Obama To Target Tax Havens In Budget
As part of the budget that he will introduce this Thursday, President Barack Obama will call for the closure of tax havens that allow companies to pay greatly reduced tax rates, an administration official tells the Huffington Post.
The inclusion of "funding for a robust portfolio of IRS international tax compliance initiatives" could help Congress make up an estimated $100 billion of revenue that is lost when companies set up what are often P.O. box addresses in locales like the Cayman Islands. Another Democratic official involved in the budget proceedings, however, cautioned that closing these loopholes could pose additional difficulties, specifically in determining which jurisdictions qualify as tax havens, and which companies qualify as domestic.
By calling for the elimination of tax havens in his budget, Obama is following through on a promise he made repeatedly throughout the campaign and one he has discussed as president.
"If you closed loopholes you could actually lower [other corporate tax] rates," he said at Monday's fiscal responsibility summit. "That's an area where there should be the potential for some bipartisan agreement."
The impetus to change this area of tax law has taken on increased significance in the weeks and months since the election. A GAO report from December revealed that 83 of the 100 largest publicly traded U.S. corporations had placed subsidiaries in tax haven jurisdictions to, ostensibly, pay less on their tax bills. This included a number of firms that had received billions of dollars in bailout funds from the federal government, such as Morgan Stanley (158 subsidiaries in the Cayman Islands and recipient of $10 billion in TARP money), Citigroup (90 subsidiaries and $45 billion in TARP funds), and Bank of America (59 subsidiaries and $45 billion).
"This is a notorious practice. Nobody is there. It is a P.O. box, a way to hide taxable revenue. We have a deficit of $1.2 trillion. Shouldn't we try to reduce that tax gap?" Rep. Rosa DeLauro, one of the lawmakers leading the anti-loophole charge, told the Huffington Post. "The other thing is, it puts companies and corporations who are paying their fair share of taxes at a disadvantage. Many of these corporations...dealt with greed and they took as much as they could, and they got away with it. Now they have brought our financial system to its knees, the federal government is bailing them out, while they are collectively contributing to an average annual revenue loss of $100 billion a year and we are asking tax payers to cover the bailout."
This past week, DeLauro, along with Sen. Carl Levin (D-Mich.) and Rep. Lloyd Doggett (D-Texas) penned a letter to Office of Management and Budget Director Peter Orszag urging the White House to include measures from the Stop Tax Haven Abuse Act in the 2010 budget proposal. That legislation, which Obama co-sponsored while in the Senate and which the aforementioned Democratic official said would serve as an outline for the forthcoming budget, includes a variety of enforcement provisions.
• It would target and close 34 jurisdictions "which have already been named in IRS court filings as probable locations for U.S. tax evasion;"
• It would provide the Treasury department with the authority to penalize "foreign jurisdictions and financial institutions that impede U.S. tax enforcement;" and• It would tax offshore income "used to buy real estate, artwork and jewelry for U.S. persons."
In addition to taking action to close offshore havens, the Obama administration is also likely to take other aggressive tax enforcement measures, such as calling for an increase in the tax rates that hedge fund managers pay on their earnings. The ultimate goal is to increase tax collection revenues from roughly 16 percent of the economy to about 19 percent by 2013.
Business groups, while recognizing that some tax policy changes may be needed, have nevertheless expressed concern that the White House is essentially raising taxes in the midst of a recession. Asked whether closing the loopholes would harm the economy, DeLauro scoffed at likening the budget provisions to tax hikes.
"This isn't a tax increase," she replied. "They are hiding. They are not paying their fair share. They are hiding income so as not to have to pay tax dollars. It is fair to close this loophole. And it is right thing to do. It is tax evasion. What they are doing amounts to tax evasion."
Loading comments…
03/27/09 05:12 AM