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Obama Seeks To Close Overseas Tax Loophole

ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MICHELE NORRIS, host:

And I'm Michele Norris. President Obama wants to make it harder for businesses and wealthy individuals to hide from the taxman. Today, the president proposed changes in the way multinational corporations are taxed. He's also promising a new, get-tough approach to offshore tax havens.

The president says his moves are intended to level the playing field for all taxpayers, but opponents say they would put U.S. firms at a disadvantage.

NPR's Scott Horsley reports.

SCOTT HORSLEY: President Obama called the proposed changes a down payment on a tax system that's simpler, fairer and more efficient. While the bulk of the new taxes would fall on multinational corporations, Mr. Obama took pains to say he's not being anti-business.

President BARACK OBAMA: Understand, one of the strengths of our economy is the global reach of our businesses, and I want to see our companies remain the most competitive in the world. 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.

HORSLEY: Mr. Obama complains that under the current system, companies are allowed to put off paying taxes on their overseas profits indefinitely, but they're allowed to deduct U.S. expenses associated with those profits right away. In effect, he says, that makes investing in foreign operations more attractive than investing at home.

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

HORSLEY: Under Mr. Obama's proposal, companies could still postpone taxes on foreign profits, but they'd lose their deduction for associated expenses. He also wants to make it harder for multinational firms to avoid taxes by parking profits in low tax countries.

All told, his proposals would generate an extra $210 billion for the government over the next decade. Big business was quick to cry foul.

Mr. JOHN CASTELLANI (President, Business Roundtable): President Obama's plan is the wrong idea at the wrong time for the wrong reason.

HORSLEY: John Castellani heads the Business Roundtable, which represents some of the largest U.S. companies.

Mr. CASTELLANI: The plan will reduce the ability of U.S. companies to compete in foreign markets. We believe it'll not only reduce jobs, but it'll also cripple economic growth here in the United States. It just couldn't have come at a worse time.

HORSLEY: The president's plan would not take effect until 2011, by which time the recession is expected to have eased, but that doesn't placate Castellani or other skeptics, such as senior fellow Gary Hufbauer of the Peterson Institute for International Economics. Hufbauer says eliminating the deduction on U.S. expenses associated with foreign profits would encourage multinationals to move more essential functions abroad.

Mr. GARY HUFBAUER (Senior Fellow, Peterson Institute): Those are the good jobs at good pay that American should want. I mean, do we want these headquarters' expenses to be incurred in Singapore or London?

HORSLEY: Hufbauer says most other countries don't even try to tax profits their multinationals earn elsewhere. He says by trying to level the playing field among firms here in the U.S., the Obama administration could end up tilting the field against American companies working globally.

Mr. HUFBAUER: The U.S. is already out of step with the norm in the world in terms of taxation of business, but this is a further big step away from the norm in a way that makes the U.S. less competitive.

HORSLEY: President Obama also wants to crack down on wealthy individuals trying to avoid taxes with offshore accounts. Under his proposal, those individuals and the banks that help them would face increased scrutiny.

President OBAMA: If financial institutions won't cooperate with us, we will assume that they are sheltering money in tax havens and act accordingly.

HORSLEY: The president's budget also calls for hundreds of additional IRS agents to help enforce the rules. So far, lawmakers appear to be lukewarm about the president's plans. The chairman of the Senate Finance Committee, Max Baucus, said the president's proposals, quote, "set the table for tax reform," but Baucus says more study will be needed before he's ready to swallow what the president is serving up.

Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.