2010 budget revised by the tax policy center

Tax Proposals in the 2010 Budget

The Tax Policy Center offers the table below as a guide to the tax provisions of President Obama’s 2010 Budget. Subsequent pages provide detailed descriptions and brief commentaries on each provision. Linked tables show the distributional effects of the overall proposal and of major elements of the plan. Further details on the analysis appear below the table.

Download complete analysis in PDF format View distribution tables

Individual Tax Provisions Provisions Affecting Lower- and Middle-Income Households Provisions Affecting High-Income Households Provide Making Work Pay Credit -535 Reinstate 36 and 39.6 percent rates for high-income taxpayers1 320 Expand Earned Income Tax Credit -21 Reinstate personal exemption phaseout and limitation on itemized deductions for high-income taxpayers 1 178 Expand refundability of Child Tax Credit -71 Impose 20 percent rate on capital gains and dividends for high-income taxpayers 1 118 Expand saver’s credit and automatic enrollment in IRAs and 401(k)s -61 Limit value of itemized deductions to 28% 267 Provide American Opportunity Tax Credit -49 Eliminate Advanced Earned Income Tax Credit 1 Business Tax Provisions Eliminate capital gains taxes on small businesses -6 Tax carried interest as ordinary income 23 Make research and experimentation credit permanent -74 Codify “economic substance” doctrine 5 Expand net operating loss carryback -19 Reform U.S. international tax system 210 Reinstate Superfund Taxes 17 Repeal LIFO 61 Business provisions not evaluated2 -41 Individual and Business Continue remaining expiring provisions through CY 2010 -17 Reduce the tax gap and make reforms 11 Make reforms to close tax loopholes 48 Total, all tax provisions 363 Climate revenues 624 Tax revenue adjustments to baseline3 Index 2009 parameters of the AMT to inflation -576 Continue the 2001 and 2003 tax cuts -2,484 Make 2009 estate tax permanent -172

1. Couples with income over $250,000 and single people with income over $200,000.
2. Require information reporting for rental payments ($3 billion), eliminate oil and gas company references ($31 billion), modify FAA financing (-$77 billion) and modify alternative fuel mixture credit ($1 billion).
3.The Administration baseline continues the 2001 and 2003 tax cuts (with the estate tax fixed at 2009 law) and indexes the 2009 AMT parameters for inflation.

Descriptions of tax provisions and revenue estimates come from Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2010 Revenue Proposals, May 2009.

Revenue effects shown in the table cover 11 years—2009-2019—even though the budget would begin in 2010 and most of the tax changes would take effect in 2011. Some tax proposals would affect revenue in 2009 because of behavioral changes.

The Tax Policy Center has posted a variety of tables showing the distributional effects of the entire set of tax proposals, all individual tax proposals, and selected specific proposals. Click here for a linked guide to those tables.

The administration assumes a baseline that permanently extends the 2001-2003 tax cuts, makes the estate tax permanent with 2009 parameters, and indexes the exemption for the alternative minimum tax (AMT) from its 2009 level. Most of our distribution tables compare the effects of tax proposals separately both against the administration’s baseline and against a current law baseline that assumes that the 2001-2003 tax cuts expire in 2011 as scheduled and that the AMT exemption reverts to its permanent value after 2009.

For each tax proposal, a separate web page describes current law, the proposed change, and its distributional effects. We do not consider the long-term effects on the economy.

Because some of the tax proposals are not indexed for inflation, their real effects of many tax proposals would change over time. The value of most unindexed proposals would decline in real terms, either because their values are fixed in nominal dollar amounts or because nominal phaseout thresholds would affect more taxpayers. Click here to read a more complete discussion of the impact of indexing.

TPC will update this analysis as the budget moves through Congress.

contents from weekly attorney meetings at NCT (new century tax)

Homeowners can take advantage of savings, install efficient upgrades

Homeowners don’t need to be in the housing market to take advantage of government incentives to stimulate the economy. They may be able to claim tax credits for making improvements to their current home.

The federal government is offering tax credits at 30 percent of the cost, up to $1,500, for home renovation projects that improve energy efficiency . Work must be done during 2009 or 2010, and the credits apply to the homeowner’s existing principal residence.

