President Barack Obama on Monday called for curbing offshore tax havens and corporate tax breaks to collect billions of dollars more from multinational companies and wealthy individuals.
The move would appeal to growing populist anger among taxpayers but is likely to open an epic battle with some major powers in American commerce.
With the proposals Obama outlined at the White House, the president sought to make good on his oft-repeated campaign promise to end tax breaks “for companies that ship jobs overseas.”
He estimated the changes would raise $210 billion over the next decade and help offset tax cuts for middle-income taxpayers as well as a permanent tax credit for companies’ research and development costs.
The changes, if enacted, would not take effect until 2011, when administration officials presume the economy will have recovered from the recession. But business groups were quick to condemn the White House for proposing tax increases amid a global downturn.
“This plan will reduce the ability of U.S. companies to compete in foreign markets, which will not only reduce jobs, but will also cripple economic growth here in the United States. It couldn’t come at a worse time,” said John J. Castellani, president of the Business Roundtable, a trade association of major businesses.
The proposals would especially hit pharmaceutical, technology, financial and consumer goods companies — among them Goldman Sachs, Microsoft, Pfizer and Procter & Gamble — that have major overseas operations or subsidiaries in tax havens like the Cayman Islands.
They also have some of the mightiest lobbying armies in Washington, as well as influential patrons in Congress. That combination will test Obama’s ability to stand up to powerful interests and marshal support among lawmakers at the same time that he is trying to win passage of major health and energy measures.
At issue are tax laws that were originally intended to prevent multinational corporations from being double-taxed — by the United States and by foreign countries — by allowing companies to defer reporting their foreign income to the Internal Revenue Service and to get tax credits in the United States for foreign taxes paid. Obama’s changes would address perceived abuses of those laws.
Economists are divided over whether higher taxes would give corporations incentives to move jobs overseas or impair economic growth at home. In the coming debate, both Obama and the business lobby will claim that their way will save jobs.
The top corporate tax rate is 35 percent, but the Treasury Department estimated that in 2004, the most recent year for which tax data is available, American multinationals paid $16 billion in taxes on $700 billion in foreign income — an effective rate of 2.3 percent on foreign profits.
Obama’s tax-raising initiative comes after months in which his administration has presided over government bailouts for major financial institutions, auto companies and insurance giants, and polls show growing opposition among Americans.