+privateequity Obama backs Buffett rule, higher taxes on oil industry and #privateequity

PRESIDENT Barack Obama overnight proposed a decades-old, widely criticised tax category be replaced by the so-called Buffett rule, which targets the wealthiest Americans.

In the election-year budget proposal, the White House also called for higher taxes on the oil and gas industry, fund managers and estates while allowing Bush-era tax cuts for the wealthy to expire. It also suggested raising dividend taxes on the wealthy to the level of ordinary income.

The tax proposals are part of Mr Obama's broader budget plan, which outlines his re-election campaign message and indicates the White House strategy for another fiscal clash looming after the November elections.

Mr Obama backed a 30 per cent tax on incomes of more than $US1 million, embraced after billionaire Warren Buffett said the government was "coddling the super-rich". The Buffett rule would replace the alternative minimum tax, which was adopted in 1969 to target wealthy Americans who paid little or no taxes. Because the AMT was never indexed for inflation, it began affecting increasing numbers of middle-class taxpayers who had accumulated too many deductions and credits, leading Congress to enact temporary fixes.

"You'd only want to do this in the context of comprehensive reform where you had a completely redesigned tax system in place," a senior Treasury official said overnight.

The official didn't provide estimates of the cost of permanently repealing the AMT.

"The idea would be to focus the AMT on what it's supposed to do, which is ensure that the highest-income taxpayers can't completely avoid their tax responsibilities by taking advantage of various loopholes and special provisions," the official said.

The Buffett rule hasn't gained much traction in Congress, where Republicans see the tax as a form of class warfare.

Mr Obama's previous calls to raise some taxes while cutting them elsewhere haven't raced through Congress, and 2012 is shaping up to be a politically charged year for tax policy. Congress faces the expiration of Bush-era tax cuts at the end of 2012, and Republicans and Democrats are at a standstill over how to reduce the deficit ahead of a lame-duck session of Congress later this year.

Republicans have mostly sought to cut the deficit by reducing spending, while Democrats have sought higher tax revenues.

Mr Obama backed the expiration of 2001 and 2003 tax cuts for households making more than $US250,000 a year and individuals making more than $US200,000 a year. The proposal limits itemised deductions for upper-income taxpayers.

Mr Obama would also raise the top individual income-tax rate to 39.6 per cent for the wealthiest taxpayers starting in fiscal 2013. The plan calls for taxing long-term capital gains at 20 per cent for upper-income Americans and taxing dividends as ordinary income for wealthier taxpayers, instead of the 15 per cent top tax rates for dividends and capital gains instituted during the Bush administration.

Mr Obama also called for returning the estate tax to 2009 levels, or 45 per cent with a $US3.5m exemption. For 2012, the top rate is 35 per cent.

The White House budget proposal also targets hedge fund managers and private equity partners, who pay a 15 per cent capital-gains rate on "carried interest", or the share of profits from an investment fund or partnership given to managers as compensation.

Mr Obama's plan would tax those profits at ordinary income rates, raising $US13 billion over 10 years.

The oil and gas industry was also in the cross hairs overnight, as Mr Obama called for excluding energy companies from a tax break that is aimed broadly at domestic manufacturing. The White House also proposed abolishing a method of inventory accounting favoured by oil companies.

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