In May, President Obama announced a big initiative to raise $210 billion in tax revenue over the next ten years by cracking down on the use of tax havens by U.S. corporations.
The Wall Street Journal reports Tuesday that the Obama administration has shelved the proposal in the face of intense pressure from business. A key part of the tax plan, and a key beef of industry, was a proposal to reform the part of the tax code that allows companies to defer paying taxes on profits earned from overseas investments. Now the White House will defer reform until later, per the WSJ:
Obama aides say the administration has set the idea aside for now, but may return to it as part of a broader tax overhaul sometime next year. The White House had billed the proposed change as an overdue fix to the tax code and potentially a key revenue-raiser.
Asked about this at the daily White House briefing by HuffPost's Sam Stein, spokesman Robert Gibbs said the White House remains committed to closing tax loopholes. White House spokeswoman Jen Psaki said the same thing to Reuters.
A global finance analyst with CNBC calls the flip a good move, and over at TheStreet, Dan Freed reports that General Electric will save several billion dollars a year if the WSJ is on target.
Obama seemed to be making good on a campaign pledge when he came out swinging on this subject in May:
And yet, even as most American citizens and businesses meet these responsibilities, there are others who are shirking theirs. And many are aided and abetted by a broken tax system, written by well-connected lobbyists on behalf of well-heeled interests and individuals. It's a tax code full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share. It's a tax code that makes it all too easy for a number -- a small number of individuals and companies to abuse overseas tax havens to avoid paying any taxes at all. And it's a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.
One CEO told the WSJ that he was taken aback by that tough talk, and others complained that they were offended that "perfectly legal" tax trickery was lumped in with illegal types of tax dodging.
In response to Obama's statement in May, U.S. business groups including the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers announced a new alliance called the Promote America's Competitive Edge Coalition. Tuesday's news is something of a payoff.
Nicole Tichon of the U.S. Public Interest Research Group, which has made a lot of noise about tax havens blasted the group in a statement:
We're not surprised by the predictable response of the PACE Coalition, even to what amounts to a watered down deferral provision. Organizations like PACE will kick and scream whenever it seems like their members might have to start paying their fair share of taxes.
Even if deferral reform is put off until next year, there are many more critical reforms that can be enacted now and that are necessary to keep from pushing the tax burden of a few companies and a few individuals to the rest of us taxpayers.
For instance, it is critical that Congress and this President move to rein in tax dodging companies that operate here in the U.S. with a mere post-office box in Bermuda or the Cayman Islands -- just to avoid their taxes. It's critical that tax law catch up to reality. Moving money around for no other reason than to avoid taxes needs to end. Better reporting needs to start. That's the fight that U.S. PIRG will continue."
A Senate report (PDF) estimated in 2008 that "the United States loses an estimated $100 billion in tax revenues due to offshore tax abuses" every year.