Wednesday, January 26, 2011

Obomba Reverses Stance on Off-Shore Tax-Havens, Sets Policy Encouraging More

Unintended Consequences: How U.S. Tax Law Encourages Investment in Offshore Tax Havens*

I. Introduction.

In his one-and-only speech on tax policy, President Obama expressed outrage that
U.S. taxpayers could organize and operate foreign corporations in tax havens to reduce their U.S. tax liabilities, and vowed to shut down the “loophole.” However, the Obama Administration has dropped the very proposal that the President introduced that day, and has since introduced proposals that actually encourage U.S. taxpayers to operate through foreign tax haven corporations to reduce their federal and state tax liabilities.

The magnitude of deferred tax is stunning. By one estimate, U.S. companies currently enjoy deferral for at least $1 trillion in offshore
profits. Economists estimate that ending deferral would generate between $11 billion and $60 billion of revenue each year,which could be used to reduce the corporate tax rate by 1.5% (from 35% down to 33.5%). The deferral is concentrated in the health care, information
technology and energy industries.

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