise is already in the works, ready for a vote. Making the Research and Experimentation Credit permanent isn’t a bad idea either.
Overall, though, the general thrust of the budget proposal is depressing: It would add $1 trillion to the national debt, attempt to end the recession with increased spending, while paying for everything with a $2 trillion tax increase, the largest in the nation’s history.
Moreover, the budget proposes a tax agenda that picks winners and losers. That was already tried under the stimulus plan, and gave us such winners as Solyndra and a host of other special-interest enterprises that were championed by the administration but subsequently went broke.
Government will continue to add bureaucrats, except for the military, which will cashier thousands in a cost-saving move. But at least the proposal includes a request of $12.8 billion for the IRS, an 8 percent increase over the FY 2012 level. Hopefully, this will help close the tax gap and make life easier for preparers. Of the total, $403 million is for new IRS enforcement activities, which the IRS projects will raise $1.48 billion in revenue annually once new hires are fully trained. And $35 million is to strengthen return preparer compliance, including registration and development of competency testing.
As with prior budgets, this one aims to get rid of the LIFO method of inventory accounting, deeming it a loophole. Any repeal would affect the roughly 40 percent of all businesses in nearly every industry that use inventories.
And the change in the tax treatment of carried interest, projected at raising more than $13 billion over the next 10 years, would change the character of a carried interest from a capital gain to ordinary income.
The return of the estate tax to its 2009 level of 45 percent (with a $3.5 million exemption) would force the sale of many small businesses and family farms at a time of already depressed values.
Ominously, and in anticipation of the downward pull on the economy these proposals might have, the budget includes a new “Manufacturing Communities” tax credit. This would encourage investments in communities affected by military base closures, plant closures and mass layoffs.
Fortunately or not, this budget stands no more chance at passage than did the prior three budgets submitted by the administration. Senate leadership has already stated that it will not act on a full budget plan this year. And with an upcoming election, next year is anybody’s guess.
