Raise taxes on foreign income, ship more jobs overseas
President Obama says he wants to stop giving “tax breaks” that encourage American companies to “ship jobs overseas.” Like a lot of protectionist rhetoric, it has a nice ring to it but doesn’t stand up to even basic scrutiny.
Obama refers to a tax-code provision that allows U.S. companies to defer the payment of some corporate income tax until their overseas profits are repatriated here. Most other industrialized countries don’t tax their firms’ overseas profits at all — perhaps because they’re too busy cutting tax rates to improve their competitiveness, or perhaps because they realize it’s actually counter-productive.
But rather than talk about why the president’s approach is wrong in theory, consider this example from today’s Wall Street Journal of a similar move Washington has already tried, and watched backfire:
Mr. Obama believes that by increasing the U.S. tax on overseas profits, some companies may be less likely to invest abroad in the first place. In some cases that will be true. But the more frequent result will be that U.S. companies lose business to foreign rivals, U.S. firms are bought by tax-advantaged foreign companies, and some U.S. multinational firms move their headquarters overseas. They can move to Ireland (where the corporate tax rate is 12.5%) or Germany or Taiwan, or dozens of countries with less hostile tax climates.
We know this will happen because we’ve seen it before. The 1986 tax reform abolished deferral of foreign shipping income earned by U.S. controlled firms. No other country taxed foreign shipping income. Did this lead to more business for U.S. shippers? Precisely the opposite.
According to a 2007 study in Tax Notes by former Joint Committee on Taxation director Ken Kies, “Over the 1985-2004 period, the U.S.-flag fleet declined from 737 to 412 vessels, causing U.S.-flag shipping capacity, measured in deadweight tonnage, to drop by more than 50%.”
Mr. Kies explains that “much of the decline was attributable to the acquisition of U.S.-based shipping companies by foreign competitors not subject to tax on their shipping income.” Mr. Kies concludes that the experiment was “a real disaster for U.S. shipping” and that the debate over whether U.S. companies can compete in a global market facing much higher tax rates than their competitors was answered “with a vengeance.”
Now the White House wants to repeat this experience with all U.S. companies. Two industries that would be most harmed would be financial services and technology, and their emphasis on human capital makes them especially able to pack up and move their operations abroad. CEO Steve Ballmer has warned that if the President’s plan is enacted, Microsoft would move facilities and jobs out of the U.S.
Some of our politicians can keep trying to deny the globally competitive nature of business today, but it won’t do us any good.
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191 comments Add your comment
PatriotWriter
September 27th, 2010
11:22 pm
AMVET, please check your facts. The Export-Import Bank doesn’t cost the taxpayer a cent. It doesn’t get any tax dollars, and in fact makes money for the taxpayer while performing its mission of keeping U.S. export workers employed. Read their web site… they’ve earned over $5 billion since ‘92, and sent the money to the Treasury…. they don’t get any money from Congress…. and the companies that get financing PAY for the financing through fees and interest.
zeke
September 28th, 2010
12:47 am
Prime examples: A. Busch bought by INBEV
Gulf Oil bought by BP
Steel companies bought by MITTAL
Shell becoming Royal Dutch Shell
Foreign banks buying American banks
MANY, MANY OTHERS
stew mcgravy
September 28th, 2010
1:14 am
Kyle, you claim that “Most other industrialized countries don’t tax their firms’ overseas profits at all — perhaps because they’re too busy cutting tax rates to improve their competitiveness, or perhaps because they realize it’s actually counter-productive.” This is a BS claim and you (probably) know it. Specifically, which countries don’t tax foreign profits? Which industrialized countries are cutting tax rates? I suspect you don’t specify because you don’t want to let facts get in the way of a good argument. Only a partisan hack would make assertions without substantiation–I guess the barrier to entry for “journalism” has never been lower, though, so have at it.
