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The proposed budget would do so by disallowing a proportionate amount of deductible interest expenses for unrelated borrowing.
Other provisions in the budget dealing with life insurance seeks to raise revenues by modifying the rules that apply to sale of life insurance contracts; modify the dividends-received deduction for annuities and universal life insurance; and permit partial annuitization of a nonqualified annuity contract.
The administration’s budget, released today, would:
- Extend the 2001 and 2003 tax cuts for individuals making less than $200,000 and families making less than $250,000.
- Eliminate the capital gains tax on investments in small businesses.
- Impose new taxes on insurance, banking and insurance companies with assets exceeding $50 billion, whether or not they received funding the Troubled Asset Relief Program.
- Impose a cap on itemized deductions for those making over $250,000 with respect to charitable contributions and mortgage interest deductions.
- Modify estate and gift tax valuations such as consistent valuation for transfer and income tax purposes, limitations on valuation discounts, and requiring a minimum term for grantor retained annuity trusts.
The budget proposals also include new disclosure requirements:
- Life settlements: The proposed budget would expand information reporting on the sale of life insurance contracts and the payment of death benefits on contracts that were sold, and would modify the “transfer-for-value” exceptions to prevent purchasers of policies from avoiding tax on death benefits that are received. (For more information about the life settlement proposals, please see Budget Proposal Includes Life Settlement Provisions.)
- Annuities and universal life policies: The owner of the policy would be required to report information on each policy whose investment in a separate account represents at least 10% of the value of the account.
The “industry is disappointed to see these proposals return, proposals that are not helpful in any way to boosting Americans retirement security,” according to an insurance industry official.
The administration description of revenue proposals is available here.
RETIREMENT SAVINGS PROPOSALS
Elsewhere in the budget, the administration gives more details about previously announced retirement savings proposals.
The Obama administration would establish automatic workplace pensions; doubled the Small Employer Pension Plan Startup Credit to $1,000 per year, from $500 a year; and modify the Saver’s Credit to provide a 50% match on retirement savings, up to $1,000 in savings, for families that earn less than $85,000 pear year.
Under the terms of the automatic workplace pension proposal, "employers who do not currently offer a retirement plan will be required to enroll their employees in a direct-deposit IRA account that is compatible with existing direct-deposit payroll systems," officials say in the administration's budget. "Employees may opt-out if they choose. The smallest firms would be exempt."
The administration also has included proposals for encouraging 401(k) plan automatic enrollment programs, and the U.S. Department of Labor will "undertake regulatory efforts to reduce barriers to annuitization of 401(k) plan assets," officials say.