H.R. 5893: Investing in American Jobs and Closing Tax Loopholes Act

H.R. 5893

Investing in American Jobs and Closing Tax Loopholes Act

Sponsor
Rep. Sander M. Levin

Date
July 30, 2010 (111th Congress, 2nd Session)

Staff Contact
Communications

Floor Situation

H.R. 5893, Investing in American Jobs and Closing Tax Loopholes Act, is scheduled to be considered on Thursday, July 29, 2010, under a closed rule with one hour of general debate, and one Republican motion to recommit.

Bill Summary

H.R. 5893 extends many programs first created in the Democrats’ failed stimulus bill.  The bill contains infrastructure subsidies such as the Build America and Recovery Zone Bonds.  In addition, it expands the stimulus created Emergency Contingency Fund for TANF, but renames it as the “Emergency Fund for Job Creation and Assistance.”  This fund provides additional welfare, and subsidized temporary employment. 

In sum, the bill provides $29.106 billion in spending, and $29.346 billion in permanent tax increases.

Specifics are provided below:

Title I—Infrastructure Incentives:

 

Extension of build America Bonds:

The bill expands the Build America Bonds that are used to subsidize the purchasing of bonds from state and local governments.  The bill would provide a tax credit subsidy of 35 percent of the interest on the bonds in 2009 and 2010, 32 percent in 2011, and 30 percent in 2012.  According to JCT, this provision would reduce revenue by $4.042 billion, and increase spending by $24,270 billion over ten years, for a total cost of $28,312 billion.

  • Possible Member Concern:  The Build America Bonds program allows for the federal government to subsidize interest costs of issuing taxable debt from state and municipalities.  However, these state and local governments have paid on average, 37 percent more to investment banks for underwriting Build America Bonds than the typically issued tax-exempt bonds.  The bonds have created a windfall resulting in fees paid to big Wall Street banks exceeding $1 billion.

Exempt-Facility Bonds for Sewage and Water Supply Facilities:

This legislation would exempt water and sewage facilities from a volume cap on the private activity bonds they may issue.  Under current law, state agencies are subject to these state volume caps.  The bill would also exclude tax-exempt bonds that furnish water and sewage facilities by Indian tribal governments.  According to JCT, this provision would reduce revenues by $371 million over a ten year period.

 

Extension of Exemption from Alternative Minimum Tax Treatment for Certain Tax-Exempt Bonds:  Extends this exemption, created in the Democrats stimulus, of private activity bonds from the alternative minimum tax.  According to JCT, this provision would reduce revenues by $224 million over a ten year period.

Extension and Additional Allocations of Recovery Zone Bond Authority:  The bill would extend the Recovery Zone Bonds through 2011.  Originally passed in the stimulus bill, these bonds would be directed toward state and local infrastructure, job training, education, and economic development, and are allocated to states depending on their unemployment rate.  The funding would be based on a state’s 2009 total unemployment rate in comparison to the aggregate unemployment rate of all states.  H.R. 5893 would adjust the allocation to ensure that localities receive a minimum amount in unemployment rate.  The subsidy amounts to 45 percent of the interest of the bonds issued.  According to JCT, this provision would reduce revenue by $2.375 billion, and increase spending by $1.339 billion over a ten year period, for a total cost of $3,696 billion.

Allowance of New Market Tax Credit against Alternative Minimum Tax:

Extends the new market tax credit (NMTC) for one year, permitting the NMTC to be claimed against the Alternative Minimum Tax.  Currently, the credit is provided to businesses that make qualifying investments in community development entities.  According to JCT, this provision would reduce revenues by $444 million over ten years. 

Extension of Tax-Exempt Eligibility for Loans Guaranteed by Federal Home Loan Banks:

The legislation would extend by one year, the support to municipalities that face increased costs from issuing tax-exempt municipal bonds. The extension would allow the bonds to be guaranteed by the Federal home loan bank to finance projects at a lower cost.  According the JCT, this provision would reduce revenues by $148 million over ten years. 

Extension of Temporary Small Issuer Rule for Allocation of Tax-Exempt Interest Expense by Financial Institutions:

This provision would extend by one year, the interest disallowance rule, which stipulates that bonds that are issued by a qualified small issuer are not accounted for in tax-exempt municipal bonds.  According to JCT, this provision would reduce revenues by $254 million over ten years.

Title II—Emergency Fund for Job Creation and Assistance:

Extension of the Emergency Fund for Job Creation and Assistance:

In addition to the Temporary Assistance for Needy Families program (TANF), the Democrat’s stimulus also created the Emergency Contingency Fund for State Temporary Assistance for Needy Families Program.  This bill would rename the fund as the Emergency Fund for Job Creation and Assistance.  This would allow states to access this fund not only for the TANF program, but also to subsidize businesses that hire workers.

The amounts appropriated to the Emergency Funds in FY2009 would remain available through FY2010 and would be used to make grants to state in FY2009-2010, and amount would remain available through FY2011 to make grants and payments to states to cover expenditures to subsidize employment positions held by workers placed in those positions before 2011.

A state may make a payment for subsidized employment, only if the expenditure is used to subsidize employment for a member of a needy family or to an individual who has exhausted all rights to receive unemployment compensation under federal and state law.

