My estimate of a fair CBO score on the combination of Job Creation Proposals #1 on Bonus Tax Depreciation and #2 on Double-Barreled Manufacturing Tax Credits came out so well (i.e. Total Federal Tax Receipts roughly triple the Total Cost of the Manufacturing Tax Credits), that I was curious to see how I think a fair CBO scoring would come out if I really juiced up the Double-Barreled Manufacturing Tax Credits initiative in order to move up the needle significantly on the desperately needed new job creation in 2010.
Thus, in this one, I am increasing the highly stimulative maximum average manufacturing tax credit for one job created from $20,000 in the Double-Barreled initiative to $28,000 in this Triple-Barreled initiative. And I am adding very stimulative, front-loaded sauce in order to maximize earlier in the year 2010 job creation. Also, I am retaining the minimum manufacturing/ jobs tax credit of $5,000 per new hire.
Also, in this Triple-Barreled initiative, I am energizing the manufacturing tax credit percentage scheme by expanding it and also making the percentages even more robust.
Companies are especially attracted to the manufacturing tax credit because it increases their reported GAAP earnings.
Also, I am increasing the maximum Bonus Tax Depreciation per 2010 job addition from $300,000 to $400,000.
End result, I think the number of new jobs created in 2010 would increase from a range of 2 million to 3 million under the Double-Barreled initiative to a range of 3 million to 4 million under this Triple-Barreled initiative.
As you can see below, in this Triple-Barreled initiative, I think a fair CBO score would yield Total Federal Tax Receipts, which range from $159 bil to $238 bil, roughly doubling the Total Cost of the Manufacturing Tax Credits, which range from $84 bil to $112 bil, still an exceptionally good result.
Below are the detailed numbers for the Triple-Barreled initiative.
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First, the new much more robust Manufacturing Tax Credit Percentage Scheme:
…………………Manufacturing Tax Credit % of Cost or Selling Price
Average Annual Revenues……..........For Each Quarter of 2010
…………………………………………................1Q……..2Q……..3Q……..4Q
Less than $10 mil…….Seller……….7.5%......7.0%.....6.5%......6.0%
$10 mil to $20 mil..….Seller……….7.0%......6.5%.....6.0%......5.5%
$20 mil to $30 mil......Seller.........6.5%......6.0%.....5.5%......5.0%
$30 mil to $50 mil..….Seller……….6.0%......5.5%.....5.0%......4.5%
$50 mil to $75 mil.…..Seller……….5.5%......5.0%.....4.5%......4.0%
$75 mil to $100 mil....Seller……….5.0%......4.5%.....4.0%......3.5%
$100 mil to $250 mil.Seller………..4.5%......4.0%.....3.5%......3.0%
$250 mil to $500 mil.Seller………..4.0%......3.5%.....3.0%......2.5%
$500 to $1 bil…..……..Seller………..3.5%......3.0%.....2.5%......2.0%
$1 bil to $5 bil..……….Seller….........3.0%......2.5%.....2.0%......1.5%
$5 bil to $20 bil..…….Seller………...2.5%......2.0%.....1.5%......1.0%
More than $20 bil..…Seller………...2.0%......1.5%.....1.0%......0.5%
Less than $10 mil……Purchaser...15.0%.....14.0%....13.0%....12.0%
$10 mil to $20 mil..…Purchaser...14.0%....13.0%....12.0%....11.0%
$20 mil to $30 mil.....Purchaser...13.0%...12.0%....11.0%....10.0%
$30 mil to $50 mil…..Purchaser...12.0%....11.0%....10.0%.....9.0%
$50 mil to $75 mil..…Purchaser...11.0%....10.0%.....9.0%......8.0%
$75 mil to $100 mil...Purchaser...10.0%.....9.0%.....8.0%......7.0%
$100 mil to $250 mil.Purchaser....9.0%......8.0%.....7.0%......6.0%
$200 mil to $500 mil.Purchaser....8.0%.....7.0%.....6.0%......5.0%
$500 mil to $1 bil….…Purchaser....7.0%......6.0%.....5.0%......4.0%
$1 bil to $5 bil..………..Purchaser....6.0%......5.0%.....4.0%......3.0%
