3rd UPDATE: Obama Seeking Tax Changes To Fund Health Efforts
May 11 2009 - 3:20PM
Dow Jones News
The White House on Monday proposed an additional $59 billion in
changes to the tax code that would help pay for the cost of efforts
to cover the more than 40 million Americans without health
insurance, including a substantial tightening of estate and gift
tax rules.
Other new revenue raisers would affect life insurance products,
limit certain accounting methods, and bar the paper industry from
reaping a tax credit for a recycled fuel known as "black
liquor."
Budget documents released Monday reiterate U.S. President Barack
Obama's plans to create a $630 billion "health reform reserve fund"
to help pay for the health-care efforts, which are expected to cost
at least $1.2 trillion over 10 years. Tax provisions in the plan
should cover $325.6 billion of the reserve fund, with the rest
coming from savings to the federal government's health-related
costs.
The centerpiece of the tax proposals - a limit on charitable
deductions for taxpayers in the top two income brackets - was
rolled out earlier this year and remains in the proposal.
But the White House dropped its estimate of how much that
proposal would raise, from $317.8 billion to $266.7 billion over 10
years. The charitable deductions proposal has drawn opposition from
congressional Democrats.
On Monday, the White House added several other tax-generating
proposals to supplement that plan, including proposed changes to
estate and gift tax laws. The plan would require "consistent
valuation (of property) for transfer and income tax purposes."
According to the White House, the estate and gift tax provisions
would raise $24.2 billion over 10 years.
Another proposal would end the paper industry's practice of
combining liquid byproducts from the production of paper - or
so-called "black liquor" - with diesel fuel to receive alternative
fuel tax credits.
The alternative fuel mixture credit is slated to expire at the
end of this year, and lawmakers, including Sen. Max Baucus,
D-Mont., had vowed to shut down paper companies' use of the credit
either by not renewing the credit with respect to "black liquor" or
passing legislation earlier to block it.
The White House is proposing to deny paper companies access to
the credit immediately when legislation to block the tax benefit is
signed by the president.
The budget also seeks to take away some tax breaks for the life
insurance industry, raising $12.7 billion over 10 years, according
to the White House estimate.
Life insurers follow special rules when determining how much to
deduct for dividends received on investments in common stock. The
White House is proposing to further restrict those deductions.
According to a life insurance industry official, that proposal
would fall hardest on insurers that write more policies with
stock-based investments - including the Hartford Financial Services
Group Inc. (HIG), Manulife Financial Corp.'s (MFC) John Hancock
Financial and Lincoln National Corp. (LNC).
In addition, the Obama administration wants to disallow some
interest expense related to life insurance companies take out on
"key personnel," which under current rules may be deducted.
Frank Keating, president and chief executive of the American
Council of Life Insurers, blasted the proposal, saying: "This is
absolutely the wrong time to make it more expensive for families to
obtain the security and peace of mind our products provide."
Another proposal in the bill seeks to improve the enforcement of
current tax laws, including a requirement that some business file
their tax returns electronically. The White House would seek
greater penalties for companies required to file electronically
that did not do so.
The tax enforcement changes would raise an estimated $10.4
billion over 10 years.
The administration in February outlined other provisions that
would raise revenues for the health reserve fund, but through
changes to Medicare payments.
The most significant Medicare provision would put in place vast
reductions in payments to private insurers through the Medicare
Advantage program, creating a competitive bidding system to make
Medicare Advantage payments more comparable to payments through the
government's traditional Medicare fee-for-service program. That
provision is slated to save $175 billion over 10 years.
-By Patrick Yoest and Martin Vaughan, Dow Jones Newswires;
202-862-3554; patrick.yoest@dowjones.com