House Ways and Means Committee Releases Summaries of Parts of American Jobs and Closing Tax Loopholes Act of 2010

 

                                              "Promoting American Jobs

 

INFRASTRUCTURE: A recent analysis grading the state of American infrastructure found gave our country a "D" as a result of "delayed maintenance and chronic underfunding." The bill would provide federal support for infrastructure investment. Infrastructure investment not only enhances the competitiveness of American industry and protects the safety of American workers; it also has a direct impact on jobs nationwide. Studies have found that every $ 1 billion invested in infrastructure supports 18,000 jobs nationwide.

 

  [#186] Build America Bonds: The bill will extend the popular

    Build America Bonds program, which has allowed State

    and local governments to invest more than $ 97 billion

    in infrastructure projects nationwide and has supported

    more than 1.7 million jobs nationwide.

 

  [#186] Recovery Zone Bonds: The bill will extend the Recovery

    Zone Bond program, which will help local municipalities

    raise more than $ 25 billion of capital for infrastructure

    and economic development projects and will support

    more than 450,000 jobs nationwide. The bill would

    also ensure that each municipality receives an allocation

    of these bonds equal to at least its share of national

    unemployment in December 2009.

 

  [#186] Water and sewer infrastructure: The bill will increase

    capital investment in water and sewer infrastructure

    by more than $ 5 billion a year by allowing State

    and local governments to issue an unlimited number

    of tax exempt bonds for water and sewer infrastructure

    projects. This will additional infrastructure spending

    will support more than 90,000 jobs nationwide each

    year.

 

  [#186] Private activity bonds: The bill would extend critical

    Recovery Act provisions reduce the costs to State

    and local governments of issuing tax-exempt private

    activity bonds by exempting the tax interest on these

    tax-exempt private activity bonds from alternative

    minimum tax. These provisions have helped airports

    issue $ 8.3 billion in tax-exempt private activity

    bonds, which have supported more than 130,000 jobs

    nationwide.

 

  [#186] Low-income housing credit exchange program: The

    bill extend the low-income housing tax credit exchange

    program, which has allowed States to encourage the

    development of over 49,000 low-income housing units

    nationwide and has supported more than 40,000 jobs

    nationwide.

 

  [#186] Redevelopment of Brownfield sites: Redevelopment

    of Brownfield sites over the past five years has

    generated an estimated 191,338 new jobs and $ 408

    million annually in extra revenues for localities.

    The bill would extend important tax provisions that

    encourage businesses and charities to redevelop Brownfield

    sites.

 

                                               Promoting American Jobs

 

BUSINESS TAX RELIEF: Since the beginning of 2009, Congress has passed and the President has signed into law significant tax relief for businesses. Through the American Recovery and Reinvestment Act of 2009, the Hiring Incentives to Restore Employment Act, and the Worker, Homeownership and Business Assistance Act, Congress has provided over $ 35 billion of tax relief to businesses. This tax relief has helped businesses survive the worst economic recession since the Great Depression and has helped put our country back on the path of job recovery.

 

The bill will build on these efforts by providing businesses with an additional $ 21 billion of tax cuts that will provide critical support for jobs nationwide.

 

  [#186] R&D tax credit: The bill will provide $ 6.6 billion

    of tax credits to support companies that make research

    and development expenses. Extending this tax credit

    will create or save more than 117,000 jobs nationwide.

 

  [#186] Real estate development: The bill will provide

    $ 4.8 billion of tax incentives for certain real

    estate developments. Extending these tax incentives

    will support more than 292,000 construction jobs

    nationwide.

 

  [#186] Economic development in low-income communities:

    The bill will provide $ 3.8 billion of tax incentives

    for businesses in low-income communities (e.g., New

    Markets Tax Credits, Empowerment Zone & Renewal Community

    incentives).

 

  [#186] Global competitiveness: The bill will provide $ 4.4

    billion to help U.S. multinational businesses compete

    in the global economy.

 

                                      AMERICA IS ON A PATH TO ECONOMIC RECOVERY Link-to-image-2010115701

 

                                                           

 

SOURCE: BUREAU OF LABOR STATISTICS

5/7/2010

OFFICE OF THE SPEAKER

 

                                               Promoting American Jobs

 

TEMPORARY PENSION FUNDING RELIEF: The funding of private-sector pension plans has been significantly affected by the financial crisis both in terms of significant losses in plan asset values and the ability of employers to make up these losses while struggling with reduced cash flow and access to credit in a challenging economic environment. Industry surveys place average plan losses at 25 percent or more. With private sector pension funds holding in excess of $ 2 trillion in assets, this represents losses of $ 500 billion or more.

