United States President Barack Obama, decrying “egregious” tax abuses, has announced savings of $US210 billion by squeezing offshore havens and US companies\’ abilities to profit from outsourcing jobs.
Vowing that all US taxpayers would start “contributing their fair share,” Obama said 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.
But the reforms submitted to Congress came under fierce attack from big business and Republicans, who argued they would backfire by driving even more US companies to relocate to cheaper locations abroad.
Claiming 10-year savings of $US210 billion, Obama said the money 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.”
Under the plan announced by Obama and Treasury Secretary Timothy Geithner, the Internal Revenue Service (IRS) would hire nearly 800 new agents to go after offshore tax avoidance.
Overall, according to the administration, companies exploit an array of tax loopholes and shady practices to pay an average of just 2 percent on their foreign profits, costing the US taxpayer tens of billions of dollars a year.
The reforms fulfil 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 elsewhere.
Such “egregious examples” and “distorted provisions” inserted into US tax law by special interests would end, Obama vowed to reporters.
“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.”
Geithner said that with the exception of research and development 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 would recoup $US60.1 billion from 2011 to 2019. Some of the savings would fund a permanent tax credit for research and development costs, it said.
The plan would also close another “deferral” loophole under which companies can deduct their US taxes from their foreign taxes, yielding $US43 billion back to the Treasury over the next 10 years.
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.”