Obama wants to tackle tax havens, outsourcing
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President Barack Obama has announced the government's decision to clamp down on tax havens and curb job outsourcing. The measures may lead to savings amounting to $210 billion over the next 10 years.
AFP - President Barack Obama Monday rolled out a plan aimed at saving 210 billion dollars over the next 10 years by clamping down on tax havens and curbing US companies' incentive to outsource jobs.
"We are beginning to crack down on Americans who are breaking or bending the rules," Obama said alongside Treasury Secretary Timothy Geithner, vowing that all US taxpayers would start "contributing their fair share."
Ticking off "egregious examples" of tax abuses, the president told reporters the shakeup was "a downpayment on the larger tax reform we need to make" as he battles the nation's worst recession since World War II.
The savings of 210 billion dollars would be used "to reduce the deficit, cut taxes for American businesses that are playing by the rules, and provide meaningful relief for hard-working families," Obama added.
"I want to see our companies remain the most competitive in the world. 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."
Overall, according to the administration, companies exploit an array of tax loopholes and shady practices to pay an average of just two percent on their foreign profits, costing the US taxpayer tens of billions of dollars a year.
Under the plan, the Internal Revenue Service (IRS) will get nearly 800 new agents to go after offshore tax avoidance.
The reform fulfills one of Obama's key campaign pledges, by ending the ability of US companies to defer taxes on profits made overseas after they shut down facilities at home and ship the jobs to cheaper countries.
Geithner said that with the exception of research and experimentation expenses, companies would no longer receive deductions on their US taxes for their offshore investments until they pay taxes on their offshore profits.
In a statement, the White House said this provision would take effect in 2011 and raise 60.1 billion dollars from 2011 to 2019.
The plan would also close a loophole under which companies can deduct their US taxes from their foreign taxes through a federal credit.
That loophole, Obama said, lets "some of our largest companies tell the IRS that they're paying taxes abroad, tell foreign governments they're paying taxes elsewhere, and avoid paying taxes anywhere."
The White House said closing such loopholes would save 43.0 billion dollars over the next 10 years.
"In addition, our tax system is rife with opportunities to evade and avoid taxes through offshore tax havens," it added, announcing new measures to stop US taxpayers from hiding their accounts offshore.
The measures include ending the ability of US companies to make foreign subsidiaries "disappear" for tax purposes through accounting chicanery.
Instead those subsidiaries would have to be named as separate companies for US tax purposes, raising 95.2 billion dollars over the next decade, the White House said.
"On the campaign, I used to talk about the outrage of a building in the Cayman Islands that had over 12,000 businesses claim this building as their headquarters," Obama said.
"I've said before either this is the largest building in the world or the largest tax scam in the world. I think the American people know which it is."
In line with new action against Switzerland and other havens undertaken by the Group of 20 nations, the plan also clamps down on wealthy Americans who mask their money in foreign bank accounts.
The administration said it would raise 8.7 billion dollars through a "comprehensive package of disclosure and enforcement measures to make it more difficult for financial institutions and wealthy individuals to evade taxes."