[Analytical Perspectives]
[Federal Receipts and Collections]
[17. Federal Receipts]
[From the U.S. Government Printing Office, www.gpo.gov]
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FEDERAL RECEIPTS AND COLLECTIONS
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17. FEDERAL RECEIPTS
Receipts (budget and off-budget) are taxes and other collections from
the public that result from the exercise of the Federal Government's
sovereign or governmental powers. The difference between receipts and
outlays is the surplus or deficit.
The Federal Government also collects income from the public from
market-oriented activities. Collections from these activities, which are
subtracted from gross outlays, rather than added to taxes and other
governmental receipts, are discussed in the next Chapter.
Total receipts in 2009 are estimated to be $2,699.9 billion, an
increase of $178.8 billion or 7.1 percent relative to 2008. Receipts are
projected to grow at an average annual rate of 6.2 percent between 2009
and 2013, rising to $3,428.2 billion. This growth in receipts is largely
due to assumed increases in incomes resulting from both real economic
growth and inflation.
As a share of Gross Domestic Product (GDP), receipts are projected to
increase from 17.6 percent in 2008 to 18.0 percent in 2009, and to rise
to 18.8 percent in 2013.
Table 17-1. RECEIPTS BY SOURCE--SUMMARY
(In billions of dollars)
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Estimate
2007 Actual -----------------------------------------------------------------------------------------
2008 2009 2010 2011 2012 2013
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Individual income taxes........................ 1,163.5 1,219.7 1,259.0 1,417.3 1,499.0 1,599.9 1,709.1
Corporation income taxes....................... 370.2 345.3 339.2 338.9 356.8 391.3 379.8
Social insurance and retirement receipts....... 869.6 910.1 949.4 1,004.0 1,059.7 1,111.4 1,168.5
(On-budget).................................. (234.5) (247.9) (253.8) (263.9) (278.3) (292.9) (309.4)
(Off-budget)................................. (635.1) (662.2) (695.6) (740.2) (781.4) (818.6) (859.1)
Excise taxes................................... 65.1 68.8 68.9 60.7 65.9 68.5 69.7
Estate and gift taxes.......................... 26.0 26.8 26.3 19.5 1.5 0.4 0.5
Customs duties................................. 26.0 29.2 29.1 30.8 32.5 35.0 37.0
Miscellaneous receipts......................... 47.8 46.3 47.9 50.0 53.2 57.4 59.5
Economic growth package........................ ............. -125.0 -20.0 10.0 8.0 6.0 4.0
--------------------------------------------------------------------------------------------------------
Total receipts............................... 2,568.2 2,521.2 2,699.9 2,931.3 3,076.4 3,269.9 3,428.2
(On-budget)................................ (1,933.2) (1,859.0) (2,004.4) (2,191.2) (2,295.1) (2,451.3) (2,569.1)
(Off-budget)............................... (635.1) (662.2) (695.6) (740.2) (781.4) (818.6) (859.1)
Total receipts as a percentage of GDP........ 18.8 17.6 18.0 18.6 18.6 18.8 18.8
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Table 17-2. EFFECT ON RECEIPTS OF CHANGES IN THE SOCIAL SECURITY TAXABLE EARNINGS BASE
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
------------------------------------------------------
2009 2010 2011 2012 2013
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Social security (OASDI) taxable earnings base increases:
$102,000 to $106,800 on Jan. 1, 2009................... 2.4 6.4 7.2 8.0 8.8
$106,800 to $111,600 on Jan. 1, 2010................... ......... 2.4 6.5 7.2 8.0
$111,600 to $116,100 on Jan. 1, 2011................... ......... ......... 2.3 6.2 6.8
$116,100 to $121,500 on Jan. 1, 2012................... ......... ......... ......... 2.8 7.4
$121,500 to $126,900 on Jan. 1, 2013................... ......... ......... ......... ......... 2.9
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Chart 17-1. Major Provisions of the Tax Code Under the 2001, 2003, 2004, and 2006 Enacted Tax Relief
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Provision 2003 2004 2005 2006 2007 2008 2009 2010 2011
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Individual Income Tax Rates reduced to ................ ................ ................... ................ ............... ............... ............... Rates revert to
Rates 35, 33, 28, and 25 39.6, 36, 31,
percent and 28 percent
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10 Percent Bracket Top of bracket ................ ................ ................... ................ ............... ............... ............... Bracket
increased to eliminated,
$7,000/$14,000 for lowest bracket
single/joint reverts to 15
filers and percent
inflation-indexed
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
15 Percent Bracket for Top of bracket for ................ ................ ................... ................ ............... ............... ............... Top of bracket
Joint Filers joint filers for joint
increased to 200 filers reverts
percent of top of to 167 percent
bracket for single of top of
filers bracket for
single filers
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Standard Deduction for Standard deduction ................ ................ ................... ................ ............... ............... ............... Standard
Joint Filers for joint filers deduction for
increased to 200 joint filers
percent of reverts to 167
standard deduction percent of
for single filers standard
deduction for
single filers
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Child Credit Tax credit for each ................ ................ ................... ................ ............... ............... ............... Tax credit for
qualifying child each
under age 17 qualifying
increased to child under
$1,000 and age 17 reverts
refundability to $500 and
extended to refundability
families with 1 or restricted to
2 children taxpayers with
3 or more
children
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Estate Taxes Top rate reduced to Top rate reduced Top Rate reduced Top rate reduced to Top rate reduced ............... Exempt amount Estate tax Top rate
49 percent to 48 percent to 47 percent 46 percent to 45 percent increased to repealed reverts to 60
Exempt amount Exempt amount $3.5 million percent
increased to increased to $2 Exempt amount
$1.5 million million reverts to $1
million
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Small Business Deduction increased ................ ................ ................... Deduction ............... ............... ............... Deduction
Expensing to $100,000, increased to reverts to
reduced by amount $125,000, $25,000,
qualifying reduced by reduced by
property exceeds amount amount
$400,000, and both qualifying qualifying
amounts inflation- property property
indexed exceeds exceeds
Includes software $500,000, and $200,000 and
both amounts amounts not
inflation- inflation-
indexed indexed
Includes Does not apply
software to software
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Capital Gains Tax rate on capital ................ ................ ................... ................ Tax on capital ............... ............... Tax rate on
gains reduced to 5/ gains capital gains
15 percent eliminated for reverts to 10/
taxpayers in 20 percent (8/
10/15 percent 18 percent on
tax brackets assets held
over 5 years)
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Dividends Tax rate on ................ ................ ................... ................ Tax on ............... ............... Dividends taxed
dividends reduced dividends at standard
to 5/15 percent eliminated for income tax
taxpayers in rates
10/15 percent
tax brackets
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Bonus Depreciation Bonus depreciation ................ Bonus ................... ................ ............... ............... ............... ...............
increased to 50 depreciation
percent of expires
qualified property
aquired after
5/5/03
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Alternative Minimum Tax AMT exemption ................ ................ AMT exemption AMT exemption AMT exemption ............... ............... ...............
amount increased amount increased amount amount reverts
to $40,250/$58,000 to $42,500/$62,550 increased to to $33,750/
for single/joint for single /joint $44,350/$66,250 $45,000 for
filers filers for single / single /joint
joint filers filers
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ENACTED LEGISLATION
Several laws were enacted in 2007 that have an effect on governmental
receipts. The major legislative changes affecting receipts are described
below.
U.S. TROOP READINESS, VETERANS' CARE,
KATRINA RECOVERY, AND IRAQ ACCOUNT-
ABILITY APPROPRIATIONS ACT, 2007
The U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq
Accountability Appropriations Act, 2007 was signed by President Bush on
May 25, 2007. In addition to increasing the minimum wage and providing
funding for the Global War on Terror, hurricane disaster relief and
other purposes, this Act provided tax relief to small businesses that
was in large part offset by other tax changes. The major provisions of
this Act that affected governmental receipts are described below.
Tax Incentives for Small Business
Extend and increase expensing for small businesses.--Under prior law,
business taxpayers were allowed to expense up to $100,000 in annual
investment expenditures for qualifying property (expanded to include
off-the-shelf computer software) placed in service in taxable years
beginning after 2002 and before 2010. The maximum amount that could be
expensed was reduced by the amount by which the taxpayer's cost of
qualifying property exceeded $400,000. Both the deduction and annual
investment limit were indexed annually for inflation, effective for
taxable years beginning after 2003 and before 2010. Also, with respect
to a taxable year beginning after 2002 and before 2010, taxpayers were
permitted to make or revoke expensing elections on amended returns
without the consent of the Internal Revenue Service (IRS) Commissioner.
This Act extended for one year, through 2010, the prior law rules
applicable to small business expensing in taxable years beginning after
2002 and before 2010. This Act also increased the deduction and annual
investment limit to $125,000 and $500,000, respectively, effective for
taxable years beginning after 2006 and before 2011. Both the deduction
and annual investment limit were indexed annually for inflation,
effective for taxable years beginning after 2007 and before 2011.
Extend and modify the work opportunity tax credit (WOTC).--The WOTC
provides incentives to employers for hiring individuals from certain
targeted groups. Under prior law, the credit expired with respect to
wages paid to qualified individuals who began work after December 31,
2007. This Act extended the credit to apply to qualified wages paid to
workers hired before September 1, 2011 and expanded the eligibility
criteria for certain targeted groups.
Modify tax credit for tips.--Businesses are allowed to pay a tip-
earning employee wages that are below the minimum wage if the combined
value of the employee's tips and reduced wage exceeds the minimum wage.
[[Page 248]]
Businesses are also required to pay social security and Medicare payroll
taxes on both the wages and tip income of their employees; however, a
``tip credit'' may be claimed for the payroll taxes paid on tips in
excess of the minimum wage. This Act increased the minimum wage in three
stages over 24 months, from $5.15 per hour to $7.25 per hour. To prevent
a reduction in the ``tip credit'' that would occur as a result of this
increase in the minimum wage, this Act allowed employers to continue to
calculate the tip credit using the minimum wage in effect on January 1,
2007 ($5.15 per hour).
Allow ``tip credit'' and WOTC against the alternative minimum tax
(AMT).--Taxpayers generally are not allowed to offset AMT liability with
business tax credits. Effective for taxable years beginning after
December 31, 2006, this Act waived this limitation with respect to the
WOTC and the ``tip credit,'' thereby allowing taxpayers (both
individuals and corporations) to offset AMT liability with these two
credits.
Simplify the taxation of a family business owned by a husband and
wife.--Under current law, each member of a partnership pays the taxes on
his or her distributive share of the earnings of the partnership. A
partnership includes a syndicate, group, pool, joint venture, or other
unincorporated organization through or by means of which any business,
financial operation or venture is carried on, and that is not a trust or
estate or a corporation. Under this Act, effective for taxable years
beginning after December 31, 2006, a qualified joint venture whose only
members are a husband and wife filing a joint return is permitted to
elect not to be treated as a partnership for Federal income and self-
employment tax purposes if each spouse materially participates in the
venture's trade or business. All items of income, gain, loss, deduction
and credit from the trade or business must be divided between the
spouses in accordance with their respective interest in the venture and
each spouse must take into account his or her respective share of those
items as if he or she were a sole proprietor.
Taxation of S Corporations
Modify taxation of S corporations.--In general, S corporations do not
pay Federal income tax. Instead, an S corporation passes through its
items of income and loss to its shareholders. Each shareholder
separately accounts for his or her share of these items on his or her
individual income tax return. This Act included provisions that modified
the taxation of S corporations, with the following major changes that:
(1) excluded gains from the sale of stock or securities from treatment
as an item of passive investment income; (2) excluded restricted stock
in a bank held by bank directors from treatment as S corporation stock;
(3) modified the treatment of banks that become S corporations and
change from the reserve method of accounting for bad debts; (4) modified
the treatment of sales of stock of qualified subsidiaries of S
corporations; (5) modified the treatment of pre-1983 accumulated
earnings and profits of certain S corporations; and (6) permitted
electing small business trusts to deduct interest expenses incurred on
funds borrowed to purchase S corporation stock.
Hurricane-Related Tax Relief
Extend and modify certain tax relief provided to individuals and
businesses affected by hurricanes along the Gulf coast in 2005.--Several
laws were enacted in 2005 that provided tax relief to individuals and
businesses affected by hurricanes Katrina, Rita and Wilma. This Act
extended and/or modified several of the tax incentives enacted in 2005;
the specific changes included the following: (1) a one-year extension of
the enhanced small business expensing provided to qualified Gulf
Opportunity Zone (GO Zone) property; (2) a two-year extension of the
enhanced low-income housing tax credit for property in the GO Zone, the
Rita GO Zone and the Wilma GO Zone, and expansion of the credit; and (3)
the expansion of special tax-exempt bond financing rules to apply to the
repair and reconstruction of residential property in the GO Zone, the
Rita GO Zone and the Wilma GO Zone.
Pension-Related Provisions
Modify several provisions of the Pension Protection Act of 2006.--This
Act modified several provisions of the Pension Protection Act of 2006,
which was the most sweeping reform of America's pension system enacted
in 30 years. Major changes included the following: (1) modification of
the ability to revoke the election relating to treatment as a
multiemployer plan; (2) modification of the requirements for qualified
transfers under section 420; (3) extension of alternative deficit
reduction contribution rules for commercial passenger airlines; and (4)
modification of the interest rate used by plans maintained by commercial
passenger airlines and airline catering companies to calculate pension
liability.
