Following through on a campaign promise to stop rewarding companies that send jobs and money overseas, President Barack Obama on Monday called for eliminating various loopholes that benefit offshore tax havens and ratcheting up overseas enforcement, which he said could save $210 billion over a decade and encourage more job creation at home.
The proposals, which would require congressional action, enjoy support from some Democratic lawmakers, but they face loud objections from others, including Senate Republican leader Mitch McConnell of Kentucky, and from hundreds of the most powerful businesses in the nation, including those that produce technology, pharmaceuticals and food.
Opponents say Obama’s proposals would amount to a tax increase and put them at a disadvantage to foreign rivals who don’t face such tax laws in their home countries.
“I want to see our companies remain the most competitive in the world,” Obama said in announcing his plans at the White House, flanked by Treasury Secretary Timothy Geithner. “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.”
As evidence of the problem, a White House fact sheet noted that:
—The effective U.S. tax rate on U.S. multinational corporations as of 2004, the most recent year for data, was 2.3 percent.
—Eighty-three of the 100 largest U.S. corporations had subsidiaries in tax havens, according to the Government Accountability Office.
—Bermuda, the Netherlands and Ireland — all small, low-tax countries — claimed nearly a third of all foreign profits reported in 2003 by U.S. corporations.
Obama wants to reduce companies’ ability to defer taxes on overseas profits, end many overseas tax havens and aggressively hunt down overseas tax evaders.
To do so, he proposes tightening regulations and hiring 800 more Internal Revenue Service agents. In turn, he said he would pump billions of projected savings into guaranteed funding of a research and experimentation tax credit for companies that invest in jobs in the U.S.
McConnell said Monday that while he supports cracking down on tax evasion and offshore shelters, he doesn’t back the overall plan.
“I cannot endorse a plan that gives preferential treatment to foreign companies at the expense of U.S.-based companies and the 52 million people they employ,” he said.
Marty Regalia, the chief economist for the U.S. Chamber of Commerce, said in a statement following Obama’s remarks that “when you limit deferral, you limit the ability of U.S. companies to compete, you impede growth in the U.S. economy, and you cause the loss of jobs — both at the companies directly impacted and companies in their supply chains.”
In taking on the Chamber, Obama also is taking on big companies, such as Microsoft, DuPont, General Electric and Eli Lilly, among the more than 200 companies and trade associations that have gone on record in opposition to the move since March.
White House press secretary Robert Gibbs said Monday that “we know we’re going to take on some tough interests in that, but the president believes this is a fight we should have and one that we can win.” Gibbs said the changes should be seen as a matter of “fairness, not something that will put them at a competitive disadvantage.”
Under current law, U.S. companies can defer for years paying taxes on profits if they’re putting the money back into offshore subsidiaries. Under Obama’s proposal, companies could take deductions for foreign expenses only if they were paying taxes on foreign profits to the U.S.
How companies can take a foreign tax credit also would be tightened, so that the credit reflects how much foreign tax is actually paid and so it can’t be used on income that isn’t subject to U.S. tax.
Obama would end “check-the-box” rules that allow U.S. companies to set up subsidiaries in tax havens to avoid paying taxes. Going forward, U.S. businesses establishing certain overseas corporations would have to report them on U.S. tax returns.
Obama also would give the IRS more legal authority to get more information from foreign bank account holders in order to determine whether they are attempting to evade U.S. taxes.
In his remarks, Obama criticized “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, N.Y.” He blamed lobbyists for “a broken tax system” and said he is out to change things.
“Nobody likes paying taxes, particularly in times of economic stress,” Obama said. However, he said, “most Americans” recognize that “it’s an obligation of citizenship, necessary to pay the costs of our common defense and our mutual well-being.”
(c) 2009, McClatchy-Tribune Information Services.