How Would President Obama’s Fiscal Year 2016 Budget Affect Our Industry?
As Connecting the Dots reported previously, President Barack Obama proposed $320 billion annually in new taxes as part of his State of the Union address. Minus a tax increase on 527 college savings plans, the president included all of the proposals he outlined in the State of the Union in his fiscal year 2016 budget, which was released last week.
According to the National Association of Manufacturers (NAM) the president’s plan to eliminate “stepped-up” capital gains would significantly increase taxes on the manufacturing industry by taxing family-owned businesses in the event they are sold by future generations. This proposal alone would increase taxes by $208 billion over 10 years. (Learn how it works here.) Many of these firms also pay the estate tax, which the president’s plan would also change. In his budget President Obama proposed lowering the federal estate tax exclusion from $5.4 million to $3.5 million and increasing the top estate tax rate from 40 percent to 45 percent. Combined the president’s proposals could bring the effective federal estate/capital gains tax to 68 percent, which would have a significant impact on MSCI members. MSCI encourages its members to join NAM’s Estate Tax Task Force to participate in the organization’s efforts to stop these tax increases.
MSCI encourages its members to join NAM’s Estate Tax Task Force to participate in the organization’s efforts to stop these tax increases. (To learn more about the effect estate taxes have on family-owned businesses, we also encourage readers to visit the Family Business Defense Council website.)
Unfortunately, these tax increases aren’t the only ones in the president’s budget that would hit MSCI members. The S-Corp Association notes President Obama also proposed to:
- Set a higher, 28 percent tax rate on capital gains and dividends;
- Set a new 30-percent minimum tax (Buffett tax) on high-income individuals; and
- Apply self-employment taxes to the business income of professional services businesses.
These tax increases would cancel out the economic benefits of any potential tax reform proposal. As the S-Corp Association notes, “What's the point of reducing the corporate tax rate from 35 to 28 percent if you're just going to hike the tax paid by corporate shareholders at the same time?”
President Obama’s budget also offers to spend an additional $350 million for seven new manufacturing innovation hubs, but the beneficial aspects of those hubs would be canceled out by the president’s tax increases on the manufacturing industry. As such, MSCI pledges to work with our partners at NAM and the S-Corp Association to oppose the president’s proposals and to support comprehensive, revenue-neutral tax reform.
You can help our efforts today by signing this simple U.S. Chamber of Commerce petition asking Congress to pass comprehensive reform. To learn more about why MSCI and its partners support comprehensive – as opposed to corporate-only reform, which White House officials testified in support of last week – we also encourage you to read this explanation from the S-Corp Association.