The Treasury Department has released its “greenbook” outlining the tax proposals in the Obama administration’s fiscal 2013 budget.

President Obama released his budget proposals on Monday (see Obama Proposes Tax Reforms in 2013 Budget). Among the main tax proposals are extending the two percentage point payroll tax cut through the end of 2012, and extending the 100-percent bonus depreciation provision through 2012.

The administration budget also proposes a 10-percent tax credit for new jobs and payroll increases focused on small business through 2012, and providing tax credits to support domestic clean energy manufacturing.

The Obama administration is calling for making the American Opportunity Tax Credit permanent, providing up to $10,000 per student over four years and $137 billion in additional higher education tax relief over the next 10 years. The budget proposal would also permanently expand the Earned Income Tax Credit to support working families, and permanently increase the tax credit for child and dependent care by up to 75 percent. In addition, the budget proposal aims to improve retirement security by providing for automatic enrollment in IRAs.

“This fiscal plan entails a carefully designed set of investments and reforms to boost growth, create jobs and improve opportunity for middle-class Americans,” said Treasury Secretary Tim Geithner. “These proposals strike the balance between supporting growth and laying out a responsible, long-term deficit reduction plan that simplifies the Tax Code and asks the most fortunate to pay their fair share.”

Other provisions would provide tax incentives for locating jobs and business activity in the United States and prohibiting tax deductions for shipping jobs overseas. The administration would create a new “Manufacturing Communities” tax credit to encourage investments in communities affected by military base closures, plant closures, and mass layoffs.

The budget also focuses the domestic production activities deduction on manufacturing, with a larger deduction for advanced manufacturing activities, while disallowing the deduction for oil and other fossil fuel production. In addition, the budget would make the research and experimentation credit permanent, and increase the rate of the alternative simplified research credit from 14 percent to 17 percent, effective after Dec. 31, 2011.

The Obama administration is proposing to permanently eliminate the capital gains tax on certain small business investments, and double the amount of currently deductible start-up expenditures. The administration also wants to expand and simplify the Small Business Health Care Tax Credit. 

To generate revenue, the administration would allow the 2001 and 2003 tax cuts to expire, including taxing dividends as ordinary income, for households making more than $250,000 per year, and restore the estate tax to 2009 levels. 

“This is a reversal of what was a very specific policy feature of the first three budgets to keep dividends and capital gains taxed at the same rate,” said Michael Mundaca, a former Assistant Secretary for Tax Policy who joined Ernst & Young LLP in 2011 as co-director of Ernst & Young LLP’s National Tax Department. “It could affect decision-making by companies. Companies may be more likely to retain earnings or seek alternative ways to distribute their earnings such as by buying back stock.”

In addition, the budget proposal would limit tax expenditures for the affluent by capping itemized deductions and certain other deductions and income exclusions at 28 percent. It would also eliminate the carried interest loophole for hedge fund managers and other similar investment service providers, and eliminate a special depreciation loophole for corporate jets.

The proposed budget would also close corporate tax loopholes by ending transfer pricing abuses that shift intangible income and assets overseas to produce $148 billion in savings over the next 10 years.

“There is evidence indicating that income shifting through transfers of intangibles to low-taxed affiliates has resulted in a significant erosion of the U.S. tax base,” said the Treasury Department greenbook. “Expanding subpart F to include excess income from intangibles transferred to low-taxed affiliates will reduce the incentive for taxpayers to engage in these transactions.”

Republicans in Congress have already indicated that they are not likely to go along with many of the tax proposals. “The President’s budget is a gloomy reflection of his failed policies of the past, not a bold plan for America’s future. It is bad for job creation, our economy, and America’s seniors," said Speaker of the House John Boehner, R-Ohio. "Our nation needs Washington to demonstrate some courage with a budget that honestly addresses the near- and long-term challenges we face. Instead, the President offered a collection of rehashes, gimmicks, and tax increases that will make our economy worse."

Senate Minority Leader Mitch McConnell, R-Ken., also crriticized the budget. "The President’s budget is bad for jobs because it includes the biggest tax hike in history and continues policies like the Democrats’ health care law that are making it harder for small businesses to hire," he said. “A little more than a year ago, the President extended current tax rates because he thought raising them would be bad for jobs. Today he’ll call for raising them anyway because he thinks it’s good for him."

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