$5 bil to $20 bil..……..Purchaser....5.0%......4.0%.....3.0%......2.0%
More than $20 bil.…..Purchaser….4.0%......3.0%.....2.0%......1.0%
Second, the much more robust Maximum Manufacturing/Jobs Tax Credit per Job Created:
.............Maximum Manufacturing Tax Credit /Jobs Tax Credit
................................1Q 2010.....2Q 2010.....3Q 2010.....4Q 2010
Less than $10 mil.......$36,000...$34,000...$32,000...$30,000
$10 mil to $20 mil......$35,000...$33,000...$31,000...$29,000
$20 mil to $30 mil......$34,000...$32,000...$30,000...$28,000
$30 mil to $50 mil......$33,000...$31,000...$29,000...$27,000
$50 mil to $75 mil......$32,000...$30,000...$28,000...$26,000
$75 to $100 mil......$31,000...$29,000..$27,000...$25,000
$100 to $250 mil...$31,000...$29,000...$27,000...$25,000
$250 mil to $500 mil.$30,000...$28,000...$26,000...$24,000
$500 mil to $1 bil.......$29,000...$27,000...$25,000...$23,000
$1 bil to $5 bil.............$28,000...$26,000...$24,000...$22,000
$5 bil to $20 bil..........$27,000...$25,000...$23,000...$21,000
More than $20 bil......$26,000...$24,000...$22,000...$20,000
Third, the above much sweetened percentage scheme, coupled with upping the maximum average manufacturing tax credit per job created, results in much more robust job creation:
………………………………………….........Conservative………Robust
........……………………………………………Estimate………...Estimate
US full-time jobs added
….......1Q 2010……………………………..1,200,000………1,600,000
….......2Q 2010……………………………….900,000………1,200,000
….......3Q 2010……………………………….600,000……….. 800,000
….......4Q 2010……………………………….300,000……….. 400,000
….......Total Year 2010…………………3,000,000……..4,000,000
.........When in Quarter Job Added....Mid-quarter…..Mid-quarter
Higher Average Number of Jobs in Year
...Resulting from 2010 Job Adds:
….......2011…………………………………2,700,000……….3,600,000
….......2012…………………………………2,400,000……….3,200,000
….......2013…………………………………2,100,000……….2,800,000
….......2014…………………………………1,800,000……….2,400,000
….......2015…………………………………1,500,000……….2,000,000
Avg Addtl Base Payroll per New Job.$40,000…………$45,000
Average Pay Increase per Year………………3%....................3%
Effective Federal Income Tax Rate…………15%.................15%
Combined Federal Payroll Tax Rate………15.3%..............15.3%
And then fourth, here is what I think a fair CBO score would be for this Combination of Job Creation, which includes the Triple-Barreled and the more robust Bonus Tax Depreciation initiatives:
Fair Estimate of CBO Score:
Cost
…Manufacturing Tax Credits in 2010...$84 bil……$112 bil
Federal Tax Receipts (Manufacturing Tax Credits Bounceback)
…..Federal Individual Income Tax Receipts
………………..2010……………………….....$11.3 bil..……..$16.9 bil
………………..2011……………………….....$16.4 bil..……..$24.7 bil
………………..2012……………………….....$15.1 bil..……..$22.5 bil
………………..2013……………………….....$13.5 bil..……..$20.4 bil
………………..2014……………………….....$12.0 bil..……..$18.0 bil
………………..2015……………………….....$10.3 bil..……..$15.4 bil
…..Total 2010 through 2015…………..$78.6 bil..……..$117.9 bil
…..Federal Payroll Tax Receipts
………………..2010……………………….....$11.5 bil..……..$17.2 bil
………………..2011……………………….....$16.8 bil..……..$25.2 bil
………………..2012……………………….....$15.4 bil..……..$23.0 bil
………………..2013……………………….....$13.8 bil..……..$20.8 bil
………………..2014……………………….....$12.2 bil..……..$18.3 bil
………………..2015……………………….....$10.4 bil…........$15.7 bil
…..Total 2010 through 2015…………..$80.1 bil..……..$120.2 bil
Total Federal Tax Receipts 2010-15…$159 bil..……$238 bil
Plus Total Reduction in Emergency
...Federal Funding of Unemployment
...and Other Related State Benefits
...(will be just huge, but I don't have
...sufficient data to reasonably estimate)....?....................?
