Today, the tax code provides incentives for companies to shift jobs and investments overseas and opportunities for multinational corporations and very wealthy individuals to avoid and evade taxes through offshore tax havens.
- In 2004, the most recent year for which data is available, U.S. multinational corporations paid about $16 billion of U.S. tax on approximately $700 billion of foreign active earnings – an effective U.S. tax rate of about 2.3%, according to the U.S. Treasury.
- A January 2009 report by the Government Accountability Office found that of the 100 largest U.S. corporations, 83 have subsidiaries in tax havens. In the Cayman Islands, one
address alone houses 18,857 corporations, very few of which have a physical presence in the islands.
President Obama's international tax proposals would reduce tax incentives for corporations to move jobs and income overseas, curb offshore tax havens, and raise $210 billion in revenue over 10 years that could help pay for health care reform and other vital investments. The proposals would:
- Defer deductions against deferred offshore income.
- Close Foreign Tax Credit Loopholes.
- Eliminate Loopholes for Disappearing Offshore Subsidiaries.
- Crack Down on Tax Havens.
The proposals are much-needed steps to stop abuses. Claims that the measures are unfair or would hurt the U.S. economy are unwarranted.
Opponents claim that the changes would eliminate U.S. jobs and spark a wave of acquisitions by foreign buyers. Although the proposals could raise the cost of doing business overseas for corporations that have been avoiding U.S. taxes, eliminating tax preferences would help balance the tax code and end the unfair advantages and opportunities for abuse currently enjoyed by multinational corporations and very wealthy individuals.
An analysis by Citizens for Tax Justice of Myths and Facts about Offshore Tax Abuses finds:
- The proposal won’t encourage U.S. companies to move jobs abroad. On the contrary, the proposal would reduce tax incentives to move jobs offshore, and many other factors influence decisions about where to locate operations and jobs.
- U.S. businesses won’t be less competitive. Many of the practices targeted don’t involve real business activities, but sham transactions designed solely to reduce taxable income.
- The proposals won’t put an excessive tax burden on U.S. corporations, which pay lower effective tax rates than in most industrialized countries. The foreign tax credit will still prevent corporations from being subject to double taxation.
Read more in the National Women's Law Center fact sheet on international tax reforms.
http://www.nwlc.org/pdf/InternationalTaxProposalsMay2009.pdf
