Kim Dixon http://blogs.reuters.com/kim-dixon Kim Dixon's Profile Sat, 28 Sep 2013 18:15:06 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.5 U.S. Republicans reject Senate bid to avoid government shutdown http://www.reuters.com/article/2013/09/28/us-usa-fiscal-idUSBRE98N11220130928?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/kim-dixon/2013/09/28/u-s-republicans-reject-senate-bid-to-avoid-government-shutdown/#comments Sat, 28 Sep 2013 17:57:54 +0000 http://blogs.reuters.com/kim-dixon/?p=1264 WASHINGTON (Reuters) – The U.S. government edged closer to a shutdown Saturday as Republicans in the House of Representatives promised to reject an emergency spending bill approved by the Senate and push instead for a one year delay of President Barack Obama’s healthcare reform law.

In the latest round of high-stakes brinkmanship between Democrats and Republicans, Republican leaders said after a closed-door meeting that the House would vote on Saturday afternoon on their latest plan to scuttle the healthcare law, known as “Obamacare.”

Democrats in the Senate have already defeated one House proposal to derail Obamacare and have vowed to do so again.

Since the healthcare measure is attached to a must-pass bill to continue funding the government when the fiscal year ends at midnight on Monday, its failure would close down much of the government for the first time since 1996.

For good measure, Republicans said they would also approve a bill repealing a tax on medical devices that helps fund the healthcare law.

In an effort to signal their seriousness about a shutdown, as well as cover themselves from political fallout, Republicans said they would separately approve a bill to ensure that members of the U.S. military continue to get paid if government funding is cut off.

In a government shutdown, spending for functions considered essential, related to national security or public safety, would continue along with benefit programs such as Medicare health insurance and Social Security retirement benefits for seniors.

But hundreds of thousands of civilian federal employees -from people who process forms and handle regulatory proceedings to workers at national parks and museums in Washington – would be furloughed.

The healthcare law, set for launch on Tuesday, will provide insurance coverage for millions of uninsured Americans through exchanges.

Republicans object strongly to Obamacare, calling it a massive and unnecessary government intrusion into medicine that will damage the economy.

The last government shutdown ran from December 16, 1995 to January 6, 1996 and was the product of a budget battle between Democratic President Bill Clinton and Republicans, led by then-Speaker of the House Newt Gingrich.

(Additional reporting by Caren Bohan.; Editing by Fred Barbash and Christopher Wilson)

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Factbox: U.S. IRS still has long to-do list on Obama health law http://www.reuters.com/article/2013/09/27/us-usa-tax-obamacare-idUSBRE98Q05720130927?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/kim-dixon/2013/09/27/factbox-u-s-irs-still-has-long-to-do-list-on-obama-health-law/#comments Fri, 27 Sep 2013 05:01:14 +0000 http://blogs.reuters.com/kim-dixon/?p=1260 WASHINGTON (Reuters) – As the sweeping new U.S. healthcare law takes hold, the Internal Revenue Service and the Treasury Department are working on a long list of jobs to help implement “Obamacare.”

The IRS is playing a major part in rolling out President Barack Obama’s new insurance system, meant to help millions of uninsured Americans obtain adequate healthcare coverage.

While congressional Republicans fought to dismantle the law, the Obama administration said on Thursday government insurance exchanges for individuals will open on October 1 as scheduled.

But the White House also said it will delay online Obamacare enrollment for small businesses in federally operated healthcare exchanges until November 1, one month later than planned.

In addition, it said the Spanish-language component of online insurance exchanges will not be ready for operation by October 1, but will come online “sometime in October.”

There have been other delays, as well. In July, the administration postponed by a year a rule that large employers offer health insurance to employees or pay a fine to the IRS.

Here are some of the major Obamacare tasks facing the IRS and the Treasury Department.

EMPLOYER MANDATE

This provision says that any business with 50 or more full-time employees must offer affordable coverage to employees, or pay $2,000 to the IRS for each full-time employee not offered coverage, excluding the first 30 employees.

Businesses would face the same tax if coverage they offer is unaffordable or falls short of “minimum essential” levels.

The Treasury Department said in July that the “employer mandate” will not take effect until 2015, postponed from 2014.

