For those who thought that federal tax increases had been settled…think again.
In a statement issued Tuesday morning, President Obama proposed delaying sequestration to craft a compromised budget that would have a mix of some spending cuts and additional tax revenue. Specifically, the President stated that he would be willing to cut spending on social programs so long as they are done “hand-in-hand with a process of tax reform so that the wealthiest individuals and corporations can’t take advantage of loopholes and deductions that aren’t available to most Americans.”
No additional details were provided by the President–which leaves one to wonder what type of “loopholes” might be at risk. Forbes has reviewed the President’s prior unfulfilled tax proposals for the most likely “loopholes” to be changed:
Elimination of “Last in first out” accounting. Under the “last-in, first-out” (LIFO) method of accounting for inventories, it is assumed that the cost of the items of inventory that are sold is equal to the cost of the items of inventory that were most recently purchased or produced. This allows some businesses to artificially lower their tax liability.
Elimination of oil and gas tax preferences. The president’s proposal for corporate tax reform takes aim squarely at the oil and gas industry. This change would repeal the expensing of intangible drilling costs as well as percentage depletion for oil and natural gas wells.
Taxing carried (profits) interests as ordinary income. Currently, in exchange for managing the investments of a private equity fund, fund managers are able to receive allocations of income that are taxed at preferential rates as long-term capital gain and qualified dividends. President Obama has long taken issue with this treatment, and has proposed eliminating the loophole for managers in investment services partnerships and taxing carried interest at ordinary income rates.
Eliminate special depreciation rules for corporate purchases of aircraft. This would eliminate the special depreciation rules that allow owners of non-commercial aircraft to depreciate their aircraft more quickly (over five years) than commercial aircraft (seven years).
Require companies to pay a minimum tax on overseas profits. Income earned by subsidiaries of U.S. corporations operating abroad would be subject to a minimum rate of tax. Thus, foreign income deferred in a low-tax jurisdiction would be subject to immediate U.S. taxation up to the minimum tax rate with a foreign tax credit allowed for income taxes on that income paid to the host country.
Remove tax deductions for moving productions overseas and provide new incentives for bringing production back to the United States. Companies would no longer be allowed to claim tax deductions for moving their operations abroad. At the same time, to help bring jobs home, the President would give a 20 percent income tax credit for the expenses of moving operations back into the United States.