Thus my recommendation here is that a 5% of Purchase Price US Tax be instituted on all acquisitions of US Companies or of parts of US Companies.
This recommendation is a twofer on good-paying US jobs.
First, this 5% US tax payment is funding the American Jobs Plan and the American Families Plan, both of which create many good-paying US jobs.
And second, the acquisition of US companies or of their parts is clearly dis-incentivized by this 5% US tax, which results in the saving of many good-paying US jobs.
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Nearly always, good-paying US jobs are lost when acquisitions are made of US companies.
Thus my recommendation here is that Corps should not get a US federal income tax deduction for their Golden Parachute payments to departing, high-level US Execs in connection with an acquisition.
This recommendation is a twofer on good-paying US jobs.
First, it will be used to fund the American Jobs Plan and the American Families Plan, both of which create many good-paying US jobs.
And second, the acquisition of US companies is clearly dis-incentivized by this, which results in the saving of many good-paying US jobs.
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Eliminate Goodwill and Other Indefinite-Life Intangible Assets Amortization For US Federal Income Tax Purposes
With all of the huge number and amounts of acquisitions of US Companies., the Intangible Asset Goodwill has grown immensely.
For US federal income tax purposes, this massive amount of Goodwill is amortized over 15 years.
My recommendation here is that Goodwill should not be amortized for US federal income tax purposes just like it is not amortized for US GAAP financial statement purposes.
This recommendation is a twofer on good-paying US jobs.
First, it will be used to fund the American Jobs Plan and the American Families Plan, both of which create many good-paying US jobs.
And second, the acquisition of US companies is clearly dis-incentivized by this, which results in the saving of many good-paying US jobs.
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My recommendation here is that a 5% of Purchase Price US Tax be instituted on all Corp Stock Buybacks.
This recommendation is a twofer.
First, this 5% US tax payment is funding the American Jobs Plan and the American Families Plan, both of which create many good-paying US jobs.
And second, when a Corporation spends billions of dollars in buying back its own stock, there is substantially less money available to invest in R&D, in capital expenditures and in giving its US employees higher pay raises and higher employee benefits.
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US Corp Required Deposits on Open IRS Audits
Under US GAAP, public companies are required to disclose in their footnotes included in their annual reports filed with the SEC, their best estimate of what they owe in total to all taxing authorities for all of their open tax audit years. The bulk of these amounts disclosed relate to the amounts owed to the US Federal Govt. Also included in this total are amounts owed to State Govts and to Foreign Govts.
It takes a very long time for these companies to settle their tax audits with the IRS and other taxing authorities. For the largest Dow companies, there was an average of more than 8 years of open tax audit years.
Huge US Multinational Corps make up a large portion of the Aggregate Balance of Total Tax Reserves which are on the books as Income Tax Liabilities for all Corps having Tax Reserves above $100 mil each. In total, these Tax Reserves are now substantially in excess of $500 bil.
Further, the majority of large foreign corps, with heavy US operations, follow International GAAP, rather than US GAAP. Thus, they generally do not disclose the amount of the Tax Reserves they have on their books.
Anyway, I can think of no fairer, less innocuous way to derive a hundreds of billions of dollars of funding for the American Job Plan and the American Families Plan than to simply require all Big Corps, both US Corps and US Subsidiaries of Foreign Corps, with Tax Reserves above $100 mil each, to make partial deposits to the US Govt on their open IRS audits. And frankly, it raises money from a CBO scoring standpoint, but all that is really happening to the Big Corps is that a portion of what Big Corps agree that they owe, and have already recorded on their books, is simply being paid a bit earlier in deposits over time.
I think perhaps these partial tax deposits should be equal to 50% of the total amount of Tax Reserves on the books at any time, with that 50% staggered in over the next 10 years. I would require a much higher percentage than 50% (say 80% or 90%) for the really large Big Corps with total tax reserves of in excess of $1 bil.
There is no negative economic consequences for these Big Corps to make these partial tax deposits. When these deposits are made, the accrual of interest stops.
So, how much funding over the next ten years do you get here from this proposal?
My best guess is somewhere between $300 bil and $500 bil, although it could be much more.
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Health Insurance Claims and Premiums
Health insurance companies are able to deduct each year, for federal income tax purposes, some of their estimated insurance claim liabilities, even though they are not both fixed and determinable in amount.
In addition, health insurance companies are also able to defer each year, for federal income tax purposes, the taxability of some of their unearned premiums received in cash.
In both of the above cases, these Health Insurance companies are receiving federal tax benefits that are inconsistent with the general federal income tax principles of not getting federal income tax deductions until they are fixed, and of taxing revenues when they are received in cash.
My proposals here are to allow all Big Health Insurance Corps to deduct insurance claims only in the year when they are fixed and determinable, and to recognize premium revenues in the year when they are received in cash.
The economic damage to the US Big Health Insurance Corps from this proposal is substantially softened here due to this corporate tax loophole closer being treated as a Temporary Tax Difference under US GAAP. The total federal income tax deductions and revenues from these insurance claims and premiums will be the same over the long run. Thus, there will be no income tax charge to the income statements of these Big Health Insurance Corps from my proposals here.
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Big Oil Intangible Drilling Costs
For US federal income tax purposes, Big Oil and related Corps are presently permitted to deduct in the first year, 70% of their Intangible Drilling Costs (IDCs). These IDC expenditures include labor, fuel, materials, supplies truck rent, repairs to drilling equipment, and depreciation for drilling equipment. The portion not deducted in the first year is amortized over 5 years.
My proposal here is to require 100% of these IDC expenditures of Big Oil related Corps to instead be initially capitalized and amortized over 10 years.
The economic damage to Big Oil related Corps from this proposal is substantially softened here due to this corporate tax loophole closer being treated as a Temporary Tax Difference under US GAAP. The total federal income tax deductions for these IDC expenditures will be the same over the long run. Thus, there will be no income tax charge to the income statements of these Big Oil related Corps from my proposal here.
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Eliminate Big Oil Percentage Depletion
Depletion is the exhaustion of natural resources, such as oil wells. Big Oil Corps get a US federal income tax deduction for their depletion.
Many years ago, the US Congress passed tax legislation that allowed Big Oil Corps to compute their depletion federal income tax deduction in two ways, either by Cost Depletion or by Percentage Depletion.
Cost Depletion is similar to computing Depreciation under the units of production method.
Percentage Depletion is computed as a percentage of the gross income from the oil well in each year.
And in a bizarre twist, Congress also let Big Oil Corps deduct percentage depletion in a year in which it is higher than cost depletion. However, when the higher percentage depletion is claimed in a given year, the tax basis of the oil well doesn’t get reduced by the percentage depletion actually claimed, but rather reduced by the lower Cost Depletion that wasn’t claimed in that year.
Therefore, Big Oil Corps are allowed to deduct, in total over the life of the well, substantially more than the cost of the oil well.
Obviously this is a corporate tax loophole, and a pretty abusive one.
My proposal here is to kill Percentage Depletion for Big Oil Corps, and given how abusive it is, I would kill it retroactively for say the last ten years.
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Tax Transaction Fee on Oil Futures Contracts
One key item preventing small business start-ups, as well as also severely harming existing small businesses, is extremely high and continually growing energy costs. And this extreme energy cost pressure and uncertainty of future energy costs increases are likewise weighing heavily on US job creation by these small businesses.
It appears that one of the reasons gas prices and all energy costs are so high is due to oil future contract speculators, who seem to be able to push up the price of oil with high volume trading, without suffering any financial consequences even though it harms the entire country so much.
This action is a loophole that these oil futures contract speculators are taking advantage of. There is no penalty, tax, or fee that they are now required to pay to the US Govt for their harmful actions.
My proposal here is for the US Govt to initiate a pretty healthy transaction tax fee on every oil futures contract by any Big Financial Corp, by any large Energy Trading firm, and by any large hedge fund.
In addition, there should be a tax transaction fee on every oil futures contract made by any speculator.
An additional benefit here, is that this very healthy tax transaction fee should reduce oil prices a bit by making it somewhat less attractive for oil contract speculators to push up the price of oil through high volume trading by somewhat cutting into the potential profit generated from lucrative, but high-risk, speculative oil future contract trading.
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Upfront Costs on Big Financial Derivatives (Financial Corps With Stock Market Caps Above $5 Bil)
With all of the horrible financial havoc that financial swaps and other financial derivatives have played on the US and world economies, I think the last thing we want to do is to give tax incentives for any financial derivative, which we presently do.
The Big Financial firms arranging the swaps and other financial derivatives incur a lot of both upfront external costs, including outside professional fees, and upfront internal costs, including employee, employee benefit, travel, and other related costs, in designing, implementing and marketing these very complex swap and other financial derivative transactions.
And frequently, there are also lucrative compensation programs for various executives and employees in which compensation is based on measures such as fees and positive interest spreads earned in swap or other financial derivative transactions.
My proposal here is that all of the substantial upfront external and internal costs incurred by the Big Financial firm that end up resulting, either directly or indirectly, in the generation of the fees received by the financial firm related to the financial derivative, including an allocation of employee costs, related employee benefit costs, and related travel and other costs, as well as all compensation driven by the level of swap fees and other financial derivative fees, should not be tax deductible in the year these costs are incurred.
Instead, all of these upfront costs should be initially deferred for federal income tax purposes, and tax amortized over the life of the related swap and other financial derivative transactions. Thus, from a fairness standpoint, for federal income tax purposes, the entire costs related to the financial derivatives would be spread over the entire life of the financial derivative, which is how the income is also recognized.
The economic damage to the US Big Financial Firms from this proposal is substantially softened here due to this corporate tax loophole closer being treated as a Temporary Tax Difference under US GAAP. The total federal income tax deductions from these financial derivative transactions will be the same over the long run. Thus, there will be no income tax charge to the income statements of these Big Financial Institutions from my proposal.
I would apply this proposal to US Big Financial Corps and also to all large Foreign Financial Institutions operating in the US.
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Upfront Costs on all Financial Instruments of all Big Financial Companies (Financial Corps With Stock Market Caps Above $5 Bil)
In this Big Corp Tax Loophole, I am expanding these upfront costs from just derivatives to include all of the same internal and external costs related to all financial instruments of these same Big Financial Corps, including Foreign ones operating in the US.
Financial instruments are a very broad category and include all of the many large financial assets and large financial liabilities on the balance sheet of a financial institution.
My proposal here is to review all of the huge dollars of financial assets and financial liabilities on the balance sheet of a Big Financial Institution, and determine how these financial assets and financial liabilities got there and what length of time they will stay there on the balance sheet. Further, my proposal here is for all the upfront costs, both external and internal ones, necessary to set up these financial assets and financial liabilities are not tax deducted immediately, as they are presently, but rather are all initially deferred, for federal income tax purposes, and allocated to the related financial asset or as reduction to the financial liability. Then the timing of the tax deduction of these deferred costs would follow the movement of the related financial assets and financial liabilities.
There are substantial amounts of internal financial institution costs incurred necessary to acquire each of the financial assets and financial liabilities. These would include employee salaries, commissions, incentive compensation, employee benefit costs, travel and many other costs. And there could also be a lot of external costs to acquire these assets…examples would be items like external legal costs and CPA firm services for accounting and tax advice. Many of these costs are presently tax deducted immediately, when incurred.
To get a better understanding of a large financial institution, below here are the relevant large financial assets on Wells Fargo's balance sheet:
..... Securities Available For Sale and Loans.
..... Loans
And on Wells Fargo’s income statement, here are the key employee costs:
Salaries
Commissions and Incentive Compensation
Employee Benefits
Total Employee Related Costs
The first step is to allocate all of the bank’s internal costs and external costs to each of these asset categories. Then, these costs need to be allocated further to each separate asset within each asset category.
The large Securities Available For Sale assets are mostly those debt securities that are not going to be sold in the near future, but neither are they acquired to be held to maturity. Thus the intent is to sell them at some point of time down the road. Thus, my proposal here is that all internal and external costs necessary to acquire the Available for Sale Securities, should be initially deferred for federal income tax purposes, and subsequently tax amortized over the life of the debt security.
The massive Loan asset category above all have terms. Thus my proposal here is for all internal and external costs necessary to acquire these loans should be initially deferred for federal income tax purposes, and subsequently tax amortized over the term of the related loans.
Trading Assets are ones that are planned to be sold in the near term. My proposal is that for federal income tax purposes, all internal and external costs necessary to acquire Trading Assets that are debt securities, should be amortized over the debt life. All internal and external costs necessary to acquire Trading Assets that are equity securities should not be tax deductible until those assets are sold.
Companies' Mortgage Servicing Rights assets have economic lives used in their audited financial statements. Thus my proposal is that all internal and external costs necessary to acquire Mortgage Servicing Rights should be initially deferred for federal income tax purposes, and subsequently tax amortized by using their economic lives, rather than by using the present artificial tax life.
And here are the relevant large financial liabilities of Wells Fargo:
Interest-bearing Deposits
Short-term borrowings
Long-term debt
Just like for the assets explained earlier, for a financial institution to obtain the financing of these three categories of liabilities, there had to be substantial internal bank costs incurred. These would include employee salaries, commissions, incentive compensation, employee benefit costs, travel and many other costs. And there could also be a lot of external costs to obtain the financing here, as well.
Thus, under my proposal here, first the financial institution should allocate all of the internal and external costs to each of these three categories of liabilities, and then allocate them further to each specific debt instrument. For all of these liabilities that have a fixed term, all of the related internal and external costs should be initially deferred for federal income tax purposes, and subsequently amortized over the term of the related liability.
I would apply this proposal to US Big Financial Corps and also to all large Foreign Financial Institutions operating in the US.
The economic damage to the US Big Financial Firms from this proposal is substantially softened here due to this corporate tax loophole closer being treated as a Temporary Tax Difference under US GAAP. The total federal income tax deductions for these costs will be the same over the long run. Thus, there will be no income tax charge to the income statements of these Big US Financial Institutions from my proposal.