 

The bill would make temporary funding relief available for the over 29,000 single and multiemployer pension plans that are subject to minimum funding rules. The primary relief would be temporary extensions of the period over which funding shortfalls and plan asset losses must be made up. These temporary extensions would make up to $ 129 billion in additional cash immediately available to employers in the next seven years cash that can be used by employers to avoid layoffs, hire additional workers, or reinvest in their businesses.

 

                                         Additional Cash Available to Employers Link-to-image-2010115702

 

                                                           

 

The relief provisions contain restrictions to safeguard a retiree's right to a secure and fully funded pension plan. These restrictions would disallow relief in the case of an employer that has filed for bankruptcy, is delinquent with respect to past minimum contributions, or makes excessive employee or shareholder payments. Additionally, the relief provisions do not waive or change an employer's obligation to fully fund its pension plan -- instead, employers are given a longer time period over which it can meet its full funding obligation.

 

Build America Bonds

 

                                                      May 18, 2010

 

                                            BUILD AMERICAN BONDS INFORMATION

 

Information:

 

About Build America Bonds

 

Build America Bonds Issuances (Through May 3, 2010)

 

Build America Bonds

 

During the winter of 2008-2009, State and local governments faced unprecedented challenges in accessing the credit markets. As banks and other financial institutions suffered significant investment losses, their appetite for tax-exempt municipal bonds decreased. One county administrator testified in the winter of 2008 that "the retreat of banks and other financial institutions from the municipal bond market has caused an astronomical increase in borrowing costs."  n1

 

In response to the reduced demand for tax-exempt municipal bonds, Congress developed the Build America Bonds ("BABs") program to provide State and local governments with the option of accessing the corporate taxable bond market. Pension funds, tax-exempt organizations, and foreign investors make the corporate taxable bond market broader and deeper than the tax-exempt municipal bond market, which is dominated by banks and other taxable investors. As of March 1, 2010, State and local governments throughout the nation have accessed the corporate taxable bond market through the BABs program to finance more than $ 78 billion in infrastructure projects. The BABs program has helped issuers as small as the City of Clarion, Iowa (pop. 2,968) raise $ 1 million of funding for sewer improvements and as big as the New York Metropolitan Transit Authority raise $ 750 million for transit improvements.

 

In addition to expanding the market for State and local government bonds, the BABs program has also reduced the supply of tax-exempt municipal bonds. By reducing the supply of tax-exempt municipal bonds, the program has reduced the costs of issuing traditional tax-exempt bonds. Since the Recovery Act was enacted, the average yield on municipal bonds as a percentage of the yield on comparable U.S. Treasury bonds has decreased from 190% in December 2008 to 92% in December 2009. The average yield on municipal bonds has decreased from 5.44% in December 2008 to an average yield of 4.13% in December 2009.

 

The BABs program has been described as "one of the economic recovery efforts biggest successes."  n2 State and local governments now have the option to choose between the tax-exempt municipal bond market and the corporate taxable bond market for their financing needs. By giving municipal bond issuers an option, the BABs program allows State and local governments to select the bond market that gives them and their constituents the lowest financing costs. These savings help State and local governments stretch their dollars further.

 

Notwithstanding the success of BABs, some have criticized the program over the fees that banks charge to underwrite these bond issuances. Underwriting fees are not unique to BABs. Banks charge fees to underwrite any bond issuance. Even in the context of underwriting fees, BABs have been a success. Although the underwriting fees for some of the first BAB issuances were high, this is typical for new financial products. As the market has become more comfortable with BABs, underwriting fees have decreased. In fact, the underwriting fees that banks charge for BABs are less than the fees that these same banks charge for comparable corporate bond issuances. For example, Goldman Sachs charges an underwriting fee of 0.875% for investment grade corporate bonds. In comparison, Goldman Sachs charges an underwriting fee of between 0.6% and 0.875% for underwriting BABs. As a result, State and local governments are able to access the corporate bond market at a cheaper cost through the BABs program than corporations who access this market directly.

 

                                             Relief for Working Families

 

INDIVIDUAL TAX CUTS: Since the beginning of 2009, the Congress has passed and the President has signed into law more than $ 230 billion of tax cuts for American families, including the fastest -- and one of the most widely shared -- tax cuts in American history: the Making Work Pay Tax Cut in the Recovery Act. A recent USA Today analysis of Bureau of Economic Analysis data shows that American families are paying taxes at the lowest levels since 1950 -- when Harry Truman was President -- because of these changes in tax policy. Because of these tax cuts, more than 100 million Americans have more money to support their families and consumers have more to spend at local businesses. Consumer spending in the United States has consistently increased over the past six months.

