WASHINGTON (Reuters) - The Obama administration proposed on Monday to raise nearly $60 billion by closing loopholes including those related to the estate tax, and also revived a bid to cap deductions wealthy individuals can claim.
Funds raised from the estate tax and other changes would go to beef up a healthcare reserve fund, a $634 billion pot of money President Barack Obama wants to use to revamp the healthcare system and expand insurance to tens of millions of Americans who lack it.
The proposals “take on what we believe are a series of unjustifiable loopholes, unjustifiable tax breaks that we simply can not afford,” said a senior administration official, who could not be identified under the ground rules of a briefing for reporters.
The White House wants to raise $24 billion over 10 years by tightening rules for the estate tax, a levy on the portion of inheritance that exceeds an amount excluded by law.
Currently, the first $3.5 million of an individual’s inheritance and $7 million of a couple’s inheritance are exempted. The Obama administration would change how assets are valued.
Lawmakers are likely to tackle the estate tax issue this year to avoid confusing changes over the next few years. The tax-cut package enacted under President George W. Bush provides for the estate tax to be repealed for fiscal year 2010 -- October 1, 2009 to September 30, 2010.
If Congress fails to act, estate taxes in fiscal 2011 would revert back to levels that existed before Bush took office. The exemption would fall to $1 million and the top rate would move back to 55 percent from the current top rate of 45 percent.
Republicans, who over the last several years unsuccessfully sought a permanent repeal of estate taxes, are likely to push the Democratic-controlled Congress to accept a higher exemption level and a lower rate, proposals strongly supported by small-business owners and farmers.
The administration official said the proposal would impact less than three-tenths of one percent of all estates.
The proposals need to go through Congress, where their fate is far from clear, and will face fierce lobbying by the business community.
The Obama administration also revived a proposal to cap itemized deductions at no more than 28 percent of income for taxpayers in the top two tax brackets.
Officials recalculated the revenue that would raise, about $267 billion, down from an earlier $320 billion forecast.
The official acknowledged opposition among lawmakers but said Congress is going to need to find money from somewhere for its ambitious agenda and to impose fiscal discipline.
The official said they expect “high powered opposition” to many of the ideas, most notably those boosting international tax enforcement.
Among the tax changes included in the $60 billion sought to raise money for the health care fund is one that would deny deduction of punitive damages paid by companies, and another that would repeal preferential tax treatment for commodities dealers and day traders.
Several proposals long opposed by the business community are in the package, including one that tightens a limitation on deducting interest and the punitive damage deduction change.
“We’re seeing a lot more detail on the U.S. international tax proposal,” said Caroline Harris, tax attorney for the U.S. Chamber of Commerce, which was still dissecting the report on Monday.
“We’re seeing a lot more in terms of information reporting, and I noticed they snuck in denying a deduction for punitive damages,” Harris said. She calls the changes attacks on “legitimate things in the (tax) code.”
Another proposal would limit credits the paper industry can claim for a long-held practice using a fuel derived from the processing of paper and pulp.
The details follow a general description of changes the administration unveiled last week, said to raise $210 billion over a decade, to tighten rules related to overseas investments.
“They have now sort of rounded up everything by the kitchen sink in terms of revenue raisers,” said Clint Stretch, managing principal of tax policy at Deloitte Tax in Washington.
Stretch said the breadth of the proposals may gird the stance of those who want the entire tax system reviewed, instead of taking a piecemeal approach.
An earlier Democratic effort to make similar changes more palatable included trimming the top corporate marginal tax rate, now high among developed nations at 35 percent.
Additional reporting by Donna Smith; Editing by Steve Orlofsky, Bernard Orr