Obama Budget Has $1.9 Trillion Tax RiseBy Ryan J. Donmoyer
Feb. 02, 2010
CNN's Stelter Attacks Fox News For Covering Story Of Illegal Immigrants Raping Girl At School
'Sorry, Not Sorry': Leftists Celebrate Surge In White Working Class 'Deaths Of Despair'
Antifa Thugs Beat Down & Arrested For Attacking Trump Supporters At Huntington Beach Rally
NSA Whistleblower Says NSA Spied On Congress, The Supreme Court And Trump
CNN Caught Faking Another "Live" Interview With Congressman?
Feb. 2 (Bloomberg) -- The Obama administration seeks a $970 billion tax increase over the next decade on Americans earning more than $200,000 and wants to take in an additional $400 billion from businesses even as it retools a proposed crackdown on international tax-avoidance techniques.
The administration budget released yesterday would reinstate 10-year-old income tax rates of 36 percent and 39.6 percent for single Americans earning more than $200,000 and joint filers making more than $250,000 as part of a broad $1.9 trillion tax increase proposal. It proposes to eliminate preferences for oil and gas companies, life-insurance products, executives of investment partnerships and U.S.-based companies that operate overseas.
“This set of tax reforms strikes a balance between targeted tax cuts to spur investments in job growth and innovation here at home, middle-class tax relief to make our tax system more fair, measures to crack down on abuses that send jobs overseas, and long-term fiscal discipline,” Treasury Secretary Timothy F. Geithner said in a statement.
Obama proposed $143.4 billion in new tax cuts for individuals who earn under $200,000. While the budget sets out $93.5 billion in gross tax reductions for businesses, overall they would face a net tax increase.
“The proposed budget’s $300 billion in tax relief over the next 10 years for individuals, families, and businesses is mostly targeted and limited, often to people who don’t have to pay any taxes,” said Senator Charles Grassley of Iowa, the ranking Republican on the tax-writing Senate Finance Committee. “The tax increases in the budget dwarf the tax relief.”
The budget now faces a lengthy debate in Congress.
The $3.8 trillion spending plan for fiscal 2011 would retool three tax proposals aimed at preventing U.S. companies from shifting profits offshore that were introduced last year. Businesses including Redmond, Washington-based Microsoft Corp., Fairfield, Connecticut-based General Electric Co., Camden, New Jersey-based Campbell Soup Co. and Peoria, Illinois-based Caterpillar Inc. complained the changes would impair their ability to compete with foreign rivals.
The biggest change would delete a proposal to abolish “check-the-box” rules, which allow companies to legally disregard foreign subsidiaries in tax havens when they file corporate tax returns. It also scales back a proposal to restrict the ability of companies to defer U.S. taxes on their foreign profits.
In place of abolishing the check-the-box rules, the administration proposed $15.5 billion in new taxes. These would make it harder for companies to abuse so-called transfer-pricing rules to improperly inflate expenses through trades between subsidiaries.
The proposals are part of a broader package of international tax changes the budget estimates will generate $122.2 billion over a decade.
The new proposal takes aim at the transfer of licenses, patents, trademarks and other intangible property to subsidiaries in tax havens. Two administration officials said the change was made after input from businesses.
The officials said the change would force companies to pay immediate U.S. tax when income generated by products for which the license has been transferred to a low-tax countries produces an “excessive return” because of the tax savings.
Insurers, Drug Companies
Martin Sullivan, a former staff economist for the nonpartisan Joint Committee on Taxation in Congress, said the proposal would likely affect insurance, drug and technology companies.
“It’s bigger than the estimate,” Sullivan said, referring to the $15.5 billion revenue projection.
A fee imposed on 50 of the biggest financial firms such as New York-based JPMorgan Chase & Co. and Charlotte, North Carolina-based Bank of America Corp. would raise another $90 billion. Eliminating tax breaks for fossil-fuel industries would produce another $40 billion.
The budget’s tax proposals otherwise are little changed from last year. For businesses, the administration calls for a permanent extension of a credit for research and for a $33 billion credit for small businesses that hire workers. It seeks renewal of a temporary tax incentive worth $38 billion for companies to buy equipment by offering a 50 percent write-off rather than slower depreciation over time.
Senate Finance Committee Chairman Max Baucus, a Montana Democrat, and House Ways and Means Committee Charles Rangel, a New York Democrat, pledged to act quickly on tax legislation to stimulate hiring.
Baucus reiterated his preference for delaying action on Obama’s international tax reforms until Congress tackles a more comprehensive overhaul of the tax laws.
“I intend to work in the Finance Committee to prepare for comprehensive tax reform that will meet the goals of making U.S. businesses more competitive globally and making America a more attractive location for business investment,” Baucus said.
For individuals, the budget allows lower tax rates established under President George W. Bush for those in the top two brackets to revert to 36 percent and 39.6 percent, from 33 percent and 35 percent currently. Capital-gains and dividend tax rates would increase to 20 percent for people earning more than $250,000.
According to Internal Revenue Service data, 4.5 million U.S. tax returns out of 143 million filed reported adjusted gross income in excess of $200,000 in 2007, the last year for which data was available.
Extend the Cuts
Obama asked Congress to extend all of Bush’s tax cuts that apply to Americans earning under $250,000. He also proposes almost doubling a tax credit that helps Americans pay for child care and increasing federal subsidies for Individual Retirement Accounts.
The budget assumes the federal estate tax, which expired Jan. 1 and was replaced with a capital-gains tax, will be reinstated retroactively with a 45 percent rate applied when married couples’ estates exceed $7 million. If Congress doesn’t act, the estate tax in 2011 will be reinstated to a 55 percent rate applied to estates valued at more than $1 million.
Obama’s budget also assumes Congress will continue to index the alternative minimum tax for inflation. The minimum tax can impose higher rates on families earning between $75,000 and $500,000 when their deductions are too high relative to their income. It was originally intended to affect only millionaires and is now ensnaring people with lower incomes because it was never indexed for inflation.
The budget proposes to require general partners at private-equity firms and other investment partnerships such as venture-capital firms and hedge funds to pay ordinary income-tax rates on their compensatory share of profits called “carried interest,” which currently qualifies for the 15 percent capital-gains treatment. That proposal, which would exempt real- estate partnerships, would raise $24 billion.
The plan also urges repeal of a law requiring workers to pay taxes when they use employer-provided mobile phones and similar equipment for personal reasons.
In addition, the budget revives a proposal from last year that would limit the value of itemized deductions for gifts to charities, investment expenses and mortgage interest. People in the highest brackets would be able to deduct 28 percent of such expenses, instead of a percentage equal to their top marginal tax rate.
It resurrects taxes on businesses, including the elimination of $36.5 billion in tax preferences for the oil, gas and coal industries.
More broadly, the budget again proposes to repeal an accounting method known as “last-in, first-out” that benefits oil companies, retailers, textile makers, consumer-products companies and others that keep a lot of inventory in inflationary environments. That repeal would generate $59 billion over the decade.
To contact the reporter on this story: Ryan J. Donmoyer in Washington at [email protected]