With questions still pending on how the mandate will work, the IRS proposed rules last year and held a hearing in April.

REPORTING REQUIREMENTS

As part of the employer mandate delay, Treasury said new reporting rules for businesses with more than 50 full-time workers will be voluntary in 2014.

The IRS in September issued proposed rules to ease some of these requirements by, in some circumstances, reducing demands on employers for information about the full-time status of their workers and the specific costs of health plans.

ADDITIONAL 0.9 PERCENT PAYROLL TAX

Starting this year, high-income earners began paying an additional 0.9 percent payroll tax on incomes over $200,000 for individuals and $250,000 for couples. That came on top of the current payroll tax, which goes toward funding Medicare federal health insurance for the elderly and disabled.

The IRS has proposed rules that explain how to calculate the tax and report a tax liability.

UNEARNED INCOME 3.8 PERCENT TAX

Also this year, there is a new tax on investment income, such as capital gains and dividends. The 3.8 percent levy is on top of a current 20-percent tax for high-income groups.

Well-off taxpayers await instructions from the IRS on the form they will need to fill out. One issue is whether someone is “actively” involved in a business and so not subject to the tax, said David Kautter, tax professor at American University’s business school.

The IRS has proposed rules for the tax and held a hearing in April.

LIMITS ON DEDUCTIONS FOR COMPENSATION

The healthcare law caps tax deductions for certain employers providing health insurance at $500,000 per employee for all current employees. This provision took effect in 2013. In some cases of deferred compensation, it could reach back to 2009.

Final regulations are still pending from the Treasury Department. Proposed regulations were issued in April 2013.

FEE ON HEALTH INSURANCE PROVIDERS

Under the law, the government will collect annual fees from health plans, raising $8 billion in 2014 and ramping up to $14.3 billion in 2018. Subsequent years’ fees will be based on premium growth. Treasury issued proposed rules in March 2013.

‘CADILLAC’ TAX

This is a tax of 40 percent of the value of health plans above levels considered expensive. The tax, imposed on the insurer, is based on the value of plans with coverage costing more than $10,200 in benefits for individuals and $27,500 for families. This tax is a long way off, effective in 2018.

INDIVIDUAL MANDATE

Starting in 2014, most Americans must have health insurance or pay a fee to the IRS. Proposed rules for this were released in January. A public hearing was held on May 29.

The fee will be $95 per year, or 1 percent of taxable household income, in 2014; rising in phases by 2016 to $695 per person, with a cap of 2.5 percent of household income.

Final rules were issued in August of this year.

PREMIUM TAX CREDIT

Also starting in 2014, a tax credit will be available to low- and middle-income individuals for health insurance premiums paid, based on a percentage of income.

The credit is meant to help them pay for obtaining coverage in insurance marketplaces being set up by the states and federal government. The IRS finished the rules for this in May 2012.

(Editing by Kevin Drawbaugh and Mohammad Zargham)

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U.S. IRS still has long to-do list on Obama health law http://uk.reuters.com/article/2013/09/27/usa-tax-obamacare-idUKL2N0HL11520130927?feedType=RSS&feedName=everything&virtualBrandChannel=11708 http://blogs.reuters.com/kim-dixon/2013/09/27/u-s-irs-still-has-long-to-do-list-on-obama-health-law/#comments Fri, 27 Sep 2013 04:59:55 +0000 http://blogs.reuters.com/kim-dixon/?p=1262 WASHINGTON, Sept 27 (Reuters) – As the sweeping new U.S.
healthcare law takes hold, the Internal Revenue Service and the
Treasury Department are working on a long list of jobs to help
implement “Obamacare.”

The IRS is playing a major part in rolling out President
Barack Obama’s new insurance system, meant to help millions of
uninsured Americans obtain adequate healthcare coverage.

While congressional Republicans fought to dismantle the law,
the Obama administration said on Thursday government insurance
exchanges for individuals will open on Oct. 1 as scheduled.

But the White House also said it will delay online Obamacare
enrollment for small businesses in federally operated healthcare
exchanges until Nov. 1, one month later than planned.

In addition, it said the Spanish-language component of
online insurance exchanges will not be ready for operation by
Oct. 1, but will come online “sometime in October.”

