An End To Tax Havens
I guess the President met with Joe Stiglitz and Paul Krugman last week. Ultimately, these one-off meetings mean little in the context of the larger discussion inside the White House, which appears dominated by the axis of Summers and Geithner. But notably, the President came out the very next week with a plan to put a halt to offshore tax havens.
President Obama will present a set of proposals on Monday aimed at changing international tax policy, calling for the elimination of benefits for companies and wealthy individuals that harbor their cash in offshore accounts.
The president and Treasury Secretary Timothy F. Geithner will announce their plans during a late-morning appearance at the White House. The proposed overhaul in the tax code, which will be fully unveiled in the administration’s budget later this week, could help raise $210 billion in revenues over the next 10 years.
One of the key proposed changes would restrict companies from deferring the payment of taxes on profits earned overseas. Administration officials said the plan also would keep firms 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 a speech 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.”
We have heard the "end tax breaks for companies that ship jobs overseas" line since the Kerry campaign. But what we're really talking about here goes back even further than that. The Obama campaign wants companies to pay their taxes under the law. That's pretty much it. As quoted in the press release put out by the Administration, corporations have a 2.3% effective tax rate on their foreign earnings. That's absurd and wrong. The use of tax havens in the Cayman Islands and elsewhere suck wealth out of the country and give corporate interests a free ride to use the commons at virtually no cost. The tax breaks for shipping jobs overseas is only a part of this plan. Here's President Obama with more.
The way we make our businesses competitive is not to reward American companies operating overseas with a roughly 2 percent tax rate on foreign profits; a rate that costs -- that costs taxpayers tens of billions of dollars a year. The way to make American businesses competitive is not to let some citizens and businesses dodge their responsibilities while ordinary Americans pick up the slack [...]
For years, we've talked about ending tax breaks for companies that ship jobs overseas and giving tax breaks to companies that create jobs here in America. That's what our budget will finally do. We will stop letting American companies that create jobs overseas take deductions on their expenses when they do not pay any American taxes on their profits. And we will use the savings to give tax cuts to companies that are investing in research and development here at home so that we can jump start job creation, foster innovation, and enhance America's competitiveness.
For years, we've talked about shutting down overseas tax havens that let companies set up operations to avoid paying taxes in America. That's what our budget will finally do. On the campaign, I used to talk about the outrage of a building in the Cayman Islands that had over 12,000 business -- businesses claim this building as their headquarters. And I've said before, either this is the largest building in the world or the largest tax scam in the world.
And I think the American people know which it is. It's the kind of tax scam that we need to end. That's why we are closing one of our biggest tax loopholes. It's a loophole that lets subsidiaries of some of our largest companies tell the IRS that they're paying taxes abroad, tell foreign governments that they're paying taxes elsewhere -- and avoid paying taxes anywhere. And closing this single loophole will save taxpayers tens of billions of dollars -- money that can be spent on reinvesting in America -- and it will restore fairness to our tax code by helping ensure that all our citizens and all our companies are paying what they should.
We're talking about what amounts to an illegal fraud of the public commons, to the tune of at least $21 billion dollars annually. Corporations have grown accustomed to it and see it as their birthright. Their sycophants in the media try to turn history on its head and claim that the founding principle of what it means to be an American is to cheat on taxes.
SCARBOROUGH: They tell me though it's all legal - ALL LEGAL.
BURNETT: Of course it is.
SCARBOROUGH: There's a big difference between tax avoidance and being an all out tax cheat.
BURNETT: That's right. Isn't it your obligation in this country - there is a tax code for a reason, to take advantage of every bit of it you can and pay as little as you can.
I'd be fine with lowering the corporate tax rate if I thought corporations actually paid it. But they don't. They "avoid" (not cheat! Don't you dare say cheat!) them and increase the burden on working people. And it's time this stopped. Obviously, the corporate interests who want to maintain the status quo will fight like hell to stop this. Here's Robert Gibbs at his presser today;
Q Okay. And on the announcement he made today about international tax policy, several big corporations are lined up against it, the deferral provision -- Pfizer, Oracle, Microsoft and trade associations like the Chamber of Commerce, Business Roundtable. And I'm just wondering how you think you're going to overcome that opposition and if you think this faces a big fight in Congress.
MR. GIBBS: Well, I don't think change is ever easy and I think whenever you're taking on some bigger interest that mountain gets a little bit steeper.
But the President strongly believes that the policy that he outlined, the steps that we have to take to close tax loopholes and ensure some fairness in this process is the right policy for America and the right policy for American business. By closing these loopholes and replacing these tax advantages with fairness, using a portion of the money that's recouped to make or to fund research and development and experimentation tax credit for the next 10 years is an important investment for American business.
Since 1981 the R&D tax credit has expired on 13 separate occasions. So providing business with some certainty for research and development we think is important. And as the President said throughout the campaign, we have -- our tax code has an incentive that provides -- an incentive that rewards companies that are investing overseas at the expense of investing here in America. 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.
As you can see, corporations would get a permanent R&D tax credit out of this, which would save them billions in the exchange, in effect a bribe that must be offered in exchange for getting them to actually pay their taxes.
I'm glad Obama's making this fight, and when you combine it with his comments on the shrinking of the financial sector, maybe we can say that the Krugman/Stiglitz meeting did the trick.