President Obama speaks about tax reform at the White House in Washington Monday.
(Charles Dharapak/AP)Photos (1 of 1)
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.
By Peter Grier | Staff writer/ May 4, 2009 edition
Reporter Peter Grier talks with CSMonitor.com's Pat Murphy about US corporations sheltering profits offshore and fighting President Obama's plan to close tax loopholes.
Reporter Peter Grier
Washington
President Obama vowed Monday to curtail the tax benefits of US companies and individuals who stash cash in overseas accounts.
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.
Obama’s proposal would bar firms from taking deductions for their expenses until they pay tax on the offshore profits. The change, which would take effect in 2011, would raise $60 billion in its first eight years, estimates the White House.
The administration also is proposing to make it more difficult for corporations to shift earnings from one foreign subsidiary to another. It is calling on Congress to pass a package of disclosure and enforcement changes intended to make it more difficult for wealthy individuals to hide their cash overseas.
And the administration’s new budget will contain funds to hire 800 new Internal Revenue Service employees dedicated to overseas tax enforcement, announced the president.
Tightening loopholes for individual tax evaders and adding resources for international enforcement would be good moves, according to Rosanne Altshuler, codirector of the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution.
“These are changes that should be made,” says Ms. Altshuler.
But the situation in regard to the proposed changes for corporations is more complicated, she says.
Most countries tax activities that occur only on their own territory.
If the US curtails the ability of companies to defer their overseas taxes, and leaves in place the current 35 percent tax rate to which income is subject, the result could have unintended consequences.
“More US firms might be acquired by foreign firms. There would be more incentive for start-ups to incorporate outside the US,” says Altshuler.
Business groups are already lining up against the Obama proposal. The changes could hit hard some of the largest and most politically powerful companies in the nation, such as Coca-Cola and General Electric.
The companies argue that curtailing their ability to defer tax on foreign profits would give their foreign competitors a built-in financial advantage.
Some powerful members of Congress reacted cooly to Obama’s proposals.
“Further study is needed to assess the impact of this plan…. I want to make certain that our tax policies are fair and support the global competitiveness of US businesses,” said Sen. Max Baucus (D) of Montana, chairman of the tax-writing Senate Finance Committee.
Comments
2. ApostasyUSA | 05.04.09
ANYTHING that reduces the profits of corporations is something that will be fought. There are no ethics in profits, you make them or you don’t. Success in corporations are measured by profits above all else. What would you expect, for them to stand up and applaud? Please.
4. Colin Blackwell | 05.04.09
Here again is another example of how U.S. corporations (and their senior executives) have established themselves as an elite class that feels they are entitled to stretch the limit of the law. It’s no wonder that more Americans than ever before do not trust big business. The practice of stashing cash offshore deserves much more scrutiny, especially among those corporations who have been begging for bailout money from the government on the backs of the rest of us taxpayers.
5. Jim29 | 05.04.09
Boy oh boy, the bellyaching and list of excuses from the multinationals is in no short supply. ‘We’ll leave the country if you try to make us pay our taxes, yeah that’s what we’ll do!’ Talk about utter BS. How about cutting CEO salaries, and how about the fact that you’ve already outsourced America to death in order to line your pockets. And the cherry is you want those profits kept offshore in untaxable bank accounts. Go Obama.
6. Jeff in Orlando | 05.04.09
Why not lower the corporate tax rate to bring companies from going overseas? If companies stay in America, more jobs will remain in the US. What Obama wants to do is micro-manage the US economy. The companies that will be impacted by this had better speak up as FedEx did when the union card check issue came up. FedEx told the Obama administration if card check was passed, FedEx would not order 30 plus new jets from Boeing. Sarbanes Oxley is another government law that is driving business out of the US. All the economic initiatives Obama is proposing or has proposed has been tried before and failed in other countires - cap and trade,emphasis on green jobs and government management of the economy. The “change” Obama is proposing is going to destroy the economy.
7. Todd Jaremko | 05.04.09
Just remember the words of Senator Llyod Bentsen (former secretary of the treasury) “The consumer pays all taxes”
8. Loretta Sellers | 05.04.09
Go get’m President Obama, the middle class or should I say the working class has been hit very hard with taxes and these “big wigs” get away with murder because the can afford to pay “high power” lawyer to defend their cause. Get’m
9. Dave | 05.04.09
If the big corporations are hurt so bad by this, they will go out of business, small businesses that hire Americans here in our country will take their place, the small business will pay their taxes, and we will all be better off. The big corporations have had their way too long, sending jobs and money overseas.
