President Obama is right on target in trying to make the Debt Ceiling Deal as large as possible. He is showing vision and courage here, unlike many of the Republicans and Democrats in Congress, who are taking such myopic, self-centered stances.
Going $4 trillion over 10 years is indeed a very good start. I think it would be even better to go for $4.5 trillion to $5 trillion over 10 years.
But even more important is the longer term US debt reduction. I would focus like a laser on getting a total of $15 to $17.5 trillion over the next 20 years. It is not that difficult to get there wisely. And it should be done in a fair, balanced manner, something like $3 of wise cost cuts for every $1 of higher tax revenues, which would predominantly come from the closing of tax loopholes.
But since the latter part of 2007, the major cause of the US debt expansion has been due to the lack of jobs. Thus, a key integral part of the debt deal should be in turning the horrible job situation around, and as quickly as possible.
Thus, I think there should be bold, more targeted job creation in this Debt Deal.
I like including an extension of Unemployment Benefits as part of the Debt Deal. These unfortunate people did nothing to cause the 2000s Lost Decade.
On the other hand, I don’t think the extension of the politically-popular payroll tax holiday passes the cost-benefit test. It’s very expensive. And why increase the US debt further by rewarding people who already have a job. Further, it’s "trickle up", and has the same intellectual flaws as a job creator as "trickle down" does.
If the payroll tax holiday is extended, then, from a fairness standpoint, I would try to focus it on the Underemployed, and thus I would give it on only up to a certain amount of wages, perhaps something like the first $30,000 or $40,000.
But here’s my top ten short list of clearly quick-hitting, cost effective, job creating gems that I think should be parts of the Debt Deal.
1) Upfront Refundable Investment Tax Credit Choice
For the remainder of 2011, and all of 2012, the US government should give smaller and medium-sized businesses, as well as larger businesses in a federal income tax loss position, a second choice on the capital expenditures, including computer software investments, they make.....they could either take 100% first year expensing in 2011, and 50% bonus depreciation in 2012, which they can do now, or they could instead get an equivalent upfront refundable investment tax credit.
There are several reasons the refundable investment tax credit option is a wise one to both be fair to all businesses, and also to best spike up US real GDP growth, and even more importantly, job creation. And it should result in very little, and perhaps even no, CBO-scored cost to the US Government over the next ten years.
First, many smaller businesses and most troubled businesses don’t have Cash available to buy this Equipment. And they also usually don’t have either a strong enough balance sheet, or robust enough future cash flow prospects, needed to secure financing on an Equipment purchase. And then in situations where they can get financing, the interest cost they pay will be much higher than what will be paid by a major corporation.
Second, assuming the smaller or troubled business can get financing to buy the Equipment, they won’t get the same economic tax break. Why not? Because from reviewing thousands of financial statements and footnotes in SEC filings of both smaller and troubled companies, there are so many of them that are in a significant federal income tax loss situation, due mainly to the Great Recession. Thus, they will not be able to get the immediate 35% federal income tax benefit from 100% tax expensing of this Equipment investment in the first year, like nearly all very profitable major corporations will be able to do.
So how should this clear unfairness to smaller and to troubled businesses be fixed, and at very little or no CBO-scored cost to the US Government over the next ten years?
It’s really simple. Give all smaller and medium-sized businesses, as well as larger businesses in a federal income tax loss situation, the option of getting in the first year an upfront refundable investment tax credit for 35% of the cost of the Equipment purchased in the remainder of 2011. And then the tax basis of this Equipment drops to Zero, and thus no future tax depreciation deductions can be taken on this equipment.
And for Equipment purchased in 2012, give these same businesses an option of getting an upfront refundable investment tax credit for 17.5% of the cost of the equipment. And then the tax basis of this equipment drops by 50% of the cost of the equipment, and thus future tax depreciation deductions on this equipment are cut in half.