Fried
September 28th, 2010
1:25 am
Corps have the same rights as the individual now, so says the Supremes. Well with rights come responsibilities. These people (entities) have no sense of patriotism let alone nationalism any more. And after all this country has done to make their opportunities possible. Our Defense structure has been defending there actions and interests all over the world, for going on 2 centuries now, at the TAXPAYER expense in blood and treasure. Adam Smith the great grandfather of modern capitalism is no doubt turning over in his grave with disgust. In the Wealth of Nations he says “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.” Now what does that really mean; remember under Eisenhower and through the 50s top tax rates were as high as 90%. Didn’t seem to stop rich people from getting richer, and this country from having one of its greatest periods of economic boom. If you remember we built the middle class of this country in those years. Maybe we could rebuild it if these greedy, ungrateful and unpatriotic @#$%&(*) would just pay their fair share. Considering the state of economic growth over the last decade you geniuses have done us no favors with your market knows all, tax breaks for all, trickle down, bogus economic theories. The curtain has been opened and it time to go back to reality in Kansas. It’s just your fair share. Stop whining. Wave a flag or something. Better yet thank a Vet for protecting you and your sorry ass company, and thank a taxpayer for putting up the cash to build an infrastructure so you could do business. You blood sucker. Then go hide your head in shame for not being a better citizen.
Don't Forget
September 28th, 2010
1:35 am
Corporations domiciled or managed in Germany are deemed to have full corporation tax liability. This means that their domestic and foreign earnings are all taxable in Germany.
Top exporting countries as of 2007
1. Germany
2. Peoples Republic of China
3. United States
When you consider that Germany only has about 82 million people, less than a third of the US, it’s hard to argue they are being hurt by a policy that taxes foreign earnings. In fact, I think the opposite is true.
Just Ignorant
September 28th, 2010
2:22 am
I can’t believe that the hypocrite Obama can talk about maintaining “American Jobs) when his wife has commissioned a fashion designer in London (who happens to be the owner and is black – could that be the reason Mrs. Obama contacted her??) to design a cream coat for her. The cost will be over $1,000.
Do people not see the irony and hypocrisy behind this?? A non-American company, person likely chosen because of their race, and a COAT that will cost over $1,000 when so many others are hurting and Obama is telling people to tighten their belts??
stew mcgravy
September 28th, 2010
3:50 am
Keep singing the same old “Obama is the problem” song, right wing douchebags… Keep nuzzling that corporate c0ck… maybe something will trickle down for you.
Booger Sandwich w/Cheese
September 28th, 2010
7:21 am
Screw Obama. He is stupid and a dullard. Its time we move onto our next President!! Everything ODumbACE touches turns into a hot boiling cauldron of doo doo.
JackLeg
September 28th, 2010
8:02 am
Road Scholar;
The sky is falling the sky is falling, this is a big liberal problem, they make stuff up an attribute it to whoever they are attacking at the time. No conservative has ever said to “drop all taxes”, that is your lie not a conservatives. By the way if you think the middle class is having issues, what do you think the Obozo policies do? The eliminate the middle class and create the “privileged class” which are government employees, and the poor, which 90% of the liberals pushing this agenda don’t realize that they will be in the poor class.
JackLeg
September 28th, 2010
8:06 am
Don’t Forget;
You have forgotten, big time. Why do people come to America? Because we are NOT like the rest of the world; since you seem to keep hinting that Germany and China are better than the US, why are you still here?
atlmom
September 28th, 2010
8:08 am
@don’t forget: no, what i was answering was that someone indicated the effective tax rate isn’t that high. I said it just proves the point of how complicated the tax code is if the ‘rate’ is high but the ‘effective rate’ is much much lower. They are too complicated, and companies spend an inordinate amount of time and energy to pay as little as possible. Just make them less complicated and the rate lower. Of course, then congress will AGAiN get back to where we are (see: reagan making a less complicated tax code).
And *of course* the companies will lobby to get as many exceptions as they can. that’s their job. congress’ job is to not act like idiots and not let so many exceptions.
Another reason that we need the fairtax.
fair and imbalanced
September 28th, 2010
8:12 am
Kyle,
Can you name one time you disagreed with the Republican party line? It must be that oath again,
BTW, how is the GED study going?
mike
September 28th, 2010
8:46 am
Just put the repubs back into office. Then when the economy for the middle class and the working poor hits rock bottom, the voters can celebrate their own economic demise. They can also congradulate those elected officials who won’t be subjected to the financial pressures of most Americans.
