By Don Miller
Associate Editor
Money Morning
U.S. President Barack Obama today (Monday) announced a proposal for new legislation to pursue American tax evaders by closing loopholes and clamping down on overseas tax breaks for American businesses and individuals.
Under provisions of the plan, companies would no longer be able to write off domestic expenses for generating profits abroad, a loophole that Obama says encourages U.S. companies to move jobs overseas. The plan would drastically reduce incentives for U.S. companies to base all or part of their operations in other countries.
Additionally, Obama is pushing for a $60.1 billion plan to restrict deductions for American companies that defer taxes on foreign profits and a $43 billion crackdown on abusive foreign tax credits. Combined, these measures would amount to the biggest tax increase on U.S. corporations since 1986, according to Bloomberg News.
Companies with significant overseas operations could lose billions if the president’s plan passes. Under existing laws, companies are taxed only on profits they bring home. By stashing the profits in international subsidiaries they can defer paying taxes indefinitely.
While it debates the bill, Congress will remain under pressure from a significant lobbying campaign to scuttle significant portions of Obama’s plan.
Over 200 firms, including Pfizer Inc. (NYSE: PFE), Oracle Corp. (NASDAQ: ORCL), Microsoft Corp. (NASDAQ: MSFT), Johnson & Johnson (NYSE: JNJ) and General Electric Co. (NYSE: GE) signed a letter to congressional leaders in March opposing changes to the "deferral" provision.
The letter, also signed by the U.S. Chamber of Commerce, said the firms would not be on a level playing field with international rivals, many of which are not required to pay taxes at home on overseas units.
“This is bad stuff,” Kenneth Kies, a tax lobbyist at the Washington firm Federal Policy Group, told Bloomberg. “This is going to be the biggest fight for the corporate community in the next two years.”
The biggest squabble is likely to be over the repeal of so-called “check-the-box” rules, which took effect in 1997.
