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 that is projected to generate a deficit of $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 firms, including Google, General Electric, Hewlett-Packard, Intel and Johnson &Johnson, 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.
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