Remember in the president’s State of the Union address how the line “no more bailouts, no more cop outs” was followed by proposals to do more bailouts? Well, President Obama continues this practice. His budget message derides “special-interest loopholes,” but then proceeds to provide more special-interest loopholes.
For instance, in addition to the tax credits that already exist in the budget, the president proposes 7 tax credits or cuts for families and individuals (such as an exclusion for student-loan forgiveness after 25 years of income-based or income-contingent repayment), 5 protectionist tax incentives (for expanding manufacturing and insourcing jobs, such as a new “manufacturing communities” tax credit), and 6 tax-relief provisions or investments to create jobs and jump-start growth (inlcuding 3 new ones, such as a 10 percent tax credit for new jobs and wages, and a tax credit for energy-efficient commercial buildings).
And then there are the tax credits for medium- and heavy-duty commercial vehicles that use alternative fuels, the energy incentives, the new-market tax credit, the designated growth zones, the tax-exempt bonds for Indian tribal governments, and much more.
In addition, the budget includes mandatory targeted initiatives such as the development of a national network of manufacturing-innovation institutes. It also creates a infrastructure bank for a total initial ten-year cost of $9.8 billion.
There’s plenty more where these come from. The whole budget is here. But just by looking at these tables, I think some of the losers are capital-gains earners, oil and gas companies, taxpayers making more than $250,000, and U.S. firms doing business abroad. The winners are students who accumulated debt to go to school, homeowners who borrowed more than was reasonable, clean-energy anything and the middle class.
Update: Good piece by the Editors of Bloomberg View on the issue of tax credit and the complexity of the tax code.
The $3.8 trillion budget, released yesterday, is stuffed with dozens of tax initiatives, including a tax on millionaires, a $61 billion tax on banks, and various changes that punish or reward specific industries and behaviors. In the unlikely event that congressional Republicans play along, some of the president’s initiatives would do the U.S. little good in the short run, and are unlikely to prepare it for the challenges ahead. [...]
The administration claims to understand this. Yet its latest budget, which projects a $901 billion deficit in fiscal 2013, perpetuates the clumsy way the U.S. has tried, for decades, to reduce the overall tax rate with ever more credits and deductions. The budget encourages manufacturers, for example, to invest in the U.S. by proposing new deductions for companies that stay onshore and new credits for those investing in hard-hit communities. It would also impose a minimum tax on overseas earnings and make it harder for companies to defer taxes on overseas profits. In total, Obama would spend more than $120 billion over the next decade on tax breaks for U.S. manufacturing.
The president would partially pay for this by ending a tax deduction on domestic oil and gas production, saving almost $12 billion over a decade. That’s a good thing; such companies are highly profitable and able to attract capital on their own. The president would apply those funds toward the more generous tax deduction for manufacturers, and would even double the deduction to 18 percent for high-tech manufacturers. That could raise all sorts of questions about what qualifies as high-tech: Would companies that make iPad accessories, or the packaging they come in, make the cut?