There have been other delays, as well. In July, the
administration postponed by a year a rule that large employers
offer health insurance to employees or pay a fine to the IRS.

Here are some of the major Obamacare tasks facing the IRS
and the Treasury Department.

EMPLOYER MANDATE

This provision says that any business with 50 or more
full-time employees must offer affordable coverage to employees,
or pay $2,000 to the IRS for each full-time employee not offered
coverage, excluding the first 30 employees.

Businesses would face the same tax if coverage they offer is
unaffordable or falls short of “minimum essential” levels.

The Treasury Department said in July that the “employer
mandate” will not take effect until 2015, postponed from 2014.

With questions still pending on how the mandate will work,
the IRS proposed rules last year and held a hearing in April.

REPORTING REQUIREMENTS

As part of the employer mandate delay, Treasury said new
reporting rules for businesses with more than 50 full-time
workers will be voluntary in 2014.

The IRS in September issued proposed rules to ease some of
these requirements by, in some circumstances, reducing demands
on employers for information about the full-time status of their
workers and the specific costs of health plans.

ADDITIONAL 0.9 PERCENT PAYROLL TAX

Starting this year, high-income earners began paying an
additional 0.9 percent payroll tax on incomes over $200,000 for
individuals and $250,000 for couples. That came on top of the
current payroll tax, which goes toward funding Medicare federal
health insurance for the elderly and disabled.

The IRS has proposed rules that explain how to calculate the
tax and report a tax liability.

UNEARNED INCOME 3.8 PERCENT TAX

Also this year, there is a new tax on investment income,
such as capital gains and dividends. The 3.8 percent levy is on
top of a current 20-percent tax for high-income groups.

Well-off taxpayers await instructions from the IRS on the
form they will need to fill out. One issue is whether someone is
“actively” involved in a business and so not subject to the tax,
said David Kautter, tax professor at American University’s
business school.

The IRS has proposed rules for the tax and held a hearing in
April.

LIMITS ON DEDUCTIONS FOR COMPENSATION

The healthcare law caps tax deductions for certain employers
providing health insurance at $500,000 per employee for all
current employees. This provision took effect in 2013. In some
cases of deferred compensation, it could reach back to 2009.

Final regulations are still pending from the Treasury
Department. Proposed regulations were issued in April 2013.

FEE ON HEALTH INSURANCE PROVIDERS

Under the law, the government will collect annual fees from
health plans, raising $8 billion in 2014 and ramping up to $14.3
billion in 2018. Subsequent years’ fees will be based on premium
growth. Treasury issued proposed rules in March 2013.

‘CADILLAC’ TAX

This is a tax of 40 percent of the value of health plans
above levels considered expensive. The tax, imposed on the
insurer, is based on the value of plans with coverage costing
more than $10,200 in benefits for individuals and $27,500 for
families. This tax is a long way off, effective in 2018.

INDIVIDUAL MANDATE

Starting in 2014, most Americans must have health insurance
or pay a fee to the IRS. Proposed rules for this were released
in January. A public hearing was held on May 29.

The fee will be $95 per year, or 1 percent of taxable
household income, in 2014; rising in phases by 2016 to $695 per
person, with a cap of 2.5 percent of household income.

Final rules were issued in August of this year.

PREMIUM TAX CREDIT

Also starting in 2014, a tax credit will be available to
low- and middle-income individuals for health insurance premiums
paid, based on a percentage of income.

The credit is meant to help them pay for obtaining coverage
in insurance marketplaces being set up by the states and federal
government. The IRS finished the rules for this in May 2012.

(Editing by Kevin Drawbaugh and Mohammad Zargham)

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Senior U.S. Republican to target state, local tax deduction http://www.reuters.com/article/2013/09/20/us-usa-tax-state-idUSBRE98J0HT20130920?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/kim-dixon/2013/09/20/senior-u-s-republican-to-target-state-local-tax-deduction/#comments Fri, 20 Sep 2013 14:12:46 +0000 http://blogs.reuters.com/kim-dixon/?p=1258 WASHINGTON (Reuters) – The U.S. Congress’ top Republican tax law writer is drawing up a plan to rewrite the tax code and is likely to recommend repeal of a popular and costly federal tax deduction for state and local taxes paid, congressional aides said.