Eligible improvements include new windows and doors, insulation, roofs and air conditioning systems. Also covered at 30 percent of the cost — but without the $1,500 cap or 2010 deadline — are systems that use solar, geothermal or wind energy.

Previous energy efficiency tax credits were for 10 percent of the cost, up to $500. Former President George W. Bush raised the amounts to 30 percent and $1,500 for 2009 in last fall’s bailout bill, and President Barack Obama extended the tax credits to 2010 in this year’s stimulus package.

“Here’s where people can really make out: Air conditioners and heat pumps break,” said Philip Fairey, deputy director of the Florida Solar Energy Center in Cocoa. Replacing an old system with an energy-efficient version will save power costs in the future, and come with a credit the buyer can claim at tax time.

The offer is stimulating inquiries from consumers looking to replace or upgrade their systems.

“We get a ton of those,” said Heather Sacik, an employee at Able Air in Melbourne. A typical day might see 30 to 40 phone calls from consumers asking about making an improvement that would qualify for a credit or rebate. Some manufacturers are offering incentives that consumers can combine with the tax credit, she said.

Rising power costs are fueling interest in solar alternatives.

“The interest is definitely higher than I’ve seen for some time,” said Jacque Wirth, director of sales for Solar Energy Systems of Brevard, based in Melbourne.

The company’s solar hot water systems qualify for the 30 percent federal tax credit, as well as a $500 state rebate. The typical family can expect to pay $4,500 to $5,500 — before tax credits — to have a system installed, Wirth estimated.

Experts offer a caution: Requirements for the tax credit are specific and complex. Consumers need to be sure they’re following the rules and savings for the correct paperwork.

For example, windows must meet certain ratings for energy efficiency, and not all Energy Star-labeled doors and windows will make the grade.

“Everybody can say that they’re a green builder and they have energy efficient materials, but if it doesn’t make the solar reflectivity index, it does not qualify,” said Rockledge builder David Foley.

Customers and contractors also need to balance the homeowner’s needs and the performance of the materials against the amount of the credit, he said.

Fairey is a fan of metal roofs, which offer energy savings and durability. But windows are one area where buying a product that qualifies for the credit might be cost-prohibitive, and largely unnecessary.

The higher ratings are more important in northern climates, where the difference in temperature between the heated indoors and the frigid outdoors is much greater than the indoor-outdoor temperature differential in Florida.

A less-expensive window might be the smarter choice.

“It would actually do the job really well, but it wouldn’t qualify” for the tax credit, Fairey said.

He offers a simple way to get the most bang for the buck, even if no tax credit is involved: Replace your incandescent bulbs with compact fluorescents.

“You get all the bang in the world from those bulbs,” he said.

How does energy efficiency work?

Here’s how:
Assess the current energy use of your building(s) to establish a reference using EPA’s
national energy performance rating system (www.energystar.gov/benchmark), a free online tool that provides many types of buildings with a score on a simple 1-to-100 scale, 1 being the least efficient and 100 being the most.

ENERGY EFFICIENCY STUDY & ENERGY CERTIFICATION

In Accordance with the request for a Certificate relating to the deduction for energy efficient commercial buildings under §179D of the Internal Revenue Code for the proposed or newly installed: lighting upgrades, HVAC, hot water and building envelope, Engineering Tax Services is approved for the Certification Process and conducts this process in accordance to Section 1331 of the Energy Policy Act of 2005,Pub. L. No. 109-58, 119 Sta. 594 (2005) enacted §179D of the Internal Revenue Code.

1. OVERVIEW
Section 1331 of the ENERGY POLICY ACT OF 2005 provides for and allows a deduction for energy efficient commercial buildings that reduce annual energy and power consumption by 50% compared to the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) standard. The deduction equals the cost of energy efficient property installed during construction, with a maximum deduction of $1.80 per square foot of the building. Additionally, a partial deduction of $.60 per square foot is provided for building Sub-Systems.

SUB –SYSTEMS: Lighting, HVAC, Hot Water and Building Envelope

PARTIAL DEDUCTION: Owners of new and existing buildings (placed in service prior to the date of enactment) may earn a partial deduction of $.60 per square foot per “system” for upgrading one or two major building Sub-Systems. These deductions apply to new buildings placed in service between the date of enactment and December 31, 2007 OR retrofits to existing buildings during the same time period.