 

The bill would build on these efforts by providing American families with an additional $ 5 billion of tax cuts in 2010.

 

  [#186] State and local sales tax deduction: The bill would

    provide $ 1.8 billion of state and local sales tax

    relief for 12 million families.

 

  [#186] Tuition deduction: The bill would provide $ 1.6

    billion of tax relief for 4.4 million families better

    afford college that claim a deduction for qualified

    tuition expenses.

 

  [#186] Deduction for teachers' out-of-pocket expenses:

    The bill would provide more than $ 200 million of

    assistance for the 3.6 million teachers who spend

    money on classroom expenses out of their own pockets.

 

  [#186] Additional standard deduction for real property

    taxes: The bill would provide up to 30 million homeowners

    with property tax relief totaling $ 1.5 billion.

 

                                   United States Personal Consumption Expenditures Link-to-image-2010115703

 

                                                           

 

Source: Bureau of Economic Analysis

 

Emergency Assistance & Reforms Consistent with Statutory PAYGO

 

EXTENSION OF UNEMPLOYMENT INSURANCE PROGRAMS -- HR 4213 would continue federal support for extended unemployment compensation programs through December. This includes both the Emergency Unemployment Compensation (EUC) program and 100% federal funding for the Extended Benefits (EB) program, which under permanent law is a 50/50 federal/State funded program. The bill also would extend the Federal Additional Compensation (FAC) program, which increases all UI benefits by $ 25 a week.

 

Without this extension, funding for extended benefits will begin to phase out after the last week in May. The Department of Labor projects that if Congress fails to extend the current federal support for extended unemployment compensation, over 1.2 million jobless workers will lose all access to benefits by the end of June, and nearly 5 million will lose unemployment benefits by the end of the year.

 

COBRA SUBSIDIES -- The COBRA subsidy pays 65% of COBRA health insurance continuation premiums for workers and their families who have been involuntarily terminated. HR 4213 will extend the eligibility date for this benefit until December 31, 2010. With COBRA premiums averaging over $ 1000 a month for a family of four, this financial assistance is vitally needed to maintain health insurance for workers and their families who are between jobs. Without the assistance, the average COBRA premium would consume 84% of average unemployment benefits.

 

FEDERAL MEDICAID ASSISTANCE (FMAP) -- The Recovery Act provided critical federal support for state Medicaid programs through December 31, 2010, this bill would extend that assistance into FY2011. If this bill is not passed, then States will have little choice but to cut their Medicaid spending, in some cases drastically, by narrowing benefits and lowering payments to hospitals, nursing homes, physicians, pharmacies, and other providers -- payments that are often already too low. These cutbacks will place a drag on the economy and result in more job losses.

 

The next state fiscal year begins on July 1, 2010, in most states, and many states are still waiting for guidance from the federal government on whether or not the FMAP increase will continue after December 31. Without FMAP assistance, states will enact deep budget cuts and/or tax increases that will drag GDP down even further. The budget gaps, which States must close for the fiscal year starting next July, total $ 140 billion over the next fiscal year. According to standard economic measures, these actions could cost the economy up to 900,000 jobs next year.

 

According to CBO, temporary FMAP assistance, similar to UI benefits, is one of the most effective measures to create jobs and increase demand in the economy.

 

MAINTAINING ACCESS TO AFFORDABLE HEALTH CARE -- HR 4213 includes a reasonable update in the payment rate for physicians who take Medicare patients. Without this provision, payment rates for Medicare physicians would drop by over 20 percent in less than 2 weeks, creating the potential for doctors to leave Medicare in droves.

 

The impact of this attrition would directly hurt seniors and people with disabilities, because they wouldn't be able to get access to the care they need. It would also lead to more people needing costly emergency room care as a result of a lack of access to doctors or preventive care. The same goes for military retirees and their families because payment rates in TRICARE are tied to those in Medicare. The bill would provide relief from these payment cuts in order to maintain health care access for millions of Medicare and TRICARE patients.

 

                                                  Disaster Response

 

OIL SPILL: Analysts estimate that the damages associated with the oil spill in the Gulf of Mexico could exceed $ 14 billion. To ensure that these damages are fully recovered by American families, businesses and communities, the bill would increase the amount that can be paid out of the Oil Spill Liability Trust Fund and would ensure the solvency of this trust fund by increasing the amount that oil companies are required to pay into this fund.