Expected to unveil his plan soon, House of Representatives Ways and Means Committee Chairman Dave Camp is pushing forward with the idea of a tax code overhaul despite expectations that this Congress is too fractured to take on such a big project.

With lawmakers faced off across a deep partisan fiscal divide, Camp’s determination to proceed reflects a personal conviction that the tax code badly needs work.

Whatever plan he draws up could be a starting point for future discussions. Camp, through a spokeswoman, declined to comment for this story.

Several bipartisan deficit-cutting panels have urged repeal of the deduction for state and local taxes paid, including the Simpson-Bowles commission appointed by President Barack Obama and Congress. “It is hard to go into (tax) reform and not go there,” a top Senate Republican tax aide said.

The deduction will be significantly curtailed or axed in any proposal put forward by Camp, said an aide who works for him.

Available only to the roughly one-third of federal taxpayers who itemize, the provision lets taxpayers deduct from their income the value of state and local property tax paid, as well as state and local income or sales tax paid.

Claimed by 46.6 million Americans in 2011, the deduction reduced U.S. tax revenues that year by an estimated $42 billion, making it one of the largest tax breaks in the code.

PAYING FOR LOWER RATES

Camp, like most Republicans, wants to slash tax rates. The cuts he envisions would sharply reduce U.S. tax revenues. Those reductions would have to be offset, at least in part, by new revenues, which could be found by ending some tax breaks.

The one for payment of state and local taxes tends to disproportionately benefit wealthy people in Democratic stronghold states. More than 30 percent of the total value of the deduction in 2011 was claimed by New Yorkers and Californians, according to congressional estimates.

If he targets the deduction, Camp will face stiff opposition from Democrats who control the Senate.

Lobbyists, particularly those for state and local governments, are not letting their guard down either.

Repealing the deduction “would fundamentally change a basic tenet of federalism in the United States – the notion that different levels of government don’t tax each other,” said Lars Etzkorn, a lobbyist with the National League of Cities.

(Editing by Kevin Drawbaugh and Mohammad Zargham)

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IRS chief says backlog from ‘Tea Party’ affair reduced http://www.reuters.com/article/2013/09/18/us-usa-tax-teaparty-idUSBRE98H17X20130918?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/kim-dixon/2013/09/18/irs-chief-says-backlog-from-tea-party-affair-reduced/#comments Wed, 18 Sep 2013 22:19:46 +0000 http://blogs.reuters.com/kim-dixon/?p=1256 WASHINGTON (Reuters) – The U.S. Internal Revenue Service has reduced a backlog of applications for tax-exempt status from political groups that accumulated while the agency was giving extra scrutiny to some of the forms, the acting IRS chief said on Wednesday.

Danny Werfel updated lawmakers at a hearing on the state of affairs at the IRS months after a furor erupted over the scrutiny that some IRS agents applied to applications from conservative groups with “Tea Party” in their names.

The controversy led to the removal of several IRS officials and set off a crisis of confidence in the agency.

Werfel said the IRS has re-trained its agents not to use proper names like ‘Tea Party’ as a reason to give applications added scrutiny, but rather to focus on political activity.

“The name has to be irrelevant,” Acting IRS chief Danny Werfel told lawmakers at a hearing held by a Ways and Means subcommittee in the U.S. House of Representatives.

He said the process of approving applications is still too slow: “It pains me too … it is too slow right now,” he said.

Two congressional committees have been probing the IRS’s handling of applications for tax exempt status by political organizations, interviewing more than two dozen officials and combing through tens of thousands of documents.

Among 132 tax-exemption applications stuck in limbo at the IRS for two months or more, the agency has made decisions on 91, with 70 percent of applicants being approved, Werfel said.

Werfel was appointed by President Barack Obama in May on a temporary basis. John Koskinen has been nominated by Obama to become the permanent IRS chief, pending Senate confirmation.

Republicans released data that they said shows conservative groups suffered stiffer scrutiny and were more likely to be audited.

Among 298 applications that were initially held up, 83 percent were right-leaning and 10 percent were left-leaning, according to a Republican analysis of the data.

