1. The Tax Policy Road Ahead Jeff Kummer Director of Tax Policy Deloitte Tax LLP March 23, 2010

2. 2 Copyright © 2009 Deloitte Development LLC. All rights reserved. Agenda Initial Observations Healthcare Reform “Must Do” Tax Legislation in 2009 2010 President’s FY2011 Tax Proposals 2010 and Beyond

3. 3 Copyright © 2009 Deloitte Development LLC. All rights reserved. Initial Observations –A changed tax policy environment in Washington –Targeted tax increases at selected taxpayers will continue –Healthcare reform status –Industry fees focus –Jobs and deficits driving agenda for 2010

4. Healthcare Reform

5. 5 Copyright © 2009 Deloitte Development LLC. All rights reserved. Simple Math of Healthcare Reform  Concern about uninsured –Expected to increase from 45 to 54 million by 2019  Increasing health care costs –CBO predicts Medicare\Medicaid costs to rise from 4 percent of GDP to 12 percent by 2050  Capture cost savings through “efficiencies” to offset costs Expand Coverage Secure Medicare and Medicaid Capture Cost Savings Gap to Fill With Tax Law Changes

6. 6 Copyright © 2009 Deloitte Development LLC. All rights reserved. Key Healthcare Reform Tax Proposals ProposalHouseSenateWhite House Surtax on upper income individuals 5.4 percent surtax on MAGI in excess of $1 million (joint filers) and $500,000 (single) No proposal Excise tax on high value “Cadillac” plans No proposal40 percent excise tax on plans valued at $23,000 ($8,500 single) or higher beginning in 2013 40 percent excise tax on plans valued at $27,500 ($10,200 single) or higher beginning in 2018 HI wage tax increase No proposal0.9 percentage point HI wage tax increase for upper income individuals Senate proposal plus 2.9 percent tax on unearned income Codification of economic substance 40 percent strict liability penalty for transactions lacking economic substance No proposalIncludes House proposal Corporate information reporting File 1099s on payments exceeding $600 Same

7. 7 Copyright © 2009 Deloitte Development LLC. All rights reserved. Key Healthcare Reform Tax Proposals (cont’d) ProposalHouseSenateWhite House Industry fees2.5 percent excise tax on medical device sales Gross receipts fee raising $2 billion each year ($3 billion after 2017) from medical device manufacturers/importers $2.3 billion annual fee from branded drug manufacturers Fee on health insurers graduating from $2 billion in 2011 up to $10 billion a year in 2017 $2 billion annual medical device excise tax beginning in 2013 $3.85 billion in annual fees on branded drugs beginning in 2011 Delays health insurer fee until 2014 “Black liquor”Restrict eligibility of “black liquor” for purposes of celluosic biofuels producer credit No proposalSame as House Executive compensation No proposalLimit corporate deduction for executive compensation to $500,000 Limit compensation paid by insurance companies Other revenue raisers Repeal worldwide interest allocation Limit treaty benefits

8. “Must Do” Tax Legislation in 2009 2010

9. 9 Copyright © 2009 Deloitte Development LLC. All rights reserved. Tax Extenders –Expired at end of 2009 R&E tax credit Subpart F active financing exemption CFC look-through treatment 15 yr. recovery period for leasehold improvements and restaurant property State sales tax deduction New Markets Tax Credit –Senate and House have approved bills, but disagreement exists over revenue offsets

10. 10 Copyright © 2009 Deloitte Development LLC. All rights reserved. Estate Tax –Estate tax rate is now zero –Political battle over rate and exemption level –Taxwriters plan on retroactive reinstatement to January 1, 2010 –Possibility: freeze at 2009 levels Exemption: $3.5 million per person ($7 million per couple) Rates: 18 to 45 percent

11. President’s FY 2011 Tax Proposals

12. 12 Copyright © 2009 Deloitte Development LLC. All rights reserved. Tax Incentives –Permanent R&E tax credit –Extend certain other expiring tax provisions through 2011 –Bonus depreciation and small business expensing –Remove cell phones from listed property –Additional tax credits for advanced energy manufacturing projects

13. 13 Copyright © 2009 Deloitte Development LLC. All rights reserved. General Business Tax Increases –Repeal LIFO and LCM inventory accounting methods –International tax reforms –Reinstate Superfund taxes –Repeal of fossil fuel tax incentives –Worker classification

14. 14 Copyright © 2009 Deloitte Development LLC. All rights reserved. Individual Income Taxes –Ordinary income rates Reinstate pre-2001 rates above $200,000 single, $250,000 married Permanently extend other rates Reinstate hidden rates (PEP & Pease) –Capital gains and qualified dividends rate 20 percent rate in brackets above $200,000 single and $250,000 married –Cap itemized deductions –Estate tax changes –AMT: extend and index the “patch”

15. 15 Copyright © 2009 Deloitte Development LLC. All rights reserved.

16. 16 Copyright © 2009 Deloitte Development LLC. All rights reserved. Climate Change Legislation –President has made climate change a priority –House approved cap and trade system with roughly 85 percent free allowances and 15 percent auction –Senate versions could go with cap and dividend –EPA regulation of GHGs could drive action –A number of tax issues could arise What is the character of the asset? When is income realized and recognized? Tax treatment of offsets

17. 2010 and Beyond

18. 18 Copyright © 2009 Deloitte Development LLC. All rights reserved. What’s Next? –Tax policy uncertainty –Mid-term elections in 2010 –Extension of 2001/2003 tax cuts –Key dates: –May 28: Memorial Day recess –July 2: Independence Day recess –August 6: Summer recess

19. 19 Copyright © 2009 Deloitte Development LLC. All rights reserved. Outlook –Individual taxes going up: not a matter of if, but when and how high –PAYGO rules provide baseline relief for middle class taxpayers –Focus on “anti abuse” and compliance revenue raisers –President's tax reform panel and Deficit Commission –Corporate tax reform? –Nature of the tax code is unsustainable

20. 20 Copyright © 2008 Deloitte Development LLC. All rights reserved. Questions? Jeff Kummer jkummer@deloitte.com 202.220.2148

21. 21 Copyright © 2008 Deloitte Development LLC. All rights reserved. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Copyright © 2008 Deloitte Development LLC. All rights reserved.