Obama Goes After Performance-Enhancing Tax Havens

Alas, poor Manny Ramirez. The Los Angeles Dodgers' slugger was suspended for 50 games last week — which will cost him roughly $7.7 million in salary — for testing positive for a performance-enhancing drug.

Alas, for that matter, poor Mark McGwire, Alex Rodriguez, Roger Clemens and all the other professional athletes caught up in the steroids controversy. All they (allegedly) were doing was trying to improve their performances by using drugs that weren't banned at the time. They've been ostracized by the public and condemned by Congress.

Meanwhile, four out of five of America's biggest corporations have been doing pretty much the same thing: Enhancing their bottom lines by stashing money in overseas tax havens, thereby costing the Treasury up to $100 billion a year in unpaid taxes.

On May 4, President Barack Obama proposed cracking down on performance-enhancing tax havens, both for corporations and for wealthy individuals.

"It's a tax code full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share. It's a tax code that makes it all too easy for a number — a small number of individuals and companies to abuse overseas tax havens to avoid paying any taxes at all," the president said. "And it's a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York."

You'd think Congress would be every bit as exorcized about tax havens as it was about steroids. You'd be wrong. Initial reaction among Republicans, and many Democrats, was mixed: Fine if you want to go after individuals who are dodging taxes, but leave the corporations alone.

"Further study is needed to assess the impact of this plan," said Max Baucus, the Montana Democrat who chairs the Senate Finance Committee.

"I want to make sure our tax policies are fair and support the global competitiveness of U.S. businesses."

Never mind that this issue has been studied for at least two decades. Every dollar that corporations and individuals dodge is another dollar that other taxpayers must make up.

The biggest loophole is the one that allows multinational corporations to shelter profits made overseas in "offices" (usually a mail drop) in places like the Cayman Islands. The executives live in the United States and enjoy its abundant blessings but don't pay a fair share of the taxes supporting those blessings. As the tax critic David Cay Johnston has pointed out, individual wealth is a product of American society, not its purpose.

In 2004 — the last year for which the Internal Revenue Service has complete data — U.S. multinationals paid an effective tax rate of 2.3 percent on $700 billion in stashed overseas earnings. No wonder they're shipping jobs overseas.

It may be that Obama has so many other issues on his plate that he won't fight this one to the death. It may be that he'll accept the argument that cracking down on tax havens is, in effect, a tax increase that would slow economic recovery. It could be he'll trade this issue for corporate support for health care reforms.

But long term, this practice has to end. Just as a Dodger who juices up on steroids has unfair advantages over ballplayers who don't, tax dodgers penalize every honest taxpayer, individual and corporate. Manny's suspension is a sideshow. This is the ballgame.

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