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Disallow LIFO Inventory for US Federal Income Tax Purposes
For US federal income tax purposes, businesses are permitted to use Last-in, First-out (LIFO) inventory.....yeah, another way of saying this is the oldest bought is still here (FISH....First-in, Still Here). By using LIFO, businesses get to increase their Cost of Goods Sold Expense Tax Deduction, and thus get to decrease their Taxable Income, and thus also get to reduce their US federal income tax bill.
Under US GAAP, LIFO is one of the many ways that businesses can value their inventory on their balance sheets.
The IRS has the LIFO conformity rule, which lets businesses use LIFO for federal income tax purposes only if they also value their inventory on their financial statements at LIFO.
Companies that economically benefit from using LIFO the most are ones whose inventories have increased in price the most.
Many companies using LIFO like Big Oil & Gas Companies are pricing a good chunk of their inventory at prices of decades ago. That makes no sense.
My proposal here is to eliminate LIFO for US federal income tax purposes for all US Corps in all industries.
The economic damage to Big Corps from my proposal here is softened. For the US Corps that would be required to switch out of LIFO for US federal income tax purposes, the logical action will be for them to also switch out of LIFO in their financial statements. Thus, there will be no income tax expense charge in their income statement from this switch out of LIFO. Further, by switching out of LIFO, this should increase their Gross Margins and their Pretax earnings on their income statements, as well as significantly increase their total inventory and their total stockholders’ equity, both on their balance sheets.
I wouldn’t require the initial switch out of LIFO to be paid for in US federal income taxes immediately. Instead, I would let them pay for it equally in 7 years starting in say Year 4 and continuing to Year 10.
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Cash Dividends Received should be taxed at ordinary US federal income tax rates ... period.
It's just not right for many hard-working employees to get taxed at a higher US Federal income tax rate on their earned income than many wealthy people are taxed at on their tons of cash dividends they receive.
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Disallow Deferral of Earnings of Puerto Rico Controlled Foreign Corps
After IRS Section 936 was sunseted, another section of the Internal Revenue Code found new life.....the section concerning Controlled Foreign Corporations (CFCs). The section on CFCs had been part of the tax code for years, but the benefits under Section 936 were so good that many tax professionals simply ignored CFCs.
While Puerto Rico is part of the U.S. (as a commonwealth), it is outside the federal income tax jurisdiction. Companies in Puerto Rico can qualify as CFCs and enjoy the same legal protections as those on the U.S. mainland, while at the same time having their profits deferred from U.S. federal taxes until repatriated to the parent company. Also, manufacturing and export service entities on the island pay a maximum income tax of only 7%.
Those Puerto Rico earnings taxed at such low rates, will ultimately be taxed at the U.S. federal level when repatriated to the U.S., but the company can choose the most tax-advantageous time to bring it home. Most, if not all Section 936 companies operating in Puerto Rico have converted to CFCs.
My recommendation would be for the US Government to disallow deferral of earnings of Puerto Rico Controlled Foreign Corps.
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Accelerate Date of Required Minimum Distributions For High Dollar Retirement Plans
The date of the required minimum distributions related to high dollar retirement plans should be markedly accelerated.
Here are my recommendations related to this issue.
For all retirement plans where the fair market value of the participant's interest in all plans, including the value of pension benefits, exceed $20 mil on December 31 of the year the participant attains age 64 1/2, the minimum distribution requirement must start by April 1st in the calendar year the participant attains the age of 65 1/2.
For all retirement plans where the fair market value of the participant's interest in all plans, including the value of pension benefits, exceed $10 mil on December 31 of the year the participant attains age 65 1/2, but did not exceed $50 mil on December 31 of the year the participant attained age 64 1/2, the minimum distribution requirement must start by April 1st in the calendar year the participant attains the age of 66 1/2.
For all retirement plans where the fair market value of the participant's interest in all plans, including the value of pension benefits, exceed $5 mil, but are less than $10 mil, on December 31 of the year the participant attains age 65 1/2, the minimum distribution requirement must start by April 1st in the calendar year the participant attains the age of 67 1/2.
For all retirement plans where the fair market value of the participant's interest in all plans, including the value of pension benefits, exceed $3 mil, but are less than $5 mil, on December 31 of the year the participant attains age 65 1/2, the minimum distribution requirement must start on April 1st in the calendar year the participant attains the age of 68 1/2.
For all retirement plans where the fair market value of the participant's interest in all plans, including the value of pension benefits, exceed $2 mil, but are less than $3 mil, on December 31 of the year the participant attains age 65 1/2, the minimum distribution requirement must start on April 1st in the calendar year the participant attains the age of 69 1/2.
And for all of the above situations, and also for all situations where the total assets in the qualified retirement plans, including the value of pension benefits, exceed $1 mil on December 31 of the year that the participant attains the age 65 1/2, my recommendation is to eliminate the second option, which permits the deferral of the minimum distribution requirement date due to the participant not being retired yet.
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In the substantially growing instances of bargain purchases of a businesses, US GAAP requires the buyer to recognize the bargain element as income immediately.
For US Federal income tax purposes, depending on the allocation of the purchase price, the buyer may recognize that income over several years, or in some cases, in the year of acquisition.
My recommendation here is that in all cases, this gain on bargain purchases of businesses should be recognized immediately for US Federal income tax purposes.
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Large US Banks and Other Large US Financial Companies making loans should get substantially slower bad debt tax deductions to in the tax period when the bad debt loss is fixed and determinable.
This one is a temporary tax vs book difference.
The US Tax Revenues funding raised here over the next ten years should be just huge.
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All Large US Non-Financial Companies with Receivables should get substantially slower bad debt tax deductions to in the tax period when the bad debt loss is fixed and determinable.
This one is a temporary tax vs book difference.
The funding raised here should be huge.
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All insurance Companies should get substantially slower tax deductions for all of their estimated claims liability to in the tax period when the claim loss is fixed and determinable.
This one is a temporary tax vs book difference.
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Many studies show that US Govt subsidies to the US Ethanol Industry make little economic sense.
Thus my recommendation is to kill all US Government Ethanol Subsidies to all Big US Corps.
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A typical Big Pharma Corp does a substantial portion of its R&D on new drugs in the US, gets a US federal and a US state income tax deduction for these R&D costs, and also might get a US R&D tax credit, to boot.
Then after drug discovery, it transfers the intellectual property (the drug compound) to a foreign or US territory tax haven, like Puerto Rico and Ireland, where the drug is manufactured, and thus the massive amount of profit is recognized in this tax haven.
And then a good chunk of the manufactured drugs are sold to US customers.
Much of the advertising spending occurs in the US, and thus the federal income tax deduction is taken in the US, where the tax rate is higher.
Also, later the bulk of the legal costs related to a drug are incurred in the US, and thus the federal income tax deduction is taken in the higher-taxed US.
And again in both cases, frequently nearly all of the profit related to the drug is recognized in the low-taxed foreign tax haven.
Clearly, something is really wrong here. There’s a mismatch of the profit being recognized on the drug in the low-taxed foreign tax haven, and the advertising, legal, and many other costs related to that same drug being tax deducted in the higher-taxed US.
To correct for this clear Big Corp tax loophole, my recommendation is that the US Govt should legislate in this situation for economic substance over legal form, by not allowing federal income tax deductions in the US for these advertising, legal, and other costs related to this drug where so little of the profit related to this same drug has been recognized for income tax purposes.
And it's not just Big Pharma Corps. Many Big US Manufacturers and Big US Corps in other industries also replicate the same mismatching of where the bulk of the profit on the product or service is recognized (the low-tax foreign tax haven), and where many of the large expenses related to this same product or service are deducted in the higher-tax US.
Thus my recommendation is that the US Govt should not allow federal income tax deductions for these advertising, legal, and other costs, related to a product or service, incurred by any Big US Manufacturer or by any Big US Corp in any other industry, where the bulk of the profit on this same related product or service is being recognized in a low-tax foreign tax haven.
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Manufacturing Bounceback Transactions
A typical Big Pharma Corp does a substantial portion of its R&D on new drugs in the US, gets a US federal and US state income tax deduction for these R&D costs, and also a US R&D tax credit, to boot.
Then after drug discovery, it transfers the intellectual property (the drug compound) to a foreign tax haven, like Puerto Rico and Ireland, where the drug is manufactured, and thus the massive amount of profit is recognized in this tax haven.
And then a good chunk of the manufactured drugs are sold to US customers, some of whom even live very close to where the R&D was performed on the drug in the first place.
What a Roundhouse transaction…..a clear Manufacturing Bounceback or Boomerang!
But after this Roundhouse transaction goes full circle, when Uncle Sam and the US States put their hands in their pockets, they find no corporate income tax receipts. In fact, they both gave income tax deductions to the drug company for the R&D costs, and also might be granting R&D tax credits, but tax havens like Puerto Rico and Ireland are where the massive profits from the drug are located, and income taxed at an incredibly very favorable income tax rate, particularly so in Puerto Rico.
Gosh, I call this just flat out piling on. The US Federal Government and the US States are under severe financial stress and they let these Big Drug companies get away with avoiding so much in corporate income taxes.
Clearly, from a fairness standpoint, something needs to be done here.
My recommendation is that in a drug Roundhouse transaction, where a Big US drug company does the drug research in the US, and then the resultant drug is manufactured in a foreign tax haven, and then subsequently sold back to the US, I think it is only fair that there should be some kind of a tax or import duty shared by the US Govt and the US State Govt on the drug sold to the US customer.
And it’s just not Big Pharma. Many other Big US manufacturers replicate the same Roundhouse transactions.
Thus I think there should be the same kind of a tax or import duty on a Big US Corp on all of its manufactured products manufactured in a foreign tax haven or manufactured in a foreign country where there are low wages or substandard clean air standards and then these products are subsequently sold to a US customer.
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These recommendations apply to Corps in all US industries, but mostly to four of them ... Big Financial, Big Pharma, Big Health Insurance and Big Oil.
And it’s just a handful of US Big Corps in these four industries that have caused much of the incredible damage to the overall US economy and thus also to the US worker.
A handful of US Big Corps, especially in these four industries, have been and are now spending tons of money attempting to restore their incredibly-damaged Brands.
And Big Corps in Big Pharma and in Big Health Insurance have been investing a lot of money trying to lock up new health care customers.
These brand costs include among others, public relations costs, government relations costs, advertising costs and marketing costs. And these costs are both internal ones and external ones.
For many years we have been continually bombarded over the airways with ads of these Big Corps, attempting to restore their severely-damaged brands.
And in the beginning of the year when you turn 65, it is just incredible all the mailings you get bombarded with from Big Health Insurance Corps, attempting to scare you to death, and locking you in as a health insurance customer from the time you are 65 until the day you die.
Anyway, for federal income tax purposes, my first proposal would be to amortize over a reasonable period of time, all internal and external costs incurred by Big Health Insurance Corps, where they are in substance, investments made in an attempt to acquire new health insurance customers. I think this reasonable period of time for amortization would be the average length of time these Big Health Insurance Corps would get a premium earnings stream from these customers. And if you wanted to short cut this, perhaps an amortization period of 10 years would be reasonable. These costs are presently immediately tax deducted for federal income tax purposes.
My second proposal, for federal income tax purposes, would be to amortize over the remaining patent life of the specific drug, all advertising and marketing costs, both internal and external ones, made by Big Pharma related to the specific drug being marketed. These costs are presently immediately tax deducted, for federal income tax purposes.
My third proposal relates to all of the remaining substantial internal and external brand restoration costs of these Big Corps in all four of these industries, including public relations costs, government relations costs, advertising costs and marketing costs.
Why in the world should the US Govt give these Big Corps tax incentives of an immediate federal income tax deduction for these investments that they are making attempting to restore their severely-damaged brands?
And why should the ones so severely hurt by their actions...US citizens…be the ones that should now be effectively paying them, through an immediate federal income tax deduction, for their attempts to restore their brand?
It’s like….OK, you really hurt me economically, and now you want to pile on by making me pay you in your attempt to look better?
What is fair? Perhaps, no federal income tax deduction at all...or perhaps, a 10 year amortization period.
If the longer tax amortization method is used, the economic damage to Big Corps from this proposal is substantially softened here due to this corporate tax loophole closer being treated as a Temporary Tax Difference under US GAAP. The total federal income tax deductions for these Brand and other expenditures will be the same over the long run. Thus, there will be no income tax charge to the income statements of these Big Corps from my proposals here.
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Section 197 Intangible Assets include a multitude of items, including Goodwill, Going Concern Value, Trademarks, Trade Names, Workforce in Place, Information Base, Customer Lists, Patents, Copyrights, License, and Franchises. And the amounts of Company Intangible Assets on corporate balance sheets have been growing like weeds.
These Section 197 Intangible Assets are now tax deductible for US federal income tax purposes over a 15 year period.
Many of these intangible assets have economic benefits to the business far beyond 15 years, and thus there is clearly a Corporate Tax Loophole here that, in all fairness, needs to be closed.
And why in the world should the US government be giving substantial tax incentives for companies to make acquisitions, like they clearly are with this 15 year tax life for Intangible Assets like Goodwill and other indefinite-lived intangible assets? Nearly always, good-paying US jobs are lost when acquisitions are made. The US Government should be giving tax incentives to create these jobs, not to reduce these jobs.
I think the Feds should revisit this 15 year tax life for all of these Intangible Assets. And they should compare it with the economic lives of the various intangible assets actually being used by companies in their audited financial statements.
Clearly, for Intangible assets that companies are not amortizing at all on their books due to US generally accepted accounting principles, this 15 year tax life makes no economic sense. It is flat out wrong. They should not be amortized at all for US federal income tax purposes.
And for the other Intangible assets that companies are amortizing on their books due to US generally accepted accounting principles, I think that for federal income tax purposes, it makes much more sense to use the economic life actually being used in its audited financial statements, rather than this artificial 15 year tax life.
Internally-developed Software for internal use by the company is capitalized for book purposes and subsequently amortized over their economic lives and should be handled precisely the same way for US federal income tax purposes.
