Our Federal corporate tax laws provide numerous incentives intended to promote c
ID: 418403 • Letter: O
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Our Federal corporate tax laws provide numerous incentives intended to promote certain activities, industries and job creation. Some argue that these measures are ineffective while others say that they do not go far enough in stimulating the economy and employment. Four examples of tax incentives offered by the Federal government are: (1) the Credit for Increasing Research Activities (IRC Section 41). (2) the Work Opportunity Tax Credit (IRC Section 51). (3) the Energy Tax Credit (IRC Section 48), and (4) the Domestic Manufacturing Deduction (IRC Section 199). Carefully review the Grading Rubric for the criteria that will be used to evaluate your assignment. In an eight- to ten-page paper (formatted according to APA style guidelines), provide an analysis of the following: For each of the four above federal corporate tax programs: 1. Provide an overview of the program citing changes in the legislation since inception. 2. Analyze the effectiveness of the program in terms of meeting its intended purpose. 3. Evaluate unintended tax and non-tax consequences of this legislation that have resulted from its passage. Next, design and describe specific modifications that you would recommend to each of the above-mentioned programs. Evaluate the projected impact of these changes including the effect, if any, to: . Gross National Product . Unemployment rate . Federal tax revenue Finally, include in your analysis a discussion of the likelihood of passage of these proposed changes taking into account the potential effect of these changes on federal deficit levels and the political process involved in enacting federal tax reform.Explanation / Answer
Congress this year will debate legislation that many Americans would say is a decade overdue. Two bills are involved: the Enterprise Zone Tax Incentives Act of 1991 (H.R. 11), and the Enterprise Zone Jobs Creation Act of 1991 (H.R. 23). These would grant significant tax and regulatory incentives to encourage the creation and growth of businesses within the most depressed neighborhoods and areas of America's cities. A Senate bill (S.1032) is identical to H.R. 23. Two more bills, one each in the House and Senate, would provide enterprise zone designation specifically to rural areas.
The first enterprise zone bill was introduced in the House in 1980, co-sponsored by then-Congressmen Jack Kemp, a Republican, and Robert Garcia, a Democrat, both of New York. Despite strong bipartisan congressional support, as well as White House backing, enterprise zone measures granting tax relief to inner city businesses never passed both houses. The only legislation that did emerge from Congress was Title VII of the 1987 Housing and Community Development Act, a shell enterprise zone program designed to provide eligible areas with only a few waivers from U.S. Department of Housing and Urban Development (HUD) regulations.
Seeds of Growth
The premise behind enterprise zones is that many depressed neighborhoods already contain the seeds of development in the form of buildings, labor and -- currently misdirected -- entrepreneurial talent. Reducing government financial and regulatory barriers to business enterprises, it is argued by proponents, could encourage residents of the neighborhood to engage in legitimate business, and thus would encourage outside investors to risk investing in these areas. The legislation before Congress is intended to remove these barriers.
H.R. 11 is sponsored by Representative Dan Rostenkowski, the Illinois Democrat, who chairs the House Ways and Means Committee. Previously, during legislative conference sessions in 1983 and again in 1984, Rostenkowski was instrumental in killing tax-based enterprise zone legislation which earlier had passed by a wide margin. Thus, his strong support for zone legislation this year could be crucial to its passage. His bill has some good features; it also poses problems. It would add, for instance, burdensome compliance requirements on businesses operating in federal enterprise zones, precisely the kind of regulation that the zone proposal originally intended to end.
No Bogging Down
By contrast, H.R. 23, sponsored by Representative Charles Rangel, the New York Democrat, and a leading House Ways and Means Committee member, would encourage firms to engage in enterprise rather than become bogged down with the compliance burdens that the Rostenkowski bill would create. Significantly, H.R. 23 was submitted by Rangel on behalf of the Bush Administration. The terms "Rangel bill" and "Administration bill" thus refer to the same measure.
The urban-oriented Rangel and Rostenkowski bills both envision a program lasting 25 years. Each has eligibility criteria involving minimum levels of poverty and unemployment in a zone, and each requires that those areas seeking zone status file a "course of action" which lists, among other things, state and local commitments to tax reduction, regulatory streamlining, donations of real property for business use, and local public service improvements. There are several major differences between the bills. Among them:
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