Mel
September 28th, 2010
8:52 am
That’s a good one. A conservative columnist talking about the benefits of other countries’ tax codes. And not uttering the word “socialist” a single time. I’m proud of you, Kyle.
Mel
September 28th, 2010
8:57 am
Oops, you came back and blew it. It’s all about the money. The government plays a much stronger role in Europe. When it says to the big telcos for instance, “Do this” they do it. When Uncle Sam says that to the telcos, they sue and keep it tied up in court for years.
Scooter (the Original)
September 28th, 2010
9:15 am
The ship our jobs overseas argument has always baffled me. The Democrats economic policies toward business are similar to abusive and controlling parents who want their kids to endure the control forever so they can help pay the parents’ bills.
CAIR Bears
September 28th, 2010
9:16 am
“Can you name one time you disagreed with the Republican party line?”
Kyle’s disagreed with the GOP numerous times, ma’am. Not his fault if you you’re too lazy to go look.
“BTW, how is the GED study going?”
Oh the stupidity from left wingers.
CAIR Bears
September 28th, 2010
9:18 am
“Keep singing the same old “Obama is the problem” song, right wing douchebags… Keep nuzzling that corporate c0ck… maybe something will trickle down for you.”
Looks like someone needs a big bottle of Midol for their cramps.
fair and imbalanced
September 28th, 2010
9:31 am
CAIR:
Really numerous times? Name one.
HDB
September 28th, 2010
9:35 am
Linda
September 27th, 2010
4:56 pm
“HDB @ 4:13, The fed. govt. passed a law in the ‘30 banning lending in “risky” neighborhoods. They printed & distributed the maps. It was called “redlining.”
What redlining actually was was persistent discrimination by banks against ethnic minority neighborhoods….particularly those where the banks had branches. Civil rights legislation passed in the 60s did not address this…so the CRA was passed to make the banks loan funds in the neighborhoods that they SERVED!! It did NOT relax lending standards!!
“In the ‘90, the CRA was strengthened under Clinton. We already had FHA financing that was designed for low & moderate income buyers & those without perfect credit.” Not accurate…..bank lending standards did not allow banks to lend money in minority neighborhoods….but private capital came into play here….the advent of subprime lending and real estate speculation!! The Bush Administration pushed the “Ownership Society” and sub prime lending took off even more!!
Ask someone who attempted to purchase a home during those moments rather than accepting the media reports….there’s more behind it than you’re being told!!
Booger Biscuts and Gravy
September 28th, 2010
9:36 am
LMAO…the dems are so rattled and desparate they will do anything to support their Ayetoolah Obaam. Tough Knuggys, Obama is goin down and nothing will stop it. Why dont you all admit you were wrong like the ConnedGregation of New Dirth should…LMAO!!
PS…LOSERS!!!
AmVet
September 28th, 2010
9:43 am
PatriotWriter, notwithstanding what you wrote may or may not be true:
First and foremost the Ex-Im Bank essentially subsidizes the largest aircraft manufacturer in the world – Boeing. It also heavily subsidized Enron before they failed. However, the current congressional mandate for the Export-Import Bank of the United States is to supposedly focus on small business support.
Ex-Im’s largest financial commitments are in long-term loan guarantees, the category in which Boeing benefits most. In fiscal years 2007 and 2008 combined, Ex-Im issued $15.3 billion in long-term loan guarantees. Of that total, almost $10 billion, or 65 percent, went toward the purchase of commercial aircraft made by Boeing. The American taxpayers are on the line when business as well as well-connected foreign governments and nationals (such as a 1996 $120 million low-interest loan to the China National Nuclear Power Corporation (CNNP) don’t pay up.
In 2007, WFAA-TV in Dallas revealed that the Ex-Im Bank had given at least $243 million in fraudulent loans to companies doing business with Mexico, including giving loans to companies with no verifiable address and individuals who were known associates of the Sinaloa and Juarez drug trafficking cartels.
Once again, big business is against socialism, unless it benefits them.
Fried @1:25, very well said…
TaxPayer
September 28th, 2010
9:54 am
DUBLIN (Reuters) – Standard & Poor’s warned on Tuesday it may cut Ireland’s credit rating again due to the rising cost of recapitalizing nationalized Anglo Irish Bank, pushing Dublin’s borrowing costs to fresh peaks.
