Says he lived up to a 2008 promise when he "closed corporate tax loopholes that were sending profits overseas."
Barack Obama on Tuesday, January 3rd, 2012 in a web video advertisement
Barack Obama reelection video says he “closed corporate tax loopholes that were sending profits overseas"
With all eyes on Iowa for the Republican caucuses, President Barack Obama’s re-election campaign reminded watchers of his own Iowa win — and what he has done to keep his campaign promises.
Obama for America bought banner ads across the home page of the online Des Moines Register on Jan. 3, 2012, with a link to Obama's 2008 victory speech in the state.
Music plays as candidate Obama promises action on health care, taxes, energy independence and the war in Iraq. Between clips, white text across the screen highlights Obama's policy accomplishments.
For example, candidate Obama declares, "I’ll be a president who ends the tax breaks for companies that ship our jobs overseas." At that point, an on-screen visual reads: "Closed corporate tax loopholes that were sending profits overseas."
We wondered whether the ad’s claim about Obama’s accomplishment is justified.
We asked the Obama campaign for supporting material, and they said they were referring to Public Law 111-226, a measure that was primarily aimed at providing economic aid to states. To offset the cost of new spending, however, the bill included a few provisions related to taxation of international corporations -- what a number of tax experts have told us can be fairly described as loopholes.
As we explained in a previous item, Obama signed the bill into law on Aug. 10, 2010. The tax provisions took away more than a half dozen existing exemptions and credits estimated to be worth $9.8 billion over the subsequent 10 years.
Here’s how it worked. The United States, unlike a variety of other countries, taxes its companies on the foreign profits they earn. But the companies don't have to pay taxes on their foreign earnings until they bring those profits back to the U.S. So companies tend to keep the money with their foreign subsidiaries as long as they can.
But companies also get U.S. tax credits for taxes they pay to foreign governments, and some companies figured out how to game the system by keeping their profits overseas while still claiming a tax credit for taxes paid on the same income to foreign governments. That's what the law tried to address. It said that companies can't claim the foreign tax credit until they report their income.
But while there is some truth to the claim that the president signed legislation that "closed corporate tax loopholes thta were sending profits overseas," we should point out a few issues.
First, under the old law, companies weren’t necessarily "sending profits overseas," as the ad states, but may have been keeping in place profits that were already being generated overseas. Still, this strikes us as a fairly minor linguistic quibble.
A more pertinent question is whether the legislation Obama signed fulfills the pledge he made in Iowa in 2008 -- that he’ll "be a president who ends the tax breaks for companies that ship our jobs overseas."
H. David Rosenbloom, director of the International Tax Program at the New York University School of Law, calls the legislation "very narrow."
"It addresses a specific tax planning strategy whereby foreign taxes and credits are ‘split’ from the foreign income that gave rise to them," he said. Left relatively unscathed is the broader "deferral regime" that allows companies to avoid U.S. taxes on foreign income as long as they do not "repatriate" -- bring home -- the money and avoid a few other hurdles.
For instance, one proposal by former Walt Disney Co. executive Preston Padden, now an adjunct law professor at the University of Colorado, urges a reduction in the corporate income tax rate to 20 percent, which would be aligned with most foreign countries, paired with stricter "anti-deferral" rules.
"A tax rate comparable to foreign countries would greatly eliminate the incentives to move operations and jobs offshore because of rate differentials, and the anti-deferral regime would minimize the benefits to U.S. companies from offshoring operations and jobs," Padden wrote in a recent op-ed.
The narrower law signed by Obama, by contrast, "will hardly prevent companies from sending profits abroad, keeping them abroad, and otherwise profiting from the current set of international tax rules," Rosenbloom said.
Even after passage of the 2010 law, "most experts would agree that the U.S. international tax system encourages U.S. multinationals to accumulate profits offshore," said Lawrence Lokken, an emeritus professor of law at the University of Florida.
While there is some truth to the claim that Obama signed legislation that "closed corporate tax loopholes that were sending profits overseas," experts say the law by itself doesn’t live up to Obama’s promise in Iowa to "be a president who ends the tax breaks for companies that ship our jobs overseas." Incentives deeply embedded in the tax code still exist. We rate the statement Half True.
Published: Thursday, January 5th, 2012 at 6:04 p.m.
Barack Obama, "Promises Kept" (re-election ad video), Jan. 3, 2011
PolitiFact, "Obama said Boehner opposes tax rule to keep profits and jobs in the USA," Sept. 13, 2010
E-mail interview with H. David Rosenbloom, director of the International Tax Program at the New York University School of Law, Jan. 5, 2012
E-mail interview with Eric Toder, co-director of the Urban Institute-Brookings Institution Tax Policy Center, Jan. 5, 2012
E-mail interview with Lawrence Lokken, emeritus law professor at the University of Florida, Jan. 5, 2012
We want to hear your suggestions and comments.
For tips or comments on our Obameter and our GOP-Pledge-O-Meter promise databases, please e-mail the Obameter. If you are commenting on a specific promise, please include the wording of the promise.For comments about our Truth-O-Meter or Flip-O-Meter items, please e-mail the Truth-O-Meter. We’re especially interested in seeing any chain e-mails you receive that you would like us to check out. If you send us a comment, we'll assume you don't mind us publishing it unless you tell us otherwise.
Keep up to date with Politifact:
- Sign up for our e-mail (about once a week)
- Put a free PolitiFact widget on your blog or Web page
- Subscribe to our RSS feeds on Truth-O-Meter items
- Subscribe to our RSS feeds on GOP Pledge-O-Meter items
- Subscribe to our RSS feeds on Obameter items
- Advertise on PolitiFact
- Shop the PolitiFact store for T-shirts, hats and other PolitiFact swag