Much Good in the Tax Provisions of Financial Stability Bill
Monday, October 6, 2008In addition to providing much needed stability to the financial markets, the Emergency Economic Stabilization Act of 2008 signed into law on Friday (President Bush’s statement) also includes a number of NAM’s tax priorities for the year:
1. A retroactive or “seamless” extension of the Research and Development Tax Credit through 2009. Since the R&D credit expired at the end of 2007, this is a two-year extension. The legislation also includes an increase in the alternative simplified credit (ASC) from 12 percent to 14 percent for 2009. In short, the bill includes a multi-year extension of a strengthened credit. The increase in the ASC is important to a number of companies, including smaller manufacturers that use the credit. (For background, see the R&D Credit Coalition’s website, InvestinAmericasFuture.org.)
2. An extension of deferral of U.S. tax on active business global financing income, through 2009. This is a huge issue for manufacturers with overseas financing arms as well as financial service companies that do business overseas. Without this provision, these companies would be subject to immediate foreign and U.S. tax, i.e., double taxation, on any income from their overseas financial activities. If the companies had to pay double tax, they would not be able to compete with foreign financial service companies.
3. An extension of the look-through rules for payments between related foreign corporations, through 2009. This is a huge issue for many U.S. multinational companies. Very basically, the “look through rules” allow companies to move money between foreign operations without triggering U.S. tax.
4. Multiyear extensions of a number of incentives designed to encourage energy efficient and the development of alternative sources of energy, including a two-year extension of the production credit for facilities that produce energy from renewable sources and an eight-year extension of the investment tax credit for solar energy and fuel cell property.
The bill also includes an NAM-supported AMT/ISO provision designed to help employees (notable in the high-tech industry) that received incentive stock options (ISOs) that generated “phantom income” when stock prices took a nose dive. Many of these employees were forced to pay a significant amount of AMT. Several years ago, Congress did pass some relief for them-this provision finished the job. The bill also includes an NAM-supported provision that reduces the depreciation period for farm equipment from seven to five years, a change long sought by equipment manufacturers.
One the downside, the bill does include three revenue raisers, opposed by NAM, that increase taxes for the oil and gas companies by about $9 billion over ten years. Specifically, the legislation would freeze the Section 199 deduction for income from domestic production activities at six percent for oil and gas companies, tighten rules on the use of foreign tax credits for the oil industry and extend and increase the excise tax rate for the Oil Spill Liability Trust Fund.
As the NAM’s “key vote” letter to the Senate commented, “We believe the unintended consequences of these provisions could leave American consumers and manufacturers more reliant on foreign energy sources and result in higher energy prices.”
The text of the legislation, including the tax sections is posted at the House Financial Services committee’s website. A revenue table listing the budget impact of the tax provisions is posted at the Joint Committee on Taxation’s website here.