First the good news: earlier this week President Barack Obama admitted that high taxes kill jobs. Now the bad news: he wants to raise taxes on U.S. companies anyway. Pitching his new tax reform plan Monday President Obama said that our tax code “says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.” As the Wall Street Journal quipped: “That sounds like a great argument for lowering taxes on the guy creating jobs in Buffalo. Alas, that’s not what he has in mind.”
Instead, President Obama wants to raise taxes on U.S. companies by: 1) limiting the ability of American business to defer U.S. tax on their foreign income and 2) reducing the credit American businesses receive for foreign taxes paid. The President’s proposals demonstrate a fundamental misunderstanding of tax policy principles and the market forces that drive the global economy. Currently, most other countries do not tax their companies’ overseas profits. So, as the WSJ illustrates:
A German firm doing business in Ireland, say, pays no German income tax on its Irish profits, but it does pay Ireland’s corporate income tax at its 12.5% rate. The U.S. company competing with that German business in Ireland, by contrast, pays Ireland the same 12.5% on its profits — and it then pays Uncle Sam up to 35%, minus a credit for what it paid the Irish. And because almost everyone else’s corporate tax rates are lower than America’s, U.S. companies end up paying higher taxes than their international competitors.
And those higher taxes mean a big competitive disadvantage for American firms. Even business leaders that were highly supportive of Obama’s presidential campaign are livid over this latest revenue grab. The San Francisco Chronicle reports:
Silicon Valley executives made clear to all that Obama’s hunt for revenue to finance his ambitious agenda, from green energy to health care, should leave them alone. … The plan would “make very good companies very uncompetitive,” said Kevin Surace, chief executive of Serious Materials of Sunnyvale. As it is, he said, with the cost advantages that Chinese companies have already, “we’re almost uncompetitive now.”
Punishing U.S. companies for competing overseas will ultimately kill jobs here at home. For every worker employed by a U.S. subsidiary in a foreign country, 2.3 Americans are employed in the U.S. And a 10 percent increase in foreign investment by businesses has been associated with a 2.6 percent increase in investment in the businesses’ home countries. So, we were delighted to see the President begin to learn that high taxes kill jobs; unfortunately he still needs a couple more classes.
Quick Hits:
- A report by the Director of National Intelligence obtained yesterday by ABC News directly contradicts Speaker Nancy Pelosi’s (D-CA) previous claims that she was told about the use of waterboarding techniques.
- At a Treasury bond auction yesterday, the government was forced to pay higher interest rates than expected, signaling that the current levels of massive government spending will push up borrowing costs for the federal government and consumers.
- Federal Reserve staff economists, yesterday, identified disturbing signs that the economy’s growth potential was downshifting to a lower gear.
- Among the federal programs deemed ineffective by President Obama yesterday were at least $490 million worth of programs Obama signed into law with his stimulus package and at least $19 million worth of programs Obama signed into law with the omnibus spending bill.
- Not only is General Motors still on the verge of bankruptcy after receiving $15.4 billion in “loans” from the federal government, but according to the company’s restructuring plan many of the company’s new jobs will be filled by workers overseas.