Republicans have tried to link the matter to the White House, though no evidence has emerged of Obama administration involvement in the added scrutiny.

For their part, Democrats have released documents showing the IRS also scrutinized liberal-leaning groups seeking tax-exempt status.

(Editing by Kevin Drawbaugh and Ken Wills)

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IRS training video spoofing ‘Apprentice’ draws Republican fire http://www.reuters.com/article/2013/09/06/us-usa-tax-video-idUSBRE98512520130906?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/kim-dixon/2013/09/06/irs-training-video-spoofing-apprentice-draws-republican-fire/#comments Fri, 06 Sep 2013 21:25:08 +0000 http://blogs.reuters.com/kim-dixon/?p=1254 WASHINGTON (Reuters) – Republicans in the House of Representatives on Friday released another embarrassing U.S. Internal Revenue Service training video, this one a spoof of “The Apprentice” television program that shows IRS workers coming up with ideas to save money on conferences.

The House Ways and Means Committee released the 2011 parody of the show starring real estate mogul Donald Trump after a report released in June detailed lavish spending at a 2010 IRS conference, including a video parody of the television show “Star Trek.”

The four-minute “Apprentice” spoof cost $10,000 to produce, Republicans on the committee said.

“Months ago, I demanded the IRS come clean about the time and money it spent to produce these frivolous videos,” said Representative Charles Boustany, chairman of a Ways and Means subcommittee probing IRS spending.

“While we may have no answers, we do have an endless supply of what appears to be the IRS’s idea of entertainment,” he said.

IRS acting chief Daniel Werfel apologized in May ahead of the report by the Treasury Inspector General for Tax Administration that detailed the 2010 conference with the “Star Trek” parody.

On Friday, IRS spokeswoman Michelle Eldridge said the “Apprentice” video was “from a prior era and does not reflect the stringent policies IRS now has in place to ensure that all training videos are made at the lowest possible cost and with appropriate content.”

“Simply put, this video would not be made at the IRS today,” Eldridge said.

Rules put in place this year cut spending on videos to an estimated $139,000 from $2.2 million in fiscal 2012.

The IRS is still recovering from a separate inspector general report in May that criticized the agency for inappropriately scrutinizing Tea Party and other conservative-leaning political groups seeking tax-exempt status.

The IRS Tea Party controversy has lost some of its punch in recent months amid revelations that IRS workers also used key words associated with liberal-leaning political groups. The inspector general is now examining that issue.

(Editing by Kevin Drawbaugh and Vicki Allen)

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U.S. moves to lighten employers’ reporting burden under Obama health law http://www.reuters.com/article/2013/09/05/us-usa-healthcare-rules-idUSBRE98411820130905?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/kim-dixon/2013/09/05/u-s-moves-to-lighten-employers-reporting-burden-under-obama-health-law/#comments Thu, 05 Sep 2013 21:32:29 +0000 http://blogs.reuters.com/kim-dixon/?p=1252 WASHINGTON (Reuters) – The U.S. Treasury Department on Thursday issued proposed rules that would ease the administrative requirements for companies and insurers when they report employees’ health coverage information to comply with President Barack Obama’s signature healthcare law.

The proposed regulations are a key element of the employer mandate portion of the law. Implementation of the rules had been delayed while the Treasury Department attempted to simplify them to address concerns of employers.

The law, known as Obamacare, requires employers with 50 or more workers to offer their full-time employees a minimum level of health insurance coverage or be subject to a fee.

In July, the administration delayed the effective date for the reporting and for the mandate itself to 2015 from 2014.

The proposal issued Thursday would, among other things, eliminate the need for employers to determine whether particular employees are full-time if adequate coverage is offered to all “potentially full-time employees.”

It also would let employers report specific costs for health plans only if the cost is above a certain threshold dollar amount.

Retailers in particular had complained about the law’s detailed reporting requirements and a trade group commended the Obama administration for taking action to soften the burden of the law.