Offsets
Modify the timing of estimated tax payments by corporations.--
Corporations generally are required to pay their income tax liability in
quarterly estimated payments. For corporations that keep their accounts
on a calendar year basis, these payments are due on or before April 15,
June 15, September 15, and December 15 (if these dates fall on a holiday
or weekend, payment is due on the next business day). This Act increased
the estimated tax payments due in July through September by corporations
with assets of at least $1 billion to 114.25 percent of the amount
otherwise due in 2012. For corporations affected by this provision, the
next required estimated tax payment is reduced accordingly.
Modify taxation of unearned income of minors.--An unmarried individual
eligible to be claimed as a
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dependent on another taxpayer's individual income tax return generally
must file an individual income tax return if he or she has: (1) earned
income only over $5,350 (for 2007); (2) unearned income only over the
minimum standard deduction amount for dependents ($850 in 2007); or (3)
both earned income and unearned income totaling more than the smaller of
(a) $5,350 (for 2007) or (b) the larger of (i) $850 (for 2007) or (ii)
earned income plus $300. Under prior law, unearned income of a child was
taxed under special rules if: (1) the child had not reached the age of
18 by the close of the taxable year, (2) the child's unearned income
(income other than wages, salaries, professional fees, or other amounts
received as compensation for personal services actually rendered) was
more than $1,700 (for 2007), and (3) the child was required to file a
return for the year. These special rules (referred to as the ``kiddie
tax'') applied if the child could have been claimed as a dependent on
the parent's return, regardless of whether the parent actually claimed
the child as a dependent. Under the kiddie tax, the child's net unearned
income over $1,700 (for 2007) was taxed at the parent's tax rate if that
rate was higher than the child's rate. The remainder of a child's
taxable income was taxed at the child's tax rate, regardless of whether
the kiddie tax applied. Effective for taxable years beginning after May
25, 2007, this Act increased the age to which the kiddie tax applies
from under 18 years of age to under 19 years of age (under 24 years of
age for full-time students, provided their earned income does not exceed
one-half of the amount of their support).
Modify period of suspension of penalties and interest on unpaid
taxes.--In general, interest and penalties accrue during periods for
which taxes are unpaid, without regard to whether the taxpayer was aware
that there was tax due. However, under prior law, if an individual
taxpayer filed a timely return and the IRS did not send the taxpayer a
notice of the unpaid liability and the basis for that liability,
interest and penalties generally were suspended starting 18 months after
the filing of the return. The suspension did not apply to underpayments
attributable to fraud, listed transactions, and undisclosed reportable
transactions, or to criminal or failure-to-pay penalties. Interest and
penalties resumed 21 days after the IRS sent the required notice. This
Act extended the period before which accrual of interest and certain
penalties are suspended to 36 months after the filing of the return,
effective for IRS notices issued after November 25, 2007.
Modify collection due process procedures for employment tax
liabilities.--Employers are required to withhold and pay Federal
Insurance Contribution Act (FICA) taxes and income taxes, and are
required to pay Federal Unemployment Tax Act (FUTA) taxes (collectively
``Federal employment taxes'') with respect to wages paid to their
employees. In order to ensure the payment and collection of Federal
employment taxes, the IRS is authorized to take various collection
actions, including the issuance of a levy. A levy is the IRS's
administrative authority to seize a taxpayer's property to pay the
taxpayer's liability if a Federal tax lien has been attached to such
property. Before a tax levy could be issued under prior law, the IRS
generally was required to provide the taxpayer with notice and an
opportunity for an administrative collection due process (CDP) hearing,
and for judicial review. This pre-levy CDP hearing requirement did not
apply to levies issued to collect Federal tax liability from a State tax
refund; instead, such taxpayers were provided a CDP hearing within a
reasonable period of time after the levy. This Act expanded the
exception to the requirement for a pre-levy CDP hearing to include
levies issued on or after September 27, 2007 to collect Federal
employment taxes for any taxable period if the taxpayer subject to the
levy requested a CDP hearing with respect to unpaid employment taxes
arising in the two-year period before the beginning of the taxable
period with respect to which the employment tax levy was served.
Permanently extend IRS user fees.--The IRS has authority to charge
fees for written responses to questions from individuals, corporations,
and organizations related to their tax status or the effects of
particular transactions for tax purposes. This Act permanently extended
authority for these fees, which had been scheduled to expire effective
with requests made after September 30, 2014.
Increase penalty for bad checks and money orders.--The IRS has
authority to impose a penalty on taxpayers who issue a bad check or
money order. Under prior law, the penalty was two percent of the amount
of the bad check or money order, with a minimum penalty of $15 or, if
less, the amount of the check or money order, on checks and money orders
less than $750. Effective with respect to checks or money orders issued
after May 25, 2007, this Act increased the minimum penalty to $25 or if
less, the amount of the check or money order, on checks and money orders
less than $1,250.
Expand penalties on tax return preparers.--Under prior law, an income
tax return preparer who prepared a return with respect to which there
was an understatement of tax due to an undisclosed position for which
there was not a realistic possibility of being sustained on its merits,
or a frivolous position, was liable for a first-tier penalty of $250,
provided the preparer knew or reasonably should have known of the
position. An income tax return preparer who engaged in specified willful
or reckless conduct with respect to preparing a return was liable for a
second-tier penalty of $1,000. Effective for tax returns prepared after
May 25, 2007, this Act: (1) broadened the scope of tax return preparer
penalties to include preparers of estate and gift, employment, and
excise tax returns, and returns of exempt organizations; (2) increased
the first-tier penalty to the greater of $1,000 or 50 percent of the
income
[[Page 250]]
derived (or to be derived) by the tax return preparer from the
preparation of the return or claim with respect to which the penalty was
imposed; (3) increased the second-tier penalty to the greater of $5,000
or 50 percent of the income derived (or to be derived) by the tax return
preparer; and (4) altered the standards of conduct that must be met to
avoid imposition of the penalties for preparing a return with respect to
which there is an understatement of tax.
Levy a penalty on erroneous refund claims.--Effective for returns
filed on or after May 25, 2007, this Act imposed a penalty of 20 percent
on the disallowed portion of a claim for refund or credit for which
there was no reasonable basis for the claimed tax treatment or for which
the taxpayer did not have reasonable cause. The penalty does not apply
to any portion of the disallowed portion of the claim for refund or
credit: (1) relating to the earned income credit, or (2) subject to
accuracy-related or fraud penalties.
AN ACT TO EXTEND THE AUTHORITIES OF THE ANDEAN TRADE PREFERENCE
ACT (ATPA) UNTIL FEBRUARY 29, 2008
The ATPA, which was scheduled to expire after June 30, 2007, was
designed to provide economic alternatives for Bolivia, Columbia,
Ecuador, and Peru in their fight against narcotics production and
trafficking. This Act, which was signed by President Bush on June 30,
2007, extended the provisions of the ATPA for eight months, through
February 29, 2008. This Act also increased the estimated tax payments
due in July through September by corporations with assets of at least $1
billion to 114.5 percent of the amount otherwise due in 2012. For
corporations affected by this provision, the next required estimated tax
payment is reduced accordingly.
APPROVING THE RENEWAL OF IMPORT
RESTRICTIONS CONTAINED IN THE
BURMESE FREEDOM AND DEMOCRACY
ACT OF 2003
The Act, which was signed by President Bush on August 1, 2007,
extended for one year, through July 28, 2008, the ban on all imports
from Burma. This Act also increased the estimated tax payments due in
July through September by corporations with assets of at least $1
billion to 114.75 percent of the amount otherwise due in 2012. For
corporations affected by this provision, the next required estimated tax
payment is reduced accordingly.
AN ACT TO EXTEND THE TRADE
ADJUSTMENT ASSISTANCE PROGRAM
UNDER THE TRADE ACT OF 1974
FOR 3 MONTHS
This Act extended the trade adjustment assistance program for farmers,
which was scheduled to expire September 31, 2007, for three months
through December 31, 2007. This Act, which was signed by President Bush
on September 28, 2007, also affected governmental receipts by increasing
the estimated tax payments due in July through September by corporations
with assets of at least $1 billion to 115 percent of the amount
otherwise due in 2012. For corporations affected by this provision, the
next required estimated tax payment is reduced accordingly.
UNITED STATES-PERU TRADE PROMOTION
AGREEMENT IMPLEMENTATION ACT
This Act, which was signed by President Bush on December 14, 2007,
approved and provided for tariff reductions and other changes in law
related to U.S. implementation of the United States-Peru Free Trade
Agreement, as signed by the United States and Peru on April 12, 2006 and
amended through a Protocol signed in Washington, D.C. on June 24, 2007
and in Lima on June 25, 2007. When this Agreement enters into force, it
will level the playing field for American exporters and investors,
expand an important market in this hemisphere for U.S. goods and
services, allow Peru to lock in access to the largest market in the
world, and signal America's firm support for those who share the
Nation's values of freedom and democracy and expanding opportunity for
all.
This Act also affected governmental receipts by increasing the
estimated tax payments due in July through September by corporations
with assets of at least $1 billion to 115.75 percent of the amount
otherwise due in 2012. For corporations affected by this provision, the
next required estimated tax payment is reduced accordingly.
ENERGY INDEPENDENCE AND SECURITY
ACT OF 2007
This Act, which was signed by President Bush on December 19, 2007,
represented a major step forward in expanding the production of
renewable fuels, reducing the Nation's dependence on oil, and making
America stronger, safer, and cleaner for future generations. The major
provisions of this Act that affected governmental receipts are described
below:
Modify Corporate Average Fuel Economy (CAFE) standards.--Under prior
law, passenger cars and non-passenger cars (light trucks and SUVs) were
required to meet CAFE standards of 27.5 miles per gallon and 22.2 miles
per gallon, respectively. These standards were written into law in 1975.
Beginning with model year 2011, this Act required the Department of
Transportation (DOT) to prescribe separate, attribute-based CAFE
standards for passenger cars and non-passenger cars that would reach a
combined fleet average of at least 35 miles per gallon by model year
2020. This Act also required DOT, after consultation with the Department
of Energy and the Environmental Protection Agency, to prescribe separate
CAFE standards for work trucks (vehicles weighing between 8,500 and
10,000 pounds) and commercial medium- and heavy-duty vehicles (weighing
over 10,000 pounds).
[[Page 251]]
Modify Renewable Fuel Standard (RFS).--Under prior law, 7.5 billion
gallons of renewable fuels were required to be blended with conventional
fuel sold in the United States by 2012. Beginning in 2008, this Act
required the blending of specified minimum volumes of renewable fuels
each year, rising from 9 billion gallons in 2008 to 36 billion gallons
by 2022.
Modify amortization for certain geological and geophysical
expenditures.--Geological and geophysical expenditures (G&G costs) are
costs incurred by a taxpayer for the purpose of obtaining and
accumulating data that will serve as the basis for the acquisition and
retention of mineral properties by taxpayers exploring for minerals.
Under the Energy Policy Act of 2005, G&G costs paid or incurred in
taxable years beginning after August 8, 2005, in connection with oil and
gas exploration in the United States, could be amortized over two years.
The Tax Increase Prevention and Reconciliation Act of 2006 increased the
amortization period to five years for G&G costs paid or incurred by
certain major integrated oil companies after May 17, 2006. This five-
year amortization rule applied only to integrated oil companies that had
an average daily worldwide production of crude oil of at least 500,000
barrels for the taxable year, had gross receipts in excess of $1 billion
in the last taxable year ending during calendar year 2005, and were
either a crude oil refiner or related to a crude oil refiner. This Act
increased the amortization period for G&G costs paid or incurred by
these major integrated oil companies from five to seven years, effective
for amounts paid or incurred in taxable years beginning after December
19, 2007.
Extend unemployment insurance surtax.--Under prior law the Federal
unemployment tax on employers was scheduled to drop from 0.8 percent to
0.6 percent with respect to wages paid after December 31, 2007. This Act
extended the 0.8 percent rate for one year, through December 31, 2008.
TAX RELIEF FOR RECIPIENTS OF
DISBURSEMENTS FROM THE
HOKIE SPIRIT MEMORIAL FUND
The Virginia Tech Foundation was established in 1948 to receive,
manage, and disburse private gifts in support of programs of Virginia
Polytechnic Institute and State University (Virginia Tech). The Hokie
Spirit Memorial Fund was established by the Virginia Tech Foundation as
a vehicle to receive financial donations from donors to assist families
and victims of the April 16, 2007 shootings at Virginia Tech. This Act,
which was signed by President Bush on December 19, 2007, excluded from
gross income amounts received from this fund as payments in connection
with the April 16, 2007 shootings at Virginia Tech. In addition,
effective for taxable years beginning in 2008, this Act increased the
penalty for failure to file a partnership return from $50 to $51 per
partner for each month that the failure continues, up to a maximum of
five months.
MORTGAGE FORGIVENESS DEBT RELIEF
ACT OF 2007
This Act, which was signed by President Bush on December 20, 2007,
provided housing-related tax relief to financially-troubled homeowners,
provided tax relief for volunteer firefighters and emergency medical
responders, modified several tax penalties, and modified the timing of
estimated tax payments by corporations. The major provisions of this Act
that affected governmental receipts are described below.
Housing-Related Tax Relief
Exclude discharges of indebtedness on principal residences from gross
income--Gross income generally includes income realized by a debtor from
the discharge of indebtedness, subject to certain exceptions (debtors in
Title 11 bankruptcy cases, insolvent debtors, certain student loan
indebtedness, certain farm indebtedness, and certain real property
business indebtedness). In cases involving discharges of indebtedness
excluded from gross income under the exceptions to the general rule,
taxpayers generally must reduce certain tax attributes, including basis
in the property, by the amount of the discharge of indebtedness.
