President Barack Obama’s plan to end tax breaks for U.S.-based multinational companies drew a skeptical response from fellow Democrats on Capitol Hill, indicating that his plan may face obstacles on its path through Congress.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, called for “further study” of Obama’s proposals within minutes of the president’s announcement yesterday. Representative Joseph Crowley, a Democrat on the tax-writing House Ways and Means Committee, said he’s wary because the tax changes would hurt Citigroup Inc., his New York district’s largest private-sector employer.

Natalie Ravitz, a spokeswoman for Senator Barbara Boxer, a California Democrat, said that any tax overhaul should not lead to “unintended consequences.”

Other Democrats, including House Ways and Means Committee Chairman Charles Rangel of New York, support the proposal. Some lawmakers, including Iowa Senator Charles Grassley, the ranking Republican on the Senate finance panel, are still weighing the plan.

Obama proposed outlawing three offshore tax-saving strategies commonly used by companies such as Citigroup, General Electric Co., and Procter & Gamble Co. In doing so, he reignited debate about whether U.S. companies can remain competitive in world markets if they have to pay billions of dollars in taxes on foreign profits.

Lawmakers will have “a great deal of willingness to listen to companies” that face as much as a 10 percent tax increase under Obama’s plan, said Clinton Stretch, managing principal of Deloitte Tax LLP in Washington. One proposal to limit deductions by companies that defer U.S. tax payments on foreign profits faces “very tough sledding in the Senate,” he said.

‘Broken Tax System’

The U.S. has “a broken tax system” that is “full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share,” Obama said as he outlined his plan with Treasury Secretary Timothy Geithner at the White House. Obama called most of the breaks “unjustifiable” and likened some company practices to a “tax scam.”

That rhetoric stung some executives: Carl Guardino, chief executive of the Silicon Valley Leadership Group, told Treasury officials on a conference call after the speech that Obama’s “word choices were a bit troubling” because chief executives in his organization are “proud Americans.”

A reporter for Bloomberg News, who identified himself and his affiliation, was on the call between Treasury officials and the business leaders.

Surprised

In an interview after the call, Guardino said he and 52 other top executives of companies such as Hewlett-Packard Co., Intel Corp., and Oracle Corp., meeting in Washington this week found it “surprising to be construed in the same way as tax cheats.”

The package of corporate and individual tax changes, which will be part of a detailed budget the administration plans to release May 7, would generate about $210 billion in tax revenue over the next decade, according to Treasury estimates. Obama’s proposals, if adopted, wouldn’t take effect until 2011.

For the biggest chunk, the administration expects to raise $86.5 billion through 2019 by ending a strategy that lets U.S.- based multinational companies effectively hide the role their foreign subsidiaries play in shifting profits into low-tax jurisdictions such as the Cayman Islands.

The proposal, combined with a $60.1 billion plan to limit many expense deductions for American companies that take advantage of laws allowing them to defer tax on foreign profits and a $43 billion crackdown on abusive foreign tax credits, including those with artificially inflated values, would be the biggest tax increase on U.S. corporations since 1986.

Burden of Proof

Obama’s plan also would shift the burden of proof to individuals when the IRS alleges assets are being hidden in certain offshore bank accounts, the White House said in a statement.

In exchange, Obama proposed to make permanent a research and experimentation credit worth about $75 billion over the same period to manufacturers and other companies that can claim it.

Obama’s plan drew immediate criticism from the U.S. Chamber of Commerce and the Business Roundtable, a group of chief executives at some of the biggest U.S. companies. Roundtable President John Castellani said Obama is pushing “the wrong idea at the wrong time for the wrong reasons.”

‘Fresh Opinions’

An advisory group headed by former Federal Reserve Chairman Paul Volcker, which is studying tax proposals, isn’t bound by Obama’s plan, said Gene Sperling, an economic adviser to the president. “They are there to give the president fresh opinions,” Sperling told corporate executives on the conference call about the tax plan.

Obama based many of his proposals on earlier ideas by Democratic lawmakers such as Senator Carl Levin of Michigan, Representative Lloyd Doggett of Texas, and Rangel.

Baucus, who said he supports the president’s overall goals, said it’s best to consider an overhaul of international tax rules as part of a broader rewrite of the tax code.

“Further study is needed to assess the impact of this plan on U.S. businesses,” Baucus said in a statement.

In a separate statement, Crowley said he favors taking steps to “protect U.S. multinational companies, including Citibank which is the largest private-sector employer in Queens, so they are not subject to double taxation overseas.”

‘Misunderstanding’

Boxer’s spokeswoman Ravitz said that the senator’s experience in pushing a corporate “repatriation” tax holiday “indicates that there is a great deal of misunderstanding surrounding these issues.”

Other lawmakers reacted more favorably.

“Our tax code should reward companies that thrive by continuing to invest in America and American workers,” Rangel said. “I applaud President Obama’s commitment to simplifying our tax code and look forward to working with the administration to close these loopholes.”

Grassley said he supports efforts to crack down on tax abuse. “Out of fairness, corporate taxpayers generally shouldn’t pay pennies on the dollar compared to the rest of Americans,” Grassley said. However, he said, if Obama is “using tax shelters as a stalking horse to raise taxes on corporations at the cost of U.S. jobs, he’ll lose me.”

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