More taxes from Obama
Americans and American businesses earning profits overseas will pay an estimated $210 billion dollars more in taxes over the next decade if Congress approves stricter international tax laws outlined by the Obama Administration Monday. . . . .
Currently, most American-owned businesses investing overseas can delay paying federal taxes on their profits until they bring that money back to the United States. These businesses can also take tax deductions on their overseas investments. The President is proposing Congress eliminate those deductions unless the company pays its U.S. taxes on international profits. There would be an exception for research and experimentation expenses that have a spillover benefit to the U.S. . . . . .
The WSJ has this:
The President's argument is that U.S. tax-deferral rules make it more expensive for American companies to reinvest overseas profits at home than abroad. This, he claims, creates a perverse incentive for companies to "ship jobs overseas" and reduces investment and job creation in the U.S.
He's right, except that his proposals would only compound the problem. His plan would limit the tax deferral on income earned abroad by tightening the rules, limiting allowable deductions and restricting eligibility for foreign-tax credits. This "solution" is antigrowth, job-destroying, protectionist and unlikely to raise the tax revenue Mr. Obama predicts. Other than that . . .
The current tax-deferral system is a clumsy attempt to deal with the fact that most other countries don't tax their companies' overseas profits. 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 (see nearby table), U.S. companies end up paying higher taxes than their international competitors. . . . .
The explicit goal of this plan is to reduce the incentive for U.S. companies to invest abroad, which Mr. Obama derisively calls "shipping jobs overseas." Foreign companies may relish the loss of U.S. corporate competitiveness that his proposal will bring in the short term. But in the long term, reducing U.S. investment globally will hurt everyone. . . . . .