A Step in the Right Direction

Earlier today, President Obama released a set of proposals that would crack down on offshore sheltering of corporate income. The Administration’s proposals include denying tax deductions for expenses used to support overseas expansion until firms pay U.S. taxes on the profits from those investments; eliminating loopholes for “disappearing” offshore subsidiaries through the so-called “check-the-box” rules; beefing up tax withholding, burden of proof, and penalties provisions targeting individuals who evade taxes through the use of offshore tax havens; and allocating additional resources to the Internal Revenue Service for efforts to stem offshore tax evasion.

To the extent these provisions limit offshore sheltering of corporate and personal income, California stands to realize a modest gain in state tax collections. Interestingly, the Wall Street Journal reports that several California-based companies – Google, Hewlett-Packard, and Cisco Systems – are among the firms that have benefitted from tax provisions that have allowed companies to legally avoid paying taxes on their earnings by parking them in offshore tax havens.

It is not clear what, if any action, California lawmakers must take to benefit from the new proposals, which are already garnering opposition from beneficiaries of the current treatment. But let’s hope that this is one bandwagon that state officials don’t let pass by.

— Jean Ross