From NBC's Athena Jones
President Obama, flanked by Treasury Secretary Tim Geithner and IRS Commissioner Douglas Shulman, announced changes to the tax code that he said would prevent businesses from dodging their responsibilities "while ordinary Americans pick up slack."
Combined with additional tax reforms to be laid out later this month, the proposals are expected to increase tax revenues by some $210 billion over the next 10 years. Congress, however, must first approve these moves -- which some argue would amount to a tax increase for U.S. corporations and are likely to face tough opposition from corporate lobbyists.
Video: Obama unveils his tax plan.
In brief remarks Monday morning, Obama said that while most American citizens and businesses meet their responsibilities as taxpayers, others do not. "Many are aided and abetted by a broken tax system written by well-connected lobbyists on behalf of well-heeled interests and individuals," he said. "It's a tax code full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share."
During the campaign, candidate Obama often spoke of the need to get rid of tax loopholes that reward companies that "ship jobs overseas" and to create a fairer, simpler tax system. He frequently joked about one building in the Cayman Islands that housed more than 18,000 U.S. companies, saying it was either a really big building, or a tax scam.
Today, Obama argued that his budget would make reforms that have been needed for years and said the problems with the tax code had been cited by Rep. Charles Rangel (D-NY), Chairman of the House Ways and Means Committee; Montana Democrat Sen. Max Baucus; Sen. Carl Levin (D-MI); and Rep. Lloyd Doggett (D-TX).
According a fact sheet provided by the White House, 83 of the 100 largest U.S. corporations have subsidiaries in tax havens, and in 2004 U.S. multinationals paid just $16 billion in U.S. taxes on about $700 billion in foreign earnings -- an effective tax rate of 2.3%.
"The steps I'm announcing today will help us deal with some of the most egregious examples of what's wrong with our tax code," he said. "It's a down payment on the larger tax reform we need to make our tax system simpler and fairer and more efficient for individuals and corporations." Under the proposed rules, companies would not be able get tax deductions for offshore investments until they pay taxes on their offshore profits and the rules would end loopholes that allow U.S. companies to artificially inflate or accelerate U.S. tax credits they receive for foreign taxes paid overseas profits. Both of these changes would take effect in 2011.
This would raise $86.5 billion from 2011-2019 by requiring certain foreign subsidiaries to be considered as separate corporations for U.S. tax purposes so that companies could no longer avoid paying taxes on their foreign profits by shifting income to tax havens. They would also make it more difficult for wealthy individuals to hide money overseas to avoid taxes, make it easier to prosecute tax evaders and add 800 new IRS employees to help crack down on offshore tax avoidance.
Some of the money saved by reducing tax loopholes -- $103.1 billion -- would go toward making permanent a tax credit for research and investment within the United States. The rest would be used to reduce the deficit and help fund tax relief for families, Obama said, outlining steps his administration has already taken to reduce taxes for the middle class and to provide tax credits for higher education and to first-time homebuyers.