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“Promise Zones” And Other Tax Credits In President Obama’s Budget

President Obama’s budget for fiscal year 2014 includes some nice features for the tax credits and incentives community. While this budget has no chance of passage in the Congress, it is still valuable to see the Administration’s position on these issues.

First, the President wants to make WOTC permanent. Within the section titled “Strengthening the Middle Class and Making America a Magnet for Jobs,” the budget says (on page 33):

The Administration also continues its support of tax credits that will help employ veterans. The Returning Heroes Tax Credit, which provides up to $5,600 to employers, and the Wounded Warrior Tax Credit, which provides up to $9,600 to hire long-term unemployed veterans with service-connected disabilities, were recently extended for one more year in the American Taxpayer Relief Act of 2012. These credits are a part of the Work Opportunity Tax Credit (WOTC), which contains other categories targeted to hiring veterans. The Budget proposes to permanently extend the WOTC.

Also within that section is the President’s proposal to enhance the Research and Experimentation tax credit (page 19):

The Research and Experimentation (R&E) Tax Credit is an important Federal incentive for research. But the R&E Tax Credit is less effective than it could be in spurring additional research because it is complicated and temporary. Currently, businesses must choose between using a complex, outdated formula that provides a 20 percent credit rate and a much simpler one that provides a 14 percent credit rate. The Budget would increase the rate of the simpler credit to 17 percent, which would make it more attractive and simplify tax filing for businesses. In addition, the Budget makes the basic and the simplified R&E credit permanent to provide certainty and increase effectiveness.

There are proposals for tax incentives in the areas of renewable energy production and energy efficiency, and for small businesses that increase their total wage expenses. The President also proposes creating a new zone based tax incentive program called “Promise Zones.” The budget document explains (on page 29):

The Administration will designate Promise Zones through a transparent, competitive process that can draw on a number of resources in the Budget, including: using Department of Justice funding for local law enforcement and community leaders to reduce violent crime; leveraging Department of Housing and Urban Development grants to attract private investment to tear down distressed public housing and build new mixed income homes, while ensuring that low-income residents do not get displaced; and using Department of Education funding to improve educational opportunities and provide students and their families with a continuum of educational supports from cradle to college or career. The Budget also includes Promise Zone tax incentives to stimulate growth and investments in targeted communities, such as tax credits for hiring workers and incentives for capital investment within the Zone.

The President mentioned these Promise Zones in a speech he gave in Chicago as well. According to the New York Times:

Here he offered new details about an initiative to select 20 communities nationwide as laboratories for better coordinated federal, local, nonprofit and private-sector investments to revitalize long-distressed areas. The communities would be selected over the next several years, administration officials said, from urban and rural applicants that show persistent woes like high joblessness and crime rates, low rates of high school graduation and college attendance and health concerns among residents.

For these so-called Promise Zones, Mr. Obama is seeking tax breaks for those who make capital investments in the zones and for employers who hire unemployed residents. But Congress has not passed similar tax incentives that Mr. Obama proposed in the past two years, testifying to the legislative hurdles for the president’s second-term agenda.

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