News Service May. 12, 2009, 9:33am
WASHINGTON (Legal Newsline)- Punitive damage awards would no longer be a tax-deductible business expense under a budget proposal made by the White House this week.
The Obama administration is seeking to raise $634 billion to help overhaul the nation's health care system. To raise some of the money, the White House is intent on closing corporate tax loopholes and eliminating deductions, including those for legal payouts.
Theodore Frank, resident fellow at the American Enterprise Institute, told Legal Newsline that taxpayers are not currently subsidizing punitive damages award deductions by businesses.
He noted: the income "lost" because a business deducted the punitive damages award is income realized by the plaintiff and their attorney.
"If the deduction is forbidden, the government will be, in effect, double-taxing the same money," he said.
The White House proposal, Frank said, is tantamount to a giveaway to plaintiffs' lawyers.
"The Obama administration makes much of its claim of being pragmatic, rather than ideological, but this looks like an indirect giveaway to the trial bar rather than a source of government revenue," Frank said.
The proposal, which also includes tweaks to the estate tax, is outlined in the administration's federal budget proposal for fiscal year 2010.
If adopted the change would apply to punitive damages awards either paid or incurred after Dec. 31, 2010.
Also is a proposal to limit tax credits the paper industry can claim for using fuel derived from the processing of paper and pulp.
Another proposal is to cap itemized deductions at no more than 28 percent of income for those in the top two tax brackets.
In all, the Obama administration is seeking to raise $60 billion over 10 years through changes to tax codes.
From Legal Newsline: Reach staff reporter Chris Rizo at email@example.com.