The second-ranking Democrat in the Senate and the top Democratic tax writer in the House want to use a deficit-reduction package to make it more difficult for companies to defer U.S. taxation on income earned elsewhere, while President Barack Obama remains silent on the issue.
Senator Richard Durbin of Illinois and Representative Sander Levin of Michigan said a deficit-reduction bill should end what they call tax breaks that lead companies to ship jobs overseas. That typically means limiting companies’ ability to delay taxes on profits earned outside the country until the money is brought home. Durbin said he presented the idea to Obama at a meeting yesterday.
“I’ve done that before,” he said in an interview in Washington today.
Obama included in his fiscal 2012 budget plan $133 billion in international tax changes, including limits on deferral. He didn’t mention the proposals during a news conference yesterday when he called for higher taxes on oil companies, hedge fund managers, corporate jet owners, millionaires and billionaires.
Obama frequently mentioned the proposal on the campaign trail in 2008 and 2010; he stopped using the phrase in speeches after Republicans took control of the House of Representatives. White House spokeswoman Amy Brundage declined to comment today.
Business groups have long opposed changes that would make it more difficult to defer income earned outside the U.S. They say such changes would hurt U.S. companies’ ability to compete in foreign markets against companies that pay tax only in that country.
Executives from companies including Caterpillar Inc. and United Technologies Corp. have asked Congress to switch to a territorial tax system in which profits earned outside the U.S. would be subject to minimal or no taxation.
“The notion that we would cut back deferral is going in the complete opposite direction from what is the clearly emerging consensus of where our corporate tax system ought to be,” said Kenneth Kies, a tax lobbyist at the Federal Policy Group in Washington, whose clients include General Electric Co. and Pfizer Inc.
The administration is pushing Congress to include revenue-raising provisions in a bill that would raise the federal debt ceiling before Aug. 2, the date when the Treasury projects that U.S. borrowing authority under the current $14.3 trillion debt limit will expire. Republicans, who control the House and have the votes to block proposals in the Senate, say no tax increases should be included.
‘Playing with Fire’
In a statement issued after Obama’s news conference yesterday, Levin listed as his priorities deferral, removal of a tax benefit for oil and gas companies and a provision that would raise taxes on the carried interest of private-equity managers.
“Republicans are playing with fire and have a stark choice: They can adhere to rigid ideology and risk the nation’s economy or they can accept a balanced approach that includes closing tax loopholes,” he said.
Representative Chris Van Hollen of Maryland, one of the Democrats’ negotiators in the deficit talks led by Vice President Joe Biden, said on Bloomberg Television June 24 that Democrats were offering Republicans a menu of tax proposals.
“We have certainly looked at deferral in the past because we want to stop rewarding companies for shipping jobs overseas,” he said. “We think we should be shipping American products overseas. But we haven’t been demanding that.”
Durbin also said today that Senate Democratic leaders made “formal contacts” with business leaders today “to tell them about the seriousness” of the deadline to strike a deficit-reduction agreement and to enlist their help.
“I’m hoping that the business community will finally stand up and say to the Republican leaders: ‘This is serious,’” he said. “Aug. 2 isn’t something we can toy with. If -- in the middle of July -- 30 bond traders up in New York decide this may not pass, we’re going to see an impact on our economy and on interest rates, and it will be devastating. We cannot wait for that to occur.”