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Corporations fear big tax hikes in White House budget

By Kim Dixon

WASHINGTON (Reuters) - Corporations fear they will be the main course on a menu calling for hundreds of billions of dollars in new tax revenue that President Barack Obama is expected to seek in his annual budget proposal, expected within weeks.

Fresh off a political win that raised tax rates on the affluent and averted the so-called "fiscal cliff," Obama is not likely to back away from past proposals he has sought to close tax loopholes and raise taxes on many big companies, said former advisers to the president.

Indeed, some lobbyists who represent Corporate America said they fear Obama could ask for even more than in past years.

"I expect President Obama to add new revenue from business," said Cathy Schultz, a lobbyist with the National Foreign Trade Council, which represents global companies such as Caterpillar Inc and General Electric Co.

The White House last year sought to raise at least $150 billion from multinational companies by closing tax breaks. Obama has long called for curbing tax benefits for oil and gas companies and singled out the industry in recent weeks.

Other moves against big corporate tax benefits he has favored in years past were tightening rules on deferral of taxes on corporate profits earned abroad and restricting companies' flexibility to combine foreign tax credits in ways that save on taxes.

The deal a month ago that averted the automatic steep tax hikes and spending cuts known as the "fiscal cliff" also permanently raised the ordinary income tax rate to 39.6 percent from 35 percent on household income above $450,000.

Jared Bernstein, a former Obama economic adviser, now at the Center for Budget and Policy Priorities, a think tank, said he doubts the president will tamper with the new tax rate.

Instead, he will likely focus on curbing deductions for wealthier individuals. Obama has for years proposed capping the value of deductions and exclusions at 28 percent of income.

For example, individuals subject to the 39.6 percent rate now get a $3,960 tax break for every $10,000 in tax exclusions and deductions. Under a cap favored by the president, they would get only a $2,800 break on that same amount.

For corporations, "the question is whether they're looking at revenue neutral or revenue positive tax reform," said Bernstein, who was among the more liberal of Obama's advisers. "I hope the latter."

The White House typically releases a budget plan on the first Monday in February. It is essentially a wish list to Congress, which is responsible for drafting and voting on federal budgets. The budget this year will be delayed for several weeks because of the last-minute "fiscal cliff" deal, the White House has said.

Obama has called for a revamp of the tax code in several venues. Last year he unveiled a plan to rewrite corporate tax rules. But he has not used much political muscle on the issue, in contrast to what he has done on health reform, immigration and gun control.

The president's annual State of the Union speech on February 12 may show where taxes rank on a crowded White House agenda.

"If they really want to make a push on tax reform ... The State of the Union is where they would kick it off," said Marc Gerson, a former Republican counsel on the tax-writing House of Representatives Ways and Means Committee and now a tax attorney at law firm Miller & Chevalier.

Tax-writing lawmakers in the House and Senate have held hearings for more than a year on potential reforms. Ways and Means Chairman Dave Camp, a Republican, has issued two drafts on corporate taxation, most recently on financial derivatives.

While individual tax rates have been hotly debated recently, there may be more consensus over corporate tax changes. For instance, both Obama and Camp support cutting the corporate tax rate. They disagree on how low it should be, but not by much.

The business community itself is divided. Some businesses benefit greatly from current tax breaks and effectively pay far less than the 35 percent top rate, while others benefit less.

"The issue to me isn't tax reform or not tax reform," said Neera Tanden, another former Obama adviser who is now president of the Center for American Progress think tank.

Rather, she said, it is about whether Republicans will agree to raise revenue. "Obviously a lot of Democrats support revenue on the corporate side," she said.

(Reporting by Kim Dixon; Editing by Kevin Drawbaugh and Dan Grebler)

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