"Business Lobby And Some Democrats Voice Opposition To Obama Tax Haven Crackdown"
Yesterday, the Obama administration announced “a major offensive against businesses and wealthy individuals who avoid U.S. taxes by parking cash overseas.” With this plan, the administration wants to prevent corporations from claiming tax deductions on overseas investments until they pay U.S. taxes on the profits, and reverse a Clinton-era rule known as “check the box,” which allows companies to easily shift income into tax havens like the Cayman Islands or Bermuda.
Predictably, the business lobby immediately cried foul over the changes, claiming that they will destroy business as we know it and “eliminate American jobs.” But Congressional roadblocks have also emerged, with Rep. Joseph Crowley (D-NY), for one, saying he’s “wary because the tax changes would hurt Citigroup Inc., his New York district’s largest private-sector employer.”
Sen. Max Baucus (D-MT), meanwhile, has called for “further study” of the administration’s proposals. Hopefully these facts will help him out:
- Tax havens like the Cayman Islands have “helped scores of U.S. companies, including Coca-Cola Co. and Oracle Corp., to legally avoid billions in tax payments to the U.S. government.” Companies lower their effective tax rate by more than 20 points thanks to stowing profits offshore.
- A $100 billion annual tax burden is shifted onto U.S. based companies and taxpayers due to tax avoidance.
- The United States collects below the OECD average in corporate tax revenue — even though it has a higher marginal rate than most countries — because of sheltering.
- In 2004, the most recent year for which statistics are available, U.S. multinationals paid an effective U.S. tax rate of just 2.3 percent on $700 billion in foreign profits.
The Oxford Centre on Business Taxation has found that no matter their home country’s tax rate, if loopholes and shelters exist, companies will exploit them. And as for the supposed damage to U.S. growth, Barrett Sheridan at Wealth of Nations had this to say:
The argument against taxing corporations more is that it will damage their international competitiveness, and we’ll lose jobs and business to overseas firms. Color me skeptical. Of the $103.1 billion raised by cutting down on tax arbitrage, $74.5 billion will go to making a permanent tax credit for companies that invest in R&D in the U.S. That hardly sounds like a plan that will damage U.S. growth prospects.
Indeed, the whole premise of the administration’s approach is to stop incentivizing overseas investment, and start rewarding domestic. And maybe some of the increased revenue raised from corporations could go toward funding health care reform? Whatever the case, cracking down on havens is an important matter, and deserves Congressional support.