The economic damage to US Corps from these proposals are softened here due to some of these corporate tax loophole closers being treated as a Temporary Tax Difference under GAAP.
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Janitor's Insurance
Many companies buy what is called “key-man” life insurance on particularly key employees, where the company is the beneficiary. This only makes sense because if a company loses a critical executive due to death, the company gets monetarily rewarded with the life insurance proceeds upon the death of the key employee.
The insurance premiums paid by the company each year are not tax deductible, for federal income tax purposes, and then the life insurance proceeds the company receives upon the employee’s death is tax exempt, for federal income tax purposes.
Each year, the company records on its books the increase in the cash surrender value of the life insurance policy as a long-term asset on its balance sheet, and with a like amount an increase in earnings on its income statement. This increase in cash surrender value each year is not taxable income.
Here’s the problem. Some smooth financial operators have seen the financial advantage of buying key-man life insurance on any employee of a company since just the tax benefits alone make the insurance policy quite advantageous to the company.
And to pile on, many of these life insurance policies are continued even after employees have left the company.
Clearly, buying life insurance policies for just regular employees of the company (thus the phrase Janitors’ Insurance or Peasants’ Insurance) is flat out abuse of the tax law.
Thus, my recommendation would be to just allow this favorable tax treatment to be on the life insurance policies on truly key employees…such as the Corporate Executive Management Team. Thus I recommend that there be no new Janitors’ Insurance policies allowed in the future.
The tricky part is what to do with all of the many present Janitors’ Insurance policies out there now?
I recommend that if the company decides to continue to keep this insurance coverage until the person dies, then fine, but the life insurance proceeds upon death gets reflected to the company as ordinary taxable income, for federal income tax purposes.
But then I would lessen the economic blow here by giving the company an incentive to cash in these life insurance policies now. I would let them cash them in during 2011 for their cash surrender value, and then the cash proceeds received by the company would be taxed as ordinary income at a favorable federal income tax rate of perhaps something like 15%.
The point here is that the country would be a lot better off if all of these Janitors’ Insurance policies are cashed in by companies for their cash surrender values as soon as possible.
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Eliminate Tax Deferrals for Annuities of High Income or High Asset Individuals
Presently, many insurance companies and other financial institutions sell annuities mainly to rich individuals. What makes these annuities very attractive to the rich who are at a very high effective income tax rate is that the income earned from the investments in these annuities grow on a tax deferred basis. So clearly, the main economic value of these annuities comes from the tax loophole embedded in them.
My recommendation here is that the income earned from annuities invested in by either high income or high asset individuals will be currently taxable as the income is earned. I'll leave it to the US Congress as to what constitutes a high income and high asset value for individuals.
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Eliminate Tax Deferrals for Whole and Variable Life Insurance Investments by High Income or High Asset Individuals
Presently, many insurance companies and other financial institutions sell whole life insurance policies and variable universal life insurance policies mainly to rich individuals. What makes these life insurance policies very attractive to the rich who are at a very high effective income tax rate is that the income earned from the investments in these life insurance policies grow on a tax deferred basis. So clearly, the main economic value of these life insurance policies comes from the tax loophole embedded in them.
My recommendation here is that the income earned from these life insurance policies invested in by either high income or high asset individuals will be currently taxable either to the individual investing in the life insurance policy or to the life insurance company selling the life insurance policy. I'll leave it to the US Congress as to what constitutes a high income and high asset value for individuals.
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Eliminate Subsidies to Large Corp Agribusiness
My first recommendation here is to implement a $250,000 farm commodity payment maximum limitation so that we help family farmers, but not large corporate agribusiness.
And my second recommendation here is to close the loophole that allows megafarms to get around the maximum limitation by subdividing their operations into multiple paper corporations.
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Employer's Health Insurance Should Be Primary Payer for Working Retired Military Officers
Individuals serving the country in the US Military generally are eligible for both a pension and free Tri-Care health care for life after twenty years of service.
Many of these retired military, both officers and non-officers, elect to work in the private sector after they retire.
Presently, these retired military working in the private sector get to use their free Tri-Care health care, even though their employer provides health insurance for their employees.
My recommendation here is that these retired military working in the private sector, who retired as military officers, should first be covered by the employers health insurance, and then for anything not covered here, the Tri-Care health insurance would be used as the secondary health insurance coverage.
The end result is that the military officer still gets complete health insurance coverage, it's just that the employer's insurance would be used first.
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Reduce Dual Eligible Subsidies to Drug Companies
Some US citizens are eligible for both Medicare and Medicaid. Thus they are called "Dual Eligibles".
My recommendation here is to reduce subsidies now given to drug manufacturing companies when their drug prescriptions are acquired by these Dual Eligible Medicare and Medicaid recipients.
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Let Medicare Make Drug Purchases Based on Comparative Effectiveness
Presently, the US Congress has not permitted Medicare to factor in studies of the Comparative Effectiveness of various drugs when making its drug purchase decisions.
Medicare would get substantial reductions in drug prices it pays each year if it were allowed to factor in Comparative Effectiveness studies which show that there are much cheaper, but just as effective, drugs that they could acquire.
My recommendation here is that Medicare be allowed to factor in studies of the Comparative Effectiveness of various drugs when making its drug purchase decisions.
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Let all US purchasers of drugs including Medicare buy
their drugs from foreign sources.
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Turn Tax Exemptions Into Tax Credits
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Use Same Tax Benefit Rate for Everyone's Itemized Deductions and Convert Standard Deduction Into a Flat Tax Credit
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Bonuses to Feds For Spending Less
The prevalent US Government strategy now is "Use it or Lose it". When a sub-Dept of a US Govt Dept is authorized to spend a certain amount each year, it spends it all, because if it doesn't spend it, it loses it.
And when you study US Govt spending, there is always a huge amount of spend in Sept, the last month of the fiscal year. This shows just how extensive this "Use it or Lose it" strategy exists all throughout the US Govt.
My recommendation is for a 10% Total Bonus Incentive of Budget Savings each year.
Let's say a given sub-Dept of a US Govt Dept has $10 bil of spending authorized by the US Congress in a given fiscal year. And then let's say that it spends only $9.5 bil in this same fiscal year.
The Total Bonus Incentive given to this sub-Dept in this fiscal year would be $.5 bil Savings X 10%, or $50 mil, a very nice chunk of change that the US Govt sub-Dept can share, in a fair manner, with the US Govt employees of the sub-Dept.
But still, this US Govt sub-Dept has saved the US Government in the current fiscal year $450 mil plus the US federal income taxes and payroll taxes on the $50 mil Bonus Incentives given out.
Money talks. US Govt workers will be highly incentivized to earn these annual cash bonuses.
The US Government funding provided here will be huge over the next ten years.
But to get the bonus, the sub-Dept must still have very successfully fulfilled its mission in the fiscal year as determined by a highly-qualified, independent reviewer.
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Company Fair Wage Tax Adjustment
For decades, the overwhelming majority of US companies have implemented continuing employee compensation policies that have effectively resulted in continuing and massive income inequality expansion harming lower and mid-level US employees, especially women, blacks, Latinos and also some white men, including those in the Midwest Industrial Rust Belt.
One of the best ways to curtail massive and continuing income inequality expansion, which is wreaking economic havoc on many US employees, is through what I call The Company Fair Wage Tax Adjustment. It is US Capitalism Done Right, Where All Company Employees Benefit, Not Just the Ones at the Top Rung of the Ladder. Here's how it might work.
Every for-profit US Company would be required annually to break out its annual total US employee compensation just of its employees working in both the current full year and also in the previous full year. The gold-standard Employee Compensation measure is defined by the US SEC and publicly-held companies must use it in their annual proxy statements filed with SEC.
These two-year continuing full-year employee total compensation amounts are then broken down into five equal US dollars total employee compensation quintile groups.
These five quintile groups would be equal in total US dollars but logically the top two quintile groups combined should have less than 10% of the total number of US company employees and the lower three quintile groups combined should have more than 90% of the total number of US company employees.
The Company would then be assessed a US federal tax at 60% of the total actual annual increase in total employee compensation as defined above of the top quintile group and at 10% of the total actual annual increase in total annual employee compensation of the second-to-the-top quintile group.
At the same time, the Company would be rewarded with a US federal tax credit at 40% of the total actual annual increase in total employee compensation of the bottom quintile group, at 20% of the total actual annual increase in total employee compensation of the second-to-the bottom quintile group, and at 10% of the total actual annual increase in total employee compensation of the middle quintile group.
End result, the Company giving percentage of total employee compensation raises fairly to all US employees won't pay a dime of additional tax and US Income Inequality would not expand.
If as it usually has happened in past years, the Company elected to give higher percentage raises in total actual employee compensation to its higher-paid employees than to its lower-paid employees, it would be be required to pay a net US federal tax penalty in the aggregate.
On the other hand, if the Company elected to give higher percentage raises in total actual employee compensation to its lower-paid employees than to its higher-paid employees, it would be rewarded with a net US federal tax credit in the aggregate, which has the potential of being quite lucrative, and US income inequality would then finally narrow.
To summarize the end result, the higher the income inequality expansion in one year, the higher the net tax owed by the Company to the US Government. And the higher the income inequality narrowing in one year, the higher the net tax credit rewarded to the Company.
Illustration for Annual 2021:
2021 Federal Tax
2021 2020 Pay % Owed
Quintile Pay Pay Increase Weighting (Credit)
1 115 mil 100 mil 15 mil 60% 9.0 mil
2 108 mil 100 mil 8 mil 10% 0.8 mil
3 106 mil 100 mil 6 mil -10% - 0.6 mil
4 104 mil 100 mil 4 mil - 20% - 0.8 mil
5 102 mil 100 mil 2 mil -40% - 0.8 mil
Totals 535 mil 500 mil 35 mil 0% 7.6 mil (Total Fed Tax Owed)
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Using the US Tax Code To Finally Achieve Non-Profit Organization Tax and Employee Pay Fairness
Based on extensive research I have performed on the larger Non-Profit Hospitals, so many of them have generated very high annual profits and have also accumulated just an eye-opening substantial amount of Net Assets, which have been invested in common stocks and bonds. Further, all of this has been done tax free.
Thus given these extremely high profits by Non-Profit Hospitals, my recommendation here is for the US Government to apply an income tax in any year that a Non-Profit Hospital Organization generates extremely high profits. After all, these are Non-Profit Organizations.
Hospital Operating Income includes as deductions Depreciation Expense, Bad Debt Expense, and for the most part, Interest Expense on all Debt. There is very little Investment Income included in Hospital Operating Income. The predominant portion of Investment Return Income and Losses is shown by these Hospital Organizations below Hospital Operating Income, as Non-Operating Income.
First, below here are my recommended US federal income tax rates I would institute for each year, all applied just to the Non-Profit Hospital Organizations generating an excessively high Hospital Operating Margin Percentage (i.e. Hospital Operating Income as a Percentage of Total Operating Revenues).
Hospital Operating.........................US Federal Income
.......Margin %.................................... Tax Rate
.....Up to 5%............................0%
.....5% to 10%.........................28% on the excess profit above 5%
....10% to 15%.......................33% on the excess profit above 10%
....Above 15%........................38% on the excess profit above 15%
And second, the investment activity realized transactions (i.e. interest income, dividend income, realized gains and losses on investments, all of which are not included in Hospital Operating Income)) of all US Non-Profit Hospitals should be treated for US Federal income tax purposes precisely how they are treated by a taxable entity.
Further, to achieve Non-Profit Organizations' Employees Pay Fairness, my additional recommendation is that all Non-Profit Organizations, including Non-Profit Hospital and Other Health Care Organizations, might be eligible to receive a Pay Increase Fairness award from the US Government in each year computed as follows related to all of their US full-time employees who have worked for them on a full-time basis for all of the most recent two years and who were also not promoted in the current year. Also included here are full-time employees hired in the previous year and also being a full-time employee in the current year. Since the previous year's wages and employee benefits of such an employee are for part of a year, these wages are annualized in that year's computation below:
10% of the entire pay increase in the current year's from the previous year's W-2 Wages plus health care benefits of any employee making $80,000 to $100,000 in the current year who had an annual pay increase of at least 15% in 2021, or of 10% in 2022, or of 9% in 2023, or of 8% in 2024, or of 7% in 2025 or of 6% in 2026 or of 5% in 2027 and in each year thereafter
30% of the entire pay increase in the current year's from the previous year's W-2 Wages plus health care benefits of any employee making $60,000 to $80,000 in the current year who had an annual pay increase of at least 15% in 2021, or of 10% in 2022, or of 9% in 2023, or of 8% in 2024, or of 7% in 2025 or 6% in 2026 or of 5% in 2027 and in each year thereafter
60% of the entire pay increase in the current year's from the previous year's W-2 Wages plus health care benefits of any employee making $40,000 to $60,000 in the current year who had an annual pay increase of at least 15% in 2021, or of 10% in 2022, or of 9% in 2023, or of 8% in 2024, or of 7% in 2025 or of 6% in 2026 or of 5% in 2027 and in each year thereafter
70% of the entire pay increase in the current year's from the previous year's W-2 Wages plus health care benefits of any employee making $20,000 to $40,000 in the current year who had an annual pay increase of at least 15% in 2021, or of 10% in 2022, or of 9% in 2023, or of 8% in 2024, or of 7% in 2025 or of 6% in 2026 or of 5% in 2027 and in each year thereafter
and 80% of the entire increase in the current year's from the previous year's W-2 Wages plus health care benefits of any employee making less than $20,000 in the current year who had an annual pay increase of at least 15% in 2021, or of 10% in 2022, or of 9% in 2023, or of 8% in 2024, or of 7% in 2025 or of 6% or of 5% in 2027 and in each year thereafter
An illustration of the latter in each year
Full-Time US Non-Profit Hospital Employee receiving no promotions in any year makes the following Annual Wages in each calendar year:
.......................................... Is Company Eligible For Pay Fairness Award?
