Obama Takes Aim at Offshore Tax Havens

President Barack Obama has cracked down on credit card companies and hedge fund managers, and now he's taking aim at another unpopular corporate practice: offshore tax havens.

Tightening up on overseas accounts is a goal that Obama promised during his presidential campaign and one he reiterated in his speech to Congress in February. With the pressure now on for him not only to make good on his campaign pledges but also to create jobs at home and bring new revenue into a government that's projected to run a deficit of $1.8 trillion by the end of fiscal year 2009, he has decided it's time to rewrite what he calls a "broken tax system."

Obama's plans, which he and Treasury Secretary Timothy Geithner fleshed out in remarks today, will net the government $210 billion in otherwise lost tax revenue over the next decade, the administration says. In 2004, the most recent year for which data are available, U.S. multinational companies made $700 billion in profit—but paid an effective tax rate of only 2.3 percent.

To try to level the playing field, the administration plans to undo many of the tax advantages that corporations reap for investing overseas. Right now, for example, businesses with overseas investments can take immediate tax deductions for the expenses that support their overseas activities—but still defer paying taxes on those profits. Obama plans to eliminate that ability. He'll also close the loophole that currently allows corporations to claim a U.S. tax credit for foreign taxes that they pay on their profits overseas. And he'll undo the "check the box" rules, by which companies can legally shift income to tax havens to make their foreign subsidiaries "disappear" to the IRS. "These are common-sense changes designed to restore balance to our tax code," Geithner said.

An increase in tax transparency is also on Obama's agenda. Currently, wealthy Americans can invest offshore knowing that there's little chance that their holdings will be reported to the IRS. To ensure that all citizens are being taxed fairly, Obama is proposing to require foreign firms that deal with the United States to pledge to share the same amount of information about their American customers that U.S. institutions do.

A big fight against the proposals is expected from corporations because 83 of the largest 100 companies in the United States use overseas tax havens. Some critics argue that the rules will make companies less internationally competitive. The president is not convinced. "One of the strengths of our economy is the global reach of our businesses," Obama said. "But the way to make sure that happens is not to reward our company for moving jobs off our shores or transfer profits to overseas tax havens."

• Read more about the White House crackdown on credit card companies.
• Read more about the economy.