Loop the loophole

4 May 2009 By Martin Hutchinson

President Obama’s plan may raise the effective corporate tax rate above 20% still below the 1994 level. If profits revert to trend, the extra revenue won t lower US deficits much. But combining fewer loopholes with a reduction in the 35% headline tax rate would be helpful.

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President Obama unveiled antitaxhaven proposals on May 4. His administration proposes to eliminate the immediate deduction of interest on investments overseas on which the tax is deferred, and to eliminate the checkthebox rules by which secondtier overseas subsidiaries can be eliminated from US tax calculations. It also wants to toughen reporting requirements on individual US holders of foreign bank accounts. It estimates revenue from these changes at $210bn over 10 years.

In 2004, US multinationals paid $16bn of US federal tax on an estimated $700bn of overseas earnings, according to the administration.

Corporate income tax receipts in the fiscal year 200708 totalled $304bn – 2.13% of GDP and 19.4% of corporate profits. In the fiscal year 199394, corporate tax receipts were $140bn, 2.05% of GDP and 24.1% of corporate profits.

White House announcement

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In 2004, US multinationals paid $16bn of US federal tax on an estimated $700bn of overseas earnings, according to the administration.

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