Such an approach directly focuses on improving the poor financial status of many of the smaller businesses and nearly all of the many larger troubled businesses out there. The jolt of job creation so desperately needed doesn’t come mainly from the huge, very profitable major corps getting 100% tax expensing in the first year. It comes from the smaller businesses, which we should be making sure get the same economic benefit from 100% expensing as major corps do. And it also comes from the many at least somewhat troubled companies, like many of the Rust Belt manufacturers in tax loss positions, needing an immediate cash jolt from this 35% investment tax credit to upgrade their equipment infrastructure in order to be more competitive, and thus they will be able to either avoid laying off more employees, or hopefully even adding to their workforces.
This upfront 35% investment tax credit for the remainder of 2011 equipment purchases, and upfront 17.5% investment tax credit for 2012 equipment purchases, also makes it much easier for smaller and troubled companies to get financing for the Equipment purchase.
Further, the upfront cash infusion from the refundable investment tax credit will spur small business start ups. With the Great Recession, and saddled with a high debt load from financing their college educations, and perhaps from even having underwater home mortgages, prospective entrepreneurs are devoid of the cash necessary to start up a new business.
2) Accelerated Building Tax Depreciation
Also, I think there should be something done that addresses the need for manufacturing and other building upgrades. And I have a way to do it with very little, and perhaps even no, CBO-scored cost over the next ten years.
Presently, real property tax deprecation is spread over many years, much longer than the ten-year CBO scoring period.
What I would consider doing is to allow businesses of all sizes that make building improvements in the remainder of 2011, or in all of 2012, to get first-year tax expensing of the entire first 10 years of tax depreciation allowed presently under the tax rules. The tax basis of the property gets reduced for the first-year tax depreciation taken. Thus, they wouldn't be allowed any tax depreciation deductions on this building improvement in the following 9 years. And then, all tax depreciation taken after the first 10 years under present tax law, would be dramatically accelerated in some fashion, such as by cutting the remaining tax life in half, and thus doubling the annual tax depreciation starting in Year 11.
This highly incentivized scheme doesn’t change total real property tax depreciation, it just accelerates it dramatically from Years 2 through 10 to Year 1. And it also accelerates it starting in Year 11. Because you are just moving total tax depreciation around among years, there shouldn’t be any long-term CBO scoring cost to the US government for this initiative.
And then to really help small and medium-sized businesses, as well as larger business in a federal income tax loss situation, particularly those in the Rust Belt, I would also let them choose a first-year tax equivalent refundable 35% investment tax credit, in lieu of the first-year real property tax depreciation resulting from this initiative. And if a company chooses this 35% investment tax credit option, it would not be allowed any tax depreciation deduction in the first 10 years, and after reducing the tax basis of the real property, it would start tax depreciation in the 11th Year, on a very accelerated basis.
It wouldn’t just be the Rust Belt really helped by this initiative. All businesses throughout the country should be allowed to take advantage of it. And businesses in all industries should get this very front-loaded accelerated tax depreciation initiative on building remodelings.
I’d even consider allowing the same real property highly accelerated tax depreciation scheme for all new Manufacturing Buildings and perhaps even all new Buildings in all industries. Again, there shouldn’t be any CBO-scored cost over the 10 year CBO scoring period, because you are just moving tax depreciation deductions around among years, with total tax depreciation not changing.
I can think of no tax incentive that would do a better job of quickly re-energizing the troubled US manufacturing industry, and troubled commercial properties all throughout the country, than this real property massively accelerated tax depreciation scheme, particularly in combination with President Obama’s wise first-year 100% tax expensing in 2011, and 50% bonus depreciation in 2012, of equipment and computer software initiative, and particularly if both the real property and tangible personal property have first-year tax equivalent refundable investment tax credit options to help troubled companies in federal income tax loss positions and also to help many smaller and medium-sized businesses.
3) Energy Tax Credit for Commercial Building Green Retrofit Investments
For all commercial building green retrofit investments, as defined by the US Dept of Energy, made by businesses in the remainder of 2011, an upfront energy tax credit of 15% of the cost of these green investments would apply, and for similar green investments made in 2012, the energy tax credit would be 10%.
There would be no CBO scored cost to the US Government for large multinational corps making these green retrofit investments here, because I would require them to pay for it with a like amount of foreign earnings dividend repatriation tax, computed perhaps at a somewhat discounted federal income tax rate.
