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UPDATE 2-Obama Seeks Corporate Tax Break Cuts for Revenue

Monday, 14 Feb 2011 03:34 PM

 

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* Obama revives earlier cuts to business tax breaks

* Cuts unlikely to move outside broader tax revamp

* Tax rates for wealthiest would rise after 2012

(Adds details, comments)

By Kim Dixon

WASHINGTON (Reuters) - U.S. 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 trimming loopholes.

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

Obama's budget proposed halving the U.S. deficit by 2013 and cutting $1.1 trillion over the next decade. [nN14301981]

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.

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

The president's budget did not contain a concrete proposal to revamp the tax code, but called on lawmakers to begin "the process of corporate tax reform," without adding to the deficit, expected to top $1.5 trillion this fiscal year.

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. [ID:nN0447125]

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

"We cannot afford a tax code burdened with special interest tax breaks," the budget summary reads.

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.

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.

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)

© 2014 Thomson/Reuters. All rights reserved.

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