Ireland is battling to convince investors it can afford to prop up its ailing banking sector and cut the biggest budget deficit in the European Union in the face of a faltering economy and growing risks of a political crisis.
They probably just need to cut their tax rates.
CAIR Bears
September 28th, 2010
10:03 am
“Really numerous times? Name one.”
Oil spill: If Republicans are smart …
… they’ll stop trying to attack President Obama by apologizing to the only figure less popular in this fiasco — BP — and start talking about the numerous problems with the oil spill response that have resulted from our feds-first, locals-take-a-number approach.
http://blogs.ajc.com/kyle-wingfield/2010/06/18/oil-spill-if-republicans-are-smart/
JackLeg
September 28th, 2010
10:04 am
HDB;
So now that the “minority neighborhoods” have been “served” How is that working for you? Because for the rest of us it is really messing up the economy, or haven’t you noticed?
CAIR Bears
September 28th, 2010
10:05 am
“The Bush Administration pushed the “Ownership Society” and sub prime lending took off even more!!”
The Bush Administration never MADE anyone buy a home they couldn’t afford.
CAIR Bears
September 28th, 2010
10:06 am
JackLeg
HDB is a racist. You’ll quickly pick that up once you read the posts. HDB only talks about race…..because he’s a racist.
Don't Forget
September 28th, 2010
10:07 am
@ atlmom, Obama has said he would be willing to lower corporate taxes if they eliminate some of the loopholes to cover the revenue loss. Sounds like a good idea to me.
CAIR Bears
September 28th, 2010
10:08 am
“Ask someone who attempted to purchase a home during those moments rather than accepting the media reports….there’s more behind it than you’re being told!!”
So what about the people who bought homes they knew they couldn’t afford? I love how left wingers spin things and demonize ONLY the banks and lenders. They never want to talk about people who bought homes they could not afford.
HDB doesn’t believe in personal responsibility. It’s always “whiteys” fault.
skydog
September 28th, 2010
10:11 am
Would one of you “experts” explain to me how the CEO of my health care provider, United Health Care, made 113 Million dollars last year shuffling paper.
The man makes $30,958 TODAY and will not touch a Band Aid!
That`s who has your country
Real fact. I am currently laid off and my COBRA insurance for 2 people cost $1,150 a month.
Thanks…Mighty white of ya.
Don't Forget
September 28th, 2010
10:12 am
No jackleg, I merely said that Germany has a better export policy than we do and disagreed with Kyle’s opinion on the subject. If you like getting your but kicked by a country less than one third our size then, by all means, keep doing the same things. Perhaps you should move to China.
CAIR Bears
September 28th, 2010
10:16 am
Don’t Forget
Germany is very “company” friendly country. Merkel is a pro-capitalist leader.
Don't Forget
September 28th, 2010
10:45 am
CAIR bear, I didn’t say they weren’t I just stated the fact that they tax foreign income.
HDB
September 28th, 2010
11:08 am
CAIR Bears
September 28th, 2010
10:06 am
JackLeg
HDB is a racist. You’ll quickly pick that up once you read the posts. HDB only talks about race…..because he’s a racist. HDB doesn’t believe in personal responsibility. It’s always “whiteys” fault.
Wrong…..but what you DON’T admit is that everything in this nation can be seen in a racial prism!! You’re seeing things through a Caucasian prism…and you think that everything seen through that prism is right!! NOT IN ALL CASES!!
I’m more pragmatic than anything else…..not only are the people who couldn’t afford homes at fault….but the lenders seeing a QUICK BUCK are also liable!!
Can’t lay that guilt trip on me…..just remember: what’s white ain’t always right!!
HDB
September 28th, 2010
11:12 am
JackLeg
September 28th, 2010
10:04 am
HDB;
So now that the “minority neighborhoods” have been “served” How is that working for you? Because for the rest of us it is really messing up the economy, or haven’t you noticed?
