Obama targets tax havens, and corporate America shudders
The plan to crack down on individuals who hide cash in foreign accounts has broad support. But eliminating tax havens for American companies could put them at a disadvantage internationally, experts say.
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Ending such "abuse," according to Mr. Obama, could save US taxpayers tens of billions of dollars over the next 10 years – money badly needed to help reduce looming deficits.
Getting Congress to approve such changes might be difficult, however. Big multinational corporations will fight hard to block the portion of Obama's plan that applies to them, as they claim it could put them at a disadvantage in comparison to foreign competitors.
"President Obama's proposals should only be considered in the context of broader tax reform that is designed to increase the competitiveness of US companies," said John Castellani, president of the Business Roundtable, a Washington association of big US firms.
Treasury Secretary Timothy Geithner and Obama announced their proposed changes at a mid-morning White House press event. The administration's basic goal is to end "indefensible tax breaks and loopholes which allow some companies and some well-off citizens to evade the rules that the rest of America lives by," said Secretary Geithner.
The move to target individual tax dodgers has significant international support. But the US is virtually alone among nations in taxing the overseas profits of its domestic corporations. Now, Obama would like to see that tax applied more strictly.
In 2004, the most recent year for which data are available, US multinational corporations paid about $16 billion of US tax on $700 billion of foreign active earnings, according to the White House. That is an effective US tax rate of about 2.3 percent.
Of the 100 largest US corporations, 83 have subsidiaries in nations judged by the US to be tax havens, according to a January 2009 Government Accountability Office report cited by Obama.
In the Cayman Islands, one mailing address alone houses 18,857 corporations.
"I've said before, either this is the largest building in the world or the largest tax scam in the world," said Obama.
Under current law, US firms can take immediate deductions on their US tax returns for expenses used to generate profits overseas. But at the same time, they can defer paying US taxes on those foreign profits, until such time as they repatriate those profits to the American home office.