RPT-FACTBOX-Taxes loom large in darkening US fiscal picture

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WASHINGTON Oct 22 (Reuters) - With a worrisome U.S. fiscal picture, including a tripling of the budget deficit, policymakers are considering ways to increase revenue.

Raising some individual income taxes, cutting the top corporate income tax while closing loopholes and possibly new types of taxes are all being weighed.

Following are major tax provisions that will expire soon and others that are scheduled to be considered in the next year.

INDIVIDUAL INCOME TAXES

Tax cuts for all individual income brackets introduced by former President George W. Bush in 2001 and 2003 expire at the end of 2010. President Barack Obama has said he supports extending the cuts -- except for earners in the top two income brackets. That would put the top two brackets back up to 39.6 percent and 36 percent. The current top rate is 35 percent.

Lawmakers will need to find a way to pay for the extension of the cuts in the lower-income categories, which will cost more than $2 trillion over a decade.

Obama pledged during the presidential campaign not to raise taxes on families making less than $250,000 and individuals making less than $200,000. Many believe he will have to renege on this pledge as fiscal realities set in.

ESTATE TAX

The rules for estate taxes must be renewed by the end of 2009. The current policy exempts from tax the first $3.5 million in an estate for an individual, with a maximum tax of 45 percent on property above that. Many believe the current policy will be temporarily extended. This is considered must-pass legislation because without action, the tax will disappear entirely in 2010. After 2010, the tax reverts back to pre-2001 levels exempting $1 million in property, with a maximum rate of 55 percent above that.

CORPORATE TAXES

Obama has proposed raising some $200 billion over a decade by tightening international taxes rules for multinational companies.

While the proposals by themselves do not have broad support among Democratic tax writers in Congress, it may be coupled with lowering the corporate tax rate, a move supported by many.

The top corporate income tax rate of 35 percent is among the highest in the world, and top congressional Democrats and Obama's own economic advisers have advocated lowering it.

Among the most controversial of Obama's proposals is a plan to require that companies wait to declare deductions associated with income that has not been repatriated back into the U.S.

INVESTOR, WALL STREET TAXES

Obama and some in Congress have proposed taxing the 'carried interest' earned by hedge and private equity fund managers at the ordinary income tax rate, rather than the 15 percent rate they pay now. That could raise $23 billion over a decade.

The president proposes raising taxes on dividends and capital gains for households with income over $250,000 to 20 percent from the current 15 percent.

NEW REVENUE RAISERS

Many economists believe the base of taxpayers needs to be broadened, by either adopting a new method of taxation or by repealing or limiting current tax preferences for groups such as homeowners and those who get health care through work.

A value added tax, or VAT, is a tax on consumption widely used in Europe that has the potential by one estimate to raise $63 billion a year. Many prominent economists, including Alan Greenspan and Paul Volcker, have said a VAT could be a viable option to help mend the nation's budget holes.

Congress is now mulling whether to extend an $8,000 tax credit enacted to boost the moribund housing market. Extending the credit will cost about $1 billion a month, and critics say it subsidizes those who would have bought anyway. The Obama administration has yet to decide whether to support an extension. [ID:nN21338575]

The mortgage interest deduction, which allows homeowners to deduct the interest they pay on their home loans, has been criticized as an unfair subsidy. Its repeal could raise billions of dollars, though political will would likely be lacking given the deduction's popularity.

Individuals getting health care insurance through work enjoy the benefit tax free. Some say eliminating this exemption would make the system more fair, since those buying insurance in the individual market don't enjoy one. The idea has been discuss in the context of healthcare reform but did not gain traction. For an analysis on the sustainability of large debt loads, please doubleclick on [ID:nN22443509])