The Obama administration is digging deep into the tax code to find ways to help pay for its ambitious plans to cut taxes for middle-income families and small businesses while also overhauling the nation’s health care system.
The Treasury Department plans to raise $58 billion in taxes over the next 10 years — targeting mainly securities dealers, life insurance firms and large estates — and to close $210 billion in tax loopholes for multinational corporations.
The money will help offset the administration’s proposal to cut taxes by $736 billion for middle-income families and $99 billion for small businesses during the same period, Treasury officials said Monday.
The additional $58 billion in revenue, highlighted along with dozens of other changes to the minutiae of the tax code, would help fill a gap in the administration’s $634 billion fund to help pay for major health care changes. The shortfall developed after revenue projections fell short.
The difficulty of making projections during the economic crisis was highlighted Monday when the White House also raised its estimate for this year’s budget deficit as the recession increased spending on government benefits and reduced the amount of taxes people paid. The Office of Management and Budget estimated the deficit would reach $1.84 trillion, a 5 percent increase over the administration’s estimate released in February.
Obama administration officials downplayed the new deficit figures and stressed the need to pass its budget proposals, which they insist are needed to reinvigorate the economy and level the playing field for average taxpayers.
“We are taking the next step in creating fairness in our economy by ending loopholes that allow companies to avoid paying taxes while millions of hardworking families and small businesses pay their fair share,” Treasury Secretary Timothy Geithner said in a written statement.
But the higher deficit figures and additional proposed taxes, along with details of corporate tax breaks the Obama administration wants to ax, led to sharp criticism of the White House from some Republican lawmakers and business groups. It was a taste of the battle to come on Capitol Hill, where lawmakers and lobbyists have prevented some of the proposed changes in the past.
“The administration’s displayed an insatiable appetite for spending and they need to get money wherever they can. So they use the tax code the way Willie Sutton used a gun,” said Martin Regalia, vice president for economic and tax policy at the U.S. Chamber of Commerce, referring to the famous bank robber.
The $58 billion in new tax proposals includes $24.2 billion from changing the way assets in estates are valued, $12.8 billion from modifying rules for some life insurance company products and contracts and $2.6 billion from changing the way income is treated for some dealers of equity options and commodities.
Insurance groups protested the changes Monday.
“Seventy-five million American families rely on the products offered by life insurers for their financial and retirement security,” said Frank Keating, president of the American Council of Life Insurers. “This is absolutely the wrong time to make it more expensive for families, as well as U.S. businesses, to obtain the security and peace of mind our products provide.”
Obama last week riled business groups by vowing to crack down on overseas tax loopholes that he said multinational corporations were abusing. Treasury officials Monday released details of several changes to tax benefits for some overseas investments.
One change, for instance, would eliminate a federal rule that now allows companies to take an immediate tax deduction for overseas investments while delaying tax payments on overseas income. Federal officials, noting that taxpayers generally can’t defer their tax bill, argue that it’s unfair to let companies do so.
The Chamber of Commerce blasted the revisions.
Regalia disputed that the provisions were loopholes, saying they were longstanding parts of the tax code designed to help companies compete globally.
He argued that the tax deferral was designed to offset the competitive disadvantages facing U.S. companies. Such disadvantages, he said, include the requirement to pay taxes on foreign earnings both to those other countries as well as to the United States when the money is sent home. Most other countries don’t require their companies to pay taxes on foreign earnings, he said.
“I fail to see, and have not heard anything from the administration that explains, how increasing the tax on a U.S. company operating abroad will create jobs at home,” Regalia said. “They’re trying to compete against foreign multinationals, selling the same products in the same markets that don’t have the same tax issues.”
Treasury officials also outlined plans to eliminate $36 billion in tax breaks for oil companies for activities such as exploration and drilling and to reinstate excise taxes used to help pay to clean up federal Superfund environmental sites. The excise taxes — on hazardous chemicals, domestic crude oil and petroleum production, as well as a corporate environmental income tax — expired in 1996 and would generate about $16.7 billion over 10 years.
The proposals came as this year’s projected deficit continued to climb. Though the deficit was now expected to rise about $90 billion this year, the budget office projected Monday that it would drop from $1.84 trillion this year to $1.25 trillion next year and fall to $512 billion by 2013.
Economists said a growing deficit was typical during a recession and the increase was probably not large enough to have an impact on the U.S. economy.
“I wouldn’t change my inflation forecast based on this,” said Nigel Gault, chief U.S. economist for IHS Global Insight. “I would be surprised if any economist did.”
Republicans seized on the new estimate to criticize the White House’s deficit spending.
Senate Republican Leader Mitch McConnell of Kentucky noted that the $90 billion increase in the deficit in the new projection swamped the projected savings of all the cuts that White House has proposed in recent weeks.
Several economists said the near-term budget deficits do not risk increasing inflation or interest rates because the recession is depressing demand for goods and services. But the risk rises if the federal government continues to run large deficits as the economy recovers.
“The question is not whether we’re going to run big budget deficits now. The question is: Two, three, four years from now, is the Obama administration going to make a big commitment to deficit reduction?” said Gus Faucher, director of macroeconomics for Moody’s Economy.com
(c) 2009, Tribune Co. Source: McClatchy-Tribune Information Services.