Congress leery about Obama's plan on tax loopholes

[NavyDave]

http://news.yahoo.com/s/ap/20090504/ap_on_go_pr_wh/us_obama_taxes

Congress leery about Obama's plan on tax loopholes

By STEPHEN OHLEMACHER, Associated Press Writer

WASHINGTON – President Barack Obama promised sternly on Monday to crack down on companies "that ship jobs overseas" and duck U.S. taxes with offshore havens. It won't be easy. Democrats have been fighting — and losing — this battle since John F. Kennedy made a similar proposal in 1961. Obama's proposal to close tax loopholes was a reliable applause line during the presidential campaign, but it got a lukewarm response Monday from Capitol Hill.

Sen. Max Baucus of Montana, the Democratic chairman of the Senate Finance Committee, said the plan needed further study, even though similar ideas have been around for years.

The president's plan would limit the ability of U.S. companies to defer paying U.S. taxes on overseas profits. At the same time, Obama would step up efforts to go after evaders who abuse offshore tax shelters.

Obama said his plan would raise $210 billion over the next 10 years, though no tax increases would go into effect until 2011. That's an average of $21 billion a year, less than a 2 percent nick in a federal budget deficit that is projected to hit $1.2 trillion in 2010.

Lost revenue isn't the only problem, Obama says. He contends the current system gives companies an incentive to invest overseas rather than creating jobs in the U.S.

"It's a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, N.Y.," Obama said Monday.

The business community argues the deferral system helps them compete against foreign companies that pay taxes only in the countries where they generate profits.

The bottom line?

"Nobody should miss the fact that this is about revenue," said Raymond Wiacek, head of the tax practice at the law firm Jones Day. "These companies have the money, and the U.S. government needs the money."

Obama also proposed a package of disclosure and enforcement measures designed to make it harder for financial institutions to help wealthy individuals evade taxes in overseas accounts. Obama said the government is hiring nearly 800 new IRS agents to enforce the tax code.

"I want to see our companies remain the most competitive in the world," Obama said at a White House announcement. "But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens."

Obama's plan would impose billions of dollars in new taxes on many of the nation's largest corporations, including Google, General Electric, Hewlett-Packard, Intel and Johnson & Johnson, tax experts said. But it falls well short of the broad overhaul of the tax system that will probably have to wait until at least next year — after Congress deals with health care and energy.

In exchange for the increased taxes some companies would have to pay, Obama agreed to make permanent a research tax credit that would provide firms about $75 billion in breaks over the next 10 years. The credit currently is to expire at the end of the year.

Obama has widespread support in Congress to crack down on tax evaders who illegally hide assets in tax havens. But he faces stiff opposition — even within his own party — to increasing taxes on the legal transactions of U.S. multinational companies.

"To the extent the president continues on the road of cracking down on tax abuse, he can count on my support," said Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee. "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."

A coalition of business groups has already stepped up lobbying efforts to kill attempts to increase taxes on overseas profits, saying it would make American companies less competitive.

"We're talking about American jobs at American companies and their ability to compete overseas," said John J. Castellani, president of the Business Roundtable.

At issue is the way the U.S. taxes the overseas profits of American companies. Under current law, American corporations with subsidiaries in foreign countries can defer paying U.S. taxes on the profits of those subsidiaries until the money is transferred back to this country.

If companies leave the money overseas, where corporate tax rates in most countries are lower than in the U.S., they can avoid American taxes on those profits indefinitely. If the money is brought to the U.S., corporations can subtract foreign taxes already paid.

The U.S. has a top corporate income tax rate of 35 percent, which is among the highest in the developed world. However, most corporate income is taxed at much lower rates because of deductions and credits.

In 2004, large corporations paid an average effective tax rate of 25.2 percent on domestic income, according to a Government Accountability Office report last year. For foreign income, the effective U.S. tax rate was about 4 percent, the report said. That figure does not include taxes paid to foreign countries.

Obama's plan would:

_Prevent companies from writing off domestic expenses that help generate profits abroad — until those profits are returned to the U.S. and subjected to American taxes. For instance, administrative tasks performed in New York for a London office would not be tax deductible in the United States.

_Prohibit companies from receiving foreign tax credits on income that is not subject to U.S. taxes.

_End a provision that lets U.S. companies legally shift income from one foreign subsidiary to another, making the taxes they owe to the United States "disappear."

Former President Kennedy failed to end the tax deferral system in 1961, despite telling Congress the U.S. could no longer afford it. The system also survived overhaul efforts in the 1970s and 1980s.

Rep. Charles Rangel, chairman of the tax-writing House Ways and Means Committee, proposed a similar measure to limit the deductions of U.S. multinationals in 2007. But Rangel, a Democrat from New York, tied his proposal to lowering the overall corporate tax rate.

On Monday, he welcomed Obama's plan.

"For too long, our tax laws have rewarded companies that invest and keep their money overseas and turned a blind eye to the use of tax havens by the wealthy," Rangel said.

___

AP Technology Writer Michael Liedtke contributed to this report.

