5/05/2009

More taxes from Obama

This will increase the tax rate on foreign investments relative to those in the US.

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. . . . . .

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3 Comments:

Blogger Angela said...

I must be confused because this makes sense to me. Why should a company get to claim an expense against profit it isn't claiming?

5/05/2009 1:44 PM  
Blogger John Lott said...

Dear Angela:

That isn't what is happening. They are only currently claiming deductions against income. Now when that income is claimed they won't be able to claim deductions that they previously claimed.

5/05/2009 3:26 PM  
Blogger Martin G. Schalz said...

Some time ago, I made a point about the tax laws concerning overseas investments by American Companies. This was done by the Kennedy Administration to promote American interests abroad during the height of the Cold War.

In essence, the aim of the goal was to promote American ideals, and interests to foreign countries.

So now, we are dealing with politics, and history be damned.

For one such as I, the problem must be viewed within it's context.

Such is not the case here. I know that situations do change, but human nature does not.

To express a need for change, is needed, but to make such a change without regard for the need of the change and to do so for merely politcal neccesity, is male bovine fecal matter.

If it were I, I would lay out the facts of the matter, and explain how and why society, and the world has changed since the rules were implemented.

To I, BHO's decision is a means to get more tax income, while passing this off as a means to pacify the taxpayers.

There has been a undercurrent of anger, as we have watched our jobs going overseas, and BHO is capitalizing on we, the workers anger, whom have been losing jobs.

This is not an answer. To feed pabulum to the masses, is an old technique. Works great if one wishes to stir up the 'masses', and achieve complete power over them.

BHO does not miss the point here. He wants more money for his agenda, and look great while doing so, all at the expense of us.

Not being an economist, I cannot explain the totality of the complex interactions of global fianace, and it's impact, but I can see that BHO has his own agenda here, and facts be damned!

5/06/2009 1:09 AM  

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