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Obama Targets Overseas Tax Dodge
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 people 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.
By contrast, 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."
Rosanne Altshuler, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, said some of Obama's proposals have merit. But "the big question mark is whether limiting deferral will lead to more jobs in the U.S., and it's not clear to me that this is what will happen." Instead, Altshuler said, the result may be to create a tax advantage for U.S. firms to be acquired by foreign owners, an "unintended consequence" that "would probably be bad."
"There's a big difference between abusive tax avoidance and legitimate tax policy that recognizes the global economy," said Sen. Charles E. Grassley (Iowa), the senior Republican on the Senate Finance Committee. "To the extent the president continues on the road of cracking down on tax abuse, he can count on my support. But if he's using tax shelters as a stalking horse to raise taxes on corporations at the cost of U.S. jobs, he'll lose me."