[Duckus]

On one hand, I like this a lot.

On the other hand, it might be better to do this during a time when our economy is more stable.

Overall, I love the idea but not sure if the time is right. If I were him I would make this a second term priority as I think the economy will be close to, if not fully recovered by that time.

[NavyDave]

I see this as an incentive to hire less workers in the US if not make more job cuts.

Nobody should miss the fact that this is about revenue," said Raymond Wiacek, head of the tax practice at the law firm Jones Day. "These companies have the money, and the U.S. government needs the money."

Actually this Government wants those companies money to spend on expanding. Why not just reduce taxes to the levels of those overseas companies so companies have the incentive to hire here and keep spending in check?

[Duckus]

Also - I think that an idea like this should be tied together with a plan to lower the overall corporate tax rate. Not sure if that is in the plan at all, I know it has been in the past but still defeated.

[NavyDave]

The fear is going to be being taxed twice since the mob err government dont want to wait on deferred payments and want to change the law so they can get their cut now and of course it would only be fair to give them a cut of the same money later.

[SUSkinsFan]

Also - I think that an idea like this should be tied together with a plan to lower the overall corporate tax rate. Not sure if that is in the plan at all, I know it has been in the past but still defeated.

That I can agree with. If the government is going to increase the ways it can tax companies, the percentage that companies have to pay should be decreased.

[Reaganaut]

Just check Das Capital. That's the gold standard these days.

[ddub52]

I see this as an incentive to hire less workers in the US if not make more job cuts.

Nobody should miss the fact that this is about revenue," said Raymond Wiacek, head of the tax practice at the law firm Jones Day. "These companies have the money, and the U.S. government needs the money."

Actually this Government wants those companies money to spend on expanding. Why not just reduce taxes to the levels of those overseas companies so companies have the incentive to hire here and keep spending in check?

Very true. People dont understand that the higher the government taxes these large companies, the more these companies will increase the prices of their product. This can cause inflation. Ultimately, the consumer ends up in the worst position.

[88Comrade2000]

Congress will do what Obama wants. The libs have the numbers to ram thru anything they and Obama want.

[deejaydana]

So here's the math:

1) United States corporations have, by far, the highest taxes in the world

2) Obama (by way of Reid and Pelosi) want to "stop offshoring"

3) In order to achieve this they will raise taxes on corporations even further

4) get this, we all win (crazy I know!)

Guess what, you really can't have it all. Too bad we have one party rule for the next 2 years at least and we have to endure this fuzzy math. I'm banking on the Dems rolling crap dice, it's what they do best. Let's hope it happens soon.

[Thiebear]

The explanation i heard this morning was:

If you have a company in Ireland and pay them 12%

you then have to pay 22% to the US to make up the difference of the 35% here.

SO:

If you then make it 35% here and the 12% there: that's a big deal.

And some in Congress were saying "ummm, i don't know about this one."

[December90]

There will not be a single company that says "Screw it" and closes up shop in America due to the confiscation of their profits by Uncle Sam and operates entirely in a more tax friendly country. It is not like this could cost American's their jobs... America is the only economy that has consumers with enough money to spend on goods and services that the various companies provide.

Right?

[panel]

Businesses don't pay taxes, consumers do, if we raise their taxes, we will have higher costs of goods.

[Tulane Skins Fan]

Actually this Government wants those companies money to spend on expanding. Why not just reduce taxes to the levels of those overseas companies so companies have the incentive to hire here and keep spending in check?

You think we should tax at the rate Europe does? Hmm.

[December90]

You think we should tax at the rate Europe does? Hmm.

Would be better to tax at a rate lower than other nations. This would encourage businesses to set up (or perhaps stay) here. If "we" were the tax haven, then other countries could complain about losing jobs to America... (I know much more to it than that, but still true nonetheless)

[mjah]

So here's the math:

1) United States corporations have, by far, the highest taxes in the world

You mean in real life, or just on paper?

On paper, sure. Look at that big, mean 35%. How terrifying! Surely companies must pay it just because it's written in the books, right?

But then there's real life, where the "highest taxes in the world" claim is not even close to true. American companies by the score pay effective American tax rates as low as single digits, which is lower than a single parent making minimum wage. And the average effective corporate tax rate isn't anywhere near 35%, thanks to the dazzling variety of loopholes available to corporations who choose to take advantage of them (read: all of them).

That's not to say companies are inherently bad for taking advantage of legal means to keep their money. Making profit is their sole reason for existing, so it's perfectly natural for them to use every legal avenue at their disposal to do so. But a problem arises when an American headquartered company that makes literally billions of dollars in a stable, peaceful, well organized, well-defended, and prosperous American market can find the opportunity to pay only 3% to the government that makes the whole thing possible. Lookin' at you, Del Monte.

One thing Reagan got right was tying a reduction in on-the-books corporate taxes to the closing of tax loopholes. The tax code got less bat-**** insane and the opportunities to dodge taxes decreased.