However, the amount of discharge of indebtedness excluded from gross
income by an insolvent debtor not in a Title 11 bankruptcy case cannot
exceed the amount by which the debtor is insolvent. The amount of
discharge of indebtedness generally is equal to the difference between
the amount of debt being cancelled and the amount used to satisfy the
debt. This Act expanded the types of discharges of indebtedness excluded
from gross income to include up to $2 million (or up to $1 million per
spouse, if a married couple files separately) of qualified principal
residence indebtedness discharged on or after January 1, 2007 and before
January 1, 2010. The exclusion does not apply to discharges on account
of services performed for the lender or any other factor not directly
related to a decline in the value of the residence or to the financial
condition of the taxpayer; in addition, the basis in the principal
residence must be reduced by the amount of discharge of indebtedness
excluded from gross income.
Extend the deduction for qualified mortgage insurance premiums.--This
Act extended the deduction for certain premiums paid or accrued for
qualified mortgage insurance for three years, to apply to amounts paid
or accrued after December 31, 2007 and before January 1, 2011.
Increase maximum capital gains exclusion on certain sales of principal
residences by surviving spouses.--Under current law, an individual
taxpayer may exclude from tax up to $250,000 ($500,000 if married and
filing a joint return) of gain realized on the sale or exchange of a
principal residence, provided the taxpayer owned and used the residence
as a principal residence for at least two of the five years ending on
the date of the sale or exchange. Effective for sales
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or exchanges after December 31, 2007, this Act increased the maximum
amount of gain a surviving spouse can exclude from tax on the sale or
exchange of a principal residence to $500,000, provided the sale or
exchange occurs within two years of death of the spouse.
Provide other housing-related tax relief.--Other housing-related tax
relief provided in this Act: (1) amended the requirements for
qualification as a cooperative housing corporation, and (2) modified the
requirements for qualification as low-income housing units for purposes
of the low-income housing tax credit.
Tax Relief for Volunteer Firefighters and Emergency Medical Responders
Provide exclusion from gross income for benefits provided to volunteer
firefighters and emergency medical responders.--This Act provided an
exclusion from gross income to any member of a qualified volunteer
emergency response organization for: (1) any reduction or rebate of tax
provided by a State or political division thereof on account of services
performed as a member of a qualified volunteer emergency response
organization, and (2) any payment, up to an annual maximum of $30 times
the number of months during the year in which services were performed,
provided by a State or political division thereof on account of the
performance of services as a member of a qualified volunteer emergency
response organization. Under this Act, a qualified emergency response
organization is any volunteer organization: (1) organized and operated
to provide firefighting or emergency medical services for persons in the
State or political subdivision, and (2) required (by written agreement)
by the State or political subdivision to furnish firefighting or
emergency medical services in such State or political subdivision. The
exclusion applies to payments, tax rebates and tax reductions provide on
account of services performed in taxable years beginning after December
31, 2007 and before January 1, 2011.
Offsets
Increase the penalty for failure to file a partnership return.--This
Act increased the penalty imposed on partnerships for failure to file a
partnership return to $85 per partner for each month that the failure
continues, up to a maximum of twelve months, effective for returns
required to be filed after December 20, 2007.
Impose a penalty on S corporations for failure to file a return.--This
Act imposed a penalty on S corporations that fail to file a return or
that fail to file required information. The penalty of $85 per
shareholder for each month that the failure continues, up to a maximum
of twelve months, is effective for returns required to be filed after
December 20, 2007.
Modify the timing of estimated tax payments by corporations.--
Corporations generally are required to pay their income tax liability in
quarterly estimated payments. For corporations that keep their accounts
on a calendar year basis, these payments are due on or before April 15,
June 15, September 15, and December 15 (if these dates fall on a holiday
or weekend, payment is due on the next business day). This Act increased
the estimated tax payments due in July through September by corporations
with assets of at least $1 billion to 117.25 percent of the amount
otherwise due in 2012. For corporations affected by this provision, the
next required estimated tax payment is reduced accordingly.
TAX INCREASE PREVENTION ACT OF 2007
This Act, which was signed by President Bush on December 26, 2007,
provided Alternative Minimum Tax (AMT) relief for 2007, thereby
protecting millions of Americans from an unexpected tax increase. The
major provisions of this Act that affected governmental receipts are
described below.
Increase and extend AMT exemption amounts.--A temporary provision of
prior law increased the AMT exemption amounts to $42,500 for single
taxpayers, $62,550 for married taxpayers filing a joint return and
surviving spouses, and $31,275 for married taxpayers filing a separate
return and estates and trusts. These temporary increases were effective
for taxable years beginning after December 31, 2005 and before January
1, 2007. This Act increased the AMT exemption amounts, effective for
taxable years beginning after December 31, 2006 and before January 1,
2008, to $44,350 for single taxpayers, $66,250 for married taxpayers
filing a joint return and surviving spouses, and $33,125 for married
taxpayers filing a separate return and estates and trusts.
Extend AMT relief for nonrefundable personal credits.--Under a
temporary provision of prior law, taxpayers were permitted to offset
both the regular tax and the AMT with nonrefundable personal tax
credits, effective for taxable years beginning before January 1, 2007.
This Act extended minimum tax relief for nonrefundable personal tax
credits for one year, to apply to taxable year 2007. The extension does
not apply to the child credit, the saver's credit, the earned income
credit (EITC), or the adoption credit, which were provided AMT relief
through December 31, 2010 under the 2001 tax cut. The refundable portion
of the child credit and the earned income tax credit are also allowed
against the AMT through December 31, 2010.
TERRORISM RISK INSURANCE PROGRAM REAUTHORIZATION ACT OF 2007
This Act, which was signed by President Bush on December 26, 2007,
extended for seven years the Federal terrorism risk insurance program
that had been established under the Terrorism Risk Insurance Act of 2002
and was scheduled to expire on December 31, 2007. This Act also expanded
coverage to include acts of domestic terrorism, required the issuance of
regula
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tions for determining the pro rata share of insured losses to be paid by
each insurer that incurs losses when such losses exceed $100 billion in
any program year, and set up a mechanism for the Federal government to
recoup 133 percent of Federal payments under the program, up to a
maximum of $27.5 billion, through a surcharge imposed on insurance
premiums. These payments, which would be governmental receipts, would be
collected as follows: (1) for any act of terrorism that occurred on or
before December 31, 2010, all required payments would be due by
September 30, 2012; (2) for any act of terrorism that occurred in
calendar year 2011, 35 percent of required payments would be due by
September 30, 2012 and the remainder would be due by September 30, 2017;
and (3) for any act of terrorism that occurred on or after January 1,
2012, all required payments would be due by September 30, 2017.
TAX TECHNICAL CORRECTIONS ACT OF 2007
This Act, which was signed by President Bush on December 29, 2007,
provided technical corrections to tax laws enacted between 1998 and
2006. The amendments provided in this Act clarified or adjusted
previously enacted provisions in a manner consistent with the underlying
legislative intent and generally took effect as if included in the
original legislation.
ADMINISTRATION PROPOSALS
STIMULATE ECONOMIC GROWTH AND JOB
CREATION IN 2008 AND IMPROVE THE
TAX SYSTEM TO MAKE THE U.S. MORE COMPETITIVE
The President believes that it is critical for Congress to quickly
pass an economic growth package that will keep our economy expanding and
creating jobs and that puts more money in the hands of American workers
and businesses, who are the engines of the Nation's economic growth. The
Administration will work with Congress in a bipartisan manner to enact
initiatives that provide temporary, immediate, and effective support to
the Nation's economy.
As a longer-term consideration, Americans deserve a tax system that is
simple, fair and pro-growth--in tune with the Nation's dynamic, 21st
century economy. The tax system also should promote the competitiveness
of American workers and businesses in the global economy. The report,
Approaches to Improve the Competitiveness of the U.S. Business Tax
System for the 21st Century, released by the Treasury Department in
December, outlines several broad approaches to business tax reform to
lay the groundwork for discussion of ways to ensure that the Nation's
business tax system better meets the needs of American workers and
businesses in today's global economy.
The President's tax relief enacted in 2001 and 2003 made the tax code
simpler, fairer, and more pro-growth. The President has proposed changes
that would move the tax code further in this direction. The Budget
includes proposals to make health care more affordable and consumer-
driven, to promote savings for all Americans, and to encourage
investment by entrepreneurs.
MAKE PERMANENT CERTAIN TAX RELIEF ENACTED IN 2001 AND 2003
Permanently extend reductions in individual income taxes on capital
gains and dividends.--The maximum individual income tax rate on net
capital gains and dividends is 15 percent for taxpayers in individual
income tax rate brackets above 15 percent and 5 percent (zero in 2008,
2009 and 2010) for lower income taxpayers. The Administration proposes
to permanently extend these reduced rates (15 percent and zero), which
are scheduled to expire on December 31, 2010.
Permanently extend increased expensing for small businesses.--Under
temporary provisions of current law, small business taxpayers are
allowed to expense up to $125,000 in annual investment expenditures for
qualifying property (expanded to include off-the-shelf computer
software) placed in service in taxable years beginning after 2006 and
before 2011. The maximum amount that may be expensed is reduced by the
amount by which the taxpayer's cost of qualifying property exceeds
$500,000. Both the deduction and annual investment limits are indexed
annually for inflation effective for taxable years beginning after 2007
and before 2011. Also, with respect to taxable years beginning after
2002 and before 2011, taxpayers are permitted to make or revoke
expensing elections on amended returns without the consent of the IRS
Commissioner. The Administration proposes to permanently extend each of
these temporary provisions, applicable for qualifying property
(including off-the-shelf computer software) placed in service in taxable
years beginning after 2010.
Permanently extend provisions expiring in 2010.--Most of the
provisions of the 2001 tax relief sunset on December 31, 2010. The
Administration proposes to extend those provisions permanently.
TAX INCENTIVES
Simplify and Encourage Saving
Expand tax-free savings opportunities.--Under current law, individuals
can contribute to traditional IRAs, nondeductible IRAs, and Roth IRAs,
each subject to different sets of rules. For example, contributions to
traditional IRAs are deductible, while distributions are taxed;
contributions to Roth IRAs are taxed, but distributions are excluded
from income. In addition, eligibility to contribute is subject to
various age and income limits. While primarily intended for retirement
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saving, withdrawals for certain education, medical, and other non-
retirement expenses are penalty free. The eligibility and withdrawal
restrictions for these accounts complicate compliance and limit
incentives to save.
The Administration proposes to replace current law IRAs with two new
savings accounts: a Lifetime Savings Account (LSA) and a Retirement
Savings Account (RSA). Regardless of age or income, individuals could
make annual nondeductible contributions of $2,000 to an LSA and $5,000
(or earnings if less) to an RSA. Distributions from an LSA would be
excluded from income and could be made at any time for any purpose
without restriction. Distributions from an RSA would be excluded from
income after attaining age 58 or in the event of death or disability.
All other distributions would be included in income (to the extent they
exceed basis) and subject to an additional tax. Distributions would be
deemed to come from basis first. The proposal would be effective for
contributions made after December 31, 2008 and future year contribution
limits would be indexed for inflation.
Existing Roth IRAs would be renamed RSAs and would be subject to the
new rules for RSAs. Existing traditional and nondeductible IRAs could be
converted into an RSA by including the conversion amount (excluding
basis) in gross income, similar to a current-law Roth conversion.
However, no income limit would apply to the ability to convert.
Taxpayers who convert IRAs to RSAs before January 1, 2010 could spread
the included conversion amount over four years. Existing traditional or
nondeductible IRAs that are not converted to RSAs could not accept new
contributions. New traditional IRAs could be created to accommodate
rollovers from employer plans, but they could not accept new individual
contributions. Individuals wishing to roll an amount directly from an
employer plan to an RSA could do so by including the rollover amount
(excluding basis) in gross income (i.e., ``converting'' the rollover,
similar to a current law Roth conversion).
Consolidate employer-based savings accounts.--Current law provides
multiple types of tax-preferred employer-based savings accounts to
encourage saving for retirement. The accounts have similar goals but are
subject to different sets of rules regulating eligibility, contribution
limits, tax treatment, and withdrawal restrictions. For example, 401(k)
plans for private employers, SIMPLE 401(k) plans for small employers,
403(b) plans for 501(c)(3) organizations and public schools, and 457
plans for State and local governments are all subject to different
rules. To qualify for tax benefits, plans must satisfy multiple
requirements. Among the requirements, the plan generally may not
discriminate in favor of highly compensated employees with regard either
to coverage or to amount or availability of contributions or benefits.
Rules covering employer-based savings accounts are among the lengthiest
and most complicated sections of the tax code and associated
regulations. This complexity imposes substantial costs on employers,
participants, and the Government, and likely has inhibited the adoption
of retirement plans by employers, especially small employers.
The Administration proposes to consolidate 401(k), SIMPLE 401(k),
403(b), and 457 plans, as well as SIMPLE IRAs and SARSEPs, into a single
type of plan--Employee Retirement Savings Accounts (ERSAs) that would be
available to all employers. ERSA non-discrimination rules would be
simpler and include a new ERSA non-discrimination safe-harbor. Under one
of the safe-harbor options, a plan would satisfy the nondiscrimination
rules with respect to employee deferrals and employee contributions if
it provided a 50-percent match on elective contributions up to six
percent of compensation. By creating a simplified and uniform set of
rules, the proposal would substantially reduce complexity. The proposal
would be effective for taxable years beginning after December 31, 2008.
