Thursday, June 18, 2009

Summers: Offshore tax will be part of broad U.S. reform

By Kim Dixon
WASHINGTON (Reuters) - The Obama administration will tackle international tax reform in the context of a broad overhaul of the tax system, a top Obama economic adviser said on Wednesday.
That admission should relieve corporate America, which has been lobbying furiously against a plan to raise $210 billion over a decade by tightening rules for accounting for income earned by U.S. multinational companies abroad.
"We very much want to work with others to make sure that we have a spare, as pro-American a tax system for corporations as we possibly can, and it'll be looked at in the context of overall ... corporate tax reform, I'm sure," Lawrence Summers, head of the National Economic Council, told CNBC.
The administration has said its plan would save or create jobs overseas, but even Democratic-leaning think tanks have begged to differ, arguing that tax policy has little influence on jobs.
U.S. multinationals say the proposals, which include limiting interest deductions, will in fact encourage them to locate capital and labor overseas.
They are quick to note that the United States has among the highest top corporate tax rate at 35 percent among its industrialized peers.
"What he said is a helpful recognition of the reality that international tax changes should only occur in a larger corporate tax reform context," said Clint Stretch, managing principal for tax policy at Deloitte in Washington, who advises Fortune 500 companies and others.
"If the White House keeps saying that, clients will start breathing again," he added.
In addition to business opposition, Obama's international tax proposals have gotten a cool reception from members of Congress, even within his own party.
"I'd say that it is a helpful signal and consistent with some of the messages that leading tax writers in Congress have been saying," said Drew Lyon, a principal with PricewaterhouseCoopers in Washington.
"The business community in particular has pointed out that the changes the administration are proposing are so far reaching that if they were adopted without other changes they'd put U.S. companies at a distinct disadvantage."
Representative Charlie Rangel, the Democratic chairman of the tax-writing Ways and Means panel in the U.S. House, proposed many of the same changes to international tax in a 2007 bill.
But he included a key difference. Rangel's bill had a sweetener for business: cutting the corporate tax rate from 35 to about 30 percent. Obama has not talked about such a cut thus far.
Congress is now debating a healthcare reform bill with a price tag at $1 trillion or more over a decade, and business is still concerned they could become a revenue source.
"There is still a significant concern with the discussion of the $1 trillion to $1.6 trillion healthcare legislation out there," Lyon said.
(Editing by Kenneth Barry)

Source: Reuters

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