Daily Tax Update - July 1, 2011: Geithner Says Repatriation Holiday Should be Considered Part of Tax Reform; Durbin Calls For Limitations On Deferral

GEITHNER SAYS REPATRIATION HOLIDAY SHOULD BE PART OF TAX REFORM; DURBIN CALLS FOR LIMITATIONS ON DEFERRAL:  Treasury Secretary Timothy Geithner said yesterday at former President Bill Clinton's Global Initiative conference on job creation that the Obama administration is willing to consider a one-time corporate tax repatriation holiday, but it would need to be part of broader corporate tax reform.  Geithner said, "We want to do a comprehensive tax reform that creates much stronger incentives for investment in the United States.  It has to be done in a revenue neutral way over time because we've got big fiscal problems.  We want to do it in a way that lowers the rate, broadens the base, and creates stronger incentives for investment.  As part of that, we think we can do a pretty significant one-time incentive for people to bring some of that money back."

  • Geithner added, "We have one of the highest statutory rates in the world, although the average effective rate is close to the average of our major competitors.  But it is an unfair system, huge amounts of uncertainty in it.  What you pay in taxes, relative to income is not determined by how successful you are, how efficient you are.  It is really determined by the quality of your lobbyists—so huge unfairness.  Some firms pay way under the average, some firms pay way over the average. . . . Our big challenge over time is to do things that maximize the chances that more of the investment the world is going to need takes place in companies that are building and creating things in the United States.  Getting the tax system better is part of that.  But our focus should be on long-term permanent reforms that create better incentives for investment here and the only path to that, really, is comprehensive corporate tax reform."
  • On the issue of the impending August 2 deadline to raise the debt ceiling, Geithner expressed confidence that Congress would act.  He said, "They [Congress] will act.  They'll do the right thing."  Geithner added, "[It] will be unthinkably damaging to the economy -- much more damaging than even what we faced in that dark period of '08 and '09."  He added, "I think part of the cloud over the country, the uncertainty over the country today, is [whether] our political system [is] up to managing the problems we have to face.  Until the American political system is able to demonstrate it can come together and put in place a long-term [plan] for us to get ahead of this fiscal problem, nothing is possible for the economy."
  • Geithner also said that he would remain at his job for "the foreseeable future."  Geithner added, "I live for this work.  It's the only thing I've ever done.  I believe in it."
  • Meanwhile, Senate Democratic Whip Richard Durbin said yesterday that he wants to consider limiting some corporations' ability to defer taxes on offshore income as a revenue raiser for deficit reduction.  Durbin said, "Subsidies that are going to American businesses to ship jobs overseas should end immediately."  An aide to Durbin said he is hopeful that any modifications to deferral would be based on a bill Durbin introduced last fall, the Creating American Jobs and Ending Offshoring Act (S. 3816), which would limit deferral of taxes on income earned from selling goods to the United States after moving operations to another country.

SENATE CANCELS JULY 4TH RECESS -- HOUSE RETURNS JULY 6TH:  Senate Majority Leader Harry Reid announced yesterday that he was cancelling the Senate's July 4th recess next week so that lawmakers can continue to focus on deficit-reduction/debt ceiling negotiations.  Reid said, "There’s still so much to do to put Americans back to work, to cut our deficit and [get] our economy back to work.  It is really important that we do this.  That moment is too important, the obstacle is too steep and the time too short to waste even a moment."  During a press conference Thursday, President Obama chided Congress for not staying in session.  Obama said, "If by the end of this week we have not seen substantial progress, members of Congress are going to have to start canceling things and stay here until we get it done.  They're in one week, they're out the next."

  • The House will return in session on July 6th.

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