Obama Calls for New Curbs on Offshore Tax Havens

President Obama presented a far-reaching set of proposals on Monday that are aimed at the tax benefits enjoyed by companies and wealthy individuals harboring cash in offshore accounts.

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Doug Mills/The New York Times
While most Americans paid their fair share of taxes, President Obama said, “there are others who are shirking theirs, and many are aided and abetted by a broken tax system
These steps, he said, would be the first in a much broader effort to fix a “broken tax system.”

Mr. Obama made the announcement in the Grand Foyer of the White House, standing alongside Treasury Secretary Timothy F. Geithner and the Internal Revenue Service commissioner, Douglas Shulman. His remarks echoed the sentiment he voiced again and again during the presidential campaign, when he pledged to crack down on "illegal overseas tax evasion."

The proposed tax overhaul, which will be fully unveiled later this week when the White House presents a more detailed budget, could help raise $210 billion in revenues over 10 years, the administration estimates.

While most Americans paid their fair share of taxes, Mr. Obama said, “there are others who are shirking theirs, and many are aided and abetted by a broken tax system.” Multinationals, he said, paid an average tax rate of just 2 percent on their foreign revenues. And some wealthy individuals hid their fortunes in foreign tax havens.

The president thus set up a frontal clash with big business over the tax advantages enjoyed by companies with extensive overseas operations.

Large multinational companies like Microsoft, General Electric and Cisco Systems have been bracing for such an initiative from the Obama administration. Critics of the approach say that it could lead not to the administration’s hoped-for repatriation of taxes but rather to job losses or higher prices as companies try to compensate for a greater tax burden.

Marty Regalia, chief economist of the United States Chamber of Commerce, challenged the administration’s reasoning.

“The United States is the only major industrialized country which double-taxes the overseas earnings of our companies,” he said in a statement. By limiting companies’ ability to defer tax payments, he said, “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.”

Senator Mitch McConnell of Kentucky, the Republican leader, said he supported tax reform and efforts to crack down on tax evaders. But, he added, “I cannot endorse a plan that gives preferential treatment to foreign companies at the expense of U.S. companies.”

He called the plan “a significant tax increase on companies representing 44 percent of total U.S. private employment” and said that in the depths of recession, it seemed “particularly harmful to our shared goal of creating more American jobs rather than driving them overseas."

President Obama addressed some of the concerns Monday, saying that “I want to see our companies remain the most competitive in the world” but that the way to do that was “not to reward companies for moving jobs off our shores or transferring profits” abroad.

One key proposed change would restrict companies from deferring the payment of taxes on profits earned overseas. Administration officials said the plan would keep businesses from taking deductions against their taxes by inflating the amount of foreign taxes they paid.

Mr. Obama raised the idea frequently during his presidential campaign. In his remarks to Congress in February, as he outlined his priorities for the year, he pledged to make the tax code more equitable by “finally ending the tax breaks for corporations that ship our jobs overseas.”

The White House said that Mr. Obama is seeking to crack down on overseas tax havens in an attempt to “close the international tax gap.”

Mr. Geithner noted that the Group of 20 industrial countries had agreed this year to act against tax havens like Switzerland, Liechtenstein, Luxembourg and Monaco. Amid such rising pressure, 10 countries have agreed to adopt new international standards, he said.

“For years, we’ve talked about shutting down overseas tax havens,” Mr. Obama said. “That’s what our budget will finally do.”

The president hopes to remove the competitive advantage for companies that invest and create jobs overseas, working to replace their tax advantages with incentives to produce jobs in the United States. LINK...