As one option to pay for these green building retrofit investments by other than large multinational corps, I would consider letting the US Infrastructure Bank supply the financing, at a somewhat favorable interest rate. The total interest received by the US Infrastructure Bank should far exceed the total bad debts here. And this excess cash inflow by the US Infrastructure Bank should be able to easily exceed the US Government Energy Tax Credit outflow.
As a second option to pay for the energy tax credit from these job creating green investments by these businesses other than large multinational corps, I would consider requiring these businesses to refund to the US Government over each of the next 10 years as energy cost saving rebates the total upfront Energy Tax Credit divided by 10.
In addition to the spark of job creation resulting from this initiative, US energy independence is also significantly enhanced.
4) Non-Profit Hospital Building Green Retrofit Investments
All building green retrofit investments, as defined by the US Dept of Energy, made by any Non-Profit Hospital in the remainder of 2011, would result in an upfront US government subsidy to the Hospital of 20% of the cost of these investments; and for similar green investments made in 2012, this US government subsidy would be 15% of the cost of these green investments made by these Non-Profit Hospitals.
This upfront US government subsidy will increase the Income of these Non-Profit Hospitals. In addition, these Non-Profit Hospitals will also increase their Operating Income for many years from the continuing lower energy costs resulting from making these green investments.
My recommendation to pay for the US Government subsidies to Non-Profit Hospitals making these job creating green investments is by having these Hospitals refunding to the US Government over each of the next 10 years as energy cost saving rebates the total upfront US government subsidy divided by 10.
The Energy Tax Credit proposed here for Non-Profit Hospital green investments is higher than that related to Commercial Businesses in #3 above. This is because Non-Profit Hospitals making green investments wouldn't also be receiving any economic tax benefits for accelerated tax depreciation in #2 above, whereas Commercial Businesses making green investments would.
In addition to the spark of job creation resulting from this initiative, US energy independence is also significantly enhanced.
5) Upfront Refundable Tax Benefits for Research Expenditures
Many business start-ups aren't able to receive the tax benefits from their research and experimental costs in the first year, or even in the first several years, because they are operating at a taxable loss in the initial years of their businesses.
The tax benefits here relate to both the federal income tax deduction for research and experimental costs incurred as well as the tax credit related to the increased research expenditures.
A significant part of these research expenditures relate to the hiring of new employees, who perform the necessary research to grow the innovative business.
This lack of upfront cash inflow is a clear obstacle to start up or to expand an innovative business, where substantial upfront research expenditures are necessary, but the economic benefit to the business can be way down the road.
Thus, my proposal to make US businesses more competitive, and at the same time to increase job hiring, is to permit small and medium-sized businesses to get an upfront refundable federal tax benefit for both the tax deduction of their research costs incurred and also the tax credit for their incremental research expenditures incurred, in either the remainder of 2011, or in all of 2012.
The upfront cash infusion from these refundable research tax benefits will spur innovative small business start ups. With the Great Recession, and saddled with a high debt load from financing their college educations, and perhaps from even having underwater home mortgages, prospective entrepreneurs are devoid of the cash necessary to start up a new innovative business.
There is another key initiative that would add juice to the job creation coming from this Research Tax Incentive. Since 40% of the graduate students in the country’s very best research universities are foreign students, then the last thing we should be doing is kicking these foreign students out of the country after they get their graduate degrees. They are needed here to grow the US economy. They are prime job creators.
There will be no long-term CBO cost to the US Government for a clear majority of these upfront research tax benefits granted by the US government. These businesses are getting the same research tax deductions and research tax credits in the long run, it's just that under this proposal, they are just being accelerated to spur business start-ups, immediate job creation and innovation.
6) US Infrastructure Investments 100% Funded by Foreign Earnings Repatriation Tax
For the remainder of 2011 and all of 2012, all US Multinational Corps would be allowed to repatriate their foreign earnings up to a total maximum of $10 billion for each company.
This foreign earnings repatriation would have a somewhat discounted US federal income tax rate on it. The largest US Multinational Corps repatriating some of their foreign earnings would have a much lower discount from the 35% US federal Income tax rate than would the other US Multinational Corps.
The entire amount of the US federal income tax from these foreign earnings repatriated would be transferred to a US Infrastructure Bank. All of these funds would be used for wisely, objectively, and quickly selected US Infrastructure Projects.
