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This blog post is one in a series detailing President Obama’s budget proposal for fiscal year 2013.

Most of the attention on President Obama’s proposed tax changes in his 2013 budget proposal has focused on his proposal to sunset the Bush tax cuts for household income above $250,000 per year and his long-term goal of using the “Buffett Rule” to replace the Alternative Minimum Tax.

Looking beyond the headlines, however, reveals some proposals that have relevance for future tax reform efforts at the federal and state levels.

On the personal income tax, for example, President Obama proposes to reduce the value of many income-tax exclusions and deductions for high-income Americans. Under the current system, the value of these exclusions and deductions are significantly higher for high-income households than lower-income households: $1 in such deductions and exclusions reduce the tax liability of high-income households by up to 35 cents, compared to 10-25 cents for low- and middle-income households.

The president’s proposal, originally part of his American Jobs Act, would cap the value of those exclusions and deductions at 28 cents on the dollar for high-income households. Similar proposals to reduce the value of tax subsidies for wealthier households at the state level could raise tens to hundreds of millions of dollars in additional revenue for North Carolina without raising income tax rates.

Also among the President’s proposed tax changes are provisions that would close some of the most egregious corporate tax loopholes. For instance, Obama’s proposed budget would eliminate a loophole that allows corporations to deduct interest expenses from overseas investments even when indefinitely deferring US taxes on the income from those investments. Read More

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In response to this year’s push by the General Assembly to weaken the state’s safeguards against corporate tax dodging, the NC Justice Center recently launched a petition asking the General Assembly to adopt a key corporate tax reform that would nullify many of the strategies some corporations use to avoid paying state corporate income taxes.

From the petition:

But here’s the good news: there is a simple way for our policymakers in North Carolina to crack down on corporate tax dodging. All they have to do is require corporations to pay taxes on profits earned in states where they do business. This common-sense idea, called “mandatory combined reporting,” could raise up to $100 million each year in North Carolina.

In a report issued earlier this year, the NC Budget and Tax Center described how large corporations are able to take advantage of tax shelters because most of them are structured as parent corporations that each own many separate subsidiary corporations operating in many states. In states without mandatory combined reporting, multi-state corporations are able to shift income earned in one state to related corporate subsidiary in a state without a corporate income tax or with special corporate tax exemptions. Read More

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Updated at 2:45 pm — see below…

The debate in Washington over the extension of critical unemployment insurance benefits appears to have taken a  troubling (if sadly predictable) turn. According to folks “in the know” in DC, the business lobby is pushing members of the Senate, including North Carolina’s Kay Hagan, to endorse a proposal that would make it possible for states like North Carolina to slash worker benefits.

Here’s the skinny:  Read More

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The US Senate Permanent Subcommittee on Investigations released a new report this week confirming that a proposed tax amnesty for offshore corporate profits would repeat an “embarrassing failure” by providing a windfall to multinational corporations while doing little to create jobs.

What the new report indicates is that a substantial portion of multinational corporations’ offshore earnings are really only identified as offshore to avoid paying taxes.  The report surveyed 27 of the largest multinational corporations with a combined total of $538 billion in tax-deferred profits identified as offshore.  What the survey found is that nearly half of the profits identified as offshore were actually held in US bank accounts or invested in US financial assets.

The results of the survey refute corporate tax amnesty proponents’ claims that US-based multinationals have more than $1 trillion in profits  “trapped” overseas because those corporations would have to pay federal corporate income taxes on those profits if brought into the US.

Given this evidence, plus the reams of research indicating that the proposal would prove ineffective at creating jobs, the report authors recommend against enacting a second corporate tax amnesty,

because undistributed accumulated foreign earnings are not trapped offshore. U.S. corporations are already investing nearly half of those foreign earnings in U.S. assets without paying any U.S. taxes on them, allowing those corporations to reap benefits from the U.S. financial system without paying the tax dollars needed to support that system. Enacting still another corporate repatriation tax incentive would further exacerbate that tax unfairness.