(Reporting by Kim Dixon; Editing by Kevin Drawbaugh, Eric Beech and Cynthia Osterman)

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Romney’s untaxed ’47 percent’ of Americans shrinks, center says http://www.reuters.com/article/2013/08/29/us-usa-tax-47percent-idUSBRE97S1B120130829?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/kim-dixon/2013/08/29/romneys-untaxed-47-percent-of-americans-shrinks-center-says/#comments Thu, 29 Aug 2013 23:27:22 +0000 http://blogs.reuters.com/kim-dixon/?p=1250 WASHINGTON (Reuters) – The “47 percent” of U.S. households who owe no federal income tax, memorably disparaged last year by former Republican presidential candidate Mitt Romney, has shrunk to 43 percent, said the research group that produced the original estimate.

New data on Thursday from the nonpartisan Tax Policy Center said 43 percent of households will owe no federal income tax in 2013, down from an estimated 47 percent in 2009.

Looking further ahead, the center forecast that by 2024, about a third of households will owe no federal income tax.

Republicans for years had cited the center’s figures, but the 47 percent estimate took on a life of its own after Romney was surreptitiously videotaped at a fundraising event during the presidential campaign saying that he would never win votes from that proportion of Americans, who he said relied on government.

Romney, who lost the November election to President Barack Obama, later said his remarks were misinterpreted.

The center’s estimate only encompasses the federal income tax. It does not include state and local, Medicare and Social Security, sales, or other taxes.

About half of the 43 percent will owe no federal income tax because their incomes are too low. The other half will face no income tax because they qualify for credits, such as the earned income tax credit and the child credit.

(Editing by Kevin Drawbaugh and Mohammad Zargham)

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U.S. Treasury grants wide tax recognition to same-sex couples http://www.reuters.com/article/2013/08/29/us-usa-gaymarriage-tax-idUSBRE97S11N20130829?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/kim-dixon/2013/08/29/u-s-treasury-grants-wide-tax-recognition-to-same-sex-couples/#comments Thu, 29 Aug 2013 18:53:07 +0000 http://blogs.reuters.com/kim-dixon/?p=1248 WASHINGTON (Reuters) – All legal same-sex marriages will be recognized for U.S. federal tax purposes, the Obama administration said on Thursday, allowing married gay couples to claim the same tax benefits as their heterosexual peers.

As expected after a landmark Supreme Court ruling in June, the U.S. Treasury and Internal Revenue Service said:

“The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.”

The ruling comes just weeks after the Supreme Court on June 26 invalidated a key portion of a 1996 federal law, known as the Defense of Marriage Act, that barred recognition of gay marriages.

There was some uncertainty after the Supreme Court ruling about how the tax status of gay married couples would be treated in states that do not allow gay marriage.

“Today’s ruling provides certainty and clear, coherent tax filing guidance for all legally married same-sex couples nationwide. It provides access to benefits, responsibilities and protections under federal tax law that all Americans deserve,” Treasury Secretary Jack Lew said in a statement.

“This ruling also assures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change,” he said.

There are about 130,000 same-sex married couples in the United States, according to estimates from the Census Bureau.

A separate Supreme Court ruling in June made California the 13th of the 50 U.S. states to recognize gay marriage. The District of Columbia also recognizes gay marriage.

(Reporting by Kevin Drawbaugh and Kim Dixon; Editing by Howard Goller, Philip Barbara and Cynthia Osterman)

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Corporate breaks at risk in U.S. plans to cut tax rates http://www.reuters.com/article/2013/08/28/us-usa-tax-corporate-idUSBRE97R05920130828?feedType=RSS&feedName=everything&virtualBrandChannel=11563 http://blogs.reuters.com/kim-dixon/2013/08/28/corporate-breaks-at-risk-in-u-s-plans-to-cut-tax-rates/#comments Wed, 28 Aug 2013 05:04:45 +0000 http://blogs.reuters.com/kim-dixon/?p=1246 WASHINGTON (Reuters) – Billions of dollars in U.S. tax breaks prized by manufacturers, energy companies and other industries could be targeted for elimination when two powerful lawmakers are expected to introduce proposals to overhaul the United States’ tax system.

The plans could be introduced as early as September and face tough odds in a Congress where disputes over nearly every tax and spending issue threaten a crisis.

Democratic Senator Max Baucus, chairman of the Senate Finance Committee and Republican Representative Dave Camp, head of the House Committee on Ways and Means, are crafting separate proposals to scrub the tax code of clutter and lower tax rates.

