White House Tries To Close Tax Loopholes

President Obama has made good on a campaign pledge. He promised to go after Americans who move their money overseas to avoid taxes. At the White House on Monday, Obama rolled out a plan to close tax loopholes and prevent companies from hiding their profits by channeling them abroad.

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STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne. Good morning.

If you phrase it just the right way, this sounds like an obvious goal: President Obama says he wants to stop Americans who move their money overseas to avoid taxes. He says he's restoring fairness and balance, as promised in his campaign.

INSKEEP: The trouble is, some business groups don't want to phrase it just the president's way. They say the president's plan would put American companies at a disadvantage against their foreign competitors. Even some members of his own party aren't sure about the goal. NPR'S Tom Gjelten reports.

TOM GJELTEN: In presenting his proposed tax reform, President Obama noted that U.S. corporations that earn hundreds of billions of dollars overseas each year get away with paying barely two percent in U.S. taxes. The U.S. Treasury loses out, so do American workers who see their jobs disappear when their employers go abroad to take advantage of the lower tax rates.

President BARACK OBAMA: And that's why today, I'm announcing a set of proposals to crack down on illegal overseas tax evasion, close loopholes and make it more profitable for companies to create jobs here in the United States.

GJELTEN: The Obama plan would beef up the IRS to go after wealthy tax cheats with overseas accounts, but most of the provisions target U.S. corporations. They would find it harder, for example, to write off tax payments made to foreign governments or to take deductions for expenses involved in generating overseas profits. The idea is that U.S. companies that do business strictly in the U.S. should not have to face higher taxes than those U.S. companies with overseas operations.

But there's another comparison that also comes into play here, between a U.S. company that's dong business somewhere overseas and a foreign company doing business in the same country. Foreign companies right now are generally taxed even less than U.S. companies. Marty Regalia, chief economist at the U.S. Chamber of Commerce, says the Obama plan would take away the overseas tax benefits for U.S. companies that were put in place to balance their tax obligations with those of their foreign competitors.

Mr. MARTY REGALIA (Chief Economist, U.S. Chamber of Commerce): So you remove the balance, you create imbalance. And when you do that, you make our firms, U.S. firms, less competitive on world markets. That would be the impact.

GJELTEN: The chairman of the Senate Finance Committee, Democrat Max Baucus of Montana, apparently shares this concern. In a statement issued yesterday, Baucus said further study of the tax reform plan is needed, quote, "to assess the impact on U.S. businesses." As for the crackdown on overseas tax havens used by the wealthy, that issue is discussed extensively by leaders of the G-20 nations at their summit last month in London.

But the G-20 meeting also produced promises by world leaders to avoid new protectionist measures and to help the developing countries that have been hit the hardest by the global recession, and the administration's plan is not entirely consistent with those G-20 promises. Listen to what President Obama said yesterday about existing U.S. tax law.

Pres. OBAMA: It's a tax code that says you should pay more taxes if you create a job in Bangalore, India than if you create one in Buffalo, New York.

GJELTEN: But changing U.S. tax laws to benefit American workers over Indian workers would be seen by some as a protectionist measure. Moreover, developing countries like India have already seen foreign capital draining out of their economies in recent months. The G-20 leaders pledged to halt that outflow. John Curtin, director of the G-20 Research Group at the University of Toronto, points out that the Obama administration's tax reform proposal goes against this principal. He says it would encourage U.S. companies to reduce investment in developing countries, not increase it.

Mr. JOHN CURTIN (Director, G-20 Research Group, University of Toronto): So this does seem to be a clear defiance of the spirit of anti-protectionism and indeed compounds the very problem of pulling money out of developing countries that the G-20 summit took very strong measures to act against.

GJELTEN: Curtin argues that if the Obama administration now enacts policies that would prompt American companies to cut back on their foreign operations, it could provoke a protectionist backlash, providing an excuse for other G-20 governments to stop investing in the United States. But President Obama insisted yesterday he does not want American businesses to pull out of the world market. One of the strengths of the U.S. economy, he said, is the global reach of our businesses. I want to see our companies remain the most competitive in the world.

Tom Gjelten, NPR News, Washington.

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