But the White House also says its plan should be viewed as a rough framework, because its top priority is to get the jobs bill enacted. If Congress approves the president’s jobs plan, it could instead pay for it with other spending cuts or tax increases if that is what the Congressional committee on deficit reduction recommends later this fall.
The bulk of the additional tax revenue under Mr. Obama’s proposal would come from the wealthiest 1.5 percent of taxpayers — individuals with adjusted gross income over $200,000, families with more than $250,000 — who would face new limits on their itemized deductions for such things as charitable contributions and state and local taxes. The initiative is similar to one made by the president during the debt ceiling negotiations two months ago and rebuffed by Congressional Republicans.
In its new incarnation, however, the measure would raise an additional $80 billion in taxes over 10 years by restricting “above the line” deductions, which allow taxpayers to exclude items like foreign earnings and earnings from municipal bonds from their taxable income. The proposal would also require wealthy taxpayers to count some employer health benefits as income.
Other elements of the proposal would end tax breaks for hedge fund managers and other investment partnerships, for corporate jets and for oil companies.
Most of the measures have been pitched by the Obama administration in some form or other since 2009, yet none generated enough support to pass Congress — even when Democrats controlled both houses.
Judging from the reaction Republicans gave Mr. Obama’s initiatives, they will also re-ignite the debate over the role tax increases play in job creation.
House Speaker John A. Boehner, Republican of Ohio, pointed out that tax increases had already been rejected by both parties because of concerns they would squelch growth and discourage companies and business owners from hiring.
Senate Minority Leader Mitch McConnell, Republican of Kentucky, called the administration’s tax initiative “dead on arrival,” and accused the president of suggesting politically provocative tax breaks to stoke Democratic voters. But administration officials brushed aside those complaints, saying that they believed the proposals would raise money while making the tax system more fair.
”We’ve got to make sure that everybody pays their fair share including the wealthiest Americans and biggest corporations. We’ve got to decide what our priorities are,” Mr. Obama said Tuesday outside the Fort Hayes Arts and Academic High School in Columbus, Ohio.
Administration officials said that most of the $400 billion in additional taxes on individuals would come from people whose annual income exceeds $1 million, a group whose tax rates have fallen significantly over the last decade.
Previous efforts to limit deductions on high earners were blocked by nonprofit groups, which warned they would curtail charitable donations, and residents of states like New York that have high income taxes and would have been adversely affected. The president’s new plan was also criticized by securities brokers, who warned that restricting tax deductions for municipal bond earnings would rattle an already shaky market.
“It’s going to mean higher borrowing costs for local governments, state governments,” said Mike Nicholas, chief executive of the Bond Dealers of America. “And the burden is ultimately going to end up hitting the taxpayers.”
The three other tax breaks Mr. Obama hopes to eliminate would raise comparatively small amounts of money for the Treasury.
The tax break for corporate jets, which would raise an estimated $3 billion over 10 years, has been a populist symbol for the administration. Companies can now write off the cost of jet purchases in just five years; the Obama Administration would extend that to seven years, the same period now used for commercial airliners.
Raising taxes on venture capitalists, fund managers and private equity partners is projected to generate $18 billion over 10 years. Under current law, investment partners can classify most of their earnings as “carried interest,” rather than ordinary income, meaning it is taxed at a top rate of 15 percent instead of the top federal rate of 35 percent.
Many labor unions and liberal groups call that a loophole and say it unfairly favors investment managers over wage earners. But on Wall Street, investors say it is appropriate to tax those earnings at rates similar to capital gains because those investments entail risk. They also warn that eliminating carried interest would deter investment at a pivotal moment.
“Raising taxes on investments would only sideline employers and investors and create further uncertainty in an already struggling economy,” said Steve Judge, interim president and chief executive of the Private Equity Growth Capital Council.
Tax lawyers caution that changing the carried interest rules may not raise as much tax revenue as the administration forecast because investors can use accounting strategies to shelter their earnings and effectively count them as capital gains.
Aside from hedge funds, the only industry targeted by the administration is the oil business. Mr. Obama’s plan would end the tax rule that classifies oil drilling as “manufacturing” and that allowed those companies to deduct 9 percent of their production costs this year. That measure, expected to raise $40 billion over 10 years, would also reduce the generous write-offs for drilling expenses and the tax credit for royalties paid to foreign governments.
A similar effort to end subsidies to oil companies died in the Senate this summer, after industry officials, led by the American Petroleum Institute, said it would lead to higher gasoline prices, deter hiring and increase the nation’s dependence on imported oil.
But administration officials say there is growing public support for tax policies that raise the contributions from wealthy Americans and the most profitable industries.
“There’s been an increasing awareness among the public that at a time of shared sacrifice when there are potential cuts in Medicare and Medicaid, you can’t hold harmless hedge fund managers, corporate jets and oil companies,” said Jason Furman, principal deputy director of the National Economic Council.
Article source: http://feeds.nytimes.com/click.phdo?i=03dbc32c1ba39e61cbe57892ee47ba64
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