Bill Leary, CPA, JD, and a Director in MFR’s Tax practice, takes a moment to summarize and analyze President Obama’s State of the Union address.  Several of the initiatives Obama suggested could have a significant impact on taxpayers and businesses.  If you have questions about how these issues may affect you or your business, contact Bill. You can reach Bill via email or at (713)622-1120.

State of the Union 2011:  Suggested Initiatives May Affect Taxpayers and Businesses

Last night President Obama delivered his State of the Union speech.  Coincidentally, it occurred on the same day that the Academy Award nominees were announced.  The Academy offered more surprises than did the State of the Union address; however, in both cases, we need to wait to see who will be the winners and losers.  

The spirit in the Capital last night was far more congenial than in past years and his address was crafted in part to appeal to a shared vision.  “The future is ours to win. But to get there, we can't just stand still. As Robert Kennedy told us, ‘The future is not a gift. It is an achievement.’ Sustaining the American Dream has never been about standing pat. It has required each generation to sacrifice, and struggle, and meet the demands of a new age.”  The devil, though, will be in the detail which will be clear when the Administration’s budget is released in the next week or so.

The speech looked to strategies to improve our economic strength and improve the labor market.  Innovation, education, global competitiveness, and deficit reduction were key elements in his address. Several of the initiatives suggested could have an impact on taxpayers and businesses.

Innovation
According to Obama, the government has a responsibilty to encourage American innovation. To help pay for it, the President asked Congress to eliminate the billions in taxpayer dollars currently given to oil companies.

Education
To compete, higher education must be within reach of every American. The President will ask Congress to make permanent our tuition tax credit - worth $10,000 for four years of college.

Attracting Foreign Businesses
The third step in winning the future, according to Obama, is rebuilding America. To attract new businesses to our shores, we need the fastest, most reliable ways to move people, goods, and information - from high-speed rail to high-speed internet. 

Corporate Tax Reform
According to the President, “Over the years, a parade of lobbyists has rigged the tax code to benefit particular companies and industries. Those with accountants or lawyers to work the system can end up paying no taxes at all. But all the rest are hit with one of the highest corporate tax rates in the world. It makes no sense, and it has to change. So tonight, I'm asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years - without adding to our deficit.”

Facilitating Exports
“To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 - because the more we export, the more jobs we create at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs.”  Obama asked Congress to pass these measures as soon as possible.  The President is also committed to pursuing agreements with Panama and Colombia, and to continue the Asia Pacific and global trade talks.

Government Regulation
The President announced that he is eager to work with Congress to improve the healthcare law to make it better and more affordable.  To a standing ovation he announced, “We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.”  You can only imagine that those in the Capital had several targets in mind, but Obama was committing to changing the expanded Form 1099 requirements scheduled to go into place next year.

Government Spending
The President will propose that starting this year annual domestic spending should be frozen for the next five years. According to his estimates this would reduce the deficit by more than $400 billion over the next decade. These cuts would impact federal workers, community action programs and defense spending. But, domestic spending represents only a little more than 12% of our budget.

Last year, the bipartisan Fiscal Commission offered controversial recommendations to tackle the deficit to cut domestic spending, defense spending, healthcare spending, and spending through tax breaks and loopholes.  It suggested reducing healthcare costs, including programs like Medicare and Medicaid, which are the single biggest contributor to our long-term deficit.   

According to the President he is also interested in other ways to bring down costs,” including one that Republicans suggested last year: medical malpractice reform to rein in frivolous lawsuits.”

Finally he suggested finding a bipartisan solution to strengthen Social Security without subjecting Americans' guaranteed retirement income to the whims of the stock market.”

Individual Tax Initiatives
According to the President, Americans' paychecks are a little bigger today because of the tax compromises reached last year.  In addition, this year businesses can write off the full cost of the new investments they make.  But the President is unhappy about other provisions included in that tax compromise which are to remain in force for two years.  “If we truly care about our deficit, we simply cannot afford a permanent extension of the tax cuts for the wealthiest 2% of Americans. Before we take money away from our schools, or scholarships away from our students, we should ask millionaires to give up their tax break.”

As he suggested last year, the President is committed to simplifying the individual tax code. ” This will be a tough job, but members of both parties have expressed interest in doing this, and I am prepared to join them.”


President Obama ended his address with a positive assessment. 

“And yet, as contentious and frustrating and messy as our democracy can sometimes be, I know there isn't a person here who would trade places with any other nation on Earth.

We may have differences in policy, but we all believe in the rights enshrined in our Constitution. We may have different opinions, but we believe in the same promise that says this is a place where you can make it if you try. We may have different backgrounds, but we believe in the same dream that says this is a country where anything's possible. No matter who you are. No matter where you come from.

The idea of America endures. Our destiny remains our choice. And tonight, more than two centuries later, it is because of our people that our future is hopeful, our journey goes forward, and the state of our union is strong.”