Encourage Entrepreneurship and Investment
Increase expensing for small businesses.--Business taxpayers are
currently allowed to expense up to $125,000 in annual investment
expenditures for qualifying property (expanded to include off-the-shelf
computer software) placed in service in taxable years beginning after
2006 and before 2011. The maximum amount that may be expensed is reduced
by the amount by which the taxpayer's cost of qualifying property
exceeds $500,000. Both the deduction and annual investment limits are
indexed annually for inflation, effective for taxable years beginning
after 2007 and before 2011. Also, with respect to a taxable year
beginning after 2002 and before 2011, taxpayers are permitted to make or
revoke expensing elections on amended returns without the consent of the
IRS Commissioner. The Administration proposes to increase the amount of
annual investment expenditures that taxpayers are allowed to expense to
$200,000, and to raise the amount of qualifying investment at which the
phase-out begins to $800,000, effective for qualifying property placed
in service in taxable years beginning after 2008. These higher amounts
would be indexed for inflation, effective for taxable years beginning
after 2009.
Invest in Health Care
Provide a new standard deduction for health insurance ($15,000 for
family coverage and $7,500 for individual coverage).--The Administration
proposes to provide a standardized deduction for health insurance (SDHI)
of $15,000 to all families who purchase health insurance ($7,500 for
those purchasing individual coverage), whether directly or through an
employer, that meets minimum requirements. The full deduction would
apply regardless of how much a family or individual spends on health
insurance; that is, a family or individual that spends less than the
full deduction on health insurance would still receive the full
deduction. The deduction would apply for purposes of both the income and
payroll tax.
The new, flat deduction would replace the existing exclusion for
employer-provided health insurance, the
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self-employed premium deduction, and the medical itemized deduction.
Coverage under Medicare or Medicaid would not entitle an individual for
the SDHI. As a result of the proposal, the current exclusion or
deduction from income of health care spending, whether for insurance
premiums or out-of-pocket expenses, except under a Health Savings
Account (HSA), would also be repealed. However, itemized medical
deductions would still be available for some taxpayers such as
individuals enrolled in Medicare who are not otherwise eligible for the
SDHI.
Businesses would continue to deduct employer-provided health insurance
as a business expense. In addition, the phase-out rate for the EITC for
taxpayers with qualifying children would be reduced to 15 percent. These
provisions would be effective for tax years beginning after December 31,
2008.
Expand and make health savings accounts (HSAs) more flexible.--Current
law allows individuals to accumulate funds in an HSA or medical savings
account (MSA) on a tax-preferred basis to pay for medical expenses,
provided they are covered by an HSA-qualified high-deductible health
plan (HDHP), and no other health plan. Under current law, individual
contributions to HSAs are deductible for income tax purposes, while
employer contributions to HSAs are excluded from both the income and
payroll tax. The higher deductible under HSA-qualified health plans
increases the cost consciousness of health care consumers by increasing
their exposure to the cost of health care.
In addition to higher deductibles, the Administration also recognizes
that higher coinsurance levels encourage cost consciousness among health
care consumers. Therefore, the Administration proposes to allow health
plans to be considered HSA-eligible if they meet all the existing
requirements of an HDHP except that, in lieu of satisfying the minimum
deductible requirement, they have at least a 50 percent coinsurance
requirement and a minimum out-of-pocket exposure that would result in
the same (or lower) premium as coverage under a high-deductible health
plan under the current requirements for the same family or individual.
The Administration also proposes that additional changes be made to
HSAs to encourage the use of HSAs and coverage under the HSA-eligible
high-deductible health plans including: (1) allowing family coverage to
include coverage where each individual in the family can receive
benefits once they have reached the minimum deductible for an individual
HDHP; (2) allowing both spouses to contribute the catch-up contribution
to a single HSA owned by one spouse if both spouses are eligible
individuals; (3) allowing an individual to be covered by a flexible
spending arrangement (FSA) or health reimbursement arrangement (HRA)
with first dollar coverage and still contribute to an HSA, but offset
the maximum allowable HSA contribution by the level of FSA or HRA
coverage; (4) allowing qualified medical expenses to include any medical
expense incurred on or after the first day of HDHP coverage if
individuals have established an HSA by their return filing date for that
year; and (5) excluding from the comparability rules extra employer
contributions to HSAs on behalf of employees who are chronically ill or
employees who have spouses or dependents who are chronically ill. All of
the HSA-related proposals would be effective for years beginning after
December 31, 2008.
Allow the orphan drug tax credit for certain pre-designation
expenses.--Current law provides a 50-percent credit for expenses related
to human clinical testing of drugs for the treatment of certain rare
diseases and conditions (``orphan drugs''). A taxpayer may claim the
credit only for expenses incurred after the Food and Drug Administration
(FDA) designates a drug as a potential treatment for a rare disease or
condition. This creates an incentive to defer clinical testing for
orphan drugs until the taxpayer receives the FDA's approval and
increases complexity for taxpayers by treating pre-designation and post-
designation clinical expenses differently. The Administration proposes
to allow taxpayers to claim the orphan drug credit for expenses incurred
prior to FDA designation if designation occurs before the due date
(including extensions) for filing the tax return for the year in which
the FDA application was filed. The proposal would be effective for
qualified expenses incurred after December 31, 2007.
Provide Incentives for Charitable Giving
Permanently extend tax-free withdrawals from IRAs for charitable
contributions.--Under current law, eligible individuals may make
deductible or non-deductible contributions to a traditional IRA and
nondeductible contributions to a Roth IRA. Pre-tax contributions and
earnings in a traditional IRA are included in income when withdrawn.
Qualified withdrawals from a Roth IRA are excluded from gross income;
withdrawals that are not qualified are included in gross income to the
extent attributable to earnings. The Pension Protection Act of 2006
provided an exclusion from gross income for otherwise taxable
distributions from a traditional or a Roth IRA made directly to a
qualified charitable organization. The exclusion may not exceed $100,000
per taxpayer per taxable year, is applicable only to distributions made
on or after the date the IRA owner attains age 70 1/2, and is effective
for distributions made in taxable years beginning after December 31,
2005 and before January 1, 2008. The exclusion applies only if a
charitable contribution deduction for the entire distribution would
otherwise be allowable under current law, determined without regard to
the percentage-of-AGI limitation. No charitable deduction is allowed
with respect to any amount excludable from income under this provision.
The Administration proposes to permanently extend this exclusion,
effective for distributions made in taxable years beginning after
December 31, 2007.
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Permanently extend the enhanced charitable deduction for contributions
of food inventory.--A taxpayer's deduction for charitable contributions
of inventory generally is limited to the taxpayer's basis (typically
cost) in the inventory or, if less, the fair market value of the
inventory. However, for certain contributions of inventory, C
corporations may claim an enhanced deduction equal to the lesser of: (1)
basis plus one-half of the fair market value in excess of basis, or (2)
two times basis. To be eligible for the enhanced deduction, the
contributed property generally must be inventory of the taxpayer
contributed to a charitable organization and the donee must: (1) use the
property consistent with the donee's exempt purpose solely for the care
of the ill, the needy, or infants; (2) not transfer the property in
exchange for money, other property, or services; and (3) provide the
taxpayer a written statement that the donee's use of the property will
be consistent with such requirements. To use the enhanced deduction, the
taxpayer must establish that the fair market value of the donated item
exceeds basis.
The Katrina Emergency Tax Relief Act of 2005 expanded the enhanced
deduction to apply to qualified contributions of food inventory made
after August 27, 2005 and before January 1, 2006 by all taxpayers (not
just C corporations) engaged in a trade or business. The Pension
Protection Act of 2006 extended the enhanced charitable deduction for
contributions of food inventory provided under the Katrina Emergency Tax
Relief Act of 2005 to apply to contributions made after December 31,
2005 and before January 1, 2008. The donated food must meet certain
quality and labeling standards, and, for taxpayers other than C
corporations, the total deduction for donated food inventory may not
exceed 10 percent of the taxpayer's net income from the related trade or
business. The Administration proposes to permanently extend the enhanced
charitable deduction for contributions of food inventory to apply to
contributions made after December 31, 2007.
Permanently extend the deduction for corporate donations of computer
equipment for educational purposes.--The charitable contribution
deduction that may be claimed by corporations for donations of inventory
property generally is limited to the lesser of fair market value or the
corporation's basis in the property. However, corporations are provided
enhanced deductions, not subject to this limitation, for contributions
of computer technology and equipment for education purposes. The
enhanced deduction is equal to the lesser of: (1) basis plus one-half of
the item's fair market value in excess of basis, or (2) two times basis.
To qualify for the enhanced deduction, equipment contributed must have
been constructed or assembled by the taxpayer and be donated no later
than three years after completion. This provision expired with respect
to donations made after December 31, 2007. The Administration proposes
to permanently extend this deduction, effective for distributions made
in taxable years beginning after December 31, 2007.
Permanently extend increased limits on contributions of partial
interests in real property for conservation purposes.--In general, a
deduction is permitted for charitable contributions, subject to certain
limitations that depend on the type of taxpayer, the property
contributed, and the donee organization. Exceptions to these general
rules are provided for certain types of contributions, including
qualified conservation contributions. The special rules for qualified
conservation contributions were enhanced under the Pension Protection
Act of 2006, applicable for qualified conservation contributions made in
taxable years beginning after December 31, 2005 and before January 1,
2008. These special rules: (1) increased the cap on deductions for
qualified conservation contributions from 30 percent to 50 percent of
the excess of the donor's contribution base over the amount of all other
allowable charitable contributions; (2) increased the cap on deductions
for qualified conservation contributions applicable to qualified
ranchers and farmers to 100 percent of the excess of the donor's
contribution base over the amount of all other allowable charitable
contributions in the case of individuals and to 100 percent of the
excess of taxable income over the amount of all other allowable
charitable contributions in the case of corporations; and (3) increased
the number of years qualified conservation contributions in excess of
the 50- and 100-percent caps may be carried forward from five to 15
years. The Administration proposes to permanently extend these special
rules, applicable for qualified conservation contributions made in
taxable years beginning after December 31, 2007.
Permanently extend basis adjustment to stock of S corporations
contributing appreciated property.--Each shareholder of an S corporation
must take into account his or her pro rata share of a charitable
contribution by the S corporation in determining his or her income tax
liability. For donations of property, this generally is the pro rata
share of the property's fair market value. Under prior law, the
shareholder's basis in the stock of the company was reduced by the
amount of the charitable contribution that flowed through to the
shareholder. Under the Pension Protection Act of 2006, effective for
charitable contributions made by an S corporation in taxable years
beginning after December 31, 2005 and before January 1, 2008,
shareholders are allowed to adjust their basis in the stock of the
company by their pro rata share of the adjusted basis of the contributed
property instead of by their pro rata share of the market value of the
contributed property. The Administration proposes to permanently extend
this provision, effective for charitable contributions made by an S
corporation in taxable years beginning after December 31, 2007.
Reform excise tax based on investment income of private foundations.--
Under current law, private foundations that are exempt from Federal
income tax are subject to a two-percent excise tax on their net
investment income (one percent if certain requirements
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are met). The excise tax on private foundations that are not exempt from
Federal income tax, such as certain charitable trusts, is equal to the
excess of the sum of the excise tax that would have been imposed if the
foundation were tax exempt and the amount of the unrelated business
income tax that would have been imposed if the foundation were tax
exempt, over the income tax imposed on the foundation. To encourage
increased charitable activity and simplify the tax laws, the
Administration proposes to replace the two rates of tax on the net
investment income of private foundations that are exempt from Federal
income tax with a single tax rate of one percent. The excise tax on
private foundations not exempt from Federal income tax would be equal to
the excess of the sum of the one-percent excise tax that would have been
imposed if the foundation were tax exempt and the amount of the
unrelated business income tax that would have been imposed if the
foundation were tax exempt, over the income tax imposed on the
foundation. The proposed change would be effective for taxable years
beginning after December 31, 2007.
Strengthen Education
Permanently extend the above-the-line deduction for qualified out-of-
pocket classroom expenses.--Under current law, teachers who itemize
deductions (do not use the standard deduction) and incur unreimbursed,
job-related expenses are allowed to deduct those expenses to the extent
that, when combined with other miscellaneous itemized deductions, they
exceeded two percent of AGI. Current law also allows certain teachers
and other elementary and secondary school professionals to treat up to
$250 in annual qualified out-of-pocket classroom expenses as a non-
itemized deduction (deductible above-the-line). Unreimbursed
expenditures for certain books, supplies, and equipment related to
classroom instruction qualify for the above-the-line deduction. Expenses
claimed as an above-the-line deduction may not be claimed as an itemized
deduction. This additional deduction is effective for expenses incurred
in taxable years beginning after December 31, 2001 and before January 1,
2008. The Administration proposes to permanently extend the above-the-
line deduction to apply to qualified out-of-pocket expenditures incurred
in taxable years beginning after December 31, 2007.
Allow the saver's credit for contributions to qualified tuition
programs (section 529 of the Internal Revenue Code).--Under current law,
taxpayers age 18 or older who are not dependents or full-time students
may receive a nonrefundable credit (the saver's credit) on up to $2,000
of their compensation contributed to employer-sponsored qualified
retirement plans and IRAs. The credit ranges between 10 and 50 percent
of the amount contributed, depending on the taxpayer's filing status and
AGI (adjusted for inflation). In determining the credit, qualified
contributions are reduced by distributions from qualified plans and IRAs
during the current tax year, the two preceding tax years, and the
following year, up to the due date of the return, including extensions.
Under current law, taxpayers may contribute to a section 529 qualified
tuition program (QTP) to save for higher education expenses of a
designated beneficiary. Contributions to a QTP are not deductible from
income for Federal tax purposes, but earnings on contributions
accumulate tax-free. Taxpayers may exclude from gross income amounts
distributed from a QTP and used for qualified higher education expenses,
provided the distribution is not used for the same educational expenses
for which another tax benefit is claimed. Nonqualified distributions are
subject to an additional tax.