$17,200 in 2020
$19,900 in 2021 Increase of $2,700 or of 15.7%(>15% Thus Yes)
$22,000 in 2022 Increase of $2,100 or of 10.6%(>10% Thus Yes)
$23,700 in 2023 Increase of $1,700 or of 7.7% (<9% Thus No)
$26,000 in 2024 Increase of $2,300 or of 9.7%(>8% Thus Yes)
$27,500 in 2025 Increase of $1,500 or of 5.8%(<7% Thus No)
$29,700 in 2026 Increase of $2,200 or of 8.0%(>6% Thus Yes)
$31,100 in 2027 Increase of $1,400 or of 4.7%(<5% Thus No
Computation of Annual Pay Fairness Awards:
2021 Annual Increase of $2,700 X 80% = $2,160
2022 Annual Increase of $2,100 X 70% = $1,470
2023 Zero
2024 Annual Increase of $2,300 X 70% = $1,610
2025 Zero
2026 Annual Increase of $2,200 X 70% = $1,540
2027 Zero
7 Year Total Pay Fairness Awards $6,780
7 Year Total Increase in Annual Pay $13,900
% Funded By US Government 49%
% Funded By the Non-Profit Organization 51%
The overall cost to the US Government over the next ten years due this Pay Fairness Awards program is substantially reduced by both the US Federal Government Revenues from the annual US federal payroll taxes and the annual US Federal Government income taxes collected on the incremental payroll increases each year due to this program.
US Minority Employees Fair Pay Proposal
US Companies and Other US Organizations with the lowest overall percentage of their annual Total W-2 Wages, including health benefits, going to their US Women, to their US Blacks, to their US Hispanics or US Latinos, to their US Asian Americans, to their US Native Americans, to their US LBGT and to their Other US Minority Group employees should be providing a good chunk of the funding of the American Jobs Plan and the American Families Plan.
In other words, the higher the minority discrimination in employee hiring, in annual pay raise, in annual bonuses and in job promotions, the higher the amount paid by the Company annually to fund the American Jobs Plan and the American Families Plan.
This type of funding proposal also gives a huge financial incentive to US Companies and Other US Organizations to substantially increase their hiring, their annual pay increases and their job promotions of all US minority groups since these actions would reduce how much tax these US Companies and Other US Organizations would need to pay due to their improvement in their job discriminatory actions.
Clearly the deck is stacked against these US minority employees on the hire, the pay, the job promotion and the employee benefit fronts.
My very simple legislative proposal addresses and in fact combines all of these job discrimination actions by employers and significantly corrects for all of them into one simple mathematical formula which would be required to be used by each US company and US organization with consolidated employees of more than 100.
This legislation would apply to all US publicly-held consolidated companies, all US consolidated subsidiaries of Foreign-owned Corporations, all US privately-held consolidated companies including all pass-through entities and all US Non-profit consolidated organizations including among many others US Non-profit hospitals, other US Non-Profit Health Care and US Mutual Insurance consolidated organizations with at least 100 US employees, including both full-time and part-time workers.
Starting in calendar 2021, each of these US companies or US organizations would pay for each calendar year to the US Federal Government a US "Fair Pay Disparity Adjustment" (FPDA) equal to 10% of the excess, if any, of the current minority mix ..... of 46.8% for US women, of 12.1% for US Blacks, 17.6% for US Hispanics or Latinos and 6.4% for US Asian Americans and for the related mix of each of the all other US minority groups ..... as a % of all US adults employed in the country (from the current US Bureau of Labor Statistics) multiplied by the US company or US organization's US Total W-2 Wages of all US employees of the US company or US organization over the specific US Minority Group Employees Total W-2 Wages + Health Benefits in each calendar year.
To simplify the understanding of this formula, let me illustrate this computation for the larger US minority groups.
Thus if a US company or US organization has calendar 2021 Total US W-2 Wages of $200 mil, including Health Benefits, and Total US Women Employees W-2 Wages, including Health Benefits, of $70 mil, then the US company or US organization would be required to pay a US Women Employees' FPDA to the US Federal Government of $2.36 mil ..... ((46.8% X $200 mil) -$70 mil) X 10% = $2.36 mil.
If this US company or US organization has calendar 2021 Total US W-2 Wages, including Health Benefits, of $200 mil and Total US Black Employees W-2 Wages, including Health Benefits, of $5 mil, then that US company or US organization would be required to pay a US Black Employees' FPDA to the US Federal Government of $1.92 mil ..... ((12.1% X $200 mil) -$5 mil) X 10% = $1.92 mil.
If this US company or US organization has calendar 2021 Total US W-2 Wages, including Health Benefits, of $200 mil and Total US Hispanic or Latino Employees W-2 Wages, including Health Benefits, of $10 mil, then that US company or US organization would be required to pay a US Hispanic or Latino Employees' FPDA to the US Federal Government of $2.52 mil ..... ((17.6% X $200 mil) -$10 mil) X 10% = $2.52 mil.
And if this US company or US organization has calendar 2021 Total US W-2 Wages, including Health Benefits, of $200 mil and Total US Asian-American Employees W-2 Wages, including Health Benefits, of $7 mil, then that US company or US organization would be required to pay a US Asian American Employees' FPDA to the US Federal Government of $0.58 mil ..... ((6.4% X $200 mil) -$7 mil) X 10% = $0.58 mil.
And this annual FPDA would also be recomputed and applicable in each subsequent year.
To be fair to US Non-Profit Organizations, these annual FPDA payments would not be tax deductible for US Federal Income Tax purposes for all US taxable and pass-through entities.
The goal here is that US companies and US organizations will be strongly incentivized to reduce the level of their undesirable US minority fair pay disparity since by doing so they will receive the economic benefit of paying less in annual FPDA each year to the US Federal Government.
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Catch-Up US Big Corp Tax For Past Three Years of Company Pay Inequality
There are company median pay disclosures for company employees of most publicly-held companies for each of the past three years.
Also, there have been annual Total Executive Compensation disclosures for the five company Named Executive Officers (NEOs) of most publicly-held companies for many years.
Most of these NEOs have benefited economically by leaps and bounds, especially in the past three years.
But company employees at the bottom, not so much.
My recommendation here is that US Big Corps with stock market caps above $10 bil at anytime in the past three years be assessed a catch-up US federal income tax, computed as follows related to each of the past three years:
Total NEO Compensation for Fiscal Year 2020, 2019 and 2018
Minus Co Median Pay X (# of NEOs) in 2020, 2019 and 2018
Multiplied By 21% US Federal Income Tax Rate
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Substantially Upgrade IRS Tax Audit Workforce
Having my very small business audited by the IRS and also since I have had more than a few IRS employees including several IRS audit employees in my graduate and undergraduate online accounting classes, I think I am in a good position to offer perceptive insights here on this key issue.
The problem with the ineffectiveness of the IRS audit process isn't with the numbers of IRS audit personnel but instead with their quality.
Do you really think that even the very best IRS auditors stand a chance when dealing with the very best tax experts hired by or working for the largest US Corps?
Here's my recommendations.
First, I would appoint a Bipartisan Commission of outside experts in this field to address the key issue of why the IRS Audit function is so ineffective.
Second, I would set a percentage of ineffective IRS Auditors to dismiss ..... my hunch is at least 25% of them. And give very healthy raises to the remaining 75%.
Third, I would replace these 25% with just exceptional US tax experts, paying them a minimum of $200,000 per year.
Fourth, included in these new IRS Audit people added are a cadre of world-class, real-world tax experts who are also exceptional teachers, including some of the very best college professors. They should be paid at least $500,000 per year.
Fifth and most importantly, the 75% remaining IRS auditors should immediately be taught in a very rigorous three-month tax audit program that would rival the education attained at the very best US graduate colleges. Since many of the present IRS auditors understand so little about basic accounting, finance, data science and ethics, these areas should be studied in depth along with the an intensified study of complex international tax issues.
Sixth, any US President, US Vice President, US Cabinet Head, US Senator or US House member who directs someone to approach the IRS with the goal of having a specific company or person audited by the IRS should immediately be required to resign from office.
Seventh, the IRS should immediately remove any CIA, NSC or similar operative from the IRS field audit ranks.
Eighth, any IRS auditor who plants critical false evidence in his IRS Audit workpapers when performing an IRS audit should be immediately fired.
Ninth, any IRS auditor who on the first day of an audit informs the taxpayer being audited how much he will owe when the tax audit is complete should be immediately fired. A huge problem with this strategy is that the IRS audit agent inappropriately works toward delivering that number.
And tenth and very importantly, any IRS auditor who writes up an issue in an audit, thus attempting to collect money for the US Government from the US taxpayer, when he knows the tax issue has no basis, should be immediately fired. An IRS auditor in one of my graduate accounting classes said that some IRS auditors use that as a tax audit strategy. Yeah, that is flat-out attempted extortion of a US taxpayer.
Believe it or not, all of these latter five things have happened, and the last one, quite frequently.
Anyway, with this substantially upgraded and much more highly-trained IRS audit staff, the funding provided here for the American Jobs Plan and American Families Plan should be in excess of $200 bil over the next ten years. And more importantly, the taxpayer being audited will have so much more respect for the IRS audit function than he now has.
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Eliminate Cost Plus US Federal Contracts of All US Federal Contractors
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The US Congress Should No Longer Be Allowed to Enact the So Many Very Costly "Tax Extenders", That They Enact at the Very End of Every Year and That Are Overwhelmingly the Creation of New Tax Loopholes
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Enact a Carbon Tax. It also would have the benefit of deterring the use of fossil fuels.
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On Estate Taxes, Lower the Exemption to $5 mil on every estate.
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Limit US Federal Income Tax Benefit Rate on Total Itemized Deductions to 20% For All Taxpayers With Adjusted Gross Income Above $400,000
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The average length of time it takes for a Dow Industrial Company to have its annual income tax audit settled with the IRS is more than eight years. This is a very serious problem.
To dramatically speed up this elongated process and also to provide substantial funding for the American Jobs Plan and the American Families Plan, my recommendation is that IRS audit agents should be rewarded with substantial special bonuses for substantially speeding up tax settlements of a Company income tax audit as long as this settlement amount received by US Government is deemed fair to the US Government by an independent IRS Tax Evaluator. Also, The amount of this bonus should decline with the time it takes to get a final tax settlement.
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Eliminate Qualified Business Income Deduction For Any Taxpayer
Many owners of sole proprietorships, partnerships, S corporations and some trusts and estates may be eligible for a qualified business income (QBI) deduction – also called Section 199A – for tax years beginning after December 31, 2017. The deduction allows eligible taxpayers to deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.
The deduction was available regardless of whether taxpayers itemize deductions on Schedule A or take the standard deduction.
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Eliminate State and Local Tax (SALT) Deduction For Any Taxpayer With Adjusted Gross Income Above $400,000
The state and local tax (SALT) deduction permits taxpayers who itemize when filing federal taxes to deduct certain taxes paid to state and local governments. The Tax Cuts and Jobs Act (TCJA) capped it at $10,000 per year, consisting of property taxes plus state income or sales taxes, but not both.
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Reduce the US Defense Department's Maximum Actual Annual Spending By 5.0% Each Year From the Preceding Year Until Clean Audited Opinions on the Financial Statements of the US Department of Defense are Available Through the Previous Year End.
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Reduce Business Meals Tax Deduction to 25% of Cost and Absolutely No Tax Deduction For Business Entertainment Spending of Any Kind
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Given that US inflation is now surprisingly running incredibly high in 2021, at the highest increase since 2008, I think it would be wise to repurpose a portion of the unspent money in Trump's massive Covid-19 bills to help fund Biden's Infrastructure Plan. I would focus on the portions of these Trump Covid-19 bills which are now helping to drive this nosebleed-high inflation in the months of March, April, May and June 2021.
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Require US Multinational Corps to include in their US taxable income each year any of their worldwide income which was not reported as corporate income to any national government.
This tax loophole practice is so abusive that this recommendation should be applied retroactively over the past ten years.
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Annual US Federal Minimum Income Tax For Extremely Wealthy US Taxpayers .....
The Higher of (1)15% of Current Year Taxable Income and (2) With:
Net Assets of $100 mil to $500 mil ... 2.5% of Beginning of Year Fair Market Value of Net Assets
Net Assets of $500 mil to $1 bil ... 3.0% of Beginning of Year Fair Market Value of Net Assets
Net Assets of $1 bil to $20 bil ..... 3.5% of Beginning of Year Fair Market Value of Net Assets
Net Assets Above $20 bil ..... 4.0% of Beginning of Year Fair Market Value of Net Assets
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Eliminate the US Individual Alternative Minimum Tax Exemption Amount for US Taxpayers With Adjusted Gross Income Above $400,000.
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Presently, 529 Plan distributions that are used to pay qualifying education expenses are generally tax-free.
And presently, the definition of qualified education expenses for 529 plans applies to not just postsecondary school expenses, but also to primary and secondary school expenses.
My recommendation here is that primary and secondary school education expenses should not be considered qualified education expenses.
Further, only 50% of 529 Plan distributions used to pay postsecondary school education expenses should be tax free for US Taxpayers with Adjusted Gross Income above $400,000.
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The US Corporate Alternative Minimum Tax repealed in the TCJA should be reinstated with a minimum income tax rate of 15% for all publicly-held C Corporations with stock market caps between $1 bil and $5 bil and for all privately-held C Corps with Annual Total Revenues above $100 mil.
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Eliminate the Corporate Dividends Received Deduction for Corps with stock market caps above $5 bil. This recommendation also provides an incentive for Corporate Spinoffs, which tend to increase the number of US good-paying jobs, just the opposite of what Corporate Mergers do.
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Business Interest Expense Paid or Accrued in Any Year Cannot Be Deducted in Excess of 15% of Business Taxable Income in That Same Year.
Interest Expense that cannot be deducted in that same year can be carried forward over the next three years.
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Film, television and live theatrical productions should not be eligible for bonus tax depreciation. And they should be amortized for US Federal income tax purposes over their expected economic lives using the straight-line method.
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Disallow tax-deferred exchanges of appreciated like-kind real estate property.