It is the most ambitious congressional effort in a generation, with Camp likely to move first.

The duo are considering trimming a slew of tax deductions and other breaks to offset the cost of cutting the top corporate and individual rates to as low as 25 percent, say aides and others. The corporate rate now tops out at 35 percent, while the highest individual rate is about 40 percent.

Baucus and Camp found the most common ground in potential corporate tax code revisions while working together on the congressional “supercommittee,” a group of lawmakers who tried but failed to forge a debt deal in 2011.

“There were a lot of areas of agreement when they delved into the code,” said a senior legislative aide involved in the supercommittee effort.

For example, both are open to tightening depreciation rules that govern how quickly companies can write off the cost of certain assets, and limiting a widely used manufacturing tax break known as the domestic activities deduction, said the aide, who worked for the panel.

Camp is the top tax-writer in the Republican-controlled House of Representatives and Baucus leads the tax-writing Finance Committee in the Senate, where Democrats hold power.

The tax code has not been completely cleaned up since 1986 when a politically divided Congress forged a deal with Republican President Ronald Reagan.

It will be a heavy lift, but one sure to cause heartburn for those in the corporate world now enjoying the breaks under fire.

Baucus and Camp aim to enact legislation by the end of 2014.

Party leaders worry that forcing members to vote on legislation with tough choices on popular tax breaks may be futile, given a belief among many that Democrats and Republicans will not in the end come together on perhaps the most contentious issue – added revenue.

Nearly every U.S. policy maker avows support for tax reform that would mean trimming some of the $1.3 trillion in annual “tax expenditures” to offset lower tax rates.

Most Democrats, keen to finance social programs, insist an increase in revenue should be part of any overhaul; Republicans want the bill to be “revenue neutral,” meaning the new system would raise the same amount of revenue it does already.

CORPORATE TAX RULES

The two sides are much closer on how to deal with corporate tax rules than on personal tax rules, congressional aides say.

That is because for as much as corporations prize their breaks, individual American voters enjoy even bigger ones, such as the home mortgage interest deduction and the charitable write-off.

The biggest corporate expenditure is accelerated depreciation, which lets companies write off the cost of an asset more quickly than its useful economic life.

“It is pretty much impossible to design a corporate tax reform proposal which reduces the rate to the mid-20s without touching depreciation,” said Marc Goldwein, a senior policy adviser with the Committee for a Responsible Federal Budget, a mainstream group supporting lower rates and trimming breaks.

Nixing these could yield $800 billion over a decade, according to the group. That alone could shave about five percentage points off the top corporate tax rate.

Touching it will be difficult because many Democrats worry about the impact on manufacturers.

Another potential target is the domestic production deduction – a write-off intended for manufacturing costs that critics say is often abused.

The tax break began as a 3 percent deduction from income derived from property manufactured, produced, grown or extracted in the United States and has since grown to 9 percent. A Congressional Research Service report said that one third of corporate activity may qualify for it.

A congressional report describes what staffers called the “Starbucks Footnote,” which states that food processing qualifies, though not retail activities. Starbucks defends the break, saying it uses it for work done at its roasting plants.

Repeal could generate about $100 billion over a decade, according to the congressional Joint Committee on Taxation.

Another tax break facing bipartisan scrutiny is an accounting method known as “last-in, first-out accounting,” a method of tracking inventory that President Barack Obama and some bipartisan tax reform groups have proposed scrapping.

“LIFO has to be repealed,” to generate revenue for the revamp effort, a senior Republican staff member working on the tax overhaul said.

The method treats a company’s most recently acquired goods as having been sold most recently, which minimizes the taxable profit of such goods. Businesses with inventories of goods with prices that tend to rise over time often use this method.

Energy companies are the biggest users of LIFO, according to the Committee for a Responsible Federal Budget.

“We have been all over the (Capitol) Hill for years, but does that mean we are not worried? No,” said Jade West, a lobbyist for the LIFO coalition, which includes such trade groups as the American Petroleum Institute, representing the big U.S. oil giants.

Axing LIFO could generate $80 billion over 10 years, according to a Treasury Department estimate.

(Reporting by Kim Dixon; Editing by Howard Goller and Andrew Hay)

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