Feb 28 (Reuters) - Tax "loopholes," as President Barack Obama and the Democrats call them, are at the heart of a political battle over the $85 billion in across-the-board federal spending cuts to kick in on Friday if Congress does not act.
Obama and the Democrats want to kill many of these tax breaks. Republicans sometimes say they want to close tax breaks, too, but they have offered few specifics about which ones.
The Democrat-controlled Senate is set to vote on a bill on Thursday to prevent the automatic cuts, known as the sequester, partly by ending tax breaks. That would raise government revenues and prevent the need for some of the budget cuts. But the bill is widely expected to fail. Nearly all Republicans oppose raising new tax revenues to stave off cuts.
Below are some of the tax breaks that Obama has targeted for closure in the past and the ones that are in the Senate bill.
CARRIED INTEREST. Preferential treatment for private equity, venture capital and other financial managers that lets them pay the 20 percent capital gains rate on much of their income, instead of the higher individual income tax rate on wages.
OIL AND GAS SUBSIDIES. Energy sector tax breaks including the oil and gas well-depletion allowance; the domestic manufacturing deduction on oil and gas, and expensing of intangible drilling costs.
LAST IN, FIRST OUT (LIFO) ACCOUNTING. An accounting technique used in some industries, especially oil and gas. Companies say this change would force them to revalue old inventory to higher prices.
PROFIT DEFERRAL. A deduction for interest expenses on foreign earnings for deferred taxes.
FOREIGN TAX CREDIT POOLING. A loophole that lets companies claim more in tax credits than would be paid in U.S. taxes by altering which of their foreign units pay out dividends.
INTANGIBLE PROPERTY. A tax break that allows U.S. companies to shelter overseas profits derived from intangible property, such as royalties from drug patents.
CORPORATE JETS. A tax break used by corporate jet owners to depreciate fleets.
MINIMUM OVERSEAS PROFITS TAX. A minimum tax on overseas profits and using the revenues to help companies invest in the United States.
DEMOCRATS' SENATE BILL
BUFFETT RULE. Named after billionaire investor Warren Buffett, a new 30 percent minimum tax would be applied on household adjusted gross income, phased in between incomes of $1 million to $5 million.
OIL FROM TAR SANDS. Oil derived from tar sands would be added to a list of petroleum products that pay into a liability trust fund to help clean up after oil spills.
DEDUCTION FOR MOVING OVERSEAS. This provision would end the ability of companies to take tax deductions for costs associated with moving plants and jobs overseas.
FISCAL CLIFF TAX BREAKS
Even as partisans squabble over tax loopholes, some of the same types of tax breaks were included in the year-end "fiscal cliff" deal increasing most individual tax rates.
OFFSHORE FINANCING INCOME. Renewed a tax break on financing income abroad used by major corporations like General Electric.
WIND ENERGY. Extended a tax credit for wind energy.
BONUS DEPRECIATION. Extended, in part, a tax break that lets businesses immediately depreciate certain new capital outlays and equipment investments.
R&D CREDIT. Renewed a credit for research and development. Politically popular, the credit is heavily used by software, drug and aerospace companies. Some say the credit helps the biggest companies that would do the research even without it. (Reporting by Kim Dixon; Editing by Kevin Drawbaugh and Philip Barbara)