But there's still plenty of work remaining to be done, and you know what? Companies that dodge the bulk of their taxes should be paying more. Not 35%, as almost no large companies pay that much (nor are they expected to). But certainly more than single digits.

Companies like CVS actually do pay at or near the high rate. They shouldn't pay any more, and would actually benefit from an on-the-books reduction in tax rate. But I have absolutely no problem with the idea of targeting the big tax dodgers and closing their loopholes. They profit tremendously from us while giving back almost nothing as a percentage of their take, and they deserve zero sympathy.

[Predicto]

Hmmm....

18,857 companies have the same official address in a single small five story building in the Cayman Islands. Over half of them are American.

I'm sure that they are there because of the burgeoning investments they are making in that massive economic powerhouse of Grand Cayman. It couldn't be for tax avoidance reasons.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aWoQkk2WY1oc

Now if you want to argue that the American corporate tax rate should be lowered, I'm with you. But if you want to argue that Obama is doing something dastardly by targeting overseas tax havens used by American companies, then you lose me.

[Cskin]

From the article....

He contends the current system gives companies an incentive to invest overseas rather than creating jobs in the U.S.

How about simplifying the tax code and eliminating the tax loopholes all together your freaking Congressional ****roaches!!!! They act as if they've had nothing to do with the tax code to this point. And... it was these loopholes created by Congress members that were bought by special interest groups promising campaign contributions to the members so they would write, and insert, tax loopholes into the freaking tax code. :doh:

Effing morons... I swear if this country were any dumber... it would be flat out hilarious.

[deejaydana]

One thing Reagan got right...

Whew! Sweet that Reagan got 'one thing right.' I can rest easy after your history lesson. I thought that guy destroyed America up until now.

[mjah]

Whew! Sweet that Reagan got 'one thing right.' I can rest easy after your history lesson. I thought that guy destroyed America up until now.

You might want to read that section again without the overpolitical-colored glasses. The longer version of that sentence easily could have read, "One of multiple things..."

Sheesh.

As a child of the 80s, the four most influential men in my life were, in descending order:

1) Dad

2) Granddad

3) Ronald Reagan

4) Optimus Prime

So as you can see, Reagan held more sway over my personal development than a 30-foot tall alien robot with a plasma cannon, no boss, and an army of like-minded badass robots at his 24/7 disposal.

Deep breath, dj. Now GBTW.

[deejaydana]

So as you can see, Reagan held more sway over my personal development than a 30-foot tall alien robot with a plasma cannon, no boss, and an army of like-minded badass robots at his 24/7 disposal.

Looks like I won't have to unloose the hounds on you...for now.

[NavyDave]

Whew! Sweet that Reagan got 'one thing right.' I can rest easy after your history lesson. I thought that guy destroyed America up until now.

Duh of course liberals with a public school education in California foolishly think that way.

Remind us how great a president Jimmy Carter was.

I guess we were in the dark ages until the Messiah Obama arrived.

[mjah]

Duh of course liberals with a public school education in California foolishly think that way.

True. We should get rid of all liberals, states called California, and public schools.

[deejaydana]

Duh of course liberals with a public school education in California foolishly think that way.

Remind us how great a president Jimmy Carter was.

I guess we were in the dark ages until the Messiah Obama arrived.

Navy Dave, here's your homework assignment: research 'sarcasm' for the afternoon. Let its definition sink into your skull. Maybe lie down for awhile afterwards.

[deejaydana]

More information on Obama's windmill chasing:

http://online.wsj.com/article/SB124154570816588153.html

Fight Amongst Yourselves

See if you can spot what's wrong with the first paragraph of this Associated Press dispatch:

President Barack Obama promised sternly on Monday to crack down on companies "that ship jobs overseas" and duck U.S. taxes with offshore havens. It won't be easy. Democrats have been fighting--and losing--this battle since John F. Kennedy made a similar proposal in 1961. Obama's proposal to close tax loopholes was a reliable applause line during the presidential campaign, but it got a lukewarm response Monday from Capitol Hill.

Right! If Democrats "have been fighting--and losing this battle" since 1961, with whom have they been fighting and to whom have they been losing? For eight years beginning in 1961, Democrats held majorities in both houses of Congress and the president was a Democrat. The same was true in 1977-80, 1993-94 and 2009 to the present. During those periods at least, if the Democrats were fighting and losing, they were doing so with and to themselves.

Sure enough, the second paragraph quotes a Democrat who is in no hurry to enact the plan:

Sen. Max Baucus of Montana, the Democratic chairman of the Senate Finance Committee, said the plan needed further study, even though similar ideas have been around for years.

Even the editorial board of the New York Times objects to the Obama proposal:

The Obama proposals oversimplify the challenge, both technically and politically. . . .

In practice, applying the matching principle to overseas operations could put American companies at a competitive disadvantage to foreign companies that do not face United States tax laws. It could even impede job creation in the United States--exactly the opposite of what the Obama administration intends.

Unless the Times has some undisclosed corporate interest in the status quo, this editorial suggests that Obama is utterly mad in his tax-hiking zeal.