There would be no CBO scored cost to the US Government from this initiative.
7) Tax Incentive for Writing Down Underwater Home Mortgages
The US housing crash has been devastating. Frankly, I think the related government financial rescue plans for this extremely complex issue have not been very effective, and also very costly.
This proposal addresses financial relief for the housing crisis broadly, and I think is an effective initiative in starting to get to the core of solving this devastating multi-faceted problem, which negatively impacts so many people, and which is intertwined with the very troubled jobless recovery picture, with both sky-high unemployment and underemployment, and with very little hope of much improvement on the horizon for quite a while.
Under US generally accepted accounting principles, financial institutions must properly reflect in their audited financial statements, the economic amount of the Loan Losses on their home mortgage loans that they hold.
With all of the underwater first and second home mortgages that exist, the amounts of these Loan Losses is clearly gargantuan.
The problem is that even though they have booked these economic Loan Losses, these financial institutions have refused, for the most part, to write down the principal balance of these underwater mortgages.
To highly incentivize these financial institutions to write down underwater home mortgages, for the remainder of 2011, and all of 2012, my proposal would allow financial institutions a substantial Accelerated Bonus Loan Loss Provision federal income tax deduction for some multiple of the amount of principal underwater mortgages they write down, not to exceed the write down to below the value of the home.
The amount of this Accelerated Bonus Loan Loss Provision is clearly open to debate. I just think the focus must be on solving the horrible housing crisis as quickly as possible, which is weighing so very heavily on consumer spending, on consumer confidence, and even more importantly, on both unemployment and underemployment.
Thus, I would consider allowing smaller financial institutions a Triple Accelerated Bonus Loan Loss Provision federal income tax deduction, and larger financial institutions a Double Accelerated Bonus Loan Loss Provision federal income tax deduction for all underwater mortgage write downs in the remainder of 2011.
For write downs in 2012, I would consider allowing smaller financial institutions a Double Accelerated Bonus Loan Loss Provision federal income tax deduction, and larger financial institutions a Single Accelerated Bonus Loan Loss Provision federal income tax deduction.
And for any smaller financial institution in a federal income tax loss situation, I would make the tax effect of these Accelerated Bonus Loan Loss Provision federal income tax deductions refundable.
Under my proposal, because of the magnitude of these front-end tax deductions, there are clear economic incentives here for financial institutions to write down underwater mortgages. So, given how huge these tax deductions would be, wouldn’t this just put a severe strain on the US Debt?
Well, I have a fair way to do it at no CBO scored cost to the US Government over the next 10 years.
For 2011 write downs of underwater mortgages, my proposal would also require this Accelerated Bonus Loan Loss Provision federal tax deduction to turn around and increase taxable income by 25% of the amount of the Accelerated Bonus Loan Loss Provision tax deduction to the financial institution in each of the years 7 through 10.
For 2012 write downs of underwater mortgages, my proposal would also require this Accelerated Bonus Loan Loss Provision federal tax deduction to turn around and increase taxable income by 25% of the amount of the Accelerated Bonus Loan Loss Provision tax deduction to the financial institution in each of the years 6 through 9.
Let me illustrate.
Say, a home is now worth $200,000. And there is a first mortgage at Financial Institution (FI) #1 of $240,000, and a second mortgage at Financial Institution (FI) #2 at $30,000. Assume that FI #1 is a small financial institution and FI #2 is a large financial institution.
In 2011, assume FI #2 elects to write off the entire principal balance of $30,000, and FI #1 elects to write down $40,000 of the mortgage.
In 2011, FI #2 would get a Double Accelerated Bonus Loan Loss Provision federal income tax deduction of 2 X $30,000, or $60,000. In each of years 2017, 2018, 2019, and 2020, FI #2 would increase its federal taxable income by 25% X $60,000, or by $15,000 per year.
Also, in 2011, FI #1 would get a Triple Accelerated Bonus Loan Loss Provision federal income tax deduction of 3 X $40,000, or $120,000. In each of years 2017, 2018, 2019, and 2020, FI #1 would increase its federal taxable income by 25% X $120,000, or by $30,000 per year.
