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.
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.
In addition, Obama would extend a research and experimentation tax credit that businesses have sought.
Drew Lyon, a tax expert at PriceWaterhouse Coopers, said the changes to the “deferral” provision would be sweeping, since half of multinationals firms’ income is earned abroad.
“It’s really hitting most Fortune 100 companies that depend to a great deal on growth of foreign markets for growing their total earnings,” Lyon said.
U.S. officials said Obama’s plans were balanced and would not put excessive burdens on firms. They said studies looking at effective tax rates -- the amount paid after deductions -- show the United States is in the middle range of other Group of Seven countries when it comes to corporate taxation.
“I think it’s important ... that the American people and businesses understand that this is fairness, not something that will put them at a competitive disadvantage,” White House spokesman Robert Gibbs said.
In addition to the changes to the deferral provisions, separate proposals in Obama’s plan would raise $95 billion by cracking down on overseas tax havens. Such tax havens became a major topic at the April meeting in London of leaders of the Group of 20 major economies.
In one of the proposals to crack down on tax evasion, the administration would require financial institutions to share information with the Internal Revenue Service about its U.S. customers. Foreign institutions must sign up with the IRS to become “a qualified intermediary” or else face a presumption that they are helping individuals evade taxes.
Consumer advocates said the changes were long overdue fixes for tax abuses.
Swiss banking giant UBS AG acknowledged in February that it helped U.S. clients conceal assets from their government. It agreed to pay a $780 million fine and has since identified about 320 of its American clients.
Additional reporting by Ross Colvin; Editing by Doina Chiacu and Bill Trott