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Expenditures For Research and Development Conducted Outside the United States should not be tax deductible by a US Corp in any year for US Federal Income Tax Purposes.
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For US Corps with stock market caps above $1 bil, all of their business net operating losses (NOLs) that arise in current and future tax years, in addition to any existing NOL carryforwards, get their maximum amount of taxable income that can be offset with these NOL deductions reduced from 80% to 60%. In addition, NOLs incurred in those years cannot be carried back to an earlier tax year. Also, these NOLs, including any previous NOL Carryforwards, can be carried forward for only five years.
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Increase All Taxes on Alcoholic Beverages to $16 per Proof Gallon and Index for Inflation
Alcoholic beverages are not taxed uniformly: The alcohol content of beer (including other malt beverages and hard seltzers) and wine is taxed at a lower rate than the alcohol content of distilled spirits. The tax rates are currently governed by temporary provisions in place through December 31, 2020. After those provisions expire, distilled spirits will be taxed at a flat rate of $13.50 per proof gallon. (A proof gallon is a liquid gallon that is 50 percent alcohol by volume.) A tax rate of $13.50 per proof gallon translates to about 21 cents per ounce of pure alcohol. The tax on beer will be equivalent to about 10 cents per ounce of pure alcohol, and the tax on wine that is no more than 14 percent alcohol will be about 6 cents per ounce of pure alcohol. (Wines with high volumes of alcohol and sparkling wines face a higher tax per gallon.) Other factors affect how alcoholic beverages are taxed. Specific provisions of tax law can lower the effective tax rate on small quantities of beer and nonsparkling wine for certain small producers. Additionally, small volumes of beer and wine that are produced for personal or family use are exempt from taxation.
My recommendation would standardize the base on which the federal excise tax is levied by using the proof gallon as the measure for all alcoholic beverages. The tax rate would be raised to $16 per proof gallon, or about 25 cents per ounce of pure alcohol. It would also eliminate the provisions of law that lower effective tax rates for small producers, thus making the tax rate equal for all producers and quantities of alcohol. In addition, it would index the tax for inflation each year.
CBO says this recommendation would raise $96 bil over the next ten years.
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Expand the Base of the Net Investment Income Tax to Include the Income of Active Participants in S Corporations and Limited Partnerships
In addition to the individual income tax, high-income taxpayers face two taxes on certain types of income above specified thresholds. The first—the additional Medicare tax—is a 0.9 percent tax on wages and self-employment income in excess of those thresholds (bringing their overall Medicare tax rate to 3.8 percent). The second tax faced by high-income taxpayers—the net investment income tax (NIIT)—is a 3.8 percent tax on qualifying investment income, such as interest, dividends, capital gains, rents, royalties, and passive income from businesses not subject to the corporate income tax.
Income generated by certain types of businesses—specifically, limited partnerships (wherein certain partners are not liable for the debts of the business in excess of their initial investment) and S corporations (which are not subject to the corporate income tax because they meet certain criteria defined in subchapter S of the tax code)—may be excluded from both taxes under certain circumstances. If a high-income taxpayer is actively involved in running such a business, as some limited partners and most owners of S corporations are, his or her share of the firm’s net profits is not subject to either the additional Medicare tax or the NIIT. (If the taxpayer receives a salary from the firm, however, that income would be subject to the additional Medicare tax.)
This option would impose the NIIT on all income derived from business activity that is subject to the individual income tax but not to the additional Medicare tax.
CBO says this recommendation would raise $210 bil over the next ten years.
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Limit the Deduction for Charitable Giving To Cash Contributions
The charitable contribution deduction would be eliminated for all noncash contributions.
This recommendation would be limited to taxpayers who itemize, and higher-income taxpayers would still be subject to the additional reduction in the total value of certain deductions after 2025.
CBO says this recommendation would raise $231 bil over the next ten years.
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Expand Social Security Coverage to Include Newly Hired State and Local Government Employees
Under federal law, state and local governments can opt out of enrolling their employees in the Social Security program as long as they provide a separate retirement plan for those workers. As a result, about a quarter of workers employed by state and local governments are not covered by Social Security.
Under this option, Social Security coverage would be expanded to include all state and local government employees hired after December 31, 2020. Consequently, all newly hired state and local government employees would pay the Social Security payroll tax. Expanding Social Security coverage to all newly hired state and local government employees would have little impact on the federal government’s spending for Social Security in the short term. The increased outlays for Social Security would grow in the following decades and would partly offset the additional revenues generated by newly covered employees.
CBO says this recommendation would raise $101 bil over the next ten years.
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Subject Taxable Earnings Greater Than $250,000 to the Social Security Payroll Tax
Social Security—which consists of Old-Age and Survivors Insurance and Disability Insurance—is financed primarily by payroll taxes on employers, employees, and the self-employed. Earnings up to a maximum ($137,700 in calendar year 2020) are taxed at a rate of 12.4 percent. In 2018, about 83 percent of earnings from employment covered by Social Security fell below the maximum taxable amount and were thus subject to the Social Security payroll tax.
My recommendation would increase the share of earnings subject to Social Security payroll taxes. It would apply the 12.4 percent payroll tax to earnings over $250,000 in addition to earnings below the maximum taxable amount under current law. The taxable maximum would continue to grow with average wages but the $250,000 threshold would not change, so the gap between the two would shrink. The Congressional Budget Office projects that the taxable maximum would exceed $250,000 in calendar year 2039; after that, all earnings from jobs covered by Social Security would be subject to the payroll tax. Earnings under the current-law taxable maximum would still be used for calculating benefits, so scheduled benefits would not change under this alternative.
CBO says this recommendation would raise an amazing $1.024 trillion over the next ten years.
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Require Half of Advertising Expenses to Be Amortized Over 10 Years
Business expenses can generally be categorized as either investments, which create assets whose value persists over a multiyear period, or current expenses, which go toward goods or services whose value dissipates during the first year after they are purchased. They are often treated differently for tax purposes: Current expenses can be deducted from income in the year they are incurred, but some investment costs, such as the cost of constructing buildings, must be deducted over a multiyear period. Advertising is treated by the tax system as a current expense; its costs can therefore be immediately deducted, even in cases where it creates longer-term value.
My recommendation would recognize half of advertising expenses as immediately deductible current expenses. The other half would be treated as an investment in brand image and would be amortized over a period of 10 years.
CBO says this recommendation would raise $133 bil over the next ten years.
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Increase Excise Taxes on Tobacco Products
The US federal government taxes tobacco products, including cigarettes, cigars, pipe tobacco, and roll-your-own tobacco. The federal excise tax on cigarettes is just over $1.00 per pack. Large cigars are taxed at 52.75 percent of the manufacturer’s sales price, with a maximum tax of 40.26 cents per cigar. Pipe and roll-your-own tobacco are taxed at $2.83 and $24.78 per pound, respectively.
My recommendation would raise the federal excise tax on all tobacco products by 100 percent. In addition, it would raise the tax on pipe tobacco to equal that for roll-your-own tobacco and set a minimum tax rate on large cigars equal to the tax rate on cigarettes.
CBO says this recommendation would raise $74 bil over the next ten years.
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Increase Excise Taxes on Motor Fuels by 35 cents per gallon and Index for Inflation
Since 1993, federal excise tax rates on traditional motor fuels have been set at 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel fuel. The revenues from those taxes are credited to the Highway Trust Fund to pay for highway construction and maintenance as well as for investment in mass transit. (A portion of the fuel tax—0.1 cent per gallon—is credited to the Leaking Underground Storage Tank Trust Fund.) Those tax rates are not adjusted for inflation.
My recommendation is to increase the excise tax by 35 cents per gallon and that the excise tax would be indexed for inflation each year using the chained consumer price index.
CBO says this recommendation would raise $512 bil over the next ten years.
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Impose an Excise Tax on Overland Freight Transport
Under current law, federal taxes related to overland freight transport by truck consist of a tax on diesel fuel; excise taxes on new freight trucks, tires, and trailers; and an annual heavy-vehicle use tax. Rail carriers pay a small per-gallon assessment on diesel fuel. There is no existing per-mile federal tax on freight transport.
This option would impose a new tax on freight transport by truck and rail. Freight transport by heavy-duty trucks (Class 7 and above in the Federal Highway Administration’s classification system) would be subject to a tax of 30 cents per mile and freight transport by rail to a tax of 12 cents per mile (per railcar). The tax would not apply to miles traveled by trucks or railcars without cargo.
CBO says this recommendation would raise $351 bil over the next ten years.
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Impose a Tax on Emissions of Greenhouse Gases
The accumulation of greenhouse gases in the atmosphere—particularly of carbon dioxide (CO2) released when fossil fuels (such as coal, oil, and natural gas) are burned—contributes to climate change, which imposes costs and increases the risk of severe economic harm to countries around the globe, including the United States. The federal government regulates
some emissions in an effort to reduce them; however, emissions are not directly taxed.
This option would impose a tax of $25 per metric ton on most emissions of greenhouse gases in the United States—specifically, on most energy-related emissions of CO2 (for example, from electricity generation, manufacturing, and transportation) and on some other greenhouse gas emissions from large manufacturing facilities. The tax would increase at a constant real (inflation-adjusted) rate of 5 percent per year.
CBO says this recommendation would raise an amazing $1.032 trillion over the next ten years.
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Impose a Tax on Financial Transactions
This option would take effect in January 2022.
The United States is home to large financial markets with a lot of daily trading. Under current federal tax law, no tax is imposed on the purchase of securities (stocks and bonds) or other financial products. However, the Securities and Exchange Commission charges a fee of approximately 0.002 percent on most transactions.
This option would impose a tax on the purchase of most securities and on transactions involving derivatives (contracts requiring one or more payments that are calculated by reference to the change in an observable variable). For purchases of stocks, bonds, and other debt obligations, the tax generally would be 0.2 percent of the value of the security. For purchases of derivatives, the tax would be 0.2 percent of all payments actually made under the terms of the contract, including the price paid when the contract was written, any periodic payments, and any amount to be paid when the contract expires. The tax would not apply to the initial issuance of stock or debt securities, transactions of debt obligations with fixed maturities of no more than 100 days, or currency transactions (although transactions involving currency derivatives would be taxed). It would be imposed on transactions that occurred within the United States and on transactions that took place outside of the country and involved at least one U.S. taxpayer (whether a corporation, partnership, citizen, or resident).
CBO says this recommendation would raise an amazing $1.504 trillion over the next ten years.
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Increase Appropriations for the Internal Revenue Service’s Enforcement Initiatives
This option would take effect in October 2021.
The Internal Revenue Service (IRS) undertakes a variety of enforcement activities (including audits) to improve compliance with the tax system. Increasing funding for enforcement (often referred to as a program integrity initiative) would, in the Congressional Budget Office’s estimation, boost federal revenues.
This option would gradually increase the IRS’s funding for enforcement. Funding would rise by $500 million each year for the first five years and then remain at an additional $2.5 billion per year from 2026 to 2030. Each infusion of new funding would result in the start of new enforcement initiatives—expansions of audits and other activities that could improve compliance with the tax system. All the new initiatives would continue to be funded at the same level and would remain in effect through 2030 and beyond.
CBO says this recommendation would raise a modest $41 bil over the next ten years.
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Further Limit Annual Contributions to Retirement Plans
Current law allows taxpayers to make contributions to certain types of tax-preferred retirement plans up to a maximum annual amount that varies depending on the type of plan and the age of the taxpayer. The most common such plans are defined contribution plans (any plan that does not guarantee a particular benefit amount upon retirement) and individual retirement accounts (IRAs). Defined contribution plans are sponsored by employers. Some—most commonly, 401(k) plans—accept contributions by employees; others are funded entirely by the employer. IRAs are established and funded by the participants themselves. Traditional tax-preferred retirement plans allow participants to exclude contributions from their taxable income and defer the payment of taxes until they withdraw funds. Contributions to Roth retirement plans, by contrast, cannot be excluded from taxable income but are not subject to tax when withdrawn.
People under the age of 50 may contribute up to $19,500 to 401(k) and similar employment-based plans in 2020; participants ages 50 and above are also allowed to make “catch-up” contributions of up to $6,500. Contributions to 457(b) plans, which are available primarily to employees of state and local governments, are subject to a separate limit. Employers may also contribute to their workers’ defined contribution plans, up to a maximum of $57,000 per person in 2020, minus any contributions made by the employee.
Under current law, combined contributions to traditional and Roth IRAs are limited to $6,000 for taxpayers under the age of 50 and $7,000 for those age 50 or older. Taxpayers with income above certain thresholds are not allowed to contribute to Roth IRAs. However, some participants can circumvent those limits by contributing to a traditional IRA and then converting it to a Roth IRA.
Under this option, a participant’s maximum allowable contributions would be reduced to $17,500 per year for 401(k)–type plans and $5,000 per year for IRAs, regardless of the person’s age. The option would also require that all contributions to employment-based plans—including 457(b) plans—be subject to a single combined limit. Total allowable employer and employee contributions to a defined contribution plan would be reduced from $57,000 per year to $51,000. Finally, conversions of traditional IRAs to Roth IRAs would not be permitted for taxpayers whose income is above the top threshold for making Roth contributions.
CBO says this recommendation would raise $99 bil over the next ten years.
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Eliminate Medicare’s Coverage of Bad Debt
When hospitals and other health care providers cannot collect out-of-pocket payments from their patients, those uncollected funds are called bad debt. Historically, Medicare has paid some of the bad debt owed by fee-for-service beneficiaries on the grounds that doing so prevents those costs from being shifted to others (that is, private insurance plans and people who are not Medicare beneficiaries). The unpaid and uncollectible cost-sharing amounts for covered services furnished to Medicare beneficiaries are referred to as allowable bad debt. In the case of dual-eligible beneficiaries—Medicare beneficiaries who also are enrolled in Medicaid—out-of-pocket obligations that remain unpaid by Medicaid are uncollectible and therefore are also included in Medicare’s allowable bad debt. Under current law, Medicare reimburses eligible facilities—hospitals, skilled nursing facilities, various types of health care centers, and facilities treating end-stage renal disease—for 65 percent of allowable bad debt.