When you think about it, there are all kinds of wise tax incentives that the country uses to stimulate the US economy....100% tax expensing of equipment, bonus tax depreciation, accelerated tax depreciation (both method and life), R&D tax credits, just to name four. Incentivizing write downs of underwater home mortgages by providing Accelerated Bonus Loan Loss Provision tax deductions is consistent with this, and frankly, given the horrible housing crisis, much more of a job creator than the first three.
I don't personally have an underwater home mortgage, but from a fairness standpoint, if the country can bail out big financial institutions, which played a major role in causing this horrible housing crisis, then I think it is only fair for the country to also provide wise, cost-effective tax incentives that can help at least some of these many unfortunate home owners, suffering desperately with underwater mortgages.
8) Innovative Productivity Enhancing Jobs Tax Credit (IPEJTC)
To immediately jump start the desperately needed US private sector job creation, I think there must be bold legislation that increases US business demand sufficiently for businesses to quickly create jobs. Also, there also must be certainty that this increased US business demand clearly and directly results in substantial private sector job creation. Further, this should be done optimally, so that it is paid for, as determined by very prudent CBO front-end scoring.
The best way to increase US business demand is to simply give US business customers lucrative investment tax incentives that directly do just this. Thus, the old investment tax credit is clearly the optimal way to create US business demand, when things are so bad on the job front.
The widespread Republican proposal of just reducing the top income tax rate on the “job creators”, both wealthy individuals and corporations, and expecting that to indirectly “trickle down”, is flat out crazy reasoning.
But I also think the widespread Democratic proposal to just continue to spend money on programs that are needed in the expectation that it will “trick up” and create jobs, is equally crazy reasoning.
Instead, I think the US Government should be designing wise tax incentives for US businesses to execute that clearly and directly create US jobs in the private sector.
Thus my proposal here is a Jobs Tax Credit and Investment Tax Credit combination, with the goal to both create good jobs and, at the same time, enhance business innovative productivity….thus the name Innovative Productivity Enhancing Jobs Tax Credit, or IPEJTC, for short.
Under my proposal, I would set the Jobs Tax Credit earned by the business for each job created at a low of $10,000, and at a high of $20,000.
The purpose for having this $10,000 Jobs Tax Credit per job minimum is to reward companies taking the opportunity to enhance their productivity by hiring and training new highly-motivated employees, and to do so without adding much in the way of capital expenditures.
Now let me focus on the much more complicated $20,000 maximum Jobs Tax Credit per job added.
First, the higher the new people added are paid, the higher the Jobs Tax Credit per employee added will be.
To encourage higher pay for the new hires, and also to discourage lower pay for new hires, I think this tax credit per job added cannot exceed 50% X the actual average annual base pay for new hires for the company earning this tax credit in the current period.
What this means is that if the average annual pay for new people hired this period is $45,000, then the $20,000 remains at the maximum, since 50% X $45,000, or $22,500, is higher than $20,000.
On the other hand, let’s say a company is hiring new employees on the cheap, with the average base pay of new hires being only $22,000 per year. In this case, the maximum Jobs Tax Credit gets reduced from $20,000 per new job added down to $11,000, or $22,000 X 50%.
So we now have the maximum and minimum range of Jobs Tax Credit per new job set.
So let me address the more complicated capital expenditure element, which turns this Jobs Tax Credit into an Innovative Productivity Enhancing Jobs Tax Credit (IPEJTC).
I think this Innovative Productivity Enhancing Jobs Tax Credit should be healthy enough to accomplish the US business demand goal, and also to accomplish it as quickly as possible.
Thus, I would set the credit at 15% of new US eligible property purchased from now until the end of 2011, and then reduce it down some to 10% for all of calendar 2012 eligible property purchases.
For maximum effect, this Innovative Productivity Enhancing Tax Credit should apply to all (yes, that’s by both large and small businesses) new property placed in service in the US that is depreciable under MACRS, and that has a Recovery Period of seven years or less (i.e. all Three-Year Property, Five-Year Property, and Seven-Year Property). When you check out the Tax Code, you'll see that.....wow, these three MACRS property categories are pretty all encompassing.
