Obama to close overseas tax loopholes

I bet Obama's use of the phrase "perfectly legal" was no accident.  He's been reading my man David Cay Johnston!

Yesss, this is why we elected him!

Obama to raise $190 billion by denying tax havens
By Ryan J. Donmoyer
May 4, 2009  |  Bloomberg.com

The proposal, combined with a $60.1 billion plan to limit many expense deductions for American companies that take advantage of laws allowing them to defer tax on foreign profits and a $43 billion crackdown on abusive foreign tax credits, would be the biggest tax increase on U.S. corporations since 1986. Obama also would shift the burden of proof to individuals when the IRS alleges assets are being hidden in certain offshore bank accounts, the White House said in a statement.

"I want to see our companies remain the most competitive in the world," Obama said. "But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens."

In 2004, U.S.-based multinational corporations paid about $16 billion in U.S. taxes while earning about $700 billion offshore, an effective tax rate of about 2.3 percent, according to the administration statement. The top marginal tax rate for U.S. companies is 35 percent; drug companies such as Amgen Inc. and technology companies such as Microsoft are among companies that make the biggest use of tax-deferral benefits.

The rules were originally designed to reduce paperwork for companies and the IRS by allowing companies to classify entities within their corporate structure in the most tax-efficient manner without inviting a tax challenge.

Unintended Consequence

Clinton administration officials realized they also had made it easy for multinationals to create entities whose only purpose was to shift profits into low-tax countries and out of reach of the tax authorities, according to a January Government Accountability Office report that found 83 of the 100 biggest companies had subsidiaries in tax havens.

Once the assets were in the haven, the U.S. parent company borrowed from the subsidiary. The interest payments were deductible in the U.S. and tax-free in the haven, the GAO said. The nonpartisan congressional Joint Committee on Taxation recommended in 2005 that the rules be repealed.