My recommendation is that Medicare’s coverage of allowable bad debt would be eliminated. The reductions here would start to take effect in 2022 and would be phased in evenly until becoming fully implemented in 2024.
CBO says this recommendation would raise $69 bil over the next ten years.
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Require Manufacturers to Pay a Minimum Rebate on Drugs Covered Under Part D of Medicare for Low-Income Beneficiaries
Medicare Part D is a voluntary, federally subsidized prescription drug benefit delivered to beneficiaries by private-sector plans. Private drug plans can limit the costs they incur for providing benefits to Part D enrollees by negotiating to receive rebates from manufacturers of brand-name drugs in return for charging enrollees smaller copayments for those drugs. Currently, the rebates on drug sales to Medicare beneficiaries enrolled in Part D’s low-income subsidy (LIS) program, most of whom are also enrolled in Medicaid, are established in the same way as those for drugs used by other Part D enrollees.
Before Part D took effect in 2006, most LIS enrollees received drug coverage through Medicaid, where rebates on drug sales are set differently. Under federal law, drug manufacturers that participate in Medicaid must pay a portion of their revenues from that program back to the federal and state governments through rebates. Those rebates are equal to at least 23.1 percent of the average manufacturer price (AMP) for a drug. (The AMP is the amount, on average, that manufacturers receive for sales to retail pharmacies.) If some purchasers in the private sector obtain a price lower than 23.1 percent off of the AMP, then Medicaid’s basic rebate is increased to match the lowest price paid by private-sector purchasers. If a drug’s price rises faster than overall inflation, the drug manufacturer pays a larger rebate. On average, the rebates negotiated for brand-name drugs in Medicare Part D are smaller than the statutory discounts obtained by Medicaid.
This option would establish a minimum rebate for brand-name drugs sold to LIS enrollees in Medicare Part D. Manufacturers would be required to pay the federal government an amount equal to the difference (if any) between the minimum rebate for a given drug and the average negotiated rebate that manufacturers paid to plans for all purchases of that drug in Part D. The minimum rebate would equal 23.1 percent of the drug’s AMP plus an additional, inflation-based amount. (That rebate would be similar to Medicaid’s rebate, except it would not be directly affected by the lowest price paid by private-sector purchasers.) Such rebates would be mandatory for manufacturers who wanted their drugs to be covered by Part B (which covers physicians’ and other outpatient services) and Part D of Medicare, by Medicaid, and by the Veterans Health Administration.
If the average Part D rebate negotiated between the manufacturer and the Part D plans exceeded the minimum rebate for a given drug, then no additional payment would be owed to the federal government for that drug. However, under this option, only negotiated rebates that apply equally to all Part D enrollees in a given plan would count toward the average negotiated rebate. For example, current law requires drugmakers to provide a discount on purchases of certain brand-name drugs by non-LIS Part D enrollees but does not require them to provide a discount on those purchases made by LIS Part D enrollees; that discount, therefore, would not reduce the rebates owed to the federal government under this option.
CBO says this recommendation would raise $148 bil over the next ten years.
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Reducing the Tax Subsidies for Employment-Based Health Insurance
Option #1: Replace the Excise Tax With a Limit on the Income and Payroll Tax Exclusions Set at the 50th Percentile of Premiums. The first alternative would eliminate the excise tax and instead impose a limit on the extent to which employers' and employees' contributions for health insurance premiums—and to FSAs, HRAs, and HSAs—could be excluded from income and payroll taxation. Specifically, starting in 2022, contributions that exceeded $7,800 a year for individual coverage and $18,500 for family coverage would be included in employees' taxable income—that is, they would be subject to both income and payroll taxes. Those limits, which are equal to the estimated 50th percentile of health insurance premiums paid by or through employers in 2020, would be indexed for inflation by means of the chained CPI-U, a measure of inflation that attempts to account for the effects of substitution on changes in the cost of living. The same limits would apply to the deduction for health insurance available to self-employed people. Because the limits would be lower than the thresholds scheduled to take effect for the excise tax—for example, $11,200 for individual coverage in 2022—federal tax subsidies would be lower as well.
CBO projects that Option #1 would decrease cumulative federal deficits by $638 billion over ten years.
Option #2: Replace the Excise Tax With a Limit on the Income and Payroll Tax Exclusions Set at the 75th Percentile of Premiums. Like the first alternative, the second alternative would eliminate the excise tax and impose limits on the extent to which contributions could be excluded from income and payroll taxation. Under this alternative, however, the limits would be higher: $9,900 a year for individual coverage and $25,000 for family coverage. Those limits are equal to the estimated 75th percentile of health insurance premiums paid by or through employers in 2020 and inflated by the chained CPI-U.
CBO projects that Option #2 would decrease cumulative federal deficits by $256 billion over ten years.
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Repeal Just Two of the Many Tax Preferences for Energy and Natural Resource–Based Industries
Extractive industries that produce oil, natural gas, coal, and hard minerals receive certain tax preferences relative to other industries. In particular, extractive industries receive more favorable tax treatment with regard to the timing of when costs can be deducted from taxable income.
One preference of so many allows firms in the extractive industries to fully deduct (or "expense") certain costs in the year in which they are incurred. Producers of oil, gas, coal, and minerals are allowed to expense some of the costs associated with exploration and development. The costs that can be expensed include, in some cases, those related to excavating mines, drilling wells, and prospecting for hard minerals. Specifically, under current law, integrated oil and gas producers (that is, companies with substantial retailing or refining activity) and corporate coal and mineral producers can expense 70 percent of their costs; those companies are then able to deduct the remaining 30 percent over a period of 60 months. Independent oil and gas producers (companies without substantial retailing or refining activity) and noncorporate coal and mineral producers can fully expense their costs.
By contrast, firms in other industrial sectors are generally allowed to deduct only a portion of the investment costs they incurred that year and in previous years. In such cases, the percentage of the costs that can be deducted from taxable income in each year depends on the type of investment. There are exceptions, however. Firms with relatively small amounts of qualifying capital investments, primarily equipment, can expense the full costs of those items in the year in which they are incurred. (That exception is generally referred to as section 179 expensing.) In addition, a temporary provision included in the 2017 tax act (known as bonus depreciation) allows most of the costs of equipment to be expensed through 2022. After that, the portion of investments that can be expensed as bonus depreciation will gradually be reduced until the provision expires at the end of 2026.
A second preference of so many for extractive industries concerns how cost-recovery deductions for natural resources are calculated. Extractive companies, unlike companies in other natural resource industries, can choose between using the cost depletion method, which allows for the recovery of investment costs as income is earned from those investments, or percentage depletion, which allows companies to deduct from their taxable income between 5 percent and 22 percent of the dollar value of material extracted during the year, depending on the type of resource and up to certain limits. (For example, oil and gas companies' eligibility for the percentage depletion allowance is limited to independent producers who operate domestically; for those firms, only the first 1,000 barrels of oil—or, for natural gas, oil equivalent—per well, per day, qualify, and the allowance is limited to 65 percent of overall taxable income.) The value of deductions allowed under the cost depletion method is limited to the value of the land and improvements related to extraction. Because the percentage depletion allowance is not limited in that way, it can be more generous than the cost depletion method. For each property they own, firms take a deduction for whichever is more generous: the percentage depletion allowance or the amount prescribed by the cost depletion system. By contrast, companies in other natural resource industries have less flexibility in how they can deduct their investment costs.
Option
This option consists of two approaches to limiting tax preferences for extractive industries. The first approach would replace the expensing of exploration and development costs for oil, gas, coal, and hard minerals with the methods for deducting costs that apply in other industries. (The option would still allow other costs that are unique to extractive industries, such as those associated with unproductive wells and mines, to be expensed.) The second approach would eliminate percentage depletion, forcing all companies to use cost depletion rather than choose the more generous of the two.
Effects on the Budget
The first approach would increase revenues by $2 billion over the 2019-2028 period, according to estimates by the staff of the Joint Committee on Taxation (JCT). The effect would be smaller in later years, even with the phasedown of bonus depreciation, because eliminating expensing would change only the timing of when costs were deducted: The option would reduce the deductions that could be taken in the year costs were incurred, but that would result in higher deductions in later years. The second approach would raise $6 billion over the 10-year period, according to JCT. If the two approaches were combined, revenues would increase by $8 billion over that time. All estimates account for reductions in the activities that would otherwise have received a tax preference in response to the less generous tax treatment.
The estimates for this option are uncertain for two key reasons. First, the projections of taxable income in extractive industries largely rely on the Congressional Budget Office's projections of total income, the size of different sectors within the economy, and energy prices. Those projections are subject to considerable uncertainty. The estimates also rely on estimates of how firms in extractive industries would change their investment decisions in response to the changes in tax policy, which are likewise uncertain.
Other Effects
The principal argument in favor of this option is that the two major tax preferences for extractive industries distort the allocation of society's resources in two key ways. First, for the economy as a whole, the preferences encourage an allocation of resources between the extractive industries and other industries that does not reflect market outcomes. When making investment decisions, companies take into account not only the market value of the output but also the tax advantage that expensing and percentage depletion provide. The tax preferences thus encourage some investments in drilling and mining that produce output with a smaller market value than similar investments would produce elsewhere. Second, the preferences encourage producers to extract more resources in a shorter amount of time. In the case of oil, for example, that additional drilling makes the United States less dependent on imported oil in the short run, but it accelerates the depletion of the nation's store of oil and could cause greater reliance on foreign producers in the long run.
CBO projects that just these two Options would decrease cumulative US federal deficits by $8.4 bil over the next ten years. Personally I would repeal all of the many tax preferences in the extractive industries. CBO hasn't scored them.
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Repeal the “LIFO” and “Lower of Cost or Market” Inventory Accounting Methods
Background
To compute its taxable income, a business must first deduct from its receipts the cost of purchasing or producing the goods it sold during the year, also known as the cost of goods sold. Most companies calculate the cost of the goods they sell in a year by adding the value of the inventory at the beginning of the year to the cost of goods purchased or produced during the year and then subtracting from that total the value of the inventory at the end of the year. To determine the value of its year-end inventory, a business must distinguish between goods that were sold from inventory that year and goods that remain in inventory. The tax code allows firms to choose from among several approaches for identifying and determining the value of such goods.
Firms can value items in their inventory on the basis of the cost of acquiring those goods. There are several approaches for assigning a cost to an item of inventory. To itemize and value goods in stock, firms can use the "specific identification" approach, which requires a detailed physical accounting in which each individual item in inventory is tracked and is matched to its actual cost (that is, the cost to purchase or produce that specific item). Other approaches do not require a firm to track each specific item of inventory. One alternative approach—"last in, first out" (LIFO)—permits them to assume that the last goods added to the inventory were the first ones sold. Under that approach, the value assigned to goods sold from inventory should approximate their current market value (that is, the cost of replacing them). Yet another alternative approach—"first in, first out" (FIFO)—is based on the assumption that the first goods sold from a business's inventory were the first to be added to that inventory.
Firms that do not use the LIFO approach to assign costs can value inventory using the "lower of cost or market" (LCM) method. The LCM method allows firms to use the current market value of an item (that is, the current-year cost to reproduce or repurchase it) in their calculation of year-end inventory values if that market value is less than the cost assigned to the item. In addition, businesses can qualify for the "subnormal goods" method of inventory valuation, which allows a company to value inventory below cost if its goods cannot be sold at cost because they are damaged or flawed.
In 2013, businesses valued their combined year-end inventory at more than $2.1 trillion, according to the Internal Revenue Service. Corporations and partnerships held 98 percent of that inventory. Among the 1.6 million corporations and partnerships reporting information on inventory valuations, almost all used a cost-based method to value at least some portion of their inventory, approximately one-third made use of the LCM method for at least some goods, and more than 7,000 indicated that they had designated some inventory as subnormal goods. The LIFO approach was used by about 12,000 businesses to value approximately $290 billion of inventory.
Option
This option would eliminate the LIFO approach to identifying inventory, as well as the LCM and subnormal-goods methods of inventory valuation. Businesses would be required to use either the specific-identification or the FIFO approach to account for goods in their inventory and to set the value of that inventory on the basis of cost. Those changes would be phased in over a period of four years.
CBO projects that just these two Options would decrease cumulative US federal deficits by $58 bil over the next ten years.
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Impose a Fee on Large Financial Institutions
Background
In the wake of the financial crisis that occurred between 2007 and 2009, legislators and regulators adopted a number of measures designed to prevent the failure of large, systemically important financial institutions and to resolve any future failures without putting taxpayers at risk. One of those measures provided the Federal Deposit Insurance Corporation (FDIC) with orderly liquidation authority. That authority is intended to allow the FDIC to quickly and efficiently settle the obligations of such institutions, which can include companies that control one or more banks (known as bank holding companies) or firms that predominantly engage in lending, insurance, securities trading, or other financial activities. In the event that a large financial institution fails, the FDIC will be appointed to liquidate the company's assets in an orderly manner and thus maintain the institution's critical operations in an effort to avoid repercussions throughout the financial system.
Nonetheless, if one or more very large financial institutions were to fail, particularly during a period of broader economic distress, the FDIC might need to borrow funds from the Treasury to implement orderly liquidation authority. The law mandates that those funds be repaid through recoveries from failed firms or future assessments on surviving firms. As a result, individuals and businesses dealing with those firms could be affected by the costs of the assistance provided to the financial system. For example, if a number of large firms failed and substantial cash infusions were needed to resolve those failures, the assessment required to repay the Treasury would have to be set at a very high amount. Under some circumstances, the surviving firms might not be able to pay that assessment without making significant changes to their operations or activities. Those changes could result in higher costs to borrowers and reduced access to credit at a time when the economy is under significant stress.
