Obama Administration Proposes $60 billion in New Tax Increases

WASHINGTON -- The Obama administration will propose $60 billion in new tax increases over 10 years on wealthy estates, businesses and others to make up for shortfalls in its fund to pay for an expensive overhaul of the health-care system. The measures go beyond plans the White House has announced in the past few weeks. Officials said that upon further analysis they realized that they had overestimated savings and tax increases proposed in February to help pay the bill. Some of the changes will be announced Saturday, with the full proposals coming Monday when the White House releases a detailed analysis of its budget blueprint. Administration officials described the new proposals not as tax increases, but as eliminating "tax loopholes."

One element would raise an estimated $24 billion over 10 years by tightening estate-tax rules, giving taxpayers less flexibility to minimize their liability on inherited goods by claiming a different value on the same item for different transactions.

A second element, which would raise $10 billion over 10 years, would require businesses and others who make payments to corporations to report such payments to the Internal Revenue Service. Under current law, payments to individuals are required to be reported on a 1099 form, but no such requirements exist for similar payments to corporations. The goal is to make sure that the recipient corporations report all their taxable income.

How to pay for a health-care overhaul estimated to cost more than a trillion dollars over a decade is one of the trickiest questions facing the administration and Congress. The White House has proposed a combination of health-care spending cuts and tax increases.

In February, the administration identified $634 billion over 10 years to set aside in a health-care "reserve fund," enough to cover about half the total cost. The money would be needed to pay for new subsidies to help people buy insurance, among other things.

The cuts to government health-care spending are controversial because they mean lower payments for various providers, and they are not expected to raise anywhere near enough money to pay the full tab.

President Barack Obama's main tax proposal -- to cap deductions for the wealthy -- has been all but dismissed by key members of Congress, but officials Friday said they are sticking with it.
The matter was made more challenging after further analysis, when officials realized that their proposals did not actually raise $634 billion.

The spending cuts, originally estimated at saving $316 billion, would actually save only $309 billion, a White House official said. The tax increases, originally estimated at $318 billion, would actually raise $267 billion. That leaves a gap of $58 billion over 10 years. To make up the gap, officials found about $60 billion in new taxes. On Friday, they detailed about $35 billion of that to The Wall Street Journal and said they would reveal the rest of the proposals on Monday.
The provision regarding estates would prevent taxpayers from using two different valuations for the same items. Under current law, the White House official said, some people estimate a particular inherited item at one value for the purposes of the estate tax, but estimate the value of the same item at a higher amount when reporting it as a gift.

That is because the incentive is to undervalue items when paying the estate tax. But the incentive is to overvalue them when reporting gifts, so that the basis will be higher when calculating capital gains if the item is sold. Under the proposal, taxpayers would have to use the same value for both purposes.

The administration is also proposing to more quickly kill what it calls the "paper company loophole." The tax code gives a tax credit to companies that develop alternative fuels if they mix biological products with other fuel. The official said that paper manufacturers have figured out that if they add some gasoline to the sludge they have long produced and used as a fuel that they can qualify. The change will raise less than $1 billion over 10 years.