Tax Havens Targeted by Obama

Today President Obama and Treasury Secretary Timothy Geithner unveiled a plan to curb tax havens, and replace the tax advantages that encourage businesses to shift jobs overseas with incentives for creating those jobs here at home.

The Treasury said that in 2004 - the most recent year for which data is available - U.S. multinational corporations paid about $16 billion of U.S. tax on approximately $700 billion of foreign active earnings – an effective U.S. tax rate of about 2.3%.

As another example, a January 2009 GAO report found that of the 100 largest U.S. corporations, 83 have subsidiaries in tax havens. In the Cayman Islands, one address alone is home to 18,857 corporations, very few of which have a physical presence in the islands.

And, nearly one-third of all foreign profits reported by U.S. corporations in 2003 came from just three small, low-tax countries: Bermuda, the Netherlands, and Ireland.

Obama's proposal, much of which is expected to meet with resistance in Congress, plans to raise $103.1 billion by removing tax advantages for business investing overseas, and "use a portion of those resources to make a permanent tax credit for research and innovations in the U.S."

Getting tough on overseas tax havens, another part of the plan, is expected to raise $95.2 billion over the next ten years. The focus here is to eliminate loopholes for "disappearing" offshore subsidiaries and fight the typically wealthy individuals who hide their money in offshore accounts - with little fear that the financial institution or the country that houses their money will report them to the IRS.

Obama also plans to hire an additional 800 IRS employees - new agents, economists, lawyers and specialists - in order to deal specifically with international enforcement, . The IRS estimates that every dollar invested in enforcement yields approximately four dollars in return through taxes collected.
The Treasury said that these measures, along with other international tax reforms to be announced later in May, would "raise $210 billion over the next 10 years."

President Obama said of the plan, "Now, it will take time to undo the damage of distorted provisions that were slipped into our tax code by lobbyists and special interests, but with the steps I'm announcing today we are beginning to crack down on Americans who are bending or breaking the rules, and we're helping to ensure that all Americans are contributing their fair share."


Sources:
The White House
U.S. Department of the Treasury