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New resources for IRS to help close international tax gap, Obama

06
May '09
There is no higher economic priority for President Obama than creating new, well-paying jobs in the United States. Yet today, our tax code actually provides a competitive advantage to companies that invest and create jobs overseas compared to those that invest and create those same jobs in the U.S. In addition, our tax system is rife with opportunities to evade and avoid taxes through offshore tax havens:

• 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%.
• A January 2009 GAO report found that of the 100 largest U.S. corporations, 83 have subsidiaries in tax havens.
• In the Cayman Islands, one address alone houses 18,857 corporations, very few of which have a physical presence in the islands.

Leveling the Playing Field: Curbing Tax Havens and Removing Tax Incentives For Shifting Jobs Overseas

1) Replacing Tax Advantages for Creating Jobs Overseas With Incentives to Create Them at Home
• Reforming Deferral Rules to Curb A Tax Advantage for Investing and Reinvesting Overseas
• Closing Foreign Tax Credit Loopholes
• Using Savings To Make Permanent The Tax Credit for Investing in Research and Experimentation at Home

2) Getting Tough on Overseas Tax Havens
• Eliminating Loopholes for "Disappearing" Offshore Subsidiaries
• Cracking Down on the Abuse of Tax Havens by Individuals
• Devoting New Resources for IRS Enforcement to Help Close the International Tax Gap

President Obama and Secretary Geithner are unveiling two components of the Administration's plan to reform our international tax laws and improve their enforcement. First, they are calling for reforms to ensure that our tax code does not stack the deck against job creation here on our shores. Second, they seek to reduce the amount of taxes lost to tax havens – either through unintended loopholes that allow companies to legally avoid paying billions in taxes, or through the illegal use of hidden accounts by well-off individuals.

Combined with further international tax reforms that will be unveiled in the Administration's full budget later in May, these initiatives would raise $210 billion over the next 10 years. The Obama Administration hopes to build on proposals by Senate Finance Committee Chairman Max Baucus and House Ways and Means Chairman Charles Rangel – as well as other leaders on this issue like Senator Carl Levin and Congressman Lloyd Doggett – to pass bipartisan legislation over the coming months.

1. Replacing Tax Advantages for Creating Jobs Overseas With Incentives to Create Them at Home: The Administration would raise $103.1 billion by removing tax advantages for investing overseas, and would use a portion of those resources to make permanent a tax credit for investment in research and innovation within the United States.


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