Obama plans more tax on overseas income to cut record deficitMay 12th, 2009 - 10:15 am ICT by IANS
By Arun Kumar
Washington, May 12 (IANS) President Barack Obama is looking to reduce a record projected $1.8 trillion federal deficit with a $210 billion plan to tax more of US firms’ overseas earnings and crack down on tax avoidance.
White House Budget office figures released Monday would add $89 billion to the 2009 deficit increasing it to more than four times last year’s all-time high as the government hands out billions more than expected in stimulus and bailout funds.
The White House proposals include a new measure to shut down a tax manoeuvre by foreign hedge funds, the Wall Street Journal said.
In the hedge-fund transactions, US banks including Lehman Brothers Holdings Inc., Morgan Stanley and Citigroup Inc. used complex swaps to help foreign investors reap the benefits of investing in the US stock market, without having to pay a 30 percent withholding tax.
Most of the money that would be raised from tax changes in the international area — $189.5 billion out of a total $210 billion-would come from changes Obama announced last week to tax more of firms’ foreign profits right away.
US companies say the proposals would hamper their ability to compete in the global marketplace, the Journal said.
A Treasury Department official briefing reporters on the proposals Monday said the Obama administration is trying to “strike a balance” on overseas income between keeping US firms competitive and removing tax code distortions that might cause a firm to “invest in Malaysia instead of Michigan.”
Another new proposal would restrict income shifting by a US company to a foreign subsidiary, by transferring patents or other intangible property.
Another would repeal the ability of US companies that derive at least 80 percent of their income from foreign business to treat interest and dividends as exempt from US withholding tax.
A plan to disallow foreign tax credits for some US firms that pay a special levy to a foreign jurisdiction in exchange for an economic benefit would raise $4.5 billion over 10 years.
Besides the international tax measures, the Obama budget proposes $735.5 billion in tax cuts for individuals over the next 10 years which have been announced previously.
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