Flavored vodka takes a hit: Obama budget's new taxes

President Obama has plenty of big taxes in his budget proposal.

To achieve $1.8 trillion in new revenue, the president suggested a few of the policies he's raised while battling Republicans over the past four years: taxing higher incomes by capping itemized tax deductions, rolling back domestic-production credits for oil companies, instituting the "Buffett Rule" of a 30 percent minimum tax rate for people making over $1 million in a year, and taxing investment managers' "carried interest" profits as regular income top the list.

But the tax code is a jungle of odd rules, and the penny-pinching side of Obama's budget raises some new taxes (or closes some "loopholes") that might not readily occur to most taxpayers filling out run-of-the-mill 1040s this weekend.

As laid out this week by the Treasury Department in its "green book," a massive spiral-bound document that explains tax changes in the White House budget proposal - it is pale green, and 246 pages - here are some quirky maneuvers the president suggests to offset spending and keep the deficit just a bit lower:

1. A Tax on Flavored Vodka

President Obama wants to tax your Stoli Razberi.

Distilled spirits currently get a tax break if they include flavors, but the president's budget proposal does away with that. Spirits are taxed at $13.50 per proof-gallon (a gallon of 100-proof liquor), but if distillers add flavorings, they can roll back some of that tax: Up to 2.5 percent of the alcohol in those flavoring mixtures is exempt from the spirits tax.

It doesn't sound like much, but the Treasury claims this tax break gives an unfair advantage to flavored liquors, particularly foreign producers whose flavor quotients aren't restricted, as they are for U.S. producers. Heavily-flavored, foreign-made spirits can be sold cheaper, and consumers might be more likely to buy them than they otherwise would, Treasury argues.

The new rule would be good for Jack Daniel's, bad for Absolut Citron.

2. Golf Courses Are No Longer Tax Havens

In a creative tax maneuver, an Alabama land developer was able to deduct part of his golf course.

E.A. Drummond bought real estate on a Gulf Coast peninsula in the 1990s, created a business to build a golf course on it, and developed the land around the golf course. In 2002, he had the business place a conservation easement - a partial restriction of what can be done with a piece of land, for the purpose of conserving it or preserving "recreational amenities," golf among them as the tax code is written - donated that easement to a conservation land trust, and claimed the value of the easement as a charitable-giving tax deduction.

Under Obama's budget proposal, that couldn't be done.

In explaining the proposed change, Treasury protests that such moves have "raised concerns" that the deductions, often claimed by the developers of homes around golf courses, "are excessive," and that they mainly advance "the private interests of donors" not "bona fide conservation activities."

3. A Higher Tax on Cigarettes

President Obama smokes from time to time, but he proposes hiking the tax on cigarettes to pay for early-childhood education.

Cigarettes have been taxed at just under $1.01 per pack, to help pay for the 2009 expansion of the Children's Health Insurance Program (CHIP). In his budget proposal, Obama suggests raising that to $1.95 per pack.

The administration's rationale is, essentially, that cigarettes are harmful.

Citing statistics on smoking-related deaths, Treasury writes, "Excise taxes, levied on manufacturers and importers of tobacco products, are one of the main ways that policymakers can affect tobacco production and consumption."

4. Corporate Jets

Perhaps a dead horse by now, Obama is still beating it.

The so-called "loophole for corporate jets" works like this: Companies can write off the value of their equipment as it depreciates - to encourage investment, the government lets businesses recoup some cost of buying equipment by letting them count its depreciation against their income. The IRS has a schedule for how fast different kinds of equipment "depreciate," and how much of their value can be written off when.

When it comes to airplanes owned by businesses, commercial and freight-carrying planes can be written off in full after seven years. Planes that aren't used for those purposes - corporate jets, crop-dusters, and planes used for firefighting, for instance - can be written off after five years.

Under Obama's budget proposal, noncommercial passenger aircraft are lumped in with commercial and freight planes, meaning businesses can deduct the value of their corporate jets after seven years, not five.

5. Businesses Can't Deduct Punitive Damages

Say you're a business, someone wins a lawsuit against you, and you're required to pay damages. You can write them off.

Not so, under Obama's budget proposal.

The White House plan would not only prevent businesses from deducting punitive damages from their taxable income, it would tax damages paid out by insurers, too: If a business takes out an insurance policy for some kind of liability, and that insurer ends up paying out damages on behalf of the company under its policy, those damages would be added to the business's taxable income.

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Source: http://news.yahoo.com/president-obamas-weirdest-taxes-121018945.html

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