Sofia Marin
RedwoodAge.com

President Obama's plan to target corporations profiting from offshore tax havens has drawn a tepid response from Democrats and outright opposition from Republicans.

Obama said Monday he wants to block US companies from deferring tax payments by harboring profits in foreign countries. The tactic provides economic incentives to companies to ship jobs offshore while cheating the government out of as much as $100 billion a year, according to government estimates.

The president also called for greater transparency in bank accounts held by Americans in such notorious tax havens as the Cayman Islands.

Obama said most Americans pay their fair share of taxes but “there are others who are shirking theirs, and many are aided and abetted by a broken tax system.” He said the proposals would end "indefensible tax breaks and loopholes which allow some companies and some well-off citizens to evade the rules that the rest of America lives by."

The president also said that his plan would generate $210 billion in tax revenues over the next decade and "make it easier" for companies to create jobs at home.

The proposals echo Obama's populist campaign promise to crack down on tax cheats, but face political difficulties in the real world of Washington politics.

The proposal aimed for the middle ground, but drew more criticism than praise. Senate Republican leader Mitch McConnell said Obama's plan "gives preferential treatment to foreign companies at the expense of US-based companies."

Sen. Max Baucus, the Democratic chair of the Senate Finance Committee, was noncommital, noting the idea resembles proposals that have been around for years. He said it would require further study.

To be sure, similar plans have been floated since the Kennedy administration, and corporate loopholes have only grown in that time.

“I want to see our companies remain the most competitive in the world," the president said, explaining no tax increases would take effect until 2011.

Small Step
Obama's target of $210 billion over 10 years is a far cry from the estimated $100 billion a year - $1 trillion over 10 years - lost in US tax revenue due to offshore tax havens. And the amount to be recovered pales in comparison to the federal deficit which is expected to swell to $1.2 trillion by 2010.

According to a January report by the Government Accounting Office, 83 of the 100 largest publicly traded US corporations reported subsidiaries in countries listed as tax havens or "financial privacy jurisdictions."

The US Public Interest Research Group  released a report on April 15 offering a state-by-state breakdown of the cost to taxpayers of revenue lost through offshore tax havens. It reacted positively to the Obama Administration's proposals, but continues to push for comprehensive legislation that will shut down tax loopholes and make sure everyone pays what they owe.

"We think that business in general thrives best when its success or failure depends on how productive they are or how innovative they are, rather than what tax avoidance scheme they use," said Thineas Baxandall, the group's senior analyst for tax and budget policy. "We shouldn't have an economy where tax avoidance is treated as a regular course of business in order to be a successful corporation.

"That doesn't provide jobs for anybody," he said, "and it's not good for a productive economy."