Administration Launches Assault on Corporate Tax Cheats

by on May 4, 2009 · 2 comments

in Economy, War and Peace

President Obama has presented a far-reaching set of proposals that are aimed at the tax benefits enjoyed by companies and wealthy individuals harboring cash in offshore accounts. Republicans in Congress have reacted by labeling the proposals as “tax increases”. And you can be sure that the Union-Tribune will be beating the drums in opposition to these plans over the next few days.

The corporations that are engaging in off-shore tax avoidance all expect their fair share of government contacts, of course, along with marketing subsidies, and the protections offered by the US worldwide military presence. They just don’t want to pay for it. So, before the GOP spin machine starts distorting the facts, here are few things to consider.

The proposed tax overhaul should help raise $210 billion in revenues over 10 years, the administration estimates. One portion of the proposed reforms would raise $103.1 billion over 10 years by removing a rule allowing companies to take immediate deductions for overseas expenses while deferring tax payments on profits there, and plugging loopholes allowing businesses to claim inflated credit against American taxes for foreign taxes paid. Of this, $74.5 billion would go to make permanent a tax credit for investment in research and innovation within the United States.

The administration also said it would raise $95.2 billion over 10 years by tightening requirements on income shifted from one foreign subsidiary to another in a lower-tax country, making it more difficult for financial institutions and individuals to hide money in offshore accounts, and hiring 800 new I.R.S. staff to tighten international enforcement.

A 2008 the Government Accounting Office study found that one five-story building in the Cayman Islands, known as the “Ugland House,” contained 18,857 registered businesses, most of which simply had a P.O. box there. By taking advantage of lower offshore taxes and loopholes in the Tax Code, these companies are able to avoid paying taxes to the US Government. And some wealthy individuals hid their fortunes in foreign tax havens. The report (PDF) that found that 83 of the 100 largest publicly traded U.S. corporations reported subsidiaries in countries listed as tax havens or “financial privacy jurisdictions.” Nearly one-third of all foreign profits reported by such corporations in 2003 came from three countries: Bermuda, the Netherlands and Ireland.

American multinational corporations paid only $16 billion in taxes to the United States on $700 billion in foreign earnings – an effective tax rate of 2.3 percent — in 2004, the most recent year for which data are available. Bailout beneficiary Morgan Stanley, for instance, boasts 273 subsidiaries in tax havens, with 158 in the Cayman Islands alone. Citigroup’s got 427, with 90 in the Cayman Islands, and 59 of Bank of America’s tax-haven subsidiaries are there as well. On April 15th, the U.S. Public Interest Research Group issued a report with a state-by-state breakdown of the cost to taxpayers of corporate tax evasion in offshore havens.

{ 2 comments… read them below or add one }

avatar nunya May 5, 2009 at 6:11 pm

How long before their congresswhores scream bloody murder?

Reply

avatar bodysurferbob May 6, 2009 at 10:54 am

hey unemployed dudes and dudesses – the IRS is hiring.

Reply

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