 

NATIONAL FLOOD INSURANCE: Since its creation in the National Flood Insurance Act of 1968, the National Flood Insurance Program (NFIP) has been the primary source of reliable flood insurance coverage for millions of American homes and businesses. The NFIP is authorized to write and renew flood insurance coverage through May 31, 2010. The bill would extend the NFIP's authority to write and renew flood insurance coverage through December 31, 2010 and help provide needed stability in the nation's housing markets.

 

MINE SAFETY: The recent tragedy at the Upper Big Branch Mine highlights the need for mine safety. Important tax provisions that support the training of mine rescue teams and the purchase of advanced mine safety equipment expired at the end of 2009. The bill would reinstate these important tax provisions.

 

AGRICULTURE DISASTER RELIEF: The bill would provide assistance for 2009 agricultural losses for crops, including specialty crops, livestock, sugar, aquaculture, cottonseed, and poultry.

 

FEDERALLY-DECLARED DISASTERS: There have been 41 federally-declared disasters since the beginning of this year. In response to these storms, floods and earthquakes, the bill would provide $ 2.4 billion in tax relief to individuals and businesses that were affected by these natural disasters. The bill would also extend some existing area-specific disaster programs for the NY Liberty Zone and the Gulf Opportunity Zone.

 

              FEDERALLY-DECLARED DISASTER AREAS IN 2010

 

STATE            DISASTER        STATE          DISASTER

                    DATE                          DATE

 

MISSISSIPPI     MAY 14    NORTH DAKOTA    APRIL 21

SOUTH DAKOTA    MAY 13    MINNESOTA       APRIL 19

NEW HAMPSHIRE   MAY 12    NEW YORK        APRIL 16

KENTUCKY        MAY 11    PENNSYLVANIA    APRIL 16

CALIFORNIA      MAY  7    NEW JERSEY      APRIL  2

MARYLAND        MAY  6    DELAWARE        MARCH 31

TENNESSEE       MAY  4    MASSACHUSETTS   MARCH 29

ALABAMA         MAY  3    RHODE ISLAND    MATCH 29

NORTH DAKOTA    APRIL 30  WEST VIRGINIA   MARCH 29

MISSISSIPPI     APRIL 29  NEW HAMPSHIRE   MARCH 29

VIRGINIA        APRIL 27  WASHINGTON, DC  MARCH 24

CONNECTICUT     APRIL 23  SOUTH DAKOTA    MARCH 10

WEST VIRGINIA   APRIL 23  SOUTH DAKOTA    MARCH  9

NEBRASKA        APRIL 21  KANSAS          MARCH  9

 

                          [table continued]

 

/2/

 

 Gandel, Stephen. "A Stimulus Success: Build America Bonds are Working," Time (Nov. 17, 2009).

 

 

    STATE               DISASTER

                          DATE

 

CALIFORNIA            MARCH 8

OKLAHOMA              MARCH 5

WASHINGTON, DC        MARCH 3

WEST VIRGINIA         MARCH 2

IOWA                  MARCH 2

NORTH DAKOTA          FEBRUARY 26

NEBRASKA              FEBRUARY 25

IOWA                  FEBRUARY 25

OKLAHOMA              FEBRUARY 25

MARYLAND              FEBRUARY 19

VIRGINIA              FEBRUARY 16

NEW JERSEY            FEBRUARY  5

ARKANSAS              FEBRUARY  4

NORTH CAROLINA        FEBRUARY  2

 

                                                   Domestic Energy

 

ENERGY INDEPENDENCE: When Democrats regained control of Congress in 2006, the Energy Information Administration predicted that, over the next three decades, "The United States is expected to continue its dependence" on foreign oil, with imported oil comprising 61% of liquid fuel consumption in the year 2035. Now, after three and a half years of Democrats charting a new course for our national energy policy, the EIA estimates that U.S. dependence on foreign oil "is expected to continue declining . . . from the high-water mark of 60 percent, attained in 2005 and 2006, to 45 percent in 2035." The bill will build on these efforts by extending critical energy incentives that further reduce our dependence on foreign oil.

 

  [#186] Biodiesel and renewable diesel. The bill would

    extend the $ 1.00 per gallon biodiesel and renewable

    diesel tax credits. This extension will support more

    than 35,000 jobs and displace more than 750 million

    gallons of petroleum.

 

  [#186] Natural gas, propane, biogas and liquid fuels derived

    from biomass. The bill would extend the 50 cent

    per gallon tax credit for alternative transportation

    fuels such as natural gas, propane, biogas and liquid

    fuels derived from biomass.

