Obama plans to crack down on tax loopholes, offshore accounts

Obama said that his plan would generate $210 billion in new taxes over 10 years.

By JPOST.COM
February 10, 2010 14:41
3 minute read.
Obama plans to crack down on tax loopholes, offshore accounts

Barack Obama 88. (photo credit: )

 
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President Barack Obama plans changes to US tax policy certain to be unpopular with corporations with international divisions and individuals who use overseas tax havens. Obama is proposing to close US tax loopholes for companies and individuals with operations or bank accounts overseas. Obama said Monday he wants to prevent US companies from deferring tax payments by keeping profits in foreign companies rather than recording them at home. He also called for more transparency in bank accounts held by Americans in tax havens such as the Cayman Islands. Obama said that his plan would generate $210 billion in new taxes over 10 years and "make it easier" for companies to create jobs at home. Obama's two-part plan, which he announced late Monday at the White House, also embraces 800 additional federal agents to enforce the tax code. The president's proposal would eliminate some tax deductions for companies that earn profits in countries with low tax rates, as well as consider US citizens who use tax havens in the Bahamas or Cayman Islands guilty of violating US tax laws. White House officials acknowledged the political challenges facing the plan. The administration will not seek a complete repeal of overseas tax benefits and, although the rule changes are narrower than some anticipated, business leaders still oppose them as a tax hike. Obama aides countered that the plan is a step toward the massive overhaul of international financial regulations that the president has promised. In exchange, Obama said he was willing to make permanent a research tax credit that was to expire at the end of the year and is popular with businesses. Officials estimate that making the tax credits permanent would cost taxpayers $74.5b. over the next decade. But administration aides said that 75 percent of those tax credits pay workers' wages; given the struggling economy, aides were reluctant to do anything that could add more Americans to the unemployment rolls. It was small comfort. Companies which shelter profits in international accounts stand to lose billions if Obama's plan becomes law. Under the existing regulation, those companies pay taxes only if they bring the profits back to the US If they keep the profits offshore, they can defer paying taxes indefinitely - and many do. Obama's plan wouldn't go into effect until 2011; Obama has said he does not want to tinker with tax revenues until his $787b. stimulus plan has run its course. The proposals, however, were far from complete, and aides said this was just one piece of the administration's plan for a sweeping overhaul. First up: Companies will not be able to write-off domestic expenses for generating profits abroad. For instance, administrative tasks performed in New York for a London office would not be tax deductible in the United States. Administration officials depicted the move as a way to close unfair tax loopholes that encouraged companies to send jobs overseas. They argued that if it costs the same amount to do business in, say, Ireland as in Iowa, why not do it entirely in Des Moines? Officials said Obama would characterize the move as a way to keep jobs in the United States and fight a system that is rigged against US companies who keep their entire business operation domestic. Obama also planned to ask Congress to crack down on tax havens and implement a major shift in the way courts view guilt. Under Obama's proposal, Americans would have to prove they were not breaking US tax laws when they send money to banks that don't cooperate with tax officials. It essentially would reverse a long-held assumption of innocence in US courts. If financial institutions cooperate with Washington and disclose details when asked, Americans could invest anywhere they like. Obama officials also said they would close a Clinton-era provision that would cost $87b. over the next decade by letting US companies "check the box" and treat international subsidiaries as mere branch offices. Officials said it was meant as a paperwork shortcut that is now a widely used and perfectly legal way to avoid paying billions in taxes on international operations.

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