WASHINGTON, D.C. - The nation’s treasury czar today signaled that the White House intends to propose a comprehensive plan aimed at stopping big corporations and wealthy individuals from avoiding their fair-share of taxes by stashing income in offshore havens.  Word of such a broad approach came during Treasury Secretary Tim Geithner’s testimony before the U.S. Senate Finance Committee Wednesday morning.

On the campaign trail last year, President Obama vowed to close tax loopholes that provide incentives for U.S. businesses to create jobs overseas instead of at home.  The president’s recently proposed budget hints at savings from closing unspecified offshore loopholes.  But in response to a question by Florida Democrat Bill Nelson Wednesday, Geithner revealed that in the works is an ambitious and sweeping plan to crack down on tax havens.

“There's a range of other things that are in the tax code now, which create . . . other opportunities to evade U.S. taxes,” Geithner told Nelson.  “And we're going to come and give you the best set of proposals we think we can come up with to try to meet this broad objective” of shutting down offshore tax havens.

“We need to make sure that we're putting together as comprehensive and carefully designed set of proposals as we can,” Geithner told Nelson.  “We're going to look at the full range of ideas, including the ones you referred to in your bill.”

The bill mentioned by Geithner is legislation filed just yesterday by Nelson and Sens. Carl Levin, D-Mich., Sheldon Whitehouse, D-RI, and Claire McCaskill, D-Mo.  The legislation, among other things, would treat foreign corporations managed and controlled in the U.S. as domestic corporations for income tax purposes; and, close an offshore tax loophole that enables non-U.S persons to dodge payment of taxes on stock dividends.

During his questioning of Geithner, Nelson cited a recent GAO study showing that of the 100 largest U.S. publicly traded corporations, 83 have subsidiaries in offshore tax havens.  For example, Citigroup -- one of the major recipients of bailout funds -- has 437 subsidiaries in tax havens; and, there are 90 of those subsidiaries in the Cayman Islands alone.

Earlier this week, a major TV news network reported that 11 recipients of bailout tax dollars together have collected more than $227 billion.  And even as they benefit from this tax money, they operate hundreds of subsidiaries in places widely known for helping people evade taxes, according to CBS News Investigative Correspondent Sharyl Attkisson.

The legislation by Levin, Nelson, Whitehouse and McCaskill, called the Stop Tax Haven Abuse Act, will be taken up first by the Finance Committee, a panel chaired by Sen. Max Baucus, a Democrat from Montana.  Interestingly, Obama co-sponsored a similar measure when he was in the Senate last year.

“The main point is to be effective in closing down these loopholes,” Baucus said at Wednesday’s hearing with Geithner.

TRANSCRIPT

March 04, 2009

NELSON:  Mr. Secretary, good morning to you.

On the question about folks not paying what they owe in their taxes, particularly some of the banks that have used the offshore tax schemes -- and that's estimated somewhere in the range of 40 to $70 billion a year that they are not paying, and that's a heap over the 10-year budgeting period that we have, 400 to $700 billion.

And a recent GAO study showed that of the 100 largest U.S. publicly traded corporations, that 83 have subsidiaries in offshore tax havens.  For example, Citigroup -- which, by the way, is one of the major recipients of bailout funds -- has 437 subsidiaries in tax havens, and there are 90 of those subsidiaries in the Cayman Islands alone.

What can we -- and I don't say you; I'm saying we -- I filed a bill with others, including Senator Levin to address this issue, but what should the U.S. government do to close these loopholes before we continue to ask taxpayers to bail them out when they're not paying their fair share of taxes?

GEITHNER:  Senator, I share your concern, and I think you're right to point out it's not fair to people who pay their taxes for people to continue to have the ability to evade U.S. taxes by taking advantage of offshore tax havens and a range of other provisions in current law which makes it -- makes it possible to evade U.S. taxes.

