Jake Tapper, Sunlen Miller & Matt Jaffe report:
This morning, President Obama and Treasury Secretary Tim Geithner will announce that they are cracking down on tax laws that encourage corporations to send jobs overseas and allow the corporations to hide money in international tax shelters.
The announcement "reflects the realization of two commitments President Obama made during the campaign," a senior administration official told reporters in a conference call Sunday night.
Indeed, both moves were frequent campaign rhetoric from last year.
In Elko, Nevada, last September 16, then-Sen. Obama told voters, "I will stop giving tax breaks to corporations that ship jobs overseas, and I will start giving them to companies that create good jobs right here in America."
"You know there’s a building in the Cayman Islands that supposedly houses 18,000 corporations," then-Sen. Obama said in Indianapolis on October 23. "Think about that. That’s either the biggest building or the biggest tax scam in the world. I think we know which one it is."
In Abington, Virginia, on October 3, 2008, then-Sen. Obama said that his Republican opponent, Sen. John McCain, R-Ariz., "supports tax havens that let companies avoid paying taxes here in America – tax havens that cost $100 billion every year."
The Obama administration estimates their actual moves will bring significantly less than that estimate to the US Treasury, however — a total of approximately $210 billion over the course of ten years.
The Obama administration argues that in 2004, the most recent year for which figures are available, U.S. multinational corporations paid approximately $16 billion in US taxes on approximately $700 billion of foreign active earnings — an effective U.S. tax rate of 2.3%.
"We have a system that is in many ways broken and allows people to play games," a senior administration official said.
The tax changes would take effect in 2011, because the administration wants to wait until the recession has turned around.
President Obama and Secretary Geithner plan to remove tax deductions for companies that take jobs overseas, saving $60 billion from 2011 to 2018. Combined with reforming the foreign tax credit system, the total savings would be $103 billion, senior administration officials. The plan would also make permanent the research and experimentation tax credit, set to expire on December 31.
The second part of the plan tries to reduce the amount of taxes lost to tax havens either through loopholes in the law that allow companies to legally avoid paying billions in taxes or through the illegal use of hidden accounts by wealthy individuals, brining $95.2 billion over the next 10 years into Treasury’s coffers.
Cracking Down on Tax Breaks for Outsourcing
The idea that companies that keep jobs in the US are disadvantaged in the tax code compared to those who invest in jobs overseas "has never made sense to this president," a senior administration official said.
The administration estimates it will eliminate $103.1 billion in tax advantages for investing overseas. That money will help pay to make permanent a tax credit for new innovation and investment within the U.S.
These savings will partly come from reforming corporate tax deferral rules so that companies cannot defer paying U.S. taxes on the profits from overseas investments while taking immediate deductions for expenses from those investments. This will not impact research and experimentation expenses that have significant spillover benefits to the United States, the administration says. Loopholes will be closed on laws that allow companies to use inflated tax credits for foreign taxes.
Going After UBS, Shutting Down Tax Havens
Regarding overseas tax havens, the Obama administration will crack down on the ability of U.S. companies to make their foreign subsidiaries vanish for tax purposes through "check the box" rules. Certain foreign subsidiaries would be considered as separate corporations for U.S. tax purposes, Obama administration officials say, raising $86.5 billion from 2011 to 2019.
It’s "one of the most unjustified loopholes in our international corporate tax system," the senior administration official says. Companies exploiting it "are taking advantage of a bad law that needs to be repealed. It is indefensible."
Another area where the Obama administration hopes to crack down can be seen in a government lawsuit to force Switzerland’s largest bank, UBS, to release the names of 52,000 American customers who may have money and investments hidden there. Swiss law does not consider tax evasion a crime, and bars such information from being shared.
In a $780 million settlement earlier this year, UBS admitted that its bankers helped Americans evade US taxes through tax havens in the British Virgin Islands, Hong Kong, and Panama, from 2000 to 2007.
The Obama administration says it will work harder to prevent these types of evasions by working with G-20 nations to impose sanctions on countries that do not turn over tax information, to impose stricter reporting standards for international investments, and to require foreign financial institutions to sign an agreement with the IRS to share as much information about their U.S. customers as do American financial institutions.
– Jake Tapper, Sunlen Miller & Matt Jaffe