National Journal reported today that some tech-industry giants are getting ready to “intensify their opposition” to the Obama administration’s plan to limit the use of offshore tax deferrals:
High-tech industry giants such as Hewlett-Packard, IBM, Microsoft and Oracle will intensify their opposition this fall to an Obama administration proposal aimed at limiting what critics insist are offshore tax breaks…[T]he high-tech sector is fighting back with a lobbying blitz aimed at positioning the deferral as a necessary mechanism that enables U.S. companies to remain competitive in foreign markets — and not as a tax break.
NJ reports that “while proposals to limit tax deferrals and other international tax law changes have yet to find their way into legislation, the tech sector isn’t taking any chances.” “Threats persist,” said Bartlett Cleland, senior director of tax and e-health policy for TechAmerica. The Business Roundtable has also promised to “spend whatever it takes” to preserve the status quo.
As usual, these companies are leaving out the convenient fact that they use a variety of tax havens and loopholes to pay far below the statutory corporate tax rate of 35 percent. For instance, Hewlett Packard (HP), which kept $5.2 billion in earnings overseas in 2008, lowered its effective tax rate by 16.9 points last year. And HP was not even close to the most effective at this, as General Electric managed to drive its rate all the way down to 5.5 percent last year.
The Obama administration’s proposal to deal with this problem is fairly benign, saying only that companies choosing to keep their profits offshore “must also defer taking their deductions until their overseas profits are brought back to the country.” It seems only fair that companies keeping their profits offshore be prevented from claiming deductions on those earnings. The administration also wants fix a tax rule known “check the box,” which was meant to simplify classification of corporate subsidiaries, but unintentionally created a tax loophole.
According to a report from the U.S. PIRG Education Fund, a $100 billion annual tax burden is shifted to US-based individuals and companies, thanks in part to corporations stowing their profits offshore. Research has also shown that corporations allowed to defer taxation on offshore profits will leave that money offshore regardless of their home nation’s tax rate. These two measures proposed by the administration, meanwhile, will raise an estimated $146.6 billion over ten years, while putting some small sense of fairness back into the corporate tax code.