 

  [#186] Heavy hybrid trucks. The bill would extend for

    one year (through 2010) the alternative motor vehicle

    credit for heavy hybrid trucks (i.e., hybrid motor

    vehicles that are not passenger automobiles or light

    trucks).

 

RENEWABLE ENERGY & ENERGY EFFICIENCY: The Energy Information Administration projects that Democratic efforts to expand renewable electricity through tax credits, loan guarantees, and State mandates will more than double the amount of electricity that is generated from renewable resources and will account for 45% of all new electricity generation over the next twenty-five years. Furthermore, the Energy Information Administration has estimated that household and commercial energy bills will be $ 13 billion lower in 2020 as a result of the investments that were made in the Recovery Act. The bill will build on these efforts by extending critical energy incentives that further reduce our dependence on foreign oil.

 

  [#186] Open-loop biomass. The bill provides an additional

    year of support for electricity produced at old electricity

    facilities that produce electricity from biomass.

 

  [#186] Tax credits for energy efficient new homes. The

    bill extends a tax credit for the manufacture of

    energy efficient homes.

 

  [#186] Tax credits for energy-efficient windows. The bill

    clarifies important standards with respect to the

    installation of energy efficient windows.

 

  [#186] Direct payment in lieu of energy-efficient appliance

    tax credit. The bill would ensure that tax-incentives

    for manufacturers of energy-efficient appliances

    continue to work during this economic recession,

    by allowing manufacturer to exchange their tax credits

    for a direct payment equal to eighty-five percent

    (85%) of the tax credit that would otherwise have

    been allowed.

 

                                                Closing Tax Loopholes

 

PREVENT COMPANIES FROM SPLITTING FOREIGN TAX CREDITS FROM INCOME -- The foreign tax credit is designed to prevent double taxation (i.e., full taxation by both a foreign country and by the United States) of income earned abroad. However, companies have devised transactions that essentially shift the burden of the foreign income tax onto the Federal government. These transactions enable companies to operate offshore with essentially little or no tax liability to either the U.S. or the foreign government.

 

This abuse of the foreign tax credit encourages companies to move jobs offshore to avoid U.S. taxation.

 

The bill would prevent utilization of foreign tax credits unless the income on which the foreign income tax was paid is repatriated to the U.S. It does this by:

 

  [#186] Preventing the splitting of the taxes from the income

    that was subject to the tax, and;

 

  [#186] denying the foreign tax credit for taxes imposed

    on income that will never be subject to U.S. tax

    (asset acquisitions treated as stock purchases for

    foreign law)

 

  [#186] preventing inappropriate use of tax treaties to claim

    foreign tax credits on U.S. -- sourced income

 

  [#186] preventing the manipulation of an anti-abuse rule

    (sec. 956) to increase foreign tax credits

 

  [#186] preventing the use of redemptions to avoid U.S. taxation

 

  [#186] preventing the manipulation of interest allocation

    rules to increase foreign tax credits

 

                                      CLOSING INDIVIDUAL AND BUSINESS LOOPHOLES

 

TAXATION OF CARRIED INTEREST -- The bill would prevent investment fund managers from paying taxes at capital gains rates on investment management services income received as carried interest in an investment fund. To the extent that carried interest reflects a return on invested capital, the bill would continue to tax carried interest at capital gain tax rates. However, to the extent that carried interest does not reflect a return on invested capital, the bill would require investment fund managers to treat seventy-five percent (75%) of the remaining carried interest as ordinary income. A transition rule would apply prior to January 1, 2013.

 

PREVENT AVOIDANCE OF MEDICARE TAX BY PROFESSIONALS INCORPORATING AS S-CORPS -- Some service professionals (lawyers and lobbyists) have been avoiding Medicare and Social Security taxes by routing their self-employment income through an S corporation. These taxpayers then pay themselves a nominal salary and take the position that the remaining earnings are exempt from employment taxes. The bill would address this abuse in situations where (1) an S corporation is engaged in a professional service business that is principally based on the reputation and skill of 3 or fewer individuals or (2) an S corporation that is a partner in a professional service business. The bill would also clarify that individuals that are engaged in professional service businesses are unable to avoid employment taxes by routing their earnings through a limited liability corporation or a limited partnership.

 

FOOTNOTES:

 

n1

 

 Testimony of Timothy Firestine, Committee on Ways and Means (Oct. 29, 2008).

 

n2

 

 Gandel, Stephen. "A Stimulus Success: Build America Bonds are Working," Time (Nov. 17, 2009)."