Budget Deficit And Tax Foreclosure Properties

Congressional committees will discuss President Obamas proposed 2010 budget with Treasury Secretary Tim Geithner, Federal Reserve Chairperson Ben Bernanke and White House Budget Director Peter Orszag. The key question would be how the Obama administration's proposed budget can reduce the country's deficit of $2 trillion over a ten-year period.

Orszag is anchoring his estimates on four key factors: economic recovery, limitations on corporate tax breaks, collection of more revenues from higher-income taxpayers and downsizing of the U.S. involvement in Iraq. His assumptions include a 3.2 percent growth in GDP in 2010, four percent in 2011 and 4.6 percent in 2012, which are roughly the same as those estimated by the Federal Reserve. Some analysts said Obama and his economic advisers are being too optimistic. Aside from continued lender foreclosures, the number of tax foreclosure properties is also an indication of a bleak economy. But Orszag says large increases in GDP are not unusual when the starting point is very low. When the number of lender foreclosure properties, including tax foreclosure properties, is significantly reduced, the housing market rises, helping restore the economy.

Administration officials say the country's recovery that will result from Obamas efforts to control lender foreclosures, indirectly including tax foreclosure properties, will lower the deficit by lowering the fund needed to finance rehabilitation efforts.

The administration also hopes that the expiration of the tax cuts for singles earning over $200,000 and married couples earning over $250,000 will cut off $637 billion from the deficit. Increases in income taxes for this group will surely have an effect on the number of tax foreclosure properties, as the sources of their tax payments are reduced.

Savings from corporate tax changes are also being considered by Obamas economists. They expect to gain $354 billion by repealing several tax benefits for the oil and gas industries. Some ordinary workers would wonder how many tax foreclosure properties would be saved if they are also given tax breaks.

One particular corporate tax policy that would be revised to be able to collect $210 billion to reduce the deficit is the tax deferral policy granted to American multinational corporations. Current tax policy allows U.S. companies to defer their tax payments on profits earned by their subsidiaries operating outside the country. Some would wish for a tax deferral that could save their assets from becoming tax foreclosure properties.

Dan Clifton, policy research head at Strategies Research Partners LLC, is uncertain how members of the U.S. Congress will react to the corporate tax deferral, as part of their constituents are corporations that run operations abroad. He said legislators' positions on the issue will be largely driven by the interests of their states.