Obama revives corporate tax break cuts

By @ibtimes on

President Barack Obama revived earlier proposals to raise tens of billions of dollars by cutting tax breaks enjoyed by America's biggest companies, ideas that have floundered in Congress for several years.

Obama's 2012 budget request sent to Congress on Monday proposes to raise $129 billion over 10 years by limiting deferral of taxes on income earned abroad and curtailing what the White House calls abuse of foreign tax credits, among other provisions.

Last year's budget proposal was similar, seeking to raise about $122 billion by tightening tax loopholes.

By cutting these and other corporate tax preferences and letting low tax rates for the wealthiest individuals lapse, among other changes, the budget raises about $328 billion over a decade.

Obama's budget seeks to halve the U.S. deficit by 2013 and cut $1.1 trillion over the next decade through spending cuts and tax increases. The deficit is expected to top $1.5 trillion this fiscal year.

Most of the business tax ideas have stalled in Congress in the past two years, even when Democrats controlled both chambers. With Republicans now in power in the U.S. House of Representatives, they are even less likely to move.

Pretty clearly the business revenue raisers are retreads of last years, said Clint Stretch, a principal at Deloitte and a former congressional tax staffer. They could not pass the 111th Congress; hard to see how they could pass in the 112th.

Another proposal would limit excess returns on offshore transfers of intellectual property, a move to curb firms shifting profits among countries to minimize their taxes.

The White House also boosted the amount it wants to raise by trimming tax preferences for oil, gas and coal companies, to $46 billion over a decade from $38 billion a year earlier.

TAX CODE OVERHAUL?

Lawmakers from both parties say they back a major tax code overhaul instead of tackling individual tax provisions.

Obama did not offer a concrete proposal to revamp the tax code, but his budget called on lawmakers to begin the process of corporate tax reform, without adding to the deficit.

Obama and Republicans both want to trim the top marginal 35 percent corporate tax rate, but differ on whether new revenues should be found elsewhere in the budget to offset the cost of this cut. This disagreement will likely delay an overhaul for a few years.

Obama's plan ties rate cuts to paring targeted tax breaks, which will lead to a major lobbying blitz among industries vying to preserve their special treatment.

Influential Republicans blasted the proposal.

Rather than setting the stage for broad-based, pro-growth tax reform, this budget goes in the opposite direction with more tax hikes, House Ways and Means Committee chairman Dave Camp said.

An administration official who spoke on the condition of anonymity said corporate tax changes could occur before an overhaul of the tax code for individuals.

In positive news for business, Obama renewed a call to make permanent the research and development tax credit, and called for boosting the credit, at a cost to the government of $106 billion over a decade.

TAXES ON WEALTHY WOULD RISE

On the individual tax side, Obama renewed calls to let lower tax rates on high-income earners rise when they expire at the end of 2012 and repeated a bid to raise dividend taxes on high earners to 20 percent, from the current 15 percent. Republicans have stood fast against these tax proposals last year.

Obama also reintroduced his bid to limit itemized deductions for high earners to 28 percent of income, a proposal that has met fierce resistance from lawmakers in recent years.

That provision would fund a fix to the alternative minimum tax, a parallel tax system set up to ensure the wealthy pay some taxes, but which has been increasingly hitting upper-middle class taxpayers.

The White House also revived a bid to tax 'carried interest' - profits earned by fund managers who often pay the lower capital gains tax rate.

The Obama budget would tax those profits at steeper ordinary income rates, but the proposal was narrowed to only apply to financial partnerships.

Carried interest taxes came close to passage in Congress last year, but its fate is now uncertain.

(Reporting by Kim Dixon, editing by Anthony Boadle and Jackie Frank)

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