The Administration proposes to allow the saver's credit for qualified
contributions to QTPs controlled by the taxpayer. AGI would be modified
to include the excludable portion of the taxpayer's Social Security
benefits in determining the applicable rate for the saver's credit. The
credit would apply to an annual aggregate contribution of up to $2,000
(or earnings includible in gross income, if less) to the taxpayer's
elective deferral plans, IRAs, and QTPs. For an individual who is
married filing a joint return, the earnings limitation would be binding
only if the combined includible compensation of the spouses was less
than $4,000. Qualified contributions would be reduced by distributions
from elective deferral plans, IRAs, and QTPs during the current tax
year, the two preceding tax years, and the following tax year up to the
due date of the return, including extensions. The credit would be
effective for years beginning after December 31, 2008.
Strengthen Housing
Expand tax-exempt qualified mortgage bond program to assist subprime
borrowers.--Under current law, State and local governments may issue
tax-exempt private activity bonds, called ``qualified mortgage bonds,''
to provide low-interest rate new mortgage loans (as contrasted with
refinancing loans) to qualified first-time homebuyers for the purchase,
improvement, or rehabilitation of owner-occupied single-family housing.
Several restrictions, including purchase price and mortgagor income
limitations, apply. In addition, such bonds are subject to the annual
private activity bond volume cap and various general eligibility
requirements for tax-exempt private activity bonds. The Administration
proposes to expand the mortgage bond program temporarily to allow State
and local governments to use such bonds to refinance existing loans to
eligible subprime borrowers during the three years, 2008 through 2010.
The proposal would increase the private activity bond volume cap by a
total amount of $15 billion to be dedicated to use for subprime
refinancings during the three years from 2008 through 2010.
Protect the Environment
Permanently extend expensing of brownfields remediation costs.--
Taxpayers may elect, with respect to expenditures paid or incurred
before January 1,
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2008, to treat certain environmental remediation expenditures that would
otherwise be chargeable to a capital account as deductible in the year
paid or incurred. The Administration proposes to extend this provision
permanently, making it available for expenditures paid or incurred after
December 31, 2007, and facilitating its use by businesses to undertake
projects that may be uncertain in overall duration.
Eliminate the volume cap for private activity bonds for water
infrastructure.--Bonds are classified as private activity bonds if they
meet a private business use test and a private payments test. Private
activity bonds may be issued on a tax-exempt basis only if they meet
specified requirements, including targeting requirements that limit such
bond financing to specifically defined facilities and programs. For
example, qualified private activity bonds can be used to finance
facilities for the furnishing of water and for sewer facilities.
Qualified private activity bonds are subject to the same general rules
applicable to governmental bonds. Most qualified private activity bonds
are also subject to a number of additional rules and limitations, in
particular an annual State volume cap limitation.
The Administration proposes to remove from the annual State volume cap
limitation qualified private activity bonds issued to finance water and
sewage facilities. These bonds are intended to complement local efforts
to move towards full cost pricing for wastewater and drinking water
services, helping municipalities become self-financing and minimizing
the need for future Federal expenditures. The volume cap would be
removed for obligations issued after December 31, 2008.
Restructure Assistance to New York City for
Continued Recovery from the Attacks of
September 11th
Provide tax incentives for transportation infrastructure.--The
Administration proposes to restructure the tax benefits for New York
recovery that were enacted in 2002. Some of the tax benefits that were
provided to New York following the attacks of September 11, 2001, likely
will not be usable in the form in which they were originally provided.
As such, the Administration proposed in the Mid-Session Review of the
2005 Budget to sunset certain existing New York Liberty Zone tax
benefits and in their place provide tax credits to New York State and
New York City for expenditures incurred in building or improving
transportation infrastructure in or connecting with the New York Liberty
Zone. The tax credit would be available as of the date of enactment,
subject to an annual limit of $200 million ($2 billion in total over 10
years), evenly divided between the State and the City. Any unused credit
limit in a given year would be added to the $200 million allowable in
the following year, including years beyond the 10-year period of the
credit. Similarly, expenditures that could not be credited in a given
year because of the credit limit would be carried forward and used
against the next year's limitation. The credit would be allowed against
any payments (e.g., income tax withholding) made by the City and State
under any provision of the Internal Revenue Code, other than Social
Security and Medicare payroll taxes and excise taxes. The Secretary of
the Treasury may prescribe such rules as are necessary to ensure that
the expenditures are made for the intended purpose. The Administration
also proposes to terminate the additional first-year depreciation
deduction for certain real property, which was provided to eligible
property within the New York Liberty Zone under the 2002 economic
stimulus act.
SIMPLIFY THE TAX LAWS FOR FAMILIES
Clarify uniform definition of a child.--The 2004 tax relief act
created a uniform definition of a child, allowing, in many
circumstances, a taxpayer to claim the same child for five different
child-related tax benefits. Under the new rules, a qualifying child must
meet relationship, residency, and age tests. While the new rules
simplify the determination of eligibility for many child-related tax
benefits, the elimination of certain complicated factual tests to
determine if siblings and certain other family members are eligible to
claim a qualifying child may have some unintended consequences. The new
rules effectively deny the EITC to some young taxpayers who are the sole
guardians of their younger siblings. Yet some taxpayers are able to
avoid income limitations on child-related tax benefits by allowing other
family members, who have lower incomes, to claim the taxpayers' sons or
daughters as qualifying children. The 2004 tax relief act had other
unintended consequences, which made some of the eligibility rules less
uniform. For example, it allowed dependent filers to claim the child tax
credit, even though they are generally ineligible for most other child-
related tax benefits. It also allowed taxpayers to claim the child tax
credit on behalf of a married child who files a joint return with his or
her spouse, even though the taxpayer generally cannot claim other
benefits for the married child. These exceptions create confusion and
add complexity to the tax code.
To ensure that deserving taxpayers receive child-related tax benefits,
the Administration proposes to clarify the uniform definition of a
child. First, the definition of a qualifying child would be further
simplified. A taxpayer would not be a qualifying child of another
individual if the taxpayer is older than that individual. However, an
individual could be a qualifying child of a younger sibling if the
individual is permanently and totally disabled. Also, under the
proposal, an individual who is married and filing jointly (for any
reason other than to obtain a refund of overwithheld taxes) would not be
considered a qualifying child for the child-related tax benefits,
including the child tax credit. Second, the proposal clarifies when a
taxpayer is eligible to claim child-related tax benefits. If a parent
resides with his or her child for over half the year, the parent would
be the only individual eligible to claim the child as a qualifying
child. The parent could waive the child-
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related tax benefits to another member of the household who has higher
AGI and is otherwise eligible for the tax benefits. In addition,
dependent filers would not be allowed to claim qualifying children. The
proposal is effective for taxable years beginning after December 31,
2008.
Simplify EITC eligibility requirement regarding filing status,
presence of children, and work and immigrant status.--To qualify for the
EITC, taxpayers must satisfy requirements regarding filing status, the
presence of children in their households, and their work and immigration
status in the United States. These rules are confusing, require
significant record-keeping, and are costly to administer. Under the
proposal, married taxpayers who reside with children could claim the
EITC without satisfying a complicated household maintenance test if they
live apart from their spouse for the last six months of the year. In
addition, certain taxpayers who live with children but do not qualify
for the larger child-related EITC could claim the smaller EITC for very
low-income childless workers. The simplification of the filing status
and residency requirements would be effective for taxable years
beginning after December 31, 2008. Effective January 1, 2009, the
proposal would also improve the administration of the EITC with respect
to eligibility requirements for undocumented workers.
Reduce computational complexity of refundable child tax credit.--
Taxpayers with earned income in excess of $12,050 may qualify for a
refundable (or ``additional'') child tax credit even if they do not have
any income tax liability. Over 70 percent of additional child tax credit
claimants also claim the EITC. However, the two credits have a different
definition of earned income and different U.S. residency requirements.
In addition, some taxpayers have to perform multiple computations to
determine the amount of the additional child tax credit they can claim.
First, they must compute the additional child tax credit using a formula
based on earned income. Then, if they have three or more children, they
may recalculate the credit using a formula based on social security
taxes and claim the higher of the two amounts.
Under the proposal, the additional child tax credit would use the same
definition of earned income as is used for the EITC. Taxpayers (other
than members of the Armed Forces stationed overseas) would be required
to reside with a child in the United States to claim the additional
child tax credit (as they are currently required to do for the EITC).
Taxpayers with three or more children would do only one computation
based on earned income to determine the credit amount. The proposal
would be effective for taxable years beginning after December 31, 2008.
IMPROVE TAX COMPLIANCE
The Federal tax system is based on voluntary compliance with the tax
laws. Under this system, taxpayers report and pay their taxes
voluntarily with minimal interaction with the IRS. While the vast
majority of American taxpayers pay their taxes timely and accurately,
there remains in aggregate a difference between what taxpayers should
pay and what they actually pay on a timely basis. In 2001, the overall
compliance rate was 86 percent, after including late payments and
recoveries from IRS enforcement activities. While this rate of
compliance is high, a large amount of the tax that should be paid is
not, resulting in the so-called ``tax gap''.\1\
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\1\ See Chapter 13, Stewardship, in this volume.
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In September 2006, the Treasury Department released a comprehensive
strategy to improve tax compliance. \2\ The strategy builds upon the
demonstrated experience and current efforts of the Treasury Department
and IRS to improve compliance.
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\2\ Comprehensive Strategy for Reducing the Tax Gap, U.S. Treasury
Department, September 26, 2006.
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Four key principles guided development of the strategy:
Unintentional taxpayer errors and intentional taxpayer
evasion should both be addressed.
Sources of non-compliance should be targeted with
specificity.
Enforcement activities should be combined with a commitment
to taxpayer service.
Tax policy and compliance proposals should be sensitive to
taxpayer rights and maintain an appropriate balance between
enforcement activity and imposition of taxpayer burden.
These principles point to the need for a comprehensive, integrated,
multi-year strategy to improve tax compliance. Components of this
strategy must include: (1) legislative proposals to reduce opportunities
for evasion; (2) a multi-year commitment to compliance research; (3)
continued improvements in information technology; (4) improvements in
IRS compliance activities; (5) enhancements of taxpayer service; (6)
simplification of the tax law; and (7) coordination between the
government and its partners and stakeholders.
The IRS has taken a number of steps to improve compliance. \3\ To
enhance the IRS's efforts, the Administration's Budget includes a number
of legislative proposals intended to improve tax compliance with minimum
taxpayer burden. The Administration proposes to expand information
reporting, improve compliance by businesses, strengthen tax
administration, and expand penalties.
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\3\ See Reducing the Federal Tax Gap: A Report on Improving Voluntary
Compliance, IRS, August 2, 2007.
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Expand information reporting.--Compliance with the tax laws is highest
when payments are subject to information reporting to the IRS. Specific
information reporting proposals would: (1) require information reporting
on payments to corporations; (2) require basis reporting on security
sales; (3) require information reporting on broker and merchant payment
card reimbursements; (4) require a certified tax identification number
(TIN) from non-employee service providers; (5) require increased
information reporting for certain gov
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ernment payments for property and services; (6) increase information
return penalties; and (7) improve the foreign trust reporting penalty.
Improve compliance by businesses.--Improving compliance by businesses
of all sizes is important. Specific proposals to improve compliance by
businesses would: (1) require electronic filing by certain large
businesses; and (2) implement standards clarifying when employee leasing
companies can be held liable for their clients' Federal employment
taxes.
Strengthen tax administration.--The IRS has taken a number of steps
under existing law to improve compliance. These efforts would be
enhanced by specific tax administration proposals that would: (1) expand
IRS access to information in the National Directory of New Hires
database; (2) permit the IRS to disclose to prison officials return
information about tax violations; (3) make repeated failure to file a
tax return a felony; (4) facilitate information sharing with local
jurisdictions for purposes of tax compliance; (5) extend the statutory
period for assessing additional Federal tax liability on State/local
adjustments or amended returns; and (6) improve the investigative
disclosure statute.
Expand penalties.--Penalties play an important role in discouraging
intentional non-compliance. The Administration proposes to impose a
penalty on failure to comply with electronic filing requirements.
IMPROVE TAX ADMINISTRATION AND OTHER MISCELLANEOUS PROPOSALS
Implement IRS administrative reforms.--The Administration has three
proposals relating to administrative reforms. The first proposal
modifies employee infractions subject to mandatory termination and
permits a broader range of available penalties. It strengthens taxpayer
privacy while reducing employee anxiety resulting from unduly harsh
discipline or unfounded allegations. The second proposal allows the IRS
to terminate installment agreements when taxpayers fail to make timely
tax deposits and file tax returns on current liabilities. The third
proposal eliminates the requirement that the IRS Chief Counsel provide
an opinion for any accepted offer-in-compromise of unpaid tax (including
interest and penalties) equal to or exceeding $50,000. This proposal
requires that the Secretary of the Treasury establish standards to
determine when an opinion is appropriate.
Extend IRS authority to fund undercover operations.--The IRS is
permitted to fund certain necessary and reasonable expenses of
undercover operations, placing it on equal footing with other Federal
law enforcement agencies. These undercover operations include
international and domestic money laundering and narcotics operations.
The Administration proposes to extend this funding authority, which
expired on December 31, 2007, through December 31, 2012.
Increase transparency of the cost of employer-provided health
insurance.--Employers providing health coverage to employees and their
families would be required to report on the Form W-2 provided to
employees and the IRS the value of the health coverage provided to the
employee. For this purpose, employers would generally use the same value
for all similarly situated employees receiving the same category (such
as self-only or family) of coverage. It is expected that the amount
reported as the value of coverage would be determined using the same
methodology as the applicable premiums for purposes of COBRA
continuation coverage under section 4980B. This provision would be
effective for years beginning after December 31, 2008.