10. John Fehsenfeld | 05.04.09
I think that the United States should, like other countries, only tax income that is earned with the borders of the country.
11. basementfrog | 05.04.09
The rich supply nothing, corporations provide jobs and they are funded by investors — the majority of investors are mom and pops pension accounts or retirement savings plans. Tax payers are another source of funds: see how George W. got rich off the backs of tax payers when he bought and sold the Texas Rangers. Look at the facts all you uninformed who believe the rich helping society. They don’t. They steal and hord.
The rich rob society and a large portion of their money is made by cheating tax payers out of money: look into how Walmart structures deals with communities and builds stores with tax payer funds. They are subsidized by tax dollars (local and national), and then destroy local businesses by underpricing products they buy in China, further undermining the US job base. They don’t provide good jobs or good benefits and are often in court for sexual harassment and other low life practices. ALL done with tax payer provided subsidies. Then, to add insult to injury, they have off shore accounts to avoid paying taxes!
12. Steve | 05.04.09
Truly nonsense. The plan won’t net $60billion in eight years. 30 at most. Projections never work out. In part because sitting ducks don’t — they will adjust, move out, or whatever it takes. Overall tax revenues will fall as those who can, escape. Hong Kong beckons, as does Singapore and other locals. New Zealand? Australia? Who knows? But there are many who would settle for a few golden eggs rather than a dead goose.
13. Patrick | 05.05.09
An effective tax rate of 2.3%?
Sounds like they’ve had it too good till now.
Go Obama.
14. Gabriel | 05.05.09
When will people realize that corporations don’t pay taxes? They pass whatever tax burden they have on to their customers in the amount they charge for their goods and services. In effect, raising taxes on corporations will cause every single American to pay more for what they buy from these companies. Brilliant.
15. Jerry Diltz | 05.05.09
There should be no income taxes paid by corporations or laborors. All taxes should be paid by consumers including corporations who must by raw materials, services, and utilities. If materials are bought overseas they too should be taxed. This way corporations, the rich, and those who consume more and contribute more to the lessening of the quality of our enviornment will pay more taxes and the truely poor will consume less and pay less taxes.
16. Raja | 05.05.09
Tax the multinationals with cash in foreign tax havens and use the money collected to bailout their parent companies at home.
What a clever way of recycling cash ?
17. Guy | 05.05.09
“Ending such “abuse,” according to Mr. Obama, could save US taxpayers tens of billions of dollars over the next 10 years”..
I found this statement most alarming as it suggests that U.S. corporations are somehow not U.S. taxpayers.. I don’t like the way the political class carves us up into groups. This idea, like all other involving taxes, stinks to high heaven. The politicians take money from the productive and transfer it to those people and projects according to their own values and self-interests.
So what’s wrong with a corporation trying to “hide” their money from being taxed? Why should any of us be forced to have more and more of our produce taxed away so that the political class can use the booty as rewards to continue attracting and serving their constituencies?
The problem, my fellow readers who care about the world around them, is the Democrat and Republican parties serve themselves.
18. Lane | 05.05.09
Did I get this right? Is the idea to not allow companies to deduct expenses on the US part of their income when those expenses are actually related to their foreign income? That seems only fair. Deduct expenses related to US income from the US tax. Deduct expenses related to foreign income in the foreign country for purposes of that country’s income tax. Or did I not read this right?
19. Biff the impaler | 05.05.09
I don’t care.
It won’t happen.
Everybody lies.
Even if it happened by some miracle, it’s a savings of about two day’s cost in Iraq, big whoop.
20. haresh | 05.05.09
What is stopping US companies from moving their registered offices outside of the US? Nothing. They can just form overseas corporations and keep their profits abroad, and this is what exactly US companies should be doing
21. Ashleigh | 05.05.09
Companies shouldn’t be going over seas.
it’s stupid.
we have a country here with people who need the products.
We also NEED the jobs.
We wouldn’t be in such a huge economic mess if all those damn companies wouldn’t have left.
