The Obama administration is planning to announce steps towards his promised “massive overhaul” of international financial regulations this morning. Administration officials do not expect the announcement to be popular.
So, the good news first. Obama will announce plans to make permanent a research tax credit that was to expire at the end of the year. A whopping 75% of those credits went towards paying for employees; the continued perk should help buoy the employment sector a bit.
And now the bad news (well, that kind of depends on who you are).
First off, it’s not unexpected that Obama wants to target US taxpayers who are stashing funds in offshore tax havens in order to evade taxes. This is a no-brainer for raising revenue without raising taxes – or even changing much of existing law. Domestic taxpayers are not likely to squeal and it makes the administration look tough on tax evaders. The IRS is expected to hire up to 800 new employees to take on the task of reducing offshore tax evasion.
Changes to corporate tax law pose a greater obstacle to the administration. Currently, companies that keep profits offshore can defer taxation on those profits until the funds are repatriated. Obama wants to change that.
Obama’s proposal calls for an elimination of deductions as domestic expenses for generating profits abroad. In other words, expenses related to promoting profits for a branch in Munich would not be deductible for its US counterpart.
Obama also wants to close a Clinton-era tax provision which allows US companies to simply “check the box” in order to treat international subsidiaries as branch offices. In that way, those offices would not be subject to US tax. While proponents of the provision claim that it’s administratively effective, critics claim that it was simply a way to avoid paying billions of dollars in taxes on international operations.
The idea, as the Obama administration paints it, is to keep jobs in the US by closing tax loopholes that the administration believes encourages companies to send US jobs overseas.
Or is it? Critics of the plan are characterizing it as just another means of raising revenue – i.e. raising taxes. The plan is expected to raise more than $200 billion in revenue over the next decade.
How unpopular is the move? Even before the plan has been announced, more than 200 letters of opposition have been sent to Congress. You can count on a big fight for this one.
Interesting stuff taxgirl. But what is your source?
So the REAL question is… whos billions are more important? the billions that some companies and individuals are not paying in taxes, or the billions the Areican tax payers are forking out for these scammers to have their luxury life styles? If you count the number of voices (voters) the answer is clear, however, if you count who screams the loudest…well, we all know who they are.
Colman, check out the press release from the White House web site:
http://tinyurl.com/intltax
As someone who works in international tax consulting, I look forward to the new work this will generate for tax advisors everywhere. Thank you, Mr. President.
Vinny,
Thanks for the link! I’ve been crazy busy today so couldn’t respond until just now.
Colman,
You can also read several articles in mainstream press @ the proposal. Here is one from CNN: http://money.cnn.com/2009/05/04/news/economy/obama_corporate_tax_proposals/index.htm?cnn=yes
Cool! Is this just to appease folks that think his is driving this country into oblivian with his spending,or will this actually become law? I believe big business runs the Government, not the voters. Just a flaw I have.
The anti-deferral-lite approach is fine, but call it what it is–a tax increase on multinationals that will greatly complicate the tax code. Don’t call it “simplification,” and don’t make it sound like tax evasion.
Since the beginning of the tax code, foreign corporations have not paid U.S. tax unless they are doing business here or earn U.S. source income. If a U.S. corporation owns a foreign corporation, same rule. The foreign corporation is a separate legal entity, and the U.S. corporation pays no tax until the foreign corporation distributes a dividend to it. Congress back in the 60s put in place an exception that says if the foreign corporation earns passive income, the U.S. corporation has to pay tax on that now, to prevent people from stashing money abroad in foreign corporations. Congress in the 1986 Act added another exception to attack the same problem. But otherwise the foreign corporation gets to defer its U.S. tax.
If this is a loophole, it’s a 45-year-old loophole reported on by Congress in the legislative history of every major tax bill and taught in every introductory international tax class since the 1960s.
But I guess we are second-guessing everything now that MNCs have become the stock villain in every feeble Hollywood offering and every speech by the teleprompter-in-chief. MNCs are not stockholders like teacher pension funds or employees trying to make a buck. No, they are evil robots bent upon our destruction! They must be punished! Or taken over by the White House! Or given to a local union where they can be slowly suffocated.
Just remember, if you do not pay your parents’ taxes, you are a tax cheat taking advantage of a loophole!