Equalize penalty standards between preparers and taxpayers.--The
increase in applicable standards in order for a tax return preparer to
take an undisclosed position on a return and avoid penalties may result
in conflicts of interest between tax return preparers and their taxpayer
clients. The proposal would make the standard applicable to preparers in
order to take an undisclosed position on a return generally consistent
with the taxpayer standard. The proposal would maintain the existing law
requirement that the preparer have a reasonable belief that the position
would more likely than not be sustained on the merits with respect to
certain reportable transactions with a significant purpose of tax
avoidance. The proposal would make the standard applicable to tax return
preparers for disclosed positions (including positions described in
section 6662(d)(2)(C)) reasonable basis. No penalty would be asserted
against a tax return preparer if the preparer has reasonable cause and
good faith.
Eliminate the special exclusion from unrelated business taxable income
for gain or loss on the sale or exchange of certain brownfields.--In
general, an organization that is otherwise exempt from Federal income
tax is taxed on income from any trade or business regularly carried on
by the organization that is not substantially related to the
organization's exempt purposes. In addition, income derived from
property that is debt-financed generally is subject to unrelated
business income tax. The 2004 American Jobs Creation Act created a
special exclusion from unrelated business taxable income of gain or loss
from the sale or exchange of certain qualifying brownfield properties.
The exclusion applies regardless of whether the property is debt-
financed. The new provision adds considerable complexity to the Internal
Revenue Code and, because there is no limit on the amount of tax-free
gain, could exempt from tax real estate development considerably beyond
mere environmental remediation. The proposal would eliminate this
special exclusion effective for taxable years beginning after December
31, 2008.
Limit related party interest deductions.--Current law (section 163(j)
of the Internal Revenue Code) denies U.S. tax deductions for certain
interest expenses paid to a related party where: (1) the corporation's
debt-
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to-equity ratio exceeds 1.5 to 1, and (2) net interest expenses exceed
50 percent of the corporation's adjusted taxable income (computed by
adding back net interest expense, depreciation, amortization, depletion,
and any net operating loss deduction). If these thresholds are exceeded,
no deduction is allowed for interest in excess of the 50-percent limit
that is paid to a related party or paid to an unrelated party but
guaranteed by a related party, and that is not subject to U.S. tax. Any
interest that is disallowed in a given year is carried forward
indefinitely and may be deductible in a subsequent taxable year. A
three-year carryforward for any excess limitation (the amount by which
interest expense for a given year falls short of the 50-percent limit)
is also allowed. Consistent with the findings of the Treasury
Department's recent study of earnings stripping, section 163(j) would be
revised to tighten the limitation on the deductibility of interest paid
by ``expatriated entities'' to related persons. The current law 1.5 to 1
debt-to-equity safe harbor would be eliminated. The adjusted taxable
income threshold for the limitation would be reduced from 50 percent to
25 percent of adjusted taxable income with respect to disqualified
interest other than interest paid to unrelated parties on debt that is
subject to a related-party guarantee (``guaranteed debt''). Interest on
guaranteed debt generally would be subject to the current-law 50 percent
of adjusted taxable income threshold. The indefinite carryforward for
disallowed interest under the adjusted taxable income limitation of
current law would be limited to ten years. The three-year carryforward
of excess limitation would be eliminated.
Repeal excise tax on local telephone service.--A three-percent Federal
excise tax is imposed on amounts paid for local telephone service, toll
telephone service (essentially long distance telephone service), and
teletypewriter exchange service. In accordance with multiple court
decisions that concluded that the tax did not apply to long distance
services sold at flat per-minute rates for interstate, intrastate, and
international calls, the IRS is no longer collecting tax on telephone
service other than local-only telephone service. The Administration
proposes to repeal all taxes on communication services, including the
tax on local telephone service, effective for amounts paid pursuant to
bills first rendered more than 90 days after enactment of legislation
repealing the tax.
Modify financing of the Airport and Airway Trust Fund.--The
Administration transmitted a reauthorization proposal in February 2007
to reform the Federal Aviation Administration's (FAA's) financing system
by adopting new cost-based user fees. The FAA's current financing
system, largely based on taxes on the price of airline tickets, does not
have a direct relationship between the taxes paid by users and the air
traffic control services provided by the FAA. The Administration will
resubmit the proposal for the FAA to collect user fees from commercial
aviation operators for air traffic control services starting in fiscal
year 2010. For non-commercial users, FAA would continue to recover its
costs for air traffic control services via a fuel tax. Both commercial
and non-commercial users would continue to pay fuel taxes to support the
FAA's Airport Improvement Program.
Improve financing of the Inland Waterways Trust Fund.--Commercial
barges that use the inland waterways now pay an excise tax of 20 cents
per gallon on diesel fuel, which is deposited in the Inland Waterways
Trust Fund. The tax does not raise enough revenue to cover the required
50 percent non-Federal share of the costs that the Army Corps of
Engineers is spending to construct, replace, expand, and rehabilitate
the locks and dams and other features that make barge transportation
possible on the inland waterways. To address this imbalance between
receipts and expenditures, the Administration proposes to phase out the
current excise tax for inland waterways users and replace it with a more
efficient user fee tied to the level of spending for inland waterways
construction, replacement, expansion, and rehabilitation work.
Anticipated receipt of donations to the National Park Service through
the National Park Centennial Challenge Fund.--The President's National
Park Centennial Challenge encourages the public to increase donations to
national parks by proposing to match contributions for signature
projects and programs on a dollar-for-dollar basis up to $100 million a
year for ten years. As part of a broader initiative to prepare for the
National Park Service Centennial in 2016, this Challenge continues the
National Park Service's legacy of leveraging philanthropic investment
for the benefit of America's national parks.
Increase fees for Migratory Bird Hunting and Conservation Stamps.--
Federal Migratory Bird Hunting and Conservation Stamps, commonly known
as ``Duck Stamps,'' were originally created in 1934 as the Federal
licenses required for hunting migratory waterfowl. Today, ninety-eight
percent of the receipts generated from the sale of these stamps ($15 per
stamp per year) are used to acquire important migratory bird breeding
areas, migration resting places, and wintering areas. The land and water
interests located and acquired with the Duck Stamp funds establish or
add to existing migratory bird refuges and waterfowl production areas.
The price of the Duck Stamp has not increased since 1991; however, the
cost of land and water has increased significantly over the past 16
years. The Administration proposes to increase these fees to $25 per
stamp per year, effective beginning in 2009.
Transition from the non-foreign cost-of-living adjustment (COLA) to
locality pay for employees in non-foreign areas.--Federal employees
working outside the continental United States in Alaska, Hawaii or the
U.S. territories presently receive a COLA, which is an untaxed annual
pay adjustment that is not cred
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itable for retirement. By transitioning to locality pay, Federal
employees in the non-foreign areas will contribute a larger percentage
of their pay into the Federal retirement fund as locality pay is
retirement-creditable. The proposal would establish a yearly reduction
in the COLA, offset by a yearly increase in applicable locality pay,
with the intent of eliminating the COLA over seven years.
IMPROVE UNEMPLOYMENT INSURANCE
Strengthen the financial integrity of the unemployment insurance
system by reducing improper benefit payments and tax avoidance.--The
Administration has a multi-part proposal to strengthen the financial
integrity of the unemployment insurance (UI) system and to encourage the
early reemployment of UI beneficiaries. The Administration's proposal
will boost States' ability to recover benefit overpayments and deter tax
evasion schemes by permitting them to use a portion of recovered funds
to expand enforcement efforts in these areas. In addition, the proposal
would require States to impose a monetary penalty on UI benefit fraud,
which would be used to reduce overpayments; make it easier for States to
use private collection agencies in the recovery of hard-to-collect
overpayments and delinquent employer taxes; require States to charge
employers found to be at fault when their actions lead to overpayments;
permit collection of delinquent UI overpayments and employer taxes
through garnishment of Federal tax refunds; and improve the accuracy of
hiring data in the National Directory of New Hires, which would reduce
benefit overpayments. The Administration's proposal would also permit
States to request waivers of certain Federal requirements in order to
carry out demonstration projects that improve the administration of the
UI program, such as speeding reemployment of UI beneficiaries. These
efforts to strengthen the financial integrity of the UI system and
encourage early reemployment of UI beneficiaries will keep State UI
taxes down and improve the solvency of the State trust funds.
Extend unemployment insurance surtax.--The Federal unemployment tax on
employers will drop from 0.8 percent to 0.6 percent with respect to
wages paid after December 31, 2008. The 0.8 percent rate is proposed to
be extended for one year, through December 31, 2009.
MODIFY ENERGY PROVISIONS
Repeal reduced recovery period for natural gas distribution lines.--
The Energy Policy Act of 2005 reduced the recovery period for new
natural gas distribution lines that are placed in service before January
1, 2011, from 20 years to 15 years. The Administration proposes to
repeal this provision for natural gas distribution lines placed in
service after December 31, 2008.
Modify amortization for certain geological and geophysical
expenditures.--Geological and geophysical expenditures (G&G costs) are
costs incurred by a taxpayer for the purpose of obtaining and
accumulating data that will serve as the basis for the acquisition and
retention of mineral properties by taxpayers exploring for minerals.
Under the Energy Policy Act of 2005, G&G costs paid or incurred in
taxable years beginning after August 8, 2005, in connection with oil and
gas exploration in the United States, could be amortized over two years.
The Tax Increase Prevention and Reconciliation Act of 2006 increased the
amortization period to five years for G&G costs paid or incurred by
certain major integrated oil companies after May 17, 2006. This five-
year amortization rule applied only to integrated oil companies that had
an average daily worldwide production of crude oil of at least 500,000
barrels for the taxable year, had gross receipts in excess of $1 billion
in the last taxable year ending during calendar year 2005, and were
either a crude oil refiner or related to a crude oil refiner. The Energy
Independence and Security Act of 2007 increased the amortization period
for such integrated oil companies to seven years for costs paid or
incurred after December 19, 2007. The Administration proposes to
increase the amortization period to seven years for all companies,
effective for amounts paid or incurred in taxable years beginning after
December 31, 2008.
PROMOTE TRADE
Implement free trade agreements.--Free trade agreement negotiations
with Columbia, Panama and Korea were completed, with the expectation
that implementation could begin as early as 2009. A free trade agreement
is expected to be completed with Malaysia, with implementation to begin
in 2010. These agreements will continue the Administration's effort to
use free trade agreements to benefit U.S. consumers and producers as
well as strengthen the economies of America's partner countries.
Establish Reconstruction Opportunity Zones (ROZs) in Pakistan and
Afghanistan.--In March 2006, the President announced his intention to
establish ROZs in Afghanistan and the border regions of Pakistan. ROZs
are a critical part of the Administration's broader counterterrorism
strategy in these areas, designed to connect isolated regions to the
global economy and create vital employment opportunities in territories
prone to extremism. The creation of ROZs will encourage investment and
economic development in these areas by granting duty-free entry to the
United States for certain goods produced in designated territories. By
stimulating economic activity in remote and underdeveloped regions, ROZs
can also serve as a powerful catalyst for peace, prosperity, stability,
growth and good governance. The Administration will work closely with
Congress and private sector stakeholders to implement this important
initiative.
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Extend Generalized System of Preferences (GSP).--Under GSP, duty-free
access is provided to approximately 3,400 products from eligible
beneficiary developing countries that meet certain worker rights,
intellectual property protection, and other statutory criteria. The
Administration proposes to extend this program, which is scheduled to
expire after December 31, 2008, through December 31, 2013.
Extend Andean Trade Preference Act (ATPA).--The ATPA was designed to
provide economic alternatives for Bolivia, Columbia, Ecuador, and Peru
in their fight against narcotics production and trafficking. The
Administration proposes to extend the ATPA, which is scheduled to expire
on February 29, 2008, through December 31, 2008.
Extend Caribbean Basin Initiative (CBI).--The trade programs known
collectively as the CBI remain a vital element in the United States'
economic relations with its neighbors in Central America and the
Caribbean. The CBI, which is intended to facilitate the economic
development and export diversification of the Caribbean Basin economies,
currently provides 19 beneficiary countries with duty-free access to the
U.S. market for most goods. The Administration proposes to extend the
CBI, which is scheduled to expire on September 30, 2008, through
December 31, 2011.
EXTEND EXPIRING PROVISIONS
Extend minimum tax relief for individuals.--A temporary provision of
current law increased the alternative minimum tax (AMT) exemption
amounts to $44,350 for single taxpayers, $66,250 for married taxpayers
filing a joint return and surviving spouses, and $33,125 for married
taxpayers filing a separate return and estates and trusts. Effective for
taxable years beginning after December 31, 2007, the AMT exemption
amounts decline to $33,750 for single taxpayers, $45,000 for married
taxpayers filing a joint return and surviving spouses, and $22,500 for
married taxpayers filing a separate return and estates and trusts. A
temporary provision of current law permits nonrefundable personal tax
credits to offset both the regular tax and the AMT for taxable years
beginning before January 1, 2008.
The Administration proposes to increase the AMT exemption amounts to
$46,250 for single taxpayers, $70,050 for married taxpayers filing a
joint return, and $35,025 for married taxpayers filing a separate return
and estates and trusts through taxable year 2008 to prevent the number
of AMT taxpayers from increasing. Non-refundable personal tax credits
also would be allowed to offset both the regular tax and the AMT through
taxable year 2008.