I Support Obama.
22. Doug Lawrence | 05.05.09
I’m going to give an example, and while it is standard GOP logic, I want someone to tell me where the logic goes bad (preferably without all the rhetoric). I have a lemonade stand. I sell lemonade for $1 a cup. Materials, overhead, whatever costs 50 cents a cup. I pay an additional 10 cents per cup in taxes (10% tax rate). Suddenly the government says I need to pay a 15% rate. Do I gladly take 5 cents less profit per cup? No, the price of lemonade goes up, to cover my costs, and maintain my profit margin. The consumer pays my taxes. For everyone who is saying “go Obama” and “make those evil corporations pay!”, aren’t you just cheering for your own tax increase? Businesses don’t pay taxes, they are just ineffieciently passed on to consumers.
23. FredianoB | 05.05.09
The Senate is already sweating. “Not so fast, Barry. Er…do you want to embarrass Ted Kennedy? Bill Clinton? Half or more of the Senate?”
This is going to be a riot to watch unwind itself.
There is no way that the US Senate … exposes it’s little long standing love affair with the Caymans.
Bloomberg is already reporting the frantic backpedalling.
The CO really stepped in it this time. It’s a sign that he wasn’t in the Senate long enough to figure this out for himself.
24. re-tired busisnessman | 05.05.09
David Lawrence –
Here’s what wrong with your logic — or, rather, with your somewhat naive view of the way the business world works. While you’re turning your out lemonade, a conglomerate of other lemonade makers — call it, a sake of convenience, a corporation — moves in to compete with you. They have a battery of expensive lawyers and accountants who advise them on all kinds of neat tricks — including but not limited to “offices” in the Cayman Islands — so they pay NO taxes at all!
“…For everyone who is saying “go Obama” and “make those evil corporations pay!”, aren’t you just cheering for your own tax increase?…” Nope. Just cheering for tax fairness for EVERYBODY.
25. Davis Brant | 05.05.09
Thank you for recognizing that hard working dedicated Americans are looking for parity in living in this country. Yes, corporations enable many to work for a decent living, raising families, and becoming part of this great country we live in. And for this we should be grateful. But, please, captains/captainesess, remember that we rely on each other to contribute to our overall well-being. You drive our roads, look for protection from our adversaries, enjoy pristine wonders of our national landscape, drink clean water, enjoy a free educational system. We all benefit from what we give back. To ignore - or worse, disparage - one’s duties, one’s membership dues says that you don’t care about all of this. No one likes taxes but a democracy stays vibrant when we all contribute.
26. Doug Lawrence | 05.06.09
I got 1 reply, with exactly the point I was looking for. As long as we have a complex tax code full of loopholes and exceptions for the big money special interests, how can the small guy compete? And as long as China and India etc have pro-business tax arangements, how can American companies who pay their taxes compete with them? The root of the problem is our tax system. The fair tax is the most ambitious soloution I have seen. Not only does it address my concerns, but it is the only plan that really addresses both sides on the lib/conserv. economic debate. Conservatives see our taxes as punishment for success and punishment for creating economic opportunity. Libs are disgusted by the largesses of the rich while so many poor suffer. The fair tax taxes consumption. Largess is still penalized, the rich still pay more taxes, but creating jobs is not penalized. The big guys and the little guys pay the same taxes, and we can compete globally. Please take a look at fairtax.org and at least look with an open mind before slamming me.
27. Doug Lawrence | 05.06.09
Does anyone else find this inconsistant? I can’t get my head around it. When it comes to Somali pirates, the conservatives scream “enforcement, enforcement!” and libs say “changing the conditions that create pirates is the only real soloution”. When it comes to american companies “cheating” at taxes, the roles get reversed. Liberals applaud enforcement, conservatives say that the conditions must change to change behavior.
28. kmw | 11.13.09
PUT AMERICANS BACK TO WORK! If I die from lack of health care, I YOU can’t tax me.Wall STreet, and banks isn’t the end all! We are suffering badly!!!!
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1. Mike S | 05.04.09
I suggest each of us write to our state government requesting they insist upon a Constitutional Convention with the goal of an Amendment to the Constitution that totally deletes the Income Tax, thereby returning our country to “We the People”
It has become obvious that Congress no longer serves us.