In 2017, the FDIC reported that bank holding companies' liabilities totaled $14 trillion. In addition, the Congressional Budget Office estimates that the FDIC's orderly liquidation authority covers total liabilities of approximately the same amount at nonbank financial institutions. Liabilities for bank holding companies and nonbank financial institutions are projected to increase at a somewhat slower rate than nominal gross domestic product (which is based on current-dollar values and not adjusted for inflation) through 2028.
Option
Under this option, beginning in 2021, an annual fee would be imposed on bank holding companies (including foreign banks operating in the United States) and nonbank financial companies with total assets above $50 bil. The annual fee would be 1.0 percent of firms' covered liabilities, defined primarily as total liabilities less deposits insured by the FDIC. (Covered liabilities also include certain types of noncore capital—distinct from core capital, which consists of equity capital and disclosed reserves—and exclude certain reserves required for insurance policies.) CBO estimates that in 2017, financial institutions' covered liabilities totaled $9 trillion for firms with assets in excess of $50 billion and $8 trillion for firms with assets in excess of $250 billion. The sums collected would be deposited in an interest-bearing fund that would be available for the FDIC's use when exercising orderly liquidation authority. The outlays necessary to carry out the FDIC's orderly liquidation authority are estimated to be the same under this option as under current law.
The asset threshold of $50 billion is consistent with the threshold under current law at which financial institutions are subject to assessments to recover losses from the FDIC's use of orderly liquidation authority.
Other Effects
The main advantage of this option is that it would help defray the economic costs of providing a financial safety net by generating revenues when the economy is not in a financial crisis, rather than in the immediate aftermath of one. Another advantage of the option is that it would provide an incentive for banks to keep their assets below the asset threshold, diminishing the risk of spillover effects to the broader economy from a future failure of a particularly large institution (although at the expense of potential economies of scale). Alternatively, if larger financial institutions reduced their dependence on liabilities subject to the fee and increased their reliance on equity, their vulnerability to future losses would be reduced. The fee also would improve the relative competitive position of small and medium-sized banks by charging the largest institutions for the greater government protection they receive.
CBO projects that this recommendation would raise funding of $687 bil over the next ten years.
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Change the Tax Treatment of Capital Gains From Sales of Inherited Assets
When people sell an asset for more than the price for which they obtained it, they realize a net capital gain. The net gain is typically calculated as the sale price minus the asset’s adjusted basis—generally the original purchase price adjusted for improvements or depreciation. To calculate the gains on inherited assets, taxpayers generally use the asset’s fair-market value at the time of the owner’s death, often referred to as stepped-up basis, instead of the adjusted basis derived from the asset’s value when the decedent initially acquired it. When the heir sells the asset, capital gains taxes are assessed only on the change in the asset’s value relative to the stepped-up basis. As a result, any appreciation in value that occurred while the decedent owned the asset is not included in taxable income and therefore is not subject to the capital gains tax.
Under this option, taxpayers would generally adopt the adjusted basis of the decedent (known as carryover basis) on assets they inherit. As a result, the decedent’s unrealized capital gain would be taxed at the heirs’ tax rate when they eventually sell the assets. (This option would adjust the basis of some bequeathed assets that would be subject to both the estate tax and the capital gains tax. That adjustment would minimize the extent to which the asset’s appreciation in value would be subject to both taxes.)
CBO projects that this recommendation would raise funding of $110 bil over the next ten years.
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Raise Fannie Mae’s and Freddie Mac’s Guarantee Fees By .45%
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that were federally chartered to help ensure a stable supply of financing for residential mortgages. The GSEs carry out that mission in the secondary mortgage market (the market for buying and selling mortgages after they have been issued): They buy mortgages from lenders and pool those mortgages to create mortgage-backed securities (MBSs), which they sell to investors and guarantee (for a fee) against losses from defaults. Under current law, in 2020 Fannie Mae and Freddie Mac generally can purchase mortgages of up to $765,600 in areas with high housing costs and up to $510,400 in other areas; regulators can alter those limits if house prices change, and those limits will be higher in 2021.
In September 2008, the federal government took Fannie Mae and Freddie Mac into conservatorship. As a result, the Congressional Budget Office concluded, the institutions had effectively become governmental entities whose operations should be reflected in the federal budget. By contrast, the Administration considers the GSEs to be nongovernmental entities. CBO projects that under current law, the mortgage guarantees issued by the GSEs will have a budgetary cost—that is, the cost of the guarantees is expected to exceed the fees received by the GSEs.
My recommendation, the average guarantee fee that Fannie Mae and Freddie Mac assess on loans they include in their MBSs would increase by 0.45% starting in October 2021, when an increase of 10 basis points that was put in place in 2011 is scheduled to expire. (Under current law, CBO projects the average guarantee fee to be about 60 basis points in 2021.)
CBO projects that this recommendation would raise funding of $90 bil over the next ten years.
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Consolidate and Reduce Federal Payments for Graduate Medical Education at Teaching Hospitals
Under certain circumstances, hospitals with teaching programs can receive funds from Medicare and Medicaid for costs related to graduate medical education (GME). Medicare’s payments cover two types of costs: those for direct graduate medical education (DGME) and those for indirect medical education (IME). DGME costs are for the compensation of medical residents and institutional overhead. IME costs are other teaching-related costs—for instance, costs associated with the added demands placed on staff as a result of teaching activities and the greater number of tests and procedures ordered by residents as part of the educational process. Additionally, the federal government matches a portion of what state Medicaid programs pay for GME. The Congressional Budget Office projects that total mandatory federal spending for hospital-based GME will grow at an average annual rate of 5 percent from 2022 through 2030 (about 3 percentage points faster than the average annual growth rate of the consumer price index for all urban consumers, or CPI-U).
My recommendation would consolidate all mandatory federal spending for GME into a grant program for teaching hospitals. Total funds available for distribution in 2022 would be fixed at an amount equaling the sum of Medicare’s 2020 payments for DGME and IME and the federal share of Medicaid’s 2020 payments for GME.
CBO projects that this recommendation would raise funding of $34 bil over the next ten years.
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Eliminate Itemized Deductions
When preparing their income tax returns, taxpayers may choose either to take the standard deduction—which is a fixed dollar amount—or to itemize and deduct certain expenses, such as state and local taxes, mortgage interest, charitable contributions, and some medical expenses. Taxpayers benefit from itemizing when the value of their deductions exceeds the amount of the standard deduction.
This option would eliminate all itemized deductions.
CBO projects that this recommendation would raise funding of $1.718 trillion over the next ten years. The overwhelming majority of this money comes from the wealthy.
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Increase the US Corporate Income Tax Rate to 28%
This option would take effect in January 2021.
CBO projects that this recommendation would raise funding of $693 bil over the next ten years.
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Increase the US Corporate Income Tax Rate to 25%
This option would take effect in January 2021.
CBO projects that this recommendation would raise funding of $396 bil over the next ten years.
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Defer All US Corp Business Tax Credits Other Than Foreign Tax Credits and Recognize Them Annually on a Straight-Line Basis Over Five Years
US Corps obtain the benefits of nearly all of these Tax Credits over many years thus it only makes sense that they be recognized for US Federal income tax purposes over a much longer period than just one year.
The business credit is a combination of the following credits for the year:
- Investment credit.
- Work opportunity credit.
- Alcohol fuels credit.
- Research credit.
- Low-income housing credit.
- Disabled access credit for certain eligible small businesses.
- Renewable electricity production credit.
- Indian employment credit.
- Employer social security credit.
- Orphan drug credit (reduced by P.L. 115-97 from 50% to 25%).
- New markets tax credit.
- Small employer pension plan start-up cost credit for eligible employers.
- Employer-provided child care credit.
- Railroad track maintenance credit.
- Biodiesel fuels credit.
- Low sulphur diesel fuel production credit.
- Distilled spirits credit.
- Non-conventional source fuel production credit.
- New energy efficient home credit.
- Energy efficient appliance credit.
- A portion of the alternative motor vehicle credit.
- A portion of the alternative fuel vehicle refuelling property credit.
- Mine rescue team training credit.
- Agricultural chemicals security credit.
- Employer differential wage payments credit.
- Carbon oxide sequestration credit.
This recommendation will raise a huge amount of money for the US Government.
A Temporary Difference
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Reduction of the Research Credit and Deferring It and Recognizing It Over Five Years on a Straight-Line Basis
The Credit for Increasing Research Activities under Section 41 (R&D credit) is available for companies that incur qualified research expenditures (QREs) to develop new or improved products, manufacturing processes, or software in the United States. The R&D credit was enacted in 1981 on a temporary basis to help increase R&D spending in the United States. Since then, the R&D credit has been extended on a temporary basis about 16 times, but was extended, retroactively to 1 January 2015, on a permanent basis as part of the Consolidated Appropriations Act, 2016.
The R&D credit generally is computed by calculating current-year QREs over a base. The base is calculated using either the regular research credit (RRC) method or the alternative simplified credit (ASC) method. Under the RRC method, the credit equals 20% of QREs for the tax year over a base amount established by the taxpayer in 1984 to 1988 or by another method for companies that began operations after that period.
The ASC equals 14% (for the 2009 tax year and thereafter) of QREs over 50% of the average annual QREs in the three immediately preceding tax years. If the taxpayer has no QREs in any of the three preceding tax years, the ASC may be 6% of the tax year’s QREs. The taxpayer must make a timely ASC election on Form 6765 attached to an originally filed return filed by the due date for that return (including extensions), or, pursuant to final regulations published in February 2015, an amended return (subject to certain limitations).
Taxpayers may take a 20% credit for incremental payments made to qualified organisations for basic research. For tax years ending after 8 August 2005, taxpayers also may take the Energy Research Consortium Credit, which provides a 20% credit for expenditures on qualified energy research undertaken by an energy research consortium.
The deduction for R&D expenditures under Section 174 must be reduced by the entire amount of the R&D credit unless an election is made to reduce the amount of the credit.
My recommendation is to reduce the R&D Tax Credit's Regular Research Credit from 20% to 10% and to change the five-year base period average of 1984 to 1988 to the five most recent years before the current year. Using such an ancient five-year base period as 1984 to 1988 .... more than 30 years ago .... sets such an incredibly low bar to set. What you have here is nothing short of a Big US Corp Rip Off of US Taxpayers.
Further. my recommendation is to reduce the R&D Tax Credit's Alternative Simplified Credit from 14% to 11% and to change the 50% of the average annual QREs in the three immediately preceding tax years to 100%. 50% is such an incredibly low bar to set. What you have here is nothing short of another Big US Corp Rip Off of US Taxpayers.
This recommendation will raise a huge amount of money for the US Government.
Partially a Temporary Difference and Partially a Permanent Difference
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Research and Development Expenditures Should Be Deferred For US Federal Income Tax Purposes and Recognized Over a Five-Year Period on a Straight-Line Basis
US Corps' R&D Expenditures don't all benefit the Company for at least five years, but it is safe to say that the average period benefit of all US Corp R&D Expenditures is Certainly Much Higher Than Five Years.
This recommendation will raise a huge amount of money for the US Government.
A Temporary Difference
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Amount of the Increase in Annual US GAAP Pretax Income Shifting From the US to Foreign Should Be Income Taxed in the US at an Income Tax Rate of 15%
Let me illustrate:
Say a US Multinational Corp has Audited US GAAP Pretax Income (from the Income Taxes footnotes) in the US of $1.0 bil in 2021, of $1.5 bil in 2020 and of $2.0 bil in 2019.
And it has Audited US GAAP Pretax Income in Foreign Countries combined of $5.0 bil in 2021, of $4.0 bil in 2020 and of $3.0 bil in 2019.
Thus it has Total US Pretax Income for 2020 and 2019 combined of $3.5 bil, which is 33.333% of the Total Worldwide Pretax Income of $10.5 bil for those same two prior years combined.
Using that two previous years Total US Pretax Income mix of 33.333%, the Projected US Pretax Income in 2021 would be Total Worldwide Pretax Income in 2021 of $6.0 bil X 33.333% or $2.0 bil. The actual US Pretax Income in 2021 was $1.0 bil, thus the estimated Income Shifting from in 2021 is $2.0 bil minus $1 bil, or $1.0 bil. Thus the US additional tax in 2021 due to the income shifting is $150 mil, or 15% income tax rate X the $1.0 bil of income shifting in 2021 from the prior two years average.
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Ten-Year (2010 to 2020) Catch-up Amount of the Increase in US GAAP Pretax Income Shifting From the US to Foreign Should Be Income Taxed in the US in 2021 at an Income Tax Rate of 15%
Let me illustrate:
Say another US Multinational Corp has Audited US GAAP Pretax Income in the US (from Income Taxes footnotes) of $1.0 bil in 2020 and of $5.0 bil in 2010.
And it has Audited US GAAP Pretax Income(Loss) in Foreign Countries combined of $5.0 bil of Pretax Income in 2020 and $(2,000) of Pretax Loss in 2010. Thus the US Pretax Income mix in 2010 is 5.0/3.0 or 166.667%.
The Projected US Pretax Income in 2020 would be Total Worldwide Pretax Income in 2020 of $6.0 bil X 166.667% or $10.0 bil. The actual US Pretax Income in 2020 was $1.0 bil, thus the estimated ten-year Total Income Shifting is $10.0 bil minus $1 bil, or $9.0 bil. Thus the US additional tax in 2021 due to this ten-year income shifting is $1.350 bil, or 15% income tax rate X the $9.0 bil of income shifting in the ten years from 2010 to 2020.
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Raise the Tax Rates on Long-Term Capital Gains and Qualified Dividends by 8 Percentage Points
When people sell an asset for more than the price at which they obtained it, they generally realize a capital gain that is subject to taxation. Under current law, long-term capital gains (those realized on assets held for more than a year) and qualified dividends (which includes most dividends) are usually taxed at lower rates than other sources of income, such as wages and interest. The statutory rate on most long-term capital gains and qualified dividends is 0 percent, 15 percent, or 20 percent, depending on a taxpayer’s filing status and taxable income.
