Obama vows tougher overseas tax policies

By Caren Bohan and Kim Dixon

WASHINGTON (Reuters) - President Barack Obama vowed on Monday to overhaul tax policies that he said reward companies for shifting U.S. jobs overseas and allow wealthy people to evade taxes using offshore accounts.

The White House estimated the plan would save $210 billion over the next decade.

In one proposal businesses are poised to fight, Obama would tighten tax-code provisions that allow firms to defer paying taxes on profits they make overseas as long as those earnings are plowed back into the foreign subsidiaries.

That portion of his plan has drawn opposition from big multinational firms such as Pfizer Inc and Oracle Corp.

The president said he also would close loopholes and bolster enforcement to prevent tax avoidance by companies and individuals.

"The steps I am announcing today will help us deal with some of the more egregious examples of what is wrong with our tax code," Obama said at a joint announcement with Treasury Secretary Timothy Geithner.

"It is the downpayment on the larger tax reform we need to make our tax system simpler and fairer and more efficient for individuals and corporations."

The proposals must go through Congress. Several lawmakers, including U.S. House of Representatives Ways and Means Chairman Charles Rangel, signaled support for Obama's proposals. But one crucial player, Senator Max Baucus, Democratic chairman of the Senate Finance Committee, called for more study of how U.S. businesses would be affected.

Currently, U.S. firms are allowed to defer paying taxes on profits earned overseas if they put those profits back into their foreign subsidiaries. Critics say those rules encourage businesses to bolster their foreign operations instead of creating jobs at home.

During his campaign last year, Obama promised to change those provisions.

In March 200 companies and trade groups like the U.S. Chamber of Commerce sent congressional leaders a letter opposing changes to the "deferral" provision. The letter said the firms would not be on a level playing field with international rivals, many of which are not required to pay taxes at home on overseas entities.

Pfizer, Oracle, Microsoft Corp Johnson & Johnson and General Electric Co were among the firms that signed the letter.

NO MORE DEDUCTING EXPENSES

Under the Obama plan, companies would no longer be able to deduct expenses supporting their overseas operations until they pay taxes on their profits.

The plan also would end a practice by which some firms take big deductions against their taxes by inflating the amount of foreign taxes they have paid.