WASHINGTON, May 4 (UPI) -- Closing business tax loopholes and cracking down on the use of tax havens are two international tax code changes U.S. President Barack Obama sought Monday.
During a news conference, the changes Obama asked Congress to pass called for reforms to the U.S. Tax Code that Obama says stifle U.S. job creation. Second, the changes seek to reduce the amount of tax revenue lost to tax havens, whether through tax code loopholes that allow companies to legally avoid paying billions in taxes or through the illegal use of hidden accounts by wealthy individuals.
"Some citizens and businesses dodge their (tax) responsibilities," Obama said, by taking advantage of what he called "a broken tax code."
Combined with other international tax reforms that will be included in Obama's full budget request later in May, the initiatives would raise $210 billion over the next 10 years, he said. It also calls for hiring 800 IRS employees.
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 percent, the White House said in a briefing paper. A January 2009 GAO report uncovered 83 of the 100 largest U.S. corporations have subsidiaries in tax havens.
Obama said he would seek to repeal the ability of U.S. companies to take deductions against their U.S. taxable income for expenses supporting profits in low-tax jurisdictions. Combined with closing loopholes in the foreign tax credit program, the revenues saved would be used to make permanent the tax credit for research and experimentation, he said.
Obama also said he wants to close foreign tax credit loopholes that some have used to perpetrate foreign tax credit schemes. First, a taxpayer's foreign tax credit would be determined based on the amount of total foreign tax the taxpayer pays on total foreign earnings. Second, a foreign tax credit would no longer be allowed for foreign taxes paid on income not subject to U.S. tax.
"It will take time to undo the damage," Obama said. "But with the steps I am announcing today ... we're beginning to restore (tax) fairness and balance."