New estimate trims Obama plan to increase taxes
Friday, June 12, 2009
WASHINGTON -- President Obama's efforts to increase taxes on multinational corporations took a hit Thursday when a new congressional estimate showed his plan would raise only three-fourths of the money the administration projected.
Obama promised in May to crack down on companies "that ship jobs overseas" and duck U.S. taxes with offshore havens.
The president's plan would limit the ability of U.S. companies to defer paying U.S. taxes on overseas profits. At the same time, Obama would step up efforts to go after evaders who abuse offshore tax shelters.
Obama said his plan would raise $210 billion over the next 10 years, though no tax increases would go into effect until 2011.
On Thursday, the Joint Committee on Taxation said the proposal would raise only $160 billion over 10 years. Congress uses the committee's estimates when crafting legislation.
"This shows why non-partisan, expert estimates matter," said Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee. "If Congress promises to pay for something and comes up $50 billion short, taxpayers make up the difference."
A Treasury spokeswoman declined to comment Thursday on the new estimate.
Both figures would put barely a nick in a federal budget deficit that is projected to hit $1.2 trillion in 2010. But a coalition of business groups has already stepped up lobbying efforts to kill attempts to increase taxes on overseas profits, saying it would make American companies less competitive.
Obama has widespread support in Congress to crack down on tax evaders who illegally hide assets in tax havens. But he faces stiff opposition -- even within his own party -- to increasing taxes on the legal transactions of U.S. multinational companies.
One analyst said the tax increases -- even at reduced amounts -- would still be a tough sell in Congress.
"The numbers on the international tax proposals are still very large," said Clint Stretch, managing principal of tax policy at Deloitte Tax LLP. "The fact that they raise less money is not going to make them any more acceptable to members (of Congress) who are concerned about the health of U.S. businesses."
At issue is the way the U.S. taxes the overseas profits of American companies. Under current law, American corporations with subsidiaries in foreign countries can defer paying U.S. taxes on the profits of those subsidiaries until the money is transferred back to this country.
If companies leave the money overseas, where corporate tax rates in most countries are lower than in the U.S., they can avoid American taxes on those profits indefinitely. If the money is brought to the U.S., corporations can subtract foreign taxes already paid.
Obama's plan would prevent companies from writing off domestic expenses that help generate profits abroad -- until those profits are returned to the U.S. and subjected to American taxes. It would also prohibit companies from receiving foreign tax credits on income that is not subject to U.S. taxes.