This option would raise the statutory tax rates on long-term capital gains and qualified dividends all by 8 percentage points. The new rates would then be 8 percent, 23 percent, and 28 percent. It would not change other provisions of the tax code that affect taxes on capital gains and dividends.
CBO scores this proposal as raising funding by $301 bil over the next 10 years.
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Former President Obama's Framework For Business Tax Reform would pay for cutting the corporate tax rate from 35% to 28 percent and for the business tax cuts
that were recently enacted by reforming U.S. international system and by broadening the tax base in three
major ways, including:
• 1) Addressing depreciation schedules. Current depreciation schedules generally overstate the true
economic depreciation of assets. Although this provides an incentive to invest, it comes at the
cost of higher tax rates to raise a given amount of revenue. In an increasingly global economy,
accelerated depreciation may be a less effective way to increase investment and job creation
than reinvesting the savings from moving towards economic depreciation into reducing tax rates.
Several prominent tax reform proposals have proposed to scale back accelerated depreciation to
offset rate reductions, including the tax reform proposals put forward by Chairmen Camp and
Baucus. Other large countries have taken a similar approach: paying for rate-lowering corporate
tax reform at least in part by scaling back depreciation allowances.20 Tax reform also is an
opportunity to rationalize the relative lengths of depreciation schedules so that they better align
with the economic lives of assets; in so doing, tax reform would reduce tax distortions that lead
to misallocation of capital across assets and industries.
• 2) Reducing the bias toward debt financing. A lower corporate tax rate by itself would reduce but
not eliminate the bias toward debt financing. Reform should take additional steps to reduce the
tax preference for debt-financed investment, such as by “haircutting” corporate interest
deductions by a certain percentage. A tax system that is more neutral towards debt and equity
will reduce incentives to overleverage and produce more stable corporate finances, making the
economy more resilient in times of stress. In addition, limiting interest deductibility would finance
lower tax rates and do more to encourage investment in the United States than many other ways
to pay for rate reductions.
• 3) Eliminating dozens of business tax loopholes and tax expenditures. The Framework starts from
a presumption that we should eliminate all tax expenditures for specific industries, with a few
exceptions that are critical to broader growth or address certain externalities. In particular, the
Framework would:
a) Eliminate “last in first out” accounting. Under the “last-in, first-out” (LIFO) method of
accounting for inventories, it is assumed that the cost of the items of inventory that are sold is equal to the cost of the items of inventory that were most recently purchased or produced. This assumption overstates the cost of goods sold and understates the value of inventories. The Framework would end LIFO, bringing us in line with international standards and simplifying the tax system.
b) Eliminate oil and gas tax preferences. The tax code currently subsidizes oil and gas production through tax expenditures that provide preferences for these industries over others. The Framework would repeal more than a dozen tax preferences available for fossil fuels.
c) Reform treatment of insurance industry and products. The Framework would reform the treatment of insurance companies and products to improve information reporting, simplify tax treatment, and close loopholes, including one in which corporations shelter income using life insurance contracts on their officers, directors, or employees.
d) Reform the measurement and character of gains. The Framework would reform the treatment of capital gains, including modifying rules for like-kind exchanges, which allow investors in certain assets to avoid realizing a capital gain—and thus to defer payment of tax—through a transaction structured as an exchange rather than a sale.
These above domestic tax proposals would raise more than $1 trillion for the US Government.
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Strengthen the International Tax System to Encourage Domestic Investment
In 2015, as part of the Budget, the former President Obama President released a detailed international tax plan built on the reform
principles expressed in the Framework for Business Tax Reform. The President’s plan, which is centered
around a new per-country minimum tax on foreign earnings, would improve on the current system in
three broad ways:
• 1) Reducing firms’ ability to avoid the U.S. tax system by shifting profits overseas. The minimum
tax on foreign earnings would ensure that no matter what tax planning techniques a U.S. firm
engages in, and no matter where it reports its profits, it would still face a tax rate of at least 19
percent. Unlike the current system, there would be no “deferral” of tax—the minimum tax would
apply to profits in the year they are earned. The minimum tax would stop our tax system from
generously rewarding companies for moving profits offshore. In addition, other elements of the
plan would make it harder to shift profits overseas by limiting interest stripping, transfer pricing
abuses, and inversions.
• 2) Reducing the incentive to shift production overseas. The current system encourages firms to
shift production overseas to take advantage of indefinite tax deferral on the resulting earnings—
and to establish a legal toehold in a foreign country to enable even more earnings to be shifted
there on paper. The minimum tax would also reduce these incentives by ensuring that the
earnings of U.S. multinationals’ foreign subsidiaries are taxed on a current basis at a rate of at
least 19 percent.
• 3) Increasing the global competitiveness of U.S. corporations. American multinationals often have
legitimate non-tax reasons to locate production overseas, either to serve local markets or
because of specific competitive advantages to overseas production. Other countries with
territorial systems effectively do not tax firms on their overseas production, and so those firms
incur no taxes when earnings are distributed to the parent company in its home country (that is,
upon “repatriation”). In addition, foreign resident companies that produce locally face only that
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country’s corporate tax rate. In contrast, U.S. companies face relative high explicit or implicit
repatriation taxes, and therefore may operate at a tax disadvantage. In order to balance the two
goals above with the desire not to disadvantage American multinationals vis-Ã -vis their
competitors, the plan sets the global minimum tax rate lower than the full 28 percent rate
proposed for reform—and offers a deduction for income from active business investment.
Specifically, to achieve these objectives, the President’s plan would:
Institute a 19 percent minimum tax on foreign earnings
Foreign earnings would be subject to current U.S. taxation at a rate of 19 percent less a foreign tax credit
equal to 85 percent of the per-country average foreign effective tax rate. The minimum tax would be
imposed on foreign earnings regardless of whether they are repatriated to the United States, and all
foreign earnings could be repatriated without further U.S. tax. Thus, under the proposal, all active earnings
of foreign subsidiaries of U.S. firms (controlled foreign corporations, or CFCs) would be subject to U.S. tax
either immediately or not at all. Passive or highly mobile income such as dividends, interest, rents, and
royalties would continue to be subject to full U.S. tax on a current basis under the existing “Subpart F”
rules.
To help maintain international competitiveness, the minimum tax base would be reduced by an allowance
for corporate equity (ACE). The ACE allowance would provide a risk-free return on equity of the CFC
invested in active assets. In effect, this would allow U.S. based firms to exclude from tax all costs
associated with foreign investments—including the cost of equity financing—providing an even playing
field for U.S. firms operating abroad relative to their foreign competitors. At the same time, however, it
would ensure that companies cannot avoid U.S. tax on excess profits, such as those shifted abroad.
Foreign source royalty and interest payments received by U.S. persons would continue to be taxed at the
full U.S. statutory rate but, in contrast with current law, could not be shielded by excess foreign tax credits
associated with dividends. Foreign branches would be treated like CFCs. Interest expense incurred by a
U.S. person that is allocated and apportioned to foreign earnings on which the minimum tax is paid would
be deductible at the applicable minimum tax rate on those earnings. No deduction would be permitted
for interest expense allocated and apportioned to foreign earnings for which no U.S. income tax is paid.
Impose a one-time tax on unrepatriated earnings
The President’s plan would impose a mandatory one-time tax on CFCs’ previously untaxed
earnings at a reduced rate of 14 percent. A proportional credit would be allowed for the amount of foreign
taxes associated with such earnings. The accumulated income subject to the one-time tax could then be
repatriated without any further U.S. tax. The revenue from the one-time tax is dedicated primarily to
funding transportation infrastructure investment.
Restricting deductions for excessive interest to curb “earnings stripping”
Claiming deductions for interest is a common technique used by multinational firms to erode the U.S. tax
base. Under current law, foreign multinational groups are able to load up their U.S. operations with
related-party debt and use the interest deductions to shift up to half of their U.S. earnings to low-tax
jurisdictions. This ability gives foreign multinationals a competitive advantage over purely domestic firms,
which have to pay U.S. tax on all of their earnings from U.S. operations. The proposal would address overleveraging of a foreign-parented group’s U.S. operations relative to the rest of the group’s operations by
limiting U.S. interest expense deductions to the U.S. subgroup’s interest income plus the U.S. subgroup’s
proportionate share of the group’s net interest expense.
Limit inversions
The President’s plan would limit inversions by preventing firms from acquiring smaller foreign firms and
changing their tax residence as a result. In addition, the proposal would prevent firms from changing their
tax residence to any country where they do not have substantial economic activities if their operations in
the United States are more valuable than their operations in the other country and they continue to be
managed and controlled in the United States.
Close loopholes and stop strategies that facilitate base erosion and profit shifting
While the minimum tax and the reduction in the corporate rate would reduce the incentives for erosion
of the U.S. base by domestic firms, the difference in tax rates would still provide a tax advantage for firms
able to shift profits to their foreign affiliates. And more importantly, foreign-owned and inverted
corporations would still have strong incentives to strip earnings out of the United States to low-tax
jurisdictions. Hence, additional reforms are necessary to reduce incentives to shift income and assets
overseas. Therefore, the President’s plan tightens rules governing cross-border transfers of intangible
property and closes loopholes by expanding the scope of the existing “Subpart F” rules. It restricts the use
of “hybrid” arrangements that take advantage of differences in tax rules to generate so-called “stateless
income”—income that is not subject to tax in any country.
These proposed reforms to the U.S. international system are consistent with the cooperative efforts of
the United States and other countries to establish principles for addressing the shared challenge of base
erosion and profit shifting by multinational firms.
At the June 2012 G-20 Summit, the leaders of the world’s
largest economies identified the actions of multinational companies to reduce their tax liabilities by
shifting income into low- and no-tax jurisdictions as a significant global concern. The leaders instructed
their governments to develop an action plan to address these issues. The resulting action plan to address
base erosion and profit shifting (BEPS) was endorsed by President Obama and other world leaders at the
2015 G-20 Summit. The BEPS project made a number of recommendations and the OECD and G20
countries have committed to minimum standards in the areas of: requiring country-by-country reporting
of income, assets, employees, and taxes paid; fighting harmful tax practices; improving dispute resolution;
and preventing “treaty shopping.” In the area of transfer pricing (where concerns about profit shifting
were prevalent), existing international standards have been updated and strengthened. With respect to
recommendations on hybrid securities (treated as debt in some jurisdictions and as equity in others) and
on rules governing interest deductibility, countries have agreed on the general tax policy direction
reflected in the Administration’s proposals, which would require Congressional action in the United
States. The BEPS project also generated guidance based on best practices that focus on the areas of
disclosure and “CFC” rules (rules for taxing mobile income of foreign subsidiaries). Finally, participants
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agreed to draft a multilateral instrument that countries may use to implement the BEPS work on tax treaty
issues. All these steps have established principles for appropriate taxation of multinational firms and have
set the stage for the OECD and G-20 countries to implement these approaches in their own tax systems.
The above international tax proposals would raise close to $1 trillion for the US Government.
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And here's my best idea as one of the funding sources for the US Budget Reconciliation Plan. It also has the benefit of dramatically increasing the US vaccination rate and very soon.
Since the US FDA has now given its full approval for the Pfizer vaccine, starting on September 1, 2021, every for-profit US Company would not be able to deduct for US Federal Income Tax purposes any W-2 wages and any employee benefits costs related to every one of its US employees who hasn't either received his/her first vaccine shot by September 1, 2021 or who hasn't received his/her second vaccine shot by October 1, 2021.
Once a US employee is fully vaccinated, the US company is then permitted to deduct for US Federal Income Tax purposes all subsequent US employee wages and all subsequent employee benefits costs related to this fully vaccinated US employee.
The only exception to the US employee vaccination requirement is for employees who are not vaccinated due to clearly legitimate health reasons.
The above proposal would apply to all C Corps and also to all pass-through entities such as Sub S Corps, partnerships, sole-proprietorships, REITs etc.
In addition, all US Non-Profit Organizations, including Hospitals, Other Health Care Companies, Mutual Entities, Credit Unions, Tax-free Insurance Companies, etc., starting on September 1, 2021would have to pay an Unvaccinated Employee Fee to the US Government equal to 28% of the W-2 wages and any employee benefits costs related to every one of its US employees who hasn't either received his/her first vaccine shot by September 1, 2021 or who hasn't received his/her second vaccine shot by October 1, 2021.
Once a US employee is fully vaccinated, the US Non-Profit Organization is then free of this 28% Unvaccinated Employee Fee on all subsequent US employee wages and all subsequent employee benefits costs related to this fully vaccinated US employee.
The underpinning of the above is that if as an Employer you have the ability to help end the Covid pandemic and you decide to not do your part in achieving this goal, then you have to pay the US Government a tax or a fee that will then be used to help fund the desperately-needed Budget Reconciliation Plan.
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Big Accounting Firms Must Eliminate Their Practice where one of their tax lawyers moves from being an employee of a Big Accounting Firm to working for two or three years in the US Government in a key tax function at a very reduced salary and then deceptively creating new tax loopholes benefiting tax clients of the same Big Accounting Firm he previously worked for and then later being rehired by this same Big Accounting Firm at a very substantial salary increase from what he was making previously at that same Big Accounting Firm and typically being rehired with a huge promotion to tax partner of this same Big Accounting Firm.
The below New York Times article does a very good job of telling you why there are so many huge Corporate tax loopholes.
As part of the Budget Reconciliation Bill, the US Congress should write tax legislation which prevents this revolving door of tax lawyers of Big Accounting firms to the US Government and then back to the same Big Accounting firms from happening.
An objective, fair CBO scoring of this tax proposal could easily raise more than $1 trillion for the US government over the next ten years. Without it, new tax loopholes will continue to keep coming by leaps and bounds just as they have in the past.
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From all of the infrastructure spending and the above funding measures, which individual initiative would create the most US jobs over the next ten years?
I think it's the first $1 mil of Taxable Income of any Consolidated Corporation being tax free, followed by any Consolidated Corporation's Taxable Income of $1 mil to $10 mil being taxed at only 10% and followed by any Consolidated Corporation's Taxable Income of $10 mil to $200 mil being taxed at only 15%.
