Obama Pushes 'Crackdown' on Legal Tax 'Havens'

President Obama held a press conference on May 4 to detail a “far-reaching [1]crackdown on offshore tax avoidance, targeting many U.S.-based multinational corporations and wealthy individuals,” according to The Wall Street Journal.

The Journal said on May 4 that Obama would like to change the way offshore subsidiaries are treated by law ending practices known as “deferral” and “check-the-box.”

“The plan takes aim at a range of financial practices that have combined to erode the U.S. tax base in recent decades. As money has become more readily transferable – and aggressive tax planning more widespread – it has become easier for companies and individuals to take advantage of low taxes as well as lack of transparency in many offshore havens,” the Journal said.

In his late morning speech, Obama condemned “corporate loopholes” and said that such practices “cost taxpayers” billions of dollars.

Obama also claimed that his changes would save taxpayers $210 billion in the next 10 years.

But CNBC’s Erin Burnett pointed out on “Morning Joe” that U.S. corporations pay an average of “30-plus percent” in taxes. “They’re supposed to pay 35” percent, Burnett said, to provide perspective on the proposal.

Burnett, as well as the Journal, also mentioned that the average tax rate for businesses in other countries is “significantly lower.”

Despite Obama’s use of the words “tax scam” and “tax cheats” in his speech, the avoidance practices he intends to “reform” are all currently legal.

Joe Scarborough told Burnett, “There’s a big difference between tax avoidance and being an all-out tax cheat.”

“That’s right. I mean, isn’t your obligation in this country – there is a tax code for a reason – to take advantage of every bit of it you can and pay as little as you can. If they didn’t want that make it one page and have a flat tax,” Burnett responded.

Although Obama said he wants U.S. companies to be the most competitive in the world, but some businesspeople think the “crackdown” on tax shelters will be a hindrance to competitiveness.

According to the [2]U.S. Chamber of Commerce, “ending deferral would be detrimental to U.S. companies operating in the global marketplace as they would be forced to accelerate the payment of U.S. taxes. This would be an increased expense for U.S. companies, thus making U.S. companies less competitive against foreign competitors who are only subject to only one level of tax.”

John Earnhardt, a Cisco Systems Inc. spokesman, told the Journal, “If rules are changed on tax deferral and we are taxed in the U.S. on non-U.S. profit, this significant additional U.S. tax cost would adversely impact our ability to invest and grow our business in the U.S … and to compete against our foreign competitors who are not subject to this U.S. tax."

The Heritage Foundation has written that the most obvious tax reform to increase [3]competitiveness would be a reduction of the statutory tax rate. They cited “Lee and Gordon [who] found that a 10 percent reduction in the corporate tax could increase economic growth rates by 1 to 2 percent.”