Explanation of American Family Economic Protection Act

Print Version

Published: February 15, 2013
 
Updated: February 15, 2013
 

The American Family Economic Protection Act would eliminate through January 2, 2014, any of the deep, across-the-board spending cuts known as "sequestration."These cuts, if left in place, would threaten thousands of jobs and weaken the economic security of America's middle class.These cuts would also would kick 70,000 children off of Head Start, reduce loan guarantees to small businesses, cut food inspections, and result in 1,000 fewer law enforcement agents, among other effects.

Although it would eliminate sequestration for the remainder of 2013, the American Family Economic Protection Act would not increase our long-term deficit.All costs would be fully offset in a balanced way.Fifty percent of the costs would be offset with other spending cuts, divided equally between defense and non-defense programs.The other 50 percent of costs would be offset with new revenue generated by adopting the Buffett Rule — which ensures millionaires cannot pay a smaller share of their income in taxes than typical middle-class families — along with other provisions that would eliminate an oil industry tax loophole and deny deductions to companies that ship jobs overseas.

The bill's major provisions include:

Defense Savings

The American Family Economic Protection Act fully protects the Defense Department, like other Federal agencies, from sequestration until January 2, 2014.Throughout 2013, no sequester would be implemented, and the existing limits on security-related spending would continue to apply.

Twenty-five percent of the overall costs of suspending sequestration would be offset by very modest reductions in the overall level of defense spending in the future.These reductions would total $27.5 billion, or 0.5 percent of defense spending between Fiscal Years 2013 and 2021.The reductions would not begin until Fiscal Year 2015, when the war in Afghanistan is expected to end.

The cuts would be spread out in relatively modest increments over 7 years, through Fiscal Year 2021, and would allow defense spending to increase by at least two percent in each of those years, even after the reduction.The reduction would be about $3 billion in Fiscal Years 2015 and 2016, and then would rise slowly to a high of about $5 billion in Fiscal Year 2021.

Agriculture Savings

The American Family Economic Protection Act saves $27.5 billion over 10 years by cutting farm subsidies and extending certain Farm Bill programs that were left out of the recent Farm Bill extension.

The bill ends direct payments, which are currently provided regardless of yields, prices, or farm income.This provision saves approximately $31 billion.Of that total, $27.5 billion is used for deficit reduction.The remaining $3.5 billion is used to pay for the extension of Farm Bill programs that were left without funding, including renewable energy, rural development, disaster assistance, conservation, hunger prevention, agriculture research, organic certification, and specialty crop programs.

The Buffett Rule

The American Family Economic Protection Act would adopt the Buffett Rule, which would ensure that wealthy taxpayers cannot pay tax at a lower effective tax rate than middle class families.The bill applies the Buffett Rule to taxpayers with adjusted gross incomes greater than $1 million — after subtracting charitable contributions — who are paying less than a 30 percent average tax rate in combined income tax, alternative minimum tax, and the employee's portion of the payroll tax.Specifically, the Act would require these taxpayers to pay a 30 percent tax on all of their adjusted gross income (less charitable contributions), phased in between $1 million and $2 million.This provision would reduce the deficit by approximately $54 billion over 10 years.

Ending Tax Breaks for Shipping Jobs Overseas

The American Family Economic Protection Act eliminates a tax break that encourages companies to ship job overseas.

Companies may generally deduct ordinary and necessary business expenses.  Under current law, these can include the cost of shipping equipment overseas, terminating leases, and other expenses associated with moving a business offshore.  The legislation would deny tax deductions for outsourcing costs — the costs of relocating a U.S. business unit to a foreign country.  This provision would reduce the deficit by less than $1 billion.

Closing an Oil Industry Tax Loophole

The American Family Economic Protection Act eliminates a special tax loophole now enjoyed by the oil industry.Specifically, the Act would include oil from tar sands among the petroleum products that are subject to taxes that support the oil spill liability trust fund.

In January of 2011, the IRS determined that the definition of crude oil for purposes of the oil spill liability trust fund does not include tar sands or oil sands.  Yet there is no good reason for this special exclusion.Tar sands are refined using the same processes as those used in the refining of crude oil, and oil spill liability trust fund revenues are used to clean up oil spills from oil derived from tar and oil sands.No distinction exists between finished products refined from crude oil or those refined from tar sands.This provision would reduce the deficit by approximately $2 billion over 10 years.

Replacing Sequestration

The American Family Economic Protection Act would delay from March 1, 2013 to January 2, 2014 the across-the-board cuts, or sequester, that was triggered under the Budget Control Act when the so-called "Supercommittee" failed to produce legislation that reduces the deficit.This delay recognizes that the Act fully offsets the sequester in fiscal year 2013 and offsets approximately $25 billion in fiscal year 2014.The Act exempts its budgetary effects from the PAYGO scorecards and makes several technical and conforming changes to the Balanced Budget and Emergency Deficit Control Act of 1985.

Summary of American Family Economic Protection Act

Note that revenue proposals do not appear to add up due to rounding.

SPENDING CUTS

$55 BILLION

Defense savings

$27.5 billion

Agriculture savings

$27.5 billion

 

 

REVENUE MEASURES

$55 BILLION

Buffett Rule

$54 billion

Ending tax breaks for shipping jobs overseas

Less than $1 billion

Closing a tax loophole for the oil industry

$2 billion

 

 

REPLACE SEQUESTRATION UNTIL 1/2/14

$110 BILLION