Permanently extend the research and experimentation (R&E) tax
credit.--The Administration proposes to permanently extend the tax
credits for research and experimentation expenditures, which expired
with respect to expenditures incurred after December 31, 2007.
Extend the first-time homebuyer credit for the District of Columbia
(DC).--A one-time nonrefundable $5,000 credit is available to purchasers
of a principal residence in the District of Columbia who have not owned
a residence in the District during the year preceding the purchase. The
credit phases out for taxpayers with modified adjusted gross income
between $70,000 and $90,000 ($110,000 and $130,000 for joint returns).
The credit does not apply to purchases after December 31, 2007. The
Administration proposes to extend the credit for two years, making the
credit available with respect to purchases after December 31, 2007 and
before January 1, 2010.
Extend deferral of gains from sales of electric transmission
property.--Generally, the gain on the sale of business assets is subject
to current income tax unless a special rule provides for nonrecognition
or deferral of the gain. One such special rule applies to qualifying
electric transmission transactions. Under this rule, a taxpayer may
elect to recognize the gain from a qualifying electric transmission
transaction ratably over the eight-year period beginning with the year
of the transaction. Deferral is allowed only with respect to proceeds
that are used to purchase other gas or electric utility property during
the four-year period beginning on the date of the transaction (the
reinvestment period). A sale or other disposition of property is a
qualifying electric transmission transaction if: (1) the property is
used in the trade or business of providing electric transmission
services or is an ownership interest in a entity whose principal trade
or business is providing electric transmission services, and (2) the
sale or other disposition is to an independent transmission company and
occurs before January 1, 2008. In general, whether the purchaser
qualifies as an independent transmission company depends on
determinations by the Federal Energy Regulatory Commission (FERC) or, in
the case of facilities subject to the jurisdiction of the Public Utility
Commission of Texas, by that Commission. The special rule allowing the
deferral of tax on the gain from the sale or disposition of electric
transmission property would be extended for one year, allowing taxpayers
to elect deferral with respect to sales or dispositions that occur
before January 1, 2009.
Extend the New Markets tax credit.--The New Markets tax credit is
provided for qualified equity investments made to acquire stock in a
corporation or a capital interest in a partnership that is a qualified
community development entity (CDE). A credit of five percent is provided
to the investor for the first three years of investment. The credit
increases to six percent for the next four years. The maximum amount of
annual qualifying equity investment is capped at $2.0 billion for
calendar years 2004 and 2005, and $3.5 billion for calendar years 2006
through 2008. The Administration proposes to extend the New Markets tax
credit
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through 2009 and to permit up to $3.5 billion in qualified equity
investment for that calendar year.
Extend Subpart F ``active financing'' and ``look-through''
exceptions.--Under Subpart F rules, certain U.S. shareholders of a
controlled foreign corporation (CFC) are subject to U.S. tax currently
on certain income earned by the CFC, whether or not such income is
distributed. The income subject to current inclusion under Subpart F
includes, among other things, ``foreign personal holding company
income'' and insurance income. Foreign personal holding company income
generally includes dividends; interest; royalties; rents; annuities; net
gains from the sale of certain property, including securities,
commodities and foreign currency; and income from notional principal
contracts and securities lending activities. Under current law, for
taxable years beginning before January 1, 2009, exceptions from Subpart
F are provided for: (1) certain income derived in the active conduct of
a banking, financing, insurance, or similar business (active financing),
and (2) dividends, interest, rents and royalties received by one CFC
from a related CFC to the extent attributable or properly allocable to
income of the related CFC that is neither Subpart F income nor income
treated as effectively connected with the conduct of a trade or business
in the United States (look-through). The Administration proposes to
extend both the Subpart F active financing and look-through exceptions
to apply to taxable years beginning before January 1, 2010.
Extend the exception for retirement plan distributions provided
individuals called to active duty for at least 179 days.--Under current
law, a taxpayer who receives a distribution from a qualified retirement
plan prior to age 59 1/2, death or disability is subject to a 10-percent
early withdrawal tax unless a specific exception to the tax applies. One
of the exceptions to the tax applies to qualified reservist
distributions. An individual who receives a qualified reservist
distribution may, at any time during a two-year period beginning on the
day after the end of the active duty period, make contributions to an
IRA in an amount not exceeding the amount of the qualified reservist
distribution. Such contributions are not subject to the dollar
limitations otherwise applicable to contributions to IRAs. The exception
to the tax for qualified reservist distributions applies to individuals
ordered or called to active duty after September 11, 2001 and before
December 31, 2007. The Administration proposes to extend the exception
to individuals ordered or called to active duty before December 31,
2008.
Extend provisions permitting disclosure of tax return information
relating to terrorist activity.--The disclosure of tax return
information relating to terrorism is permitted in two situations. The
first is when an executive of a Federal law enforcement or intelligence
agency has reason to believe that the return information is relevant to
a terrorist incident, threat or activity and submits a written request.
The second is when the IRS wishes to apprise a Federal law enforcement
agency of a terrorist incident, threat or activity. The Administration
proposes to extend this disclosure authority, which expired on December
31, 2007, through December 31, 2008.
Extend authority permitting disclosure of tax return information to
the Department of Veterans Affairs (VA).--Current law permits disclosure
of certain tax information to the VA. This information assists the VA in
determining eligibility and establishing correct benefit amounts for
certain of its needs-based programs. The Administration proposes to
extend and update this disclosure authority, which is scheduled to
expire after September 30, 2008, through September 30, 2009.
Extend excise tax on coal at current rates.--Excise taxes levied on
coal mined and sold for use in the United States are deposited in the
Black Lung Disability Trust Fund. Amounts deposited in the Fund are used
to cover the cost of program administration and to pay compensation,
medical, and survivor benefits to eligible miners and their survivors,
when mine employment terminated prior to 1970 or when no mine operator
can be assigned liability. Current tax rates on coal sold by a producer
are $1.10 per ton of coal from underground mines and $0.55 per ton of
coal from surface mines; however, these rates may not exceed 4.4 percent
of the price at which the coal is sold. Effective for coal sold after
December 31, 2013, the tax rates on coal from underground mines and
surface mines will decline to $0.50 per ton and $0.25 per ton,
respectively, and will be capped at 2 percent of the price at which the
coal is sold. The Administration proposes to repeal the reduction in
these tax rates effective for sales after December 31, 2013, and keep
current rates in effect until the Black Lung Disability Trust Fund debt
is repaid.
[[Page 265]]
Table 17-3. EFFECT OF PROPOSALS ON RECEIPTS
(In millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2008 2009 2010 2011 2012 2013 2009-13 2009-18
--------------------------------------------------------------------------------------------------------------------------------------------------------
Economic growth package........................................ -125,000 -20,000 10,000 8,000 6,000 4,000 8,000 8,000
Make Permanent Certain Tax Relief Enacted in 2001 and 2003
(assumed in the baseline):
Dividends tax rate structure................................. ......... 425 -5,554 -24,361 -4,616 -13,873 -47,979 -196,413
Capital gains tax rate structure............................. ......... ......... -4,094 -17,416 -3,683 -8,461 -33,654 -104,804
Expensing for small businesses............................... ......... ......... ......... -4,160 -5,810 -4,288 -14,258 -26,537
Marginal individual income tax rate reductions............... ......... ......... ......... -75,160 -119,341 -123,794 -318,295 -1,007,667
Child tax credit \1\......................................... ......... ......... ......... -5,062 -20,357 -20,777 -46,196 -155,731
Marriage penalty relief \1\.................................. ......... ......... ......... -5,117 -7,715 -7,001 -19,833 -46,939
Education incentives......................................... ......... ......... ......... -738 -1,339 -1,413 -3,490 -11,540
Repeal of estate and generation-skipping transfer taxes, and -422 -2,502 -3,453 -26,409 -57,639 -59,670 -149,673 -521,982
modification of gift taxes..................................
Other incentives for families and children................... ......... ......... 6 -364 -678 -678 -1,714 -5,157
----------------------------------------------------------------------------------------
Total, make permanent certain tax relief enacted in 2001 -422 -2,077 -13,095 -158,787 -221,178 -239,955 -635,092 -2,076,770
and 2003..................................................
Tax Incentives:
Simplify and encourage saving:
Expand tax-free savings opportunities...................... ......... 1,527 3,545 3,023 1,075 -1,314 7,856 -592
Consolidate employer-based savings accounts................ ......... -80 -120 -132 -141 -150 -623 -1,484
----------------------------------------------------------------------------------------
Total, simplify and encourage saving..................... ......... 1,447 3,425 2,891 934 -1,464 7,233 -2,076
Encourage entrepreneurship and investment:
Increase expensing for small businesses.................... ......... -1,086 -1,495 -1,083 -851 -688 -5,203 -7,578
Invest in health care:
Provide a new standard deduction for health insurance ......... -23,002 -28,412 -22,680 -15,360 -4,692 -94,146 41,051
($15,000 for family coverage and $7,500 for individual
coverage) \1\.............................................
Expand and make health savings accounts (HSAs) more ......... -420 -779 -931 -1,031 -1,123 -4,284 -11,511
flexible..................................................
Allow the orphan drug tax credit for certain pre- ......... ......... ......... ......... ......... ......... ......... ..........
designation expenses \2\..................................
----------------------------------------------------------------------------------------
Total, invest in health care............................. ......... -23,422 -29,191 -23,611 -16,391 -5,815 -98,430 29,540
Provide incentives for charitable giving:
Permanently extend tax-free withdrawals from IRAs for ......... -300 -551 -434 -284 -211 -1,780 -3,321
charitable contributions..................................
Permanently extend the enhanced charitable deduction for -44 -96 -106 -116 -127 -140 -585 -1,524
contributions of food inventory...........................
Permanently extend the deduction for corporate donations of -50 -118 -147 -154 -162 -170 -751 -1,838
computer equipment for educational purposes...............
Permanently extend increased limits on contributions of -48 -35 -22 -18 -21 -22 -118 -245
partial interests in real property for conservation
purposes..................................................
Permanently extend basis adjustment to stock of S -3 -15 -21 -25 -28 -32 -121 -354
corporations contributing appreciated property............
Reform excise tax based on investment income of private -105 -152 -152 -153 -154 -155 -766 -1,578
foundations...............................................
----------------------------------------------------------------------------------------
Total, provide incentives for charitable giving.......... -250 -716 -999 -900 -776 -730 -4,121 -8,860
Strengthen education:
Permanently extend the above-the-line deduction for -18 -180 -183 -185 -188 -191 -927 -1,927
qualified out-of-pocket classroom expenses................
Allow the saver's credit for contributions to qualified ......... -88 -183 -198 -213 -227 -909 -2,259
tuition programs..........................................
----------------------------------------------------------------------------------------
Total, strengthen education.............................. -18 -268 -366 -383 -401 -418 -1,836 -4,186
Strengthen housing:
Expand tax-exempt qualified mortgage bond program to assist -27 -116 -230 -305 -329 -331 -1,311 -2,687
subprime borrowers........................................
Protect the environment:
Permanently extend expensing of brownfields remediation -180 -501 -356 -343 -327 -284 -1,811 -2,870
costs.....................................................
Eliminate the volume cap for private activity bonds for ......... ......... -3 -6 -10 -15 -34 -214
water infrastructure......................................
----------------------------------------------------------------------------------------
Total, protect the environment........................... -180 -501 -359 -349 -337 -299 -1,845 -3,084
Restructure assistance to New York City for continued
recovery from the attacks of September 11th
Provide tax incentives for transportation infrastructure... ......... -200 -200 -200 -200 -200 -1,000 -2,000
----------------------------------------------------------------------------------------
[[Page 266]]
Total, tax incentives.................................... -475 -24,862 -29,415 -23,940 -18,351 -9,945 -106,513 -931
Simplify the Tax Laws for Families:
Clarify uniform definition of a child \1\.................... ......... 6 30 38 17 23 114 275
Simplify EITC eligibility requirement regarding filing ......... 35 -28 -26 -24 -23 -66 -181
status, presence of children, and work and immigrant status
\1\.........................................................
Reduce computational complexity of refundable child tax ......... ......... ......... ......... ......... ......... ......... ..........
credit \1\..................................................
----------------------------------------------------------------------------------------
Total, simplify the tax laws for families.................. ......... 41 2 12 -7 ......... 48 94
Improve Tax Compliance: \3\
Expand information reporting................................. ......... 302 1,333 2,227 2,960 3,653 10,475 35,756
Improve compliance by businesses............................. ......... 3 5 5 5 6 24 57
Strengthen tax administration................................ ......... ......... ......... 3 6 8 17 72
Expand penalties............................................. ......... ......... ......... ......... ......... 1 1 6
----------------------------------------------------------------------------------------
Total, improve tax compliance.............................. ......... 305 1,338 2,235 2,971 3,668 10,517 35,891
Improve Tax Administration and Other Miscellaneous Proposals:
Implement IRS administrative reforms and extend IRS authority ......... ......... ......... ......... ......... ......... ......... ..........
to fund undercover operations \2\...........................
Increase transparancy of the cost of employer-provided health ......... ......... ......... ......... ......... ......... ......... ..........
insurance \2\...............................................
Equalize penalty standards between preparers and taxpayers... ......... ......... -1 -2 -2 -2 -7 -17
Eliminate the special exclusion from unrelated business ......... 2 13 16 13 11 55 66
taxable income for gain or loss on the sale or exchange of
certain brownfields.........................................