  • Possible Member Concern:  This provision would be a “stimulus” add-on.  The Emergency Contingency Fund, originally created under the Democrats’ stimulus with $5 billion in funding, would be renamed the “Job Creation and Assistance” Fund—a welfare emergency fund— which would potentially double the original amount with the addition of another $5 billion available to states in 2011.  Currently, a $1 billion balance still remains available to the fund.

Title III—Foreign Provisions:

Rules to Prevent Splitting Foreign Tax Credits from the Income to Which They Relate:

This provision would implement a matching rule that suspends the recognition of foreign tax credits until the related foreign income is taken into account for taxing purposes in the U.S.  This provision would apply to all split foreign taxes claimed by taxpayers after the date of introduction.  According to JCT, this provision would increase revenues by $4,250 billion over ten years.

Denial of Foreign Tax Credit with Respect to Foreign Income Not Subject to U.S. Taxation by Reason of Covered Asset Acquisition:

This provision would prohibit taxpayers from claiming the foreign tax credit with regard to foreign income that is never subject to U.S. taxation because of a covered asset acquisition.  The legislation would apply to related party transactions occurring after the date of introduction.  According to JCT, this provision would increase revenues by $3,645 billion over ten years

Separate Application of Foreign Tax Credit Limitation to Items Resourced Under Treaties: 

The legislation abides by the treaty commitment to treating income as a foreign source, but segregates the income so that it is not the basis for claiming foreign tax credits that have nothing to do with double taxation.  The bill would conform the foreign tax credit treatment of taxpayers operating abroad through foreign branches and disregarded entities to the treatment already afforded to taxpayers operating through foreign corporations.  According to JCT, this provision would increase revenues by $250 million over ten years.

Limitation on the Amount of Foreign Taxes Deemed Paid with Respect to Section 956 Inclusions: 

The bill would limit the amount of foreign tax credits that may be claimed on a deemed dividend under section 956 to the amount that would have been allowed with respect to an actual dividend.  According to JCT, this provision would increase revenues by $704 million over ten years

Special Rule with Respect to Certain Redemptions by Foreign Subsidiaries: 

The bill would eliminate a tax planning technique that allows foreign-based multinationals (e.g. a foreign-based company that owns a U.S. company, and that U.S. company owns a foreign subsidiary) earnings to bypass the U.S. tax system.   According to JCT, this provision would increase revenues by $203 million over ten years.

Modification of Affiliation Rule for Purposes of Rules Allocating Interest Expense: 

The bill would prevent taxpayers from using certain techniques to minimize the amount of foreign source interest expense, which has the effect of boosting foreign source income – thus allowing taxpayer to utilize more foreign tax credits.  According to JCT, this provision would increase revenues by $390 million over ten years.

Termination of Special Rules for Interest and Dividend Received from Persons Meeting the 80-percent Foreign Business Requirement: 

The bill terminates the “80/20” rule that allowed a corporation with gross income of at least 80 percent from a foreign source income and attributable to foreign trade or business during a three-year period.  Some corporations that meet specific requirements and are not abusing the “80/20” rule company rules may receive relief.  According to JCT, this provision would increase revenues by $153 million over ten years.

Source Rule for Income on Guarantees: 

The bill would stipulate that guarantees on indebtedness issues after the date of enactment will be sourced like interest; if paid by U.S. taxpayers to foreign persons­­ - it will be subject to withholding.  According to JCT, this provision would increase revenues by $2 billion over ten years.

Limitation on Extension of Statute of Limitations for Failure to Notify Secretary of Certain Foreign Transfers:

The bill would make a technical correction to the Hiring Incentives to Restore Employment (HIRE).  This provision would clarify the circumstances in which the statute of limitations period for corporations that fail to provide certain information on cross-border transactions or foreign assets.   According to JCT, this provision would have no revenue impact over ten years

Title IV—Budgetary Provisions:

Increases by three percentage points the required corporate estimated tax payment for corporations with assets of at least $1 billion, regarding payments due in July, August, and September 2015.  This provision is meant to artificially move $5 billion in revenue from 2016 to 2015 to comply with the Democrats’ PAYGO rule.

  • Possible Member Concerns:  This provision would shift estimated corporate revenues in out years into the five year PAYGO window to comply with the rules; subsequently readjusting the revenue estimate after the 5 year period.  Members may be concerned that continued manipulation of the PAYGO with such gimmicks has voided its intended purpose.

Background

Many of the infrastructure and “job creation” provisions are extensions of the Democrats’ failed stimulus bill.  In addition, most of this bill is comprised of components of the original H.R. 4213, The American Jobs, Closing Tax Loopholes, and Preventing Outsourcing Bill that never passed Congress. (A slimmed down version, H.R. 4213, Unemployment Compensation Extension Act was signed into public law, P.L.111-205)

Possible Member Concerns:

Extension of failed stimulus:

Aside from the tax increase section, many of these provisions were first created in the Democrats’ stimulus bill.   To-date, the stimulus has produced a net loss of 2.4 million jobs, including nothing more than sluggish economic growth.

More Spending, More Taxes:

This bill is nothing more than a spending bill blended with tax increases.  H.R. 5893 permanently increases taxes by nearly $30 billion.  The bill is another expansion of government, adding an additional $29.107 billion in new spending.

Cost

According to the Congressional Budget Office, this bill will increase outlays by $29.107 billion over a ten year period.  The bill would increase revenues by $29.346 billion over ten years.  The bill would result in deficit decrease of $204 million.