In addition, all new building costs and building remodeling costs should be eligible. Also, any external computer software costs, any external computer software development costs, and any external web site development costs, should also all be eligible.
By combining together a Jobs Tax Credit and an Investment Tax Credit, this proposal substantially increases demand for US manufacturing and other businesses by providing very healthy tax incentives to US business customers to purchase innovative equipment and other property, along with providing an intertwined tax incentive for this business customer to also hire new employees.
And the merger of this property acquired with the key new employee element puts the company in a much better position to enhance its overall productivity, and to have its products and services better compete globally in the world economy.
Although this proposal focuses principally on enhancing the US manufacturing sector, all US businesses can benefit from the Innovative Productivity Enhancing Jobs Tax Credit, and thus can also benefit from it by having their productivity enhanced.
Let me illustrate the computation of the IPEJTC for a business.
Let’s assume that a company places in service, from now until the end of 2011, total eligible property of $6 mil. The tentative tax credit for 2011, before testing for payroll count increases, is 15% X $6 mil, or $0.9 mil.
Thus, going back to my earlier discussion on the Jobs Tax Credit per job added range, let’s assume that there is an increase in US full-time jobs for this company for the remainder of 2011 of 50, and that the average annual base pay of all new hires for this company for the remainder of 2011 is $45,000.
The maximum Jobs Tax Credit per new job added would be $20,000, since this $20,000 is lower than $22,500 (50% X $45,000). And the total maximum Jobs Tax Credit for 2011 would be $1.0 mil, or $20,000 X 50 employees added.
The minimum Jobs Tax Credit per new job is $10,000. And the total minimum Jobs Tax Credit for 2011 would be $0.5 mil, or $10,000 X 50 employees added.
Since the tentative Tax Credit based on capital expenditures added in the rest of 2011 is $0.9 mil, and it is also within the above $0.5 mil and $1.0 mil Jobs Tax Credit range, the final Innovative Productivity Enhancing Jobs Tax Credit earned for 2011 is $0.9 mil.
If instead, there were $20 mil of capital expenditures made in the remainder of 2011, the tentative Tax Credit would be 15% X $20 mil, or $3 mil. Since this is above the maximum Jobs Tax Credit of $1.0 mil, the Innovative Productivity Enhancing Jobs Tax Credit earned for 2011 would be $1.0 mil.
And if there were only $2 mil of capital expenditures made in the remainder of 2011, the tentative Tax Credit would be $0.3 mil, or $2 mil X 15%. Since this is below the minimum Jobs Tax Credit of $0.5 mil, the final Innovative Productivity Enhancing Jobs Tax Credit earned for 2011 would be $0.5 mil.
The jobs added in 2011 would be simply the difference between the number of full-time employees when you start the tax incentive and the number of full-time employees at the end of the year, exclusive of those added from acquisitions.
The jobs added in 2012 would be simply the difference between the number of full-time employees from the beginning of the year and the end of the year, exclusive of those added from acquisitions.
This Tax Credit earned should be computed on a total US company operations basis. Thus, separate US companies controlled by the same US company should be combined.
For maximum effect, I would make this Tax Credit immediately refundable. Also, I wouldn’t reduce the tax basis of the property for the Tax Credit earned.
To make these jobs created remain for a reasonably long period of time, I would also include a tax recapture of this Tax Credit if the increase in full-time jobs of this business doesn’t last for say four years. And I would have a 100% tax recapture for reductions in full-time payroll counts in the first two years, and a proportional time, pro-rata tax recapture for reductions in full-time payroll counts in years three and four. There would be no tax recaptured after four years.
It should be fairly simple to implement this tax credit program quickly. Its simplicity is enhanced by the ease in applying the payroll count requirements. Say it kicks in starting Aug 1, 2011. All you have to do is to count a company's overall combined US full-time payroll on that date and compare it with a similar count on Dec 31, 2011. The employee count change here is the relevant one used to compute the combined company tax credit earned for 2011.
And the same overall employee count change approach would be used to compute the combined company tax credit earned in 2012.
And for subsequent tax credit recapture computations, a company follows a similar overall combined company payroll count process. And if you thought it necessary to put in better controls, these counts could be made quarterly, or even monthly.
