WASHINGTON (Reuters) - President Barack Obama said on Monday he wants to end three corporate tax breaks and limit tax deductions for the wealthy to pay for his new, $447-billion job creation program.
These and many other tax breaks are being examined by lawmakers as they work to rein in the federal deficit. A congressional super committee on the issue will hold its first formal hearing on Tuesday.
Republicans swiftly criticized Obama’s proposals, which would mean higher taxes for the wealthy, oil and gas companies, hedge fund managers and corporations with private jets. Democrats called for swift passage of Obama’s plan.
Here is a look at a few of the hundreds of tax breaks in the U.S. tax code and their status as the deficit fight unfolds, starting with the items Obama is singling out.
LIMITING DEDUCTIONS, EXEMPTIONS FOR WEALTHY. This is not about closing a single tax break, but rather placing a cap on itemized deductions and some exemptions that can be taken by individuals earning more than $200,000 a year and families earning more than $250,000. Revenue increase: $400 billion.
CARRIED INTEREST. High-rolling managers of private equity and hedge funds pay the lower capital gains tax rate, instead of the income tax rate, on a good chunk of their income, known in the industry as “carried interest.” Tax reformers have long sought to repeal this loophole. Revenue increase: $18 billion.
ENERGY SUBSIDIES. Despite being enormously profitable, many oil and gas companies receive numerous tax subsidies. The industry has successfully defeated past repeal attempts. Obama’s proposal would repeal the tax deduction for intangible drilling costs for oil and gas wells; the deduction for depletion of oil and gas wells; the credit for enhanced oil recovery; and other items that exclusively benefit the energy industry. Revenue increase: $40 billion.
CORPORATE JET DEPRECIATION. This is a largely symbolic swipe at corporations that would end special accelerated depreciation for corporate jets. Revenue increase: $3 billion.
DEFERRAL OF FOREIGN INCOME - Profits earned by U.S. corporations overseas are not always taxed right away. This deferral of offshore corporate tax is at the core of many multinationals’ tax strategies. One result is that an estimated $1.5 trillion in U.S. profits is parked abroad avoiding taxes.
Repealing deferral is high on some Democrats’ lists of tax reform targets. Corporations and some Republicans are pushing, instead, for a new territorial tax system that would permanently exempt active foreign income from taxes.
Pharmaceutical and high technology manufacturers, with valuable intellectual property easily moved around the globe, have a lot at stake in this debate.
DOMESTIC MANUFACTURING DEDUCTION - Making things in the United States, instead of abroad, gets companies a tax deduction. It is claimed by manufacturers; software, music and film producers; utilities, and construction firms.
Oil and gas companies this year fought off proposals to end their access to it. Other sectors could face pressure.
MORTGAGE INTEREST DEDUCTION - Interest paid on mortgages is tax deductible. For ordinary Americans, this tax break is often a vital part of the family budget. But mortgages on some vacation homes and luxury yachts are also tax-deductible. Reformers call this unfair and want to put an end to it.
Reporting by Kevin Drawbaugh; Editing by Howard Goller and Diane Craft