Who Will Obama's Offshore Tax Proposels Help?

The NY Times’ Jeff ( “most enchanting”) Zeleny and Brian Knowlton report - - -

President Obama presented a far-reaching set of proposals on Monday that are aimed at the tax benefits enjoyed by companies and wealthy individuals harboring cash in offshore accounts.

These steps, he said, would be the first in a much broader effort to fix a “broken tax system.”

Mr. Obama made the announcement in the Grand Foyer of the White House, standing alongside Treasury Secretary Timothy F. Geithner and the Internal Revenue Service commissioner, Douglas Shulman. His remarks echoed the sentiment he voiced again and again during the presidential campaign when he pledged to crack down on overseas tax evaders.

The proposed tax overhaul, which will be fully unveiled later this week when the White House presents a more detailed budget, could help raise $210 billion in revenues over 10 years, the administration estimates.

While most Americans pay their fair share of taxes, Mr. Obama said, “there are others who are shirking theirs, and many are aided and abetted by a broken tax system.” Multinational corporations, he said, paid an average tax rate of just 2 percent on their foreign revenue. And some wealthy individuals hide their fortunes in foreign tax havens.

The president thus set up a frontal clash with big business over the tax advantages enjoyed by companies with extensive overseas operations. …

The entire NYT story’s here.

A friend with considerable business and accounting experience just emailed the following:

In response to these tax increases, U.S. corporations will either raise the prices of their products and/or reduce expenses, i.e. cut jobs. And most of the job cuts will likely be in the U.S. where labor costs are higher than those in many foreign countries.

These ill conceived proposals will have the exact opposite effect of what President Obama says -- less, not more U.S. jobs.

Increasing taxes on the earnings of U.S. companies' foreign subsidiaries will make these subsidiaries relatively less competitive with non U.S. companies and could cause U.S. based multinational corporations to become non U.S. based.

A better proposal would be to temporarily ( e.g. for one year ) decrease the tax rate on foreign earnings of U.S. corporations which are repatriated to the U.S. ( e.g. from 35 % to 5 or 10 % ).

This would likely result in hundreds of billions of dollars coming back fairly quickly to the U.S., which would stimulate our economy and create jobs.

Before Obama unveiled his tax proposals today, Treasury’s Tim Geithner spoke briefly about the IRS stepping up efforts to identify those who, in effect, cheat on their taxes.

Given that Geithner admittedly, and knowingly, underpaid his own taxes, this seemed like the epitome of hypocrisy.