Plan shifts the tax burden to wealthy and businesses

WASHINGTON - President Obama's budget proposal would shift much of the tax burden from middle- and low-income families to the wealthy, while increasing taxes on many businesses.

Oil and gas companies would be hit with big tax increases, as would U.S. companies doing business overseas. Hedge-fund and other private-equity managers would also see significant tax increases.

Most of the tax increases would be delayed until 2011, when the economy will presumably be improved.

Several of the tax cuts would be permanent extensions of those enacted in the economic recovery package this month.

Among them is a new tax credit that provides up to $400 a year for individuals and $800 for couples, and an expanded $2,500 tax credit for college expenses.

The budget outline released yesterday lacked details about the tax provisions. But the policies represent a clear ideological break from the Bush administration.

Tax cuts enacted under Bush for families making more than $250,000 would be allowed to expire in 2011, increasing the top income tax rate to 39.6 percent from 35 percent. The top capital-gains tax rate would be increased to 20 percent from 15 percent.

The tax increases would be the first on high-income earners since 1993.

Republicans and business groups said the tax package would delay an economic recovery that has yet to happen, while Democrats hailed the proposal as a break from the policies that caused the recession in the first place.

"This is a budget about a new era of responsibility," House Speaker Nancy Pelosi said. "This is about accountability, fiscal discipline, cutting waste, fraud and abuse."

Marty Regalia, chief economist at the U.S. Chamber of Commerce, called Obama's tax proposals "the biggest return to the welfare state that we've seen in decades."

Couples making more than $250,000 would face new limits on the amount of deductions they could take on their taxable income, including deductions for mortgage interest, charitable donations and state and local taxes. The change would raise $180 billion over 10 years.

Charities, already hit hard by the recession, rely on those deductions as an incentive for people to donate, while the mortgage deduction is popular among homeowners.

"Over the long term it's going to have a negative impact on the high-end housing market," said Bruce Wein, head of law firm DLA Piper's tax practice.

Sen. Max Baucus (D., Mont.), chairman of the Senate Finance Committee, said the tax package raises concerns and "will require more study."

Some other tax provisions:

The Alternative Minimum Tax would be indexed to inflation, providing a long-term fix that would spare more than 20 million taxpayers from being hit with significant tax increases. The tax was enacted 40 years ago to make sure wealthy taxpayers pay at least some tax.

A tax provision that allows money-losing companies to get refunds from taxes paid in previous years - when the companies were profitable - would be expanded, costing $9.3 billion over 10 years.

Capital-gains taxes on small businesses would be eliminated, saving them $7 billion over 10 years.

Oil and gas companies would face tax increases, including an excise tax for drilling in the Gulf of Mexico. In all, new taxes on oil and gas companies would raise an additional $31 billion over 10 years.

The government would go after more tax dollars from U.S. companies that do business overseas, raising an additional $210 billion over 10 years. Obama talked often during the presidential campaign about ending tax breaks for companies that send jobs overseas.

A new provision would modify some aviation taxes or replace them with user fees, generating an additional $77 billion over 10 years.

Hedge-fund and other private-equity managers would have their profits taxed as income instead of capital gains, raising an additional $24 billion over 10 years.