2. IRS GUIDELINES
IGNCT follows the IRS Guidelines relative to Partial Credits and the Interim Rule, Partial
Credits and the Permanent Rule Notice 2006-52, Calculation methods – Notice 2006 -52, and the Certification – Notice 2005 -52.

3. SCOPE OF SERVICES
ETS will conduct a physical inspection and perform an Energy Efficiency Study (EES) to
calculate, determine and certify the allowable deductions for part or all of the cost of the Energy Efficient Lighting, HVAC, hot water, and building envelope – or any one of these Sub-Systems that have been placed in service after December 31, 2005 and before January 1, 2012.

4. INTERIM RULES – LIGHTING
Interim rules (existing while the Secretary of the Treasury develops long-term rules)
establishes a deduction of $.30 per square foot for buildings – or portion of buildings – that achieve at least 25% lighting savings relative to the ASHRAE 90.1-2001 lighting power density (Watts per sq. ft) requirements (but excluding ASHRAE’s “additional lighting power allowances”) AND that also use bi-level switching. This deduction increases progressively to $.60 per square foot for using bi-level switching and achieving 40% lighting savings.

5. HVAC, HEAT PUMPS, FURNACES AND WATER HEATERS
Energy efficient heating, cooling, ventilation and hot water property is partially qualifying property, within the meaning of Section 2.01 of Notice – 160920-05 (Notice 2006-52) that satisfies both of the following conditions:
1) The property is installed as part of the heating, cooling, ventilation and hot water
systems of a building; and 2) It is certified that the heating, cooling, ventilation and hot water systems that have been incorporated into the building, or that the taxpayer plans to incorporate into the building subsequent to the installation of such property, will reduce the total annual energy and power costs with respect to combined usage of the building’s heating, cooling, ventilation, hot water and interior lighting systems by 16 2/3% or more – meeting the minimum requirements of Standard 90.1-2001. The required 16 2/3% reduction must be accomplished solely through energy and power cost reductions for the heating, cooling, ventilation and hot water systems.
Reductions in any other energy uses, such as receptacles, process loads, refrigeration,
cooking, and elevators, are not taken into account in determining whether the 16 2/3%
reduction achieved.

6. METHOD OF COMPUTATION
The Performance Rating Method (PRM) must be used to compute the percentage reduction in the total annual energy and power costs with respect to combined usage of a building’s heating, cooling, ventilation, hot water and interior lighting systems as compared to the minimum requirements of Standard 90.1-2001.

7. CERTIFICATION
Before a taxpayer may claim a Section 179D deductions with respect to property installed on or in a commercial building, the taxpayer must obtain a Certification with respect to the property. The Certification must be provided by a qualified individual and satisfy the requirements of Section 179D(1). Statements of Certification must meet the minimum requirements of Standard 90.1-2001 for interior lighting systems, heating, cooling, and ventilation and hot water systems and illustrate the energy reduction by 50% or more. Statements for Energy Efficient Lighting Systems meeting the requirements of the permanent rule Section 2.03(1)(a) – will be made satisfying a reduction by 16 2/3% or more. Statements for Energy Efficient Lighting Systems meeting the requirements of the interim rule of Section 2.03(1)(b) – must satisfy the requirements stated in Section 2.03(1)(a) of Notice 2006-52.

8. METHODOLOGY
IGNCT will analyze, calculate, make recommendation and/or Certify subject property(ies) that reduce annual energy and power consumption (combined power consumption) by 50% or qualifying appropriate Sub-System qualifying percentages. The deduction equals the cost of energy-efficient property installed or planned during construction or rehabilitation – with a maximum of $1.80 per square foot of the building. A partial deduction of $.60 per square foot may be realized and provided for Sub-Systems of the building.
1. Initial data is gathered to evaluate the potential tax savings for implementation of
an Energy Efficiency Study and Certification.
2. Once a Letter of Engagement is authorized engineering staff will visit the subject
site/building(s).
3. A physical inspection of the installed equipment must occur. Should the assets be
proposed a review of the plans and the specifications will occur? Once the assets/equipment is installed a site visit must occur.
4. Prescribed calculations will be made on the energy usage and proposed usage.
5. The calculations, the Certification of approved and qualifying assets/equipment will
be completed and the Study reflecting the allowable deductions will be delivered to
taxpayer/property owner.

