Factbox: Obama budget likely seeks corporate tax changes

(Reuters) - When President Barack Obama issues his fiscal 2011 budget proposal next month, investors will be watching to see if he again calls for closing loopholes that U.S.-based multinational companies use to account for profits earned overseas.

A soaring U.S. budget deficit has experts predicting the administration will recycle tax proposals that received a lukewarm reception from Congress last year. Last year's package, with corporate tax changes the White House said could raise $210 billion over 10 years, was staunchly opposed by multinational companies.

Following is a summary of corporate tax changes proposed last year by the White House, and some new corporate tax ideas that may find their way into the president's new budget proposal. The president will send his 2011 budget plan to Congress, which then spends months debating and modifying it before the fiscal year begins on October 1.

--------------- PROPOSALS RELEASED LAST YEAR -------------

DEFERRAL OF FOREIGN INCOME

Obama sought to revise a policy that lets U.S.-based global companies defer U.S. tax on income earned abroad, a practice known as deferral. The change would stop companies from deducting expenses associated with that income until recognized in the United States. An exception would be made for research and development costs.

The administration said the change would raise $60 billion over 10 years. A later estimate by the congressional joint tax committee said the change would raise about $51 billion.

CHECK THE BOX

This proposal would revise rules that give companies the power to "check the box" to classify foreign subsidiaries. The administration said last year the law lets companies hide foreign units to minimize tax.

By tightening classification rules, the White House said about $87 billion would be raised over a decade but the congressional joint tax panel estimated the plan would only raise $31 billion.

FOREIGN TAX CREDITS

American companies are now taxed on the income they earn inside and outside the U.S. To avoid double taxation, companies use foreign tax credits to offset foreign taxes.

The administration proposed requiring companies to "pool" foreign tax credits and to stop swapping credits between high and low tax countries to minimize taxes. Combined with another proposal to close a loophole related to foreign tax credits, the plan could raise about $45 billion over a decade, according to the Obama administration. The joint tax committee said the change could raise $56 billion.

OIL AND GAS

Eliminating oil and natural gas tax breaks would raise an estimated $31 billion over a decade, according to the White House. The tax committee estimates a $25 billion savings.

CARRIED INTEREST

The U.S. House of Representatives has several times voted to increase taxes on carried interest - compensation earned by hedge fund and private equity fund managers for money management.

These individuals now pay a capital gains tax of 15 percent; the proposal would treat such compensation as income and therefore be taxed at 35 percent.

Obama included the proposal in his 2010 budget, though the idea has failed to gain momentum in the U.S. Senate. Obama's plan could raise $23 billion over a decade.

LAST IN, FIRST OUT ACCOUNTING

Obama proposed repealing this accounting method for inventories in his 2010 budget. Under LIFO, companies can treat the most recently acquired goods as having been sold during the year, which will allow greater deductions if inventory costs are rising.

The change could raise $61 billion over a decade, according to Obama, or nearly $80 billion, according to the congressional joint tax committee.

------- NEW TAXES THAT MAY APPEAR IN BUDGET PLAN -------

FEES ON BAILED-OUT BANKS

The Obama Administration has been considering new fees or taxes on financial companies that got funds under the Treasury Department's bailout program.

FINANCIAL TRANSACTION TAX

Some U.S. House lawmakers have called for imposing a 0.25 percent tax on over-the-counter derivatives transactions and stock trades, which backers say could raise $150 billion annually. House Speaker Nancy Pelosi has said such a proposal must be embraced globally to prevent companies from moving their businesses abroad. Such a tax would face a difficult time in the Senate, where controversial issues need 60 votes to move forward.

CORPORATE TAX RATE

U.S. companies complain that the top U.S. tax rate of 35 percent is among the highest in the world.

Some key Democratic congressional leaders say they would be willing to cut the top rate in exchange for closing some of the international tax loopholes described above. Some Obama advisers, including Austan Goolsbee, have expressed interest in lowering the corporate tax rate.

EMPLOYER TAX CREDIT

An idea floated by liberal policy groups and the Obama Administration would revive a policy that gave employers tax credits to hire new workers. The approach could help boost the economy, but critics are not convinced such tax credits would spur additional hiring.

(Reporting by Kim Dixon; Editing by Julie Vorman and Tim Dobbyn)