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Simple Illustration of Triple-Barreled Manufacturing Tax Credits Tied to Payroll Count Increases
Let’s assume that Co. A, a US company, has average annual revenues of $31 mil and 100 US full-time employees at Dec 31, 2009. During the 1Q 2010, Co. A places in service eligible property with a total cost of $3 mil. Also in the first quarter 2010, Co. A had 12 new US full-time employee hires. Because two full-time employees also left during the 1Q 2010, Co. A had 110 US full-time employees at Mar 31, 2010.
The preliminary manufacturing tax credits, before payroll count testing, of Co. A in the 1Q 2010 is 12% X $3 mil, or $360,000. Co. A's maximum tax credits for the 1Q 2010 due to the payroll count test is $33,000 X 10 net increase in US full-time jobs added in the 1Q 2010 = $330,000. Thus, Co. A’s final manufacturing tax credits earned in the 1Q 2010 was the lower of these two numbers, or $330,000.
From the end of the 1Q 2010, Co. A’s manufacturing tax credit earned pool is $330,000 and its related US full-time employee count pool is 10, thus an average of $33,000 per payroll count in this 1Q 2010 pool.
Now let’s assume the following US full-time number of employees of Co. A at the end of each of the quarters through the end of 2016.
Dec 31, 2009…..100
Mar 31, 2010…..110
Each quarter end from 2Q 2010 to 3Q 2011…..110
Dec 31, 2011…..108
Each quarter end from 1Q 2012 to 3Q 2014…..108
Dec 31, 2014…..107
Each quarter end from 1Q 2015 to 3Q 2016…..107
Dec 31, 2016…..105
There will be manufacturing tax credit recapture tax in the 4Q 2011 of (2/10) X $330,000 X 100% = $66,000. There is a 100% recapture tax here because this reduction in US full-time payroll counts occurred within the first three years after the quarter end when the manufacturing tax credits were first earned.
Also, there will be additional manufacturing tax credit recapture tax in the 4Q 2014 of (1/10) X $330,000 X 5 (number of quarters remaining from 4Q 2014 to 4Q 2015) / 23 (number of quarters from the end of the 1Q 2010, when the manufacturing tax credits were earned, to the end of the 4Q 2015) = $7,174.
There will be no additional manufacturing tax credit recapture tax after Dec 31, 2015, even though there was a subsequent drop in US full-time payroll counts.
There will also be recapture of bonus tax depreciation (Job Creation Proposal #1), due to Co. A's drop in its number of US full-time employees, subsequent to Mar 31, 2010.
For many years after Mar 31, 2010, there clearly is a very strong tax incentive for Co. A to keep its number of US full-time employees at 110 or above.
If there was a concern that companies would game the system here, instead of testing for subsequent payroll counts at the end of each subsequent quarter end, these payroll count tests could be made at the end of each subsequent month end.
Companies should not be allowed to earn manufacturing tax credits in 2010 for payroll count increases arising from either business acquisitions or from simply turning any of their Dec 31, 2009 company temporary employees or independent contractors into full-time employee status in 2010. In similar vein, companies shouldn't be allowed to avoid any manufacturing tax credit recapture tax for the same actions.
Now let me make just one change to the above illustration. Let me make Co. A's total cost of eligible property placed in service in the 1Q 2010 $2,475,000, rather than $3,000,000.
In this case, the manufacturing tax credit, before testing for payroll count increase, is 12% X $2,475,000 = $297,000. This is lower than the $330,000 maximum manufacturing tax credit based on payroll count increase. Thus, the manufacturing tax credits earned in the 1Q 2010 would be the lower of the two, or $297,000.
The 1Q 2010 manufacturing tax credit pool is $297,000 and the related payroll count increase is $297,000 / $33,000 = 9.
Thus, for Co. A to get subsequent manufacturing tax credit recapture tax, Co. A's US full-time payroll count must drop below 109 subsequent to Mar 31, 2010, rather than the 110 payroll count it has on that same date.