Hearing on Energy and Climate Legislation Committee on Environment & public Works

WASHINGTON – Chairman Boxer, Ranking Minority Member Inhofe, and members of the Committee, thank you for inviting me to testify about new legislation to get America running on clean energy. Let me begin by commending you for starting Senate hearings on this, the second legislative day after the House of Representatives passed the American Clean Energy and Security Act. Immediately after that historic vote on June 26, President Obama called upon the Senate to demonstrate the same commitment we saw in the House to building a clean-energy foundation for a strong American economy. I am grateful that this Committee has wasted no time in answering that call.

The House bill reflects the principles the President believes are essential for our nation’s energy future: decreasing our dependency on foreign oil, creating millions of new jobs in emerging clean-energy technologies, and reducing the pollution that is a danger to our children. I know there are a variety of proposals pending in the Senate that have the same goals, and I am looking forward to working with all the Committee members as you move forward on this effort.

Clean energy is to this decade and the next what the Space Race was to the 1950s and ‘60s, and America is behind. Governments in Asia and Europe are ahead of the United States in making aggressive investments in clean-energy technology. American businesses need strong incentives and investments now in order for this nation to lead the 21st Century global economy.

We are also coming late to the task of leading the world’s major greenhouse-gas emitters to reverse our collective emissions’ growth in time to avert catastrophic climactic changes that would severely harm America’s economy and national security within our children’s lifetimes.

The necessary shared effort will not begin in earnest unless and until the United States leads the charge.

The advantage of the kind of legislation the President has called for is that it ramps up investment in developing new clean-energy technologies while giving companies an effective incentive to use those technologies to reduce greenhouse-gas pollution. It does so without raising taxes or increasing the deficit.

I do not mean to say that we can get something for nothing. But according to the Congressional Budget Office’s analysis of the American Clean Energy and Security Act, the net cost to the average American household in 2020 would be less than 50 cents a day. For the wealthiest fifth of American households, the net cost would be less than 70 cents a day. The poorest fifth would actually see a net gain of more than ten cents a day. That is what your economists have reported to you.

People have pointed out that the per-household impact would not be uniform across the country – that the costs would be higher in a few states where people drive very long distances and rely almost exclusively on coal for electricity. Yet even if the cost borne by the average family in such a state were double the national average, it still would be just a dollar a day.

That figure does not account for the economic benefits of saving our children from living with increased drought, fire, pests, flooding, and disease. It does not account for the benefit of decreasing our dependency on foreign oil. Can anyone honestly say that the head of an American household would not spend a dollar a day to safeguard the wellbeing of his or her children, to reduce the amount of money that we send overseas for oil, to place American entrepreneurs back in the lead of the global marketplace, and to create new American jobs that pay well and cannot be outsourced?

Labor unions support this kind of legislation because they know it will indeed create millions of high-paying American jobs that cannot be exported. Manufacturing companies support it because they know it will provide needed investment in research and development while creating markets for the American clean-energy technologies born from that investment.

Electric utilities support it because they know it will expand our use of reliable, domestic sources of energy like wind, solar, geothermal – and, yes, safer nuclear power – and, yes, cleaner coal.

Consumer advocates support it because they know it will strengthen the long-term economic foundation for all Americans without imposing short-term economic hardship on any Americans.

And environmental groups support it because they know it is our best chance of preventing catastrophic harm to public health and our natural environment.

Of course, there are still interest groups out there opposing this effort. But I think the tide is turning against the defenders of the status quo, who want more of the same policies that made us dependent on foreign oil and that caused America to forfeit the lead in the burgeoning global competition to sell clean-energy technology. I think Americans want reform that harnesses the country’s can-do spirit. I think they want to fuel long-term economic recovery with a wise investment that sparks a clean-energy transformation in our economy and that protects our children and grandchildren.

That is what the President wants. That is what I want. I believe many Senators want the same thing.

Please consider the Environmental Protection Agency a partner in this effort to get America running on clean energy. And, please, keep up the momentum.

Thank you. I look forward to answering your questions.