Solving the never-ending budget crisis and reducing the deficit will require corporate tax reform, Obama said.
Obama called for tax reform that "lowers incentives to moves jobs overseas," and "lowers tax rates for businesses and manufacturers that create jobs in the U.S."
The current corporate tax rate is 35 percent, though very few companies actually pay that much. Those that pay the least tend to be large multinationals, including banks and pharmaceutical companies, that use tax shelters to hold profits offshore in order to avoid paying U.S. taxes.
In a policy paper released by the White House on Tuesday night, Obama called for putting in place an "offshoring tax" that would set a "minimum tax" on offshore earnings in order to encourage domestic investment and "prevent a race to the bottom in corporate tax rates."
It's not clear what this rate would be, but Kim Clausing, an economics professor at Reed College, estimated that American companies are holding $1.7 trillion overseas to avoid paying U.S. taxes, costing the treasury $90 billion in missed revenue.
Citizens for Tax Justice, a nonprofit advocacy group, estimates that Congress could raise $600 billion over a decade if Congress ended "deferral" of U.S. taxes on corporate profits. In some cases, deferral encourages corporations to shift operations, and jobs, offshore, the group says.
"These proposals are not a substitute for fundamental tax reform, but making the code simpler, flatter, and fairer cannot be held hostage to that," said Steve Ellis, a vice president at Taxpayers for Common Sense, a nonpartisan budget group, in response to the president's proposal.
In an emailed statement sent in response to the president's speech, Dan Smith, a tax and budget advocate at the consumer group U.S. PIRG, said the first loopholes to go should be those that allow corporations and wealthy individuals to use "accounting gimmicks" to stash their income in offshore tax havens.
“The winners in our loophole-ridden tax code are the big banks and pharmaceutical and high tech companies, including some of the nation's most prominent corporations like GE and Wells Fargo," he said. "The losers are small business owners and ordinary taxpayers who don’t have armies of tax lawyers to make the income they earn in America appear on the books of shell companies in the Cayman Islands."
Smith called on Congress to pass legislation recently introduced by Sen. Carl Levin (D-Mich.) and Sheldon Whitehouse (D-R.I.) that would close many of these loopholes, and would raise nearly $200 billion over the next decade.