The Obama administration will back legislation to force wealthy individuals and corporations sheltering money in offshore accounts to pay more in taxes, Treasury Secretary Geithner told the House Ways and Means Committee Tuesday.
"We fully support your efforts," Geithner said when questioned by Rep. Lloyd Doggett, D-Texas. Doggett on Monday introduced a bill with Sen. Carl Levin, D-Mich., to strengthen IRS enforcement efforts and make it harder to park money in overseas tax havens such as Switzerland, Panama and the Cayman Islands.
Doggett singled out financial services institutions that maintain offshore subsidiaries and have also received government aid. "I want them to come to you and explain why it is equitable for them to avoid taxes at the same time they're asking you for money," he told Geithner.
President Obama co-sponsored a version of the bill when he was in the Senate, and White House Chief of Staff Emanuel signed onto a previous House version when he was in the House. Obama included a $210 billion set-aside in his budget for revenue increases from international tax enforcement, which were intentionally left vague. But Geithner's comments suggest something akin to the Doggett-Levin bill will be included.
Geithner's "unqualified endorsement ... means that we have an opportunity to take effective action to prevent so many multinationals from avoiding the taxes paid by most Main Street businesses," Doggett said.
Levin added that Geithner's comments were "welcome news and greatly improves the chances of an offshore tax bill becoming law this year." Levin claimed long-standing tax treaties are ineffective in dealing with offshore tax havens. "You can't rely on the tax treaty to get at names of people that cheated Uncle Sam," he said.
One tax lobbyist said given the sensitivity surrounding the big banks and continued financial rescue efforts, there likely would not be a sustained effort to lobby against it. "It's kind of a done deal they're going to do something on tax havens," the official said. "Our job is just trying to work with the Hill to educate members."
The Ways and Means exchange came as Levin prepared for a Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations hearing today to examine the use of Swiss bank accounts held by 19,000 U.S. clients administered by UBS AG worth $18 billion. Levin and the Justice Department want the Swiss government to reveal the names of U.S. clients, which he said could be closer to 52,000 based on information his subcommittee obtained. "You can't trust the Swiss, that's the bottom line," he said.
The tax haven bill would enable IRS and securities enforcement officers to treat offshore corporations as controlled by the U.S. taxpayer who formed them, putting the burden on the individual to prove otherwise. Treasury would be provided with an initial list of 34 "offshore secrecy jurisdictions" that have been named as probable locations for tax evasion.
It would expand Treasury to demand information of financial institutions about offshore transactions, and impose sanctions such as denying tax haven banks the ability to issue credit cards in the United States. The measure would also require hedge funds to screen clients for possible money-laundering schemes, and strengthen financial penalties to $1 million per securities law violation.
In a new twist, foreign firms that are publicly traded or have more than $50 million in assets that are controlled by a U.S.-based interest would be taxed as a U.S.-domiciled corporation. That is aimed at hedge funds and others supposedly operating out of a five-story building in the Caymans called Ugland House, which the GAO found to house 18,800 registered companies -- none of which actually occupied the building other than a single Cayman law firm. Another new provision would shut down transactions such as cross-border equity swaps enabling foreign investors to avoid tax on U.S. stock dividends.
Levin and Doggett estimate their bill could claw back as much as $100 billion a year, but private-sector sources regard that figure as highly inflated. Obama's budget outline calls for roughly $20 billion a year to come from closing international tax loopholes, including unspecified "reform" of policies that enable multinationals to defer tax on foreign income until it is brought back to the United States.
Geithner told Ways and Means Select Revenue Measures Subcommittee Chairman Richard Neal, D-Mass., that the administration would look at his proposal to deny certain deductions for foreign-based insurance firms.
In 2007, Ways and Means Chairman Charles Rangel proposed a series of corporate revenue-raisers to help offset an overall reduction in the corporate tax rate, which many companies argue is prohibitive and leads to moving operations overseas. There is no mention of lowering the corporate rate in Obama's budget, but when pressed by Rep. John Tanner, D-Tenn., Geithner said the White House is hopeful that they can work with Congress to "bring a broad reform to the corporate tax system."