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Obama’s 2015 budget proposal and its tax provisions

President Barack Obama recently released his proposal for the federal budget for fiscal year 2015.


Although the proposals may appear to be dead on arrival for some lawmakers, they contain numerous individual and business provisions, including an augmented and permanently extended research tax credit, several proposals for international tax, a broadened and permanently extended earned income tax credit, and a revival of efforts to couple business tax reform with infrastructure investments. The last provision was also part of the president’s tax reform proposals that were released in summer 2013.


In addition to these provisions, Obama’s budget proposal included a new “Opportunity, Growth and Security Initiative,” which comes with the possibility that tax dollars will fund the $56 billion in additional discretionary investments that would be funneled into it.


Updates for individual tax
The president’s budget lists a plethora of individual tax reforms, including a permanently extended American Opportunity Tax Credit starting after Dec. 31, 2017. Additionally, Obama proposes to allow all inherited IRA or annuity (IRA) balances to be rolled over within 60 days.


Notably, the president’s proposal would also enact the “Buffett Rule,” which would require all millionaires to pay at least 30 percent of their adjusted gross income – after charitable contributions – in taxes. This rule is sometimes referred to as the “fair share tax”.


Reverting estate tax to previous regulations
The president included estate and gift tax proposals in his budget. Among them, he added a provision that would return generation-skipping transfer, estate and gift tax rates and exemptions to 2009 levels. As a result, the maximum tax rate would be capped at 45 percent, while the exclusion threshold for estate and GST taxes would have a ceiling of $3.5 million. The exclusion cap for gifts would be $1 million.

Moreover, the estate tax provisions included expanded applicability for the designation of executor for all tax purposes under the tax code.


International tax proposals
Obama proposed some reforms for the U.S. international tax system. These provisions include the restricted use of hybrid arrangements that allow for stateless income, the creation of a new category of Subpart F income for transactions involving digital goods or services, and an expansion of the definition of inversion transactions to limit the expatriation abilities of domestic entities.


Closing loopholes and keeping jobs in the state
The President’s business tax plan includes closing corporate loopholes and lowering the corporate tax rate. Significantly, it would permanently extend the 179 deduction at $500,000 as well as the research tax credit.

Obama included measures to promote the insourcing of jobs and a revitalization of U.S. manufacturing. These provisions included tax credits for qualified advanced energy manufacturing projects and the elimination of deductions that benefit outsourcing of U.S. jobs.