That's why in the budget there is a clear commitment by the president to come to the Congress with a comprehensive set of proposals for reducing international tax avoidance.  As part of that,we're going to have to bring a much more ambitious effort to deal with offshore tax havens.

That's not going to be enough, though.  There's a range of other things that are -- that are in the tax code now which create incentives to shift investment -- jobs overseas, create other opportunities to evade U.S. taxes.

And we're going to come and give you the best set of proposals we think we can come up with to try to meet this -- meet this broad objective.

But I think you're right, it's not fair, and particularly given the scale of the fiscal challenges we inherited and the important long-term investments we're going to need to make.  The only way to get ourselves on the -- back to a fiscally responsible path is do a better job of dealing with this challenge.

Now, you know, in the budget there's a very substantial request for improved enforcement resources via the IRS, and the commissioner's going to be in a position to come and explain in more detail how he
plan to use those.

But we're going to look at the full range of ideas, including the ones you referred to in your bill.  And of course, this committee has shown great creativity and leadership in this area in the past.  We'd like to build on those suggestions.

NELSON:  That is wonderful news with -- and a refreshing attitude.

And, Mr. Chairman, this, of course, would be a matter in front of your committee, and I value your leadership on us addressing these tax loopholes.

BAUCUS:  Very important question.  And I'm very glad, frankly, this is being addressed more forcefully by this administration.

GEITHNER:  And -- and very forcefully.

BAUCUS:  It's a big problem.  Yeah.

NELSON:  And I am very appreciative.

BAUCUS:  Right.  It's -- there are lots of ideas, and a lot of them sound good on the surface, but the main point is to be effective in closing down these loopholes.

GEITHNER:  I think the hard thing is, of course, everybody's for closing the tax gap.

BAUCUS:  Right.

GEITHNER:  But when you look at the specifics, sometimes that enthusiasm fades.  So we need to make sure that we're putting together as comprehensive and carefully designed set of proposals as we can. We have no alternative but to do a better job.

Now is the best time to do it.  Thank you.

NELSON:  May I, in my remaining time, Mr. Chairman, just ask one more question?

BAUCUS:  Certainly.

NELSON:  What we have, as I see on the issue of housing, we're having voluntary loan modifications made by banks, but they're putting them back into a loan modification that may be another adjustable rate mortgage that, when the time comes, it's not going to solve the problem and we've got this kind of revolving situation that is delaying the inevitable.

The housing plan that you put forth has incentives for voluntary modifications to those fixed mortgages.  What can we do to put the protections in there to help the homeowners from not being forced to or encouraged to sign up for another mortgage that they cannot afford?

GEITHNER:  You're absolutely right that many of the modifications that have been done to date don't fundamentally improve the overall debt burden of the borrower and will still leave them in an unsustainable position, and what this program does is try to address that.

So the program provides a powerful set of incentives to produce more affordable mortgages for people that need these carefully designed eligibility tests, because we don't want to be devoting taxpayer resources to support homeowners that don't need the assistance nor do we want them to be directed to homeowners who really knowingly borrowed dramatically beyond their means.

But what this proposal does is provide, as I said, a powerful set of incentives, incentives of both types, what I might say, persuasive force, and some economic inducements to provide substantial improvements in affordability for people who meet this important test, where, with those changes, you're going to be put in an economically viable position, able to stay in your home in that case.

Now, that's not the only thing this plan does.  Can I just, Mr. Chairman, quickly?

BAUCUS:  Briefly.

GEITHNER:  I'm sorry.  And this is very important.  Critical improvements of the rest of the program the president announced is to try to bring mortgage rates down for all Americans.

The role that Fannie and Freddie play in our housing market is a critical part of that.  We announced a significant set of measures to achieve that objective and, for the first time, we let a new program that would help  Americans that have somewhat higher than typical loan-to-value ratios, take advantage of the reduction in mortgage rates already by refinancing, where they previously did not have the opportunity to refinance.

Those things together, we think, will help address this acute crisis that's causing so much damage.

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