What makes this Innovative Productivity Enhancing Jobs Tax Credit particularly stimulating to US businesses is that the business adding employees will get not just an economic benefit, but also a highly desirable GAAP earnings increase, for this tax credit.
So it sounds like a great program. It clearly will create a lot of jobs. But how do we pay for it?
Well, I think that under any reasonable fair CBO score, it more than pays for itself. How could that possibly be?
Well, for the handful of very large global US companies with Total Unremitted Foreign Earnings of $10 bil or more, I would let them earn the above computed Innovative Productivity Enhancing Jobs Tax Credits only if it is also 100% paid for by a like amount of additional US federal income tax triggered by their foreign earnings repatriated to the US in the same period. I would consider granting these large global US companies an incentivized dividend received deduction of perhaps 20% to 30% on these foreign earnings repatriated used only to 100% fund their Innovative Productivity Enhancing Jobs Tax Credits.
For the many other smaller global US companies, I would give them a choice….they could either earn the Innovative Productivity Enhanced Jobs Tax Credits like pure domestic companies do, or they could instead elect to have it to be 100% paid for by a like amount of additional US federal income tax triggered by their foreign earnings repatriated to the US in the same period. I would consider granting these smaller global US companies a bit higher incentivized dividend received deduction of perhaps 40% or 50% on their foreign earnings repatriated used only to 100% fund their Innovative Productivity Enhancing Jobs Tax Credits.
In a fair CBO scoring, the above proposal should more than fund itself whenever it is enacted in a horrible job environment like the present one, where there is so very little private sector job increases, and where there are also expected to be so few private sector job increases over the next couple of years.
Under this Innovative Productivity Enhancing Jobs Tax Credit proposal, the bulk of the upfront tax credits granted by the US government will directly trigger substantial future incremental payroll tax receipts (both individual and company matched…15.3% of the higher gross payroll in total) and also substantial future incremental individual income tax receipts (probably average about 10% to 15% of the higher gross payroll) from the resultant payroll count increases.
The salient point here is that a company can't earn the tax credit unless it also increases its US full-time payroll count. Thus if the CBO counts the tax credit as a tax outflow, which it should, it also must count as a future cash inflow the higher incremental US federal government tax receipts that directly result from, and are inextricably linked to, the tax credit.
Because of the present very dismal private sector US job situation, there will be millions of new hires who previously wouldn’t be paying, or expected to be paying in the next couple of years, these federal taxes who now will be paying them due to this Innovative Productivity Enhancing Jobs Tax Credit proposal.
Thus, the CBO, in scoring this proposal, has to estimate the future amounts of these additional US federal tax receipts triggered by this proposal. Further, the CBO, in scoring this proposal, has to estimate the future amounts of US federal tax receipts due to the tax recapture aspect of this proposal.
Granted there will be some companies that will earn the tax credits even though they would have increased their number of full-time employees even without this proposal. However, there won’t be many of these, given the horrible private sector US job situation.
Further, under this proposal, all of the tax credits earned by the very large global US companies must be 100% funded by their additional US federal income tax related to their foreign earnings repatriated.
Also, under this proposal, the many smaller global US companies can elect to have some or all of their manufacturing tax credits 100% funded with the tax from their foreign earnings repatriated.
Thus, for all global companies funding their tax credits with the tax from their foreign earnings repatriated, there is no front end cost here to the US government at all.
And there is substantially positive CBO scoring here from the future incremental US federal government payroll tax receipts and US federal government income tax receipts, both caused by the US payroll count increases of these global US companies, as well as by all of the 100% domestic companies, triggered under this proposal.
In addition, there will be positive CBO scoring for the movement of the uninsured to insured status, since they will be added to full-time job status, many of them with a company-sponsored health care plan, due to this proposal. This positive scoring comes from the resultant reduction of the total US health care costs payable by the US Government, included in the Affordable Health Care legislation.
Also, there will be positive CBO scoring from the reduction in Unemployment Benefit payments made by the US Government, due to the reduction in the number of unemployed citizens, caused by this proposal.
Further, US states will significantly improve their financial coffers from this proposal.
