Spokane7
61°
May 5, 2009 in Nation/World
Tax plan reels in cash held abroad
Obama proposal aims to raise money, targets offshore jobs
President Barack Obama listens Monday as Treasury Secretary Timothy Geithner talks about reforms they’re proposing to the U.S. tax system.
(Full-size photo)
WASHINGTON – President Barack Obama on Monday announced a major offensive against businesses and wealthy individuals who avoid U.S. taxes by parking cash overseas, a battle he said would be fought with new tax laws, new reporting requirements and an army of 800 new IRS agents.
During an event at the White House, Obama said his proposal would raise $210 billion over the next decade and make good on his campaign pledge to eliminate tax advantages for companies that ship jobs abroad.
“I want to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens,” Obama said, flanked by Treasury Secretary Timothy Geithner and Internal Revenue Service Commissioner Douglas Shulman.
The nation’s largest business groups assailed the proposal, arguing that it would subject them to far higher taxes than their foreign competitors must pay and ultimately endanger U.S. jobs. Key Democrats were cool to the plan and said Obama’s ideas should be considered as part of a broader effort to streamline the nation’s complex corporate tax code.
“Further study is needed to assess the impact of this plan on U.S. businesses,” Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, which has jurisdiction over U.S. tax law, said in a written statement. “I want to make certain that our tax policies are fair and support the global competitiveness of U.S. businesses.”
Monday’s announcement offered the first details of a tax plan that was sketched out in the $3.4 trillion budget request that Obama sent to lawmakers earlier this year and that Congress approved last week. If the measures do not survive congressional scrutiny, the lost revenue would increase already-elevated deficit projections, unless lawmakers find money elsewhere.
The proposal takes aim at what corporate executives consider to be one of the most critical features of the U.S. tax code: permission to indefinitely defer paying U.S. taxes on income earned overseas.
Currently, U.S. companies can avoid paying taxes on foreign profits until they bring the money home. So a U.S. company doing business in Ireland, for example, must pay the Irish tax of 12.5 percent, like every other company doing business in Ireland. But the U.S. firm would owe an additional 22.5 percent to the U.S. Treasury (the difference between Ireland’s tax rate and the 35 percent U.S. tax rate) unless it reinvests the money overseas.
Obama argues that the current system gives tax breaks to U.S. multinationals at the expense of companies that operate solely on American soil. In 2004, the most recent year for which statistics are available, U.S. multinationals paid an effective U.S. tax rate of just 2.3 percent on $700 billion in foreign profits, according to the administration.
“It’s a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York,” the president said Monday.
To level the playing field, Obama would bar firms from taking deductions for expenses that support their overseas investments until they pay U.S. taxes on the profits. He would also crack down on firms that overstate their foreign tax bills. And he would reverse a Clinton-era rule known as “check the box,” which permits firms to more easily transfer cash between countries. In practice, Obama officials said “check the box” has been used to shift income away from higher-tax countries and into tax havens such as Bermuda and the Cayman Islands, allowing firms to reduce their tax bills both at home and abroad.
Those provisions would take effect in 2011, and would raise about $190 billion by the end of the next decade. In return, Obama proposes to make permanent an existing tax credit for companies that spend money on domestic research and development programs, worth about $75 billion over the next decade.
Obama also proposes to crack down on wealthy individuals who evade taxes through offshore bank accounts, primarily by targeting financial institutions in tax haven jurisdictions. That plan, which would net another $9 billion over the next decade, appears to have few opponents.
More than 200 U.S. companies and trade groups have signed a letter asking congressional leaders to oppose Obama’s proposal to limit their ability to defer U.S. tax payments. The letter, signed by Alcoa, General Electric, McDonald’s and Microsoft, among others, warned that restricting the deferral rules would make it difficult to compete abroad.
The U.S. Chamber of Commerce also denounced Obama’s plan. And John Castellani, president of the Business Roundtable, a coalition of the nation’s largest firms, called it “the wrong proposal at the wrong time for the wrong reasons” that will “make us less competitive in the international marketplace, where, by last count, 95 percent of the world lives.”
Obama honors Medal of Freedom recipients as heroes 
Ninch on May 05 at 8:38 a.m.
Congress was going to extend R&D tax credits anyway, ergo not much of a carrot/tradeoff for passing Obama’s tax proposals.
Obama wants to change centuries of American judicial law for “suspected” tax evaders to making them prove they are “not guilty” (aka prove a negative). I think that may even be “unconstitutional.” He also stated that citizenship requires that all Americans pay their taxes (not in the Constitution). I thought Obama was supposed to be a “constitutional” lawyer.
Obama is being very dishonest stating that even though he is removing this corporate tax “loophole” now that in the future all will be fair and equitable with future tax reform (no timeline given). Sure this is still HIS campaign rhetoric, but he should also have paid attention to McCain’s campaign speak… Removing this tax loophole is a double taxation (foreign country corporate tax + U.S. corporate tax)… and the U.S. has one of the highest corporate taxes in the world (35%). Obama cavalierly dismisses this by saying no one pays the full corporate tax because of deductions.
So how does that square with the fact that Obama’s tax proposal would cause Google to pay a total effective corporate tax (foreign and U.S.) of 45.2 percent compared to 27.8 percent last year ? And how would that create more jobs in the U.S.? Especially, when corporations like Google are trying to expand markets into other parts of the globe that do not have internet? (Hint: Think geographically-located servers).
Another example: So struggling GM is trying to expand its market in China (which it is), but it is competing with Japanese automakers. Both must pay Chinese corporate taxes, but under Obama’s plan only GM would be double taxed at home, because Japan does not tax foreign corporate income. Who has the “extra” advantage then? (Hint: Higher corporate taxes mean higher prices.) Well, certainly not GM, and Obama’s tax increase would certainly cause GM to fail…because Obama wants more corporate tax revenues? What will Obama do? Give GM more taxpayer money? I see this as a “downward spiral” with taxpayers being the end loser.
Bottom line… Obama is either truly clueless or his “vision” of America takes precedence over on-the-ground “reality.” Sure he says his tax increases will not take effect until the U.S. economy recovers, but is that really the message he should be sending now to corporate employers? Bottom line… Obama is desperately looking for funds to help pay for his future record budget deficits (and doubling the federal debt), which means more “tax INCREASE” proposals to come.
Ninch on May 05 at 9:21 a.m.
BTW: Both Obama’s and Geithner’s reprimands about people and corporations avoiding taxes is so HYPOCRITICAL when Geithner did not pay his…. and it was not a “mistake” as described by both Obama and Geithner. I think Obama used the term “bonehead” in that context… the same term Obama used for his sitll yet to be fully-disclosed purchase of his house in Chicago. Do not trust those people who have already demonstrated questionable ethics and honesty.