Limit related party interest deductions...................... ......... 64 109 115 120 126 534 1,267
Repeal excise tax on local telephone service \4\............. ......... -248 -170 -118 -83 -79 -698 -1,076
Modify financing of the Airport and Airway Trust Fund \4\.... ......... ......... -6,768 -7,106 -7,526 -7,909 -29,309 -75,594
Improve financing of the Inland Waterways Trust Fund \4\..... ......... 109 119 127 159 126 640 1,015
Anticipated receipt of donations to the National Park Service ......... 100 100 100 100 100 500 1,000
through the National Park Centennial Challenge Fund.........
Increase fees for Migratory Bird Hunting and Conservation ......... 14 14 14 14 14 70 140
Stamps......................................................
Transition from the non-foreign cost-of-living adjustment ......... 1 2 3 4 5 15 50
(COLA) to locality pay for employees in non-foreign areas...
----------------------------------------------------------------------------------------
Total, improve tax administration and other miscellaneous ......... 42 -6,582 -6,851 -7,201 -7,608 -28,200 -73,149
proposals \4\.............................................
Improve Unemployment Insurance:
Strengthen the financial integrity of the unemployment ......... ......... 35 34 -107 -314 -352 -1,581
insurance system by reducing improper benefit payments and
tax avoidance \4\...........................................
Extend unemployment insurance surtax \4\..................... ......... 1,079 465 ......... ......... ......... 1,544 590
----------------------------------------------------------------------------------------
Total, improve unemployment insurance \4\.................. ......... 1,079 500 34 -107 -314 1,192 -991
Modify Energy Provisions:
Repeal reduced recovery period for natural gas distribution ......... 20 73 114 110 89 406 580
lines.......................................................
Modify amortization for certain geological and geophysical 16 61 91 76 43 19 290 353
expenditures................................................
----------------------------------------------------------------------------------------
Total, modify energy provisions............................ 16 81 164 190 153 108 696 933
Promote Trade:
Implement free trade agreements and modify other trade- -86 -1,653 -2,319 -2,674 -2,408 -2,426 -11,480 -20,380
related provisions \4\......................................
Extend Expiring Provisions:
Minimum tax relief for individuals........................... -11,673 -60,908 14,216 ......... ......... ......... -46,692 -46,692
Research and experimentation (R&E) tax credit................ -3,221 -7,071 -9,145 -10,601 -11,809 -12,833 -51,459 -133,060
First-time homebuyer credit for the District of Columbia..... -1 -20 -19 ......... ......... ......... -39 -39
Deferral of gains from sales of electric transmission -31 -66 -61 -10 31 40 -66 30
property....................................................
New Markets tax credit....................................... ......... -132 -194 -191 -217 -231 -965 -1,287
Subpart F ``active financing'' exception..................... ......... -1,598 -1,065 ......... ......... ......... -2,663 -2,663
Subpart F ``look-through'' exception......................... ......... -347 -231 ......... ......... ......... -578 -578
Exception for retirement plan distributions provided ......... ......... ......... ......... ......... ......... ......... ..........
individuals called to active duty for at least 179 days \2\.
Disclosure of tax return information related to terrorist ......... ......... ......... ......... ......... ......... ......... ..........
activity \2\................................................
Disclosure of tax return information to the Department of ......... ......... ......... ......... ......... ......... ......... ..........
Veterans Affairs \2\........................................
Excise tax on coal \4\....................................... ......... ......... ......... ......... ......... ......... ......... 1,387
----------------------------------------------------------------------------------------
Total, extend expiring provisions \4\...................... -14,926 -70,142 3,501 -10,802 -11,995 -13,024 -102,462 -182,902
[[Page 267]]
Total budget proposals, including proposals assumed in the -140,893 -117,186 -35,906 -192,583 -252,123 -265,496 -863,294 -2,310,205
baseline \4\................................................
Total budget proposals, excluding proposals assumed in the -140,471 -115,109 -22,811 -33,796 -30,945 -25,541 -228,202 -233,435
baseline \4\................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Affects both receipts and outlays. Only the receipt effect is shown here. For the outlay effect, see summary Table S-6 of the Budget volume.
\2\ No net budgetary impact.
\3\ ``Tax gap``-related proposals.
\4\ Net of income offsets.
[[Page 268]]
Table 17-4. RECEIPTS BY SOURCE
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
Source 2007 -----------------------------------------------------------------------
Actual 2008 2009 2010 2011 2012 2013
----------------------------------------------------------------------------------------------------------------
Individual income taxes
(federal funds):
Existing law.............. 1,163,472 1,231,955 1,337,632 1,433,193 1,652,986 1,781,816 1,898,384
Proposed legislation.... .......... -12,294 -78,591 -15,850 -153,991 -181,941 -189,312
-----------------------------------------------------------------------------------
Total individual income 1,163,472 1,219,661 1,259,041 1,417,343 1,498,995 1,599,875 1,709,072
taxes......................
===================================================================================
Corporation income taxes:
Federal funds:
Existing law............ 370,240 348,739 348,338 348,397 366,607 402,459 391,511
Proposed legislation.. .......... -3,403 -9,114 -9,463 -9,837 -11,150 -11,713
-----------------------------------------------------------------------------------
Total Federal funds 370,240 345,336 339,224 338,934 356,770 391,309 379,798
corporation income taxes.
-----------------------------------------------------------------------------------
Trust funds:
Hazardous substance 3 .......... .......... .......... .......... .......... ..........
superfund..............
-----------------------------------------------------------------------------------
Total corporation income 370,243 345,336 339,224 338,934 356,770 391,309 379,798
taxes......................
===================================================================================
Social insurance and
retirement receipts (trust
funds):
Employment and general
retirement:
Old-age and survivors 542,901 566,104 595,659 632,980 667,995 699,735 734,126
insurance (Off-budget).
Proposed legislation.. .......... .......... -1,061 -239 -52 -6 290
Disability insurance 92,188 96,111 101,146 107,487 113,433 118,823 124,663
(Off-budget)...........
Proposed legislation.. .......... .......... -180 -40 -9 -1 49
Hospital insurance...... 184,908 195,453 205,360 217,240 229,679 240,987 253,007
Proposed legislation.. .......... .......... -5,644 -7,207 -5,668 -3,880 -539
Railroad retirement:
Social Security 1,952 1,996 2,058 2,111 2,163 2,215 2,267
equivalent account...
Rail pension and 2,309 2,359 2,308 2,344 2,403 2,462 2,518
supplemental annuity.
-----------------------------------------------------------------------------------
Total employment and 824,258 862,023 899,646 954,676 1,009,944 1,060,335 1,116,381
general retirement.......
-----------------------------------------------------------------------------------
On-budget............... 189,169 199,808 204,082 214,488 228,577 241,784 257,253
Off-budget.............. 635,089 662,215 695,564 740,188 781,367 818,551 859,128
-----------------------------------------------------------------------------------
Unemployment insurance:
Deposits by States \1\ . 33,709 35,750 37,183 37,882 38,573 39,617 41,109
Proposed legislation.. .......... .......... .......... 43 42 -134 -324
Federal unemployment 7,292 7,541 6,326 5,999 6,243 6,490 6,389
receipts \1\ ..........
Proposed legislation.. .......... .......... 1,348 581 .......... .......... -67
Railroad unemployment 90 91 96 109 122 125 122
receipts \1\ ..........
-----------------------------------------------------------------------------------
Total unemployment 41,091 43,382 44,953 44,614 44,980 46,098 47,229
insurance................
-----------------------------------------------------------------------------------
Other retirement:
Federal employees' 4,207 4,695 4,751 4,720 4,737 4,951 4,902
retirement--employee
share..................
Proposed legislation.. .......... .......... 1 2 3 4 5
Non-Federal employees 51 25 26 27 26 23 20
retirement \2\ ........
-----------------------------------------------------------------------------------
Total other retirement.... 4,258 4,720 4,778 4,749 4,766 4,978 4,927
-----------------------------------------------------------------------------------
Total social insurance and 869,607 910,125 949,377 1,004,039 1,059,690 1,111,411 1,168,537
retirement receipts........
===================================================================================
On-budget................. 234,518 247,910 253,813 263,851 278,323 292,860 309,409
Off-budget................ 635,089 662,215 695,564 740,188 781,367 818,551 859,128
===================================================================================
Excise taxes:
Federal funds:
Alcohol taxes........... 8,648 8,894 9,017 9,180 9,365 9,535 9,765
Proposed legislation.. .......... -75 -102 -25 .......... .......... ..........
Tobacco taxes........... 7,556 7,622 7,526 7,436 7,353 7,274 7,200
Transportation fuels tax -3,291 -4,261 -4,941 -5,724 -1,500 228 227
Telephone and teletype -2,125 586 330 227 158 111 105
services...............
Proposed legislation.. .......... .......... -330 -227 -158 -111 -105
Other Federal fund 288 2,089 2,083 2,107 2,130 2,166 2,211
excise taxes...........
Proposed legislation.. .......... -30 -50 -181 -209 -212 -215
-----------------------------------------------------------------------------------
[[Page 269]]
Total Federal fund excise 11,076 14,825 13,533 12,793 17,139 18,991 19,188
taxes....................
-----------------------------------------------------------------------------------
Trust funds:
Highway................. 39,361 39,203 39,928 40,674 41,148 41,702 42,334
Airport and airway...... 11,468 11,871 12,570 13,328 14,073 14,861 15,690
Proposed legislation.. .......... .......... .......... -8,969 -9,418 -9,975 -10,484
Sport fish restoration 581 561 578 595 614 633 653
and boating safety.....
Tobacco assessments..... 934 960 960 960 960 960 960
Black lung disability 639 638 648 666 686 699 711
insurance..............
Inland waterways........ 91 89 90 90 92 92 93
Proposed legislation.. .......... .......... -41 -65 -92 -92 -93
Oil spill liability..... 452 273 261 252 245 245 249
Vaccine injury 241 218 219 220 222 224 226
compensation...........
Leaking underground 226 197 200 203 204 206 208
storage tank...........
Proposed legislation.. .......... .......... .......... -1 -1 -1 -2
-----------------------------------------------------------------------------------
Total trust funds excise 53,993 54,010 55,413 47,953 48,733 49,554 50,545
taxes....................
-----------------------------------------------------------------------------------
Total excise taxes.......... 65,069 68,835 68,946 60,746 65,872 68,545 69,733
===================================================================================
Estate and gift taxes:
Federal funds............. 26,044 26,733 27,785 20,997 19,400 48,176 54,565
Proposed legislation.... .......... 24 -1,472 -1,454 -17,936 -47,755 -54,060
-----------------------------------------------------------------------------------
Total estate and gift taxes. 26,044 26,757 26,313 19,543 1,464 421 505
===================================================================================
Customs duties:
Federal funds............. 24,671 27,906 29,815 32,245 34,286 36,272 38,240
Proposed legislation.... .......... -115 -2,204 -3,093 -3,567 -3,211 -3,236
Trust funds............... 1,339 1,417 1,511 1,623 1,753 1,894 2,039
-----------------------------------------------------------------------------------
Total customs duties........ 26,010 29,208 29,122 30,775 32,472 34,955 37,043
===================================================================================
MISCELLANEOUS RECEIPTS: \3\
Miscellaneous taxes....... 510 528 529 532 534 537 539
United Mine Workers of 44 83 84 72 58 53 49
America combined benefit
fund.....................
Deposit of earnings, 32,043 31,358 31,652 33,361 36,066 39,119 41,694
Federal Reserve System...
Defense cooperation....... 34 35 35 35 35 35 35
Fees for permits and 10,395 10,657 11,758 12,453 12,896 13,994 13,618
regulatory and judicial
services.................
Proposed legislation.... .......... .......... 154 182 210 242 210
Fines, penalties, and 4,542 3,417 3,435 3,057 3,078 3,099 3,120
forfeitures..............
Gifts and contributions... 238 197 199 198 205 205 204
Proposed legislation.... .......... .......... 100 100 100 100 100
Refunds and recoveries.... -12 -22 -22 -22 -22 -22 -22
-----------------------------------------------------------------------------------
Total miscellaneous receipts 47,794 46,253 47,924 49,968 53,160 57,362 59,547
===================================================================================
Economic growth package..... .......... -125,000 -20,000 10,000 8,000 6,000 4,000
===================================================================================
Total budget receipts....... 2,568,239 2,521,175 2,699,947 2,931,348 3,076,423 3,269,878 3,428,235
On-budget................. 1,933,150 1,858,960 2,004,383 2,191,160 2,295,056 2,451,327 2,569,107
Off-budget................ 635,089 662,215 695,564 740,188 781,367 818,551 859,128
-----------------------------------------------------------------------------------
MEMORANDUM
Federal funds............. 1,661,420 1,556,704 1,696,812 1,878,246 1,966,799 2,107,609 2,207,794
Trust funds............... 648,313 697,722 730,885 745,457 787,379 821,233 878,609
Interfund transactions.... -376,583 -395,466 -423,314 -432,543 -459,122 -477,515 -517,296
-----------------------------------------------------------------------------------
Total on-budget............. 1,933,150 1,858,960 2,004,383 2,191,160 2,295,056 2,451,327 2,569,107
-----------------------------------------------------------------------------------
Off-budget (trust funds).... 635,089 662,215 695,564 740,188 781,367 818,551 859,128
===================================================================================
Total....................... 2,568,239 2,521,175 2,699,947 2,931,348 3,076,423 3,269,878 3,428,235
----------------------------------------------------------------------------------------------------------------
\1\ Deposits by States cover the benefit part of the program. Federal unemployment receipts cover administrative
costs at both the Federal and State levels. Railroad unemployment receipts cover both the benefits and
adminstrative costs of the program for the railroads.
\2\ Represents employer and employee contributions to the civil service retirement and disability fund for
covered employees of Government-sponsored, privately owned enterprises and the District of Columbia municipal
government.
\3\ Includes both Federal and trust funds.