First, they will be receiving additional corporate income taxes from the higher dividend income of the global US companies repatriating their earnings.
Second, they will be receiving higher individual income taxes from the new hires.
Third, they could elect to include this Innovative Productivity Enhancing Tax Credit as additional corporate taxable income, which triggers additional corporate income tax receipts.
And fourth, their Medicaid costs will drop due to the movement of the uninsured to insured status, resulting from their new full-time employee status.
When I rough out the numbers, given the horrible jobless recovery we now face, and which we will continue to face for at least the next couple of years, I get substantially positive CBO scoring from this proposal.
Thus, I would use some of this excess funding to also make a heavy dose of infrastructure investments, with primarily a green emphasis.
And the rest of the excess funding provided by this proposal here should be used to provide a good chunk of the $1 trillion of revenues needed to fund the $4 trillion Debt Ceiling Deal that President Obama would like to reach.
9) 100% Tax Expensing of Equipment in 2012
I would up the first-year 50% bonus tax depreciation for all 2012 equipment purchases to first-year 100% tax expensing, which substantially increases Big Corp profits in 2012, and thus also increases stock prices. And if you wanted to also include some payroll count increase requirements to earn the first-year 100% tax expensing for the really Big Corps, along with related subsequent tax recapture provisions (I would), that would also spur substantial long-term job creation, which also would feed into Big Corp profit increases in 2013 and beyond, with the resultant additional increases in stock prices, down the road.
10) Marketing, Selling and Advertising Investment Bump
Clearly, the major problem with the US economy is insufficient business demand. Something is needed to really give it a jolt.
To stimulate the dormant US business demand, my proposal here is to give a refundable tax credit on Marketing, Selling and Advertising costs of US businesses of all sizes incurred from now until Dec 31, 2012. I would make the percentage credit a bit higher for the rest of 2011 than for 2012.
So where's the Big Corp Tax Loophole closing, and related funding?
Well, it’s potentially substantial.
I would give say a 5% tax credit for the Marketing, Selling and Advertising costs in the remainder of the current year, and say a 2.5% tax credit in 2012, but then more than pay for it many times over, for the next ten-year CBO scoring period, by extending the life that all future Marketing/Selling/Advertising costs of Big US Corps are to be deducted over to say one year, 18 months or even two years.
I wouldn't start extending the life until after the country is completely out of this horrible structural recession...thus start scaling it in after say three years.
The positive CBO scoring on this should be off the charts.
And all businesses would get a very nice bump up of their reported GAAP earnings from just this, since the tax credit increases reported GAAP earnings, but the life extension is treated as a temporary tax difference.
And from a fairness standpoint, many Marketing, Selling and Advertising costs incurred are in essence Investments, benefiting businesses for many, many years.
The really cool part about the tax credit on Marketing, Selling and Advertising costs is that there are an infinite number of ways to very easily fine tune them to get the desired result.
For instance, if you wanted to reduce its CBO cost, you could just allow a tax credit on Marketing, Selling and Advertising Costs over and above some base period amounts, like the way the R&D tax credit works, and then you would also have the flexibility to significantly increase the percentage tax credit.
Also, if you wanted to increase the CBO favorable scoring, choosing a two-year life for amortizing these costs for federal income tax purposes would give you a monumentally more favorable CBO scoring than choosing a one-year life.
Another way to reduce the CBO cost here is to allow, or perhaps even require, US Multinational Corps to use their foreign earnings repatriation tax, with a related somewhat incentivized favorable dividend received deduction percentage, to 100% fund the same amount of tax credit for their Marketing, Selling and Advertising costs incurred.
And in a wise highly-incentivized twist, I would also consider allowing Big US Multinational Corps to fund the tax owed from extending their tax lifes for their Advertising, Marketing and Selling Costs with a like amount of tax owed from repatriating some of their foreign earnings at a somewhat discounted US federal income tax rate.
This Marketing, Selling, and Advertising Tax Credit would work especially well when it is combined with something like a 100% expensing of equipment, and even also with a Jobs Tax Credit and Investment Tax Credit combination. This Marketing, Selling, and Advertising Tax Credit would make those other tax incentives explosively effective.