Skoda Minotti

President Obama presented Congress with his fiscal year (FY) 2011 federal budget proposals on February 1, and the $3.83 trillion budget emphasizes job creation and deficit reduction. Tax incentives for individuals and businesses total approximately $300 billion with an additional $100 billion allocated to job creation. On the other hand, proposed tax increases would raise $1.4 trillion. Although rate increases for higher-income taxpayers would bring in the lion’s share of that revenue, the budget calls for over $450 billion in other revenue raisers. Those increases impact many categories of taxpayers but, perhaps most directly, those with international operations.

IMPACT: While many of the president’s FY 2011 tax proposals previously appeared in his FY 2010 budget, notable differences are apparent not only in scope but also in details. Also different from last year is that many of the president’s proposals are likely to be enacted this year. The administration must show that it can get something done on the legislative front. With job creation front-andcenter on the national stage, success in passing high-profile tax legislation this year is a likely priority for the president and the Democratic- controlled Congress. More tax legislation this year is guaranteed by the expiring Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) income tax rate cuts, the already expired estate tax, and a long list of other must-pass “expiring provisions” –including an alternative minimum tax (AMT) patch—that will all need retroactive treatment.

COMMENT: Some of the president’s tax proposals have already gained momentum on Capitol Hill. The Senate may vote on the jobs creation component of the president’s FY 2011 budget before mid-February. Senate Democrats are drafting a jobs bill, which is expected to include a credit for small businesses that hire new employees, along with an extension of bonus depreciation and enhanced Code Sec. 179 expensing.