If you think that the CRA is at fault…then you’ve been mislead! In many cases, rather than to abide by the CRA, many banks CLOSED their branches in minority neighborhoods…forcing those in those previously redlined neighborhoods to travel further for banking services!! This is what hasn’t been told!! If you really want to blame someone for the financial mess…blame the banks!!
No Brainer
September 28th, 2010
11:32 am
It’s actually pretty simple, and taxes have nothing to do with it. The fact of the matter is that companies would prefer to pay an employee overseas $1.00 a day to manufacture their product, than to pay an American employee a decent wage along with benefits to make the same thing here. So I guess as a nation we need to ask ourselves what kind of country do we want to be. I’m sure if everyone bands together and is willing to accept a dramatic reduction in their quality of life, as well as income, we can once again have plenty of jobs for everyone. I have yet to hear anyone volunteer to move their family into a shed and start living on $1 to $2 dollars a day so that we can re-invigorate hiring in this country. Who wants to go first?
skydog
September 28th, 2010
11:37 am
My United Health Care CEO has made $835 million in 8 years.
That is Roman TOGA being fed grapes sh*t.
Jefferson
September 28th, 2010
11:41 am
I heard today the gab between the haves and have nots grew again last year, with the under 50K losing income while the over 100K gaining income. If income grew across the board it would be one thing, but this is pure greed to keep it all at the top. And guess who cries loudest about taxes going back to the level where America prospers.
skydog
September 28th, 2010
11:47 am
What about it Cair Bear and Linda?
Ya`ll seem to have all the answers.
How much did your health care CEO make last year during hard times?
Surly ya`ll don`t have to look that one up being economist and all.
Linda
September 28th, 2010
12:10 pm
HDB @ 9:35, My info is not coming from media reports or being told. It’s coming from personal experience, being in the business on a daily basis for many decades.
We agree on redlining. You said Dems. showed that an unregulated market will surely fail. I brought up redlining to prove that the govt. has been regulating the housing market for over 65 yrs. & that govt. regulation can be devastating.
I did not say the CRA relaxed lending standards. What I said was that, in the ’70s, the CRA was strengthened AND lending standards for Fannie Mae & Freddie Mac were relaxed.
Banks have never specialized in mortgages. Savings & loans ceased specializing in mortgages in the ’80s. You said, “…private capital came into play here…” That’s incorrect. The problem was that, in the ’90’s, the Dems. began using Fannie Mae & Freddie Mac to make subprime loans to unqualified people.
CAIR Bears
September 28th, 2010
12:36 pm
“Wrong…..but what you DON’T admit is that everything in this nation can be seen in a racial prism!! You’re seeing things through a Caucasian prism…and you think that everything seen through that prism is right!! NOT IN ALL CASES!!”
Thanks for clarifying my point, HDB. You see everything in black and white.
CAIR Bears
September 28th, 2010
12:37 pm
“Can’t lay that guilt trip on me…..just remember: what’s white ain’t always right!!”
Your words, not mine. Oh, and speaking of “Jacksonisms.”
My favorite from a dead racist in Atlanta: If it’s black vote black.
Linda
September 28th, 2010
12:38 pm
skydog @ 11:47, What is the average income for a CEO? Do health insurance CEOs make more than other CEOs? Why do boards of directors pay CEOs so much money? Are CEOs rotten to the bone? “A sound heart is life to the body, but envy is rottenness to the bones.” (Prov. 14:30)
The fact is that hc insurance companies make a mere profit of 3 1/2% on average. They are near the bottom of the list of the top 100 types of companies. If you want to complain, pick on beer & cigarettes.
CAIR Bears
September 28th, 2010
12:39 pm
“How much did your health care CEO make last year during hard times?”
It’s a private company, ma’am. A private company can determine whatever it wants to pay a CEO to be successful.
CAIR Bears
September 28th, 2010
12:40 pm
Linda
These left wing dimwits don’t want to discuss how much congressmen make off their tax dollars nor how much of their hard earned money has gone to fund Social Security.
CAIR Bears
September 28th, 2010
12:43 pm
skydog
Instead of attacking how much people make, why don’t you go out and work hard. I get so tired of hearing people attack other people because other people worked hard to make money.
Linda
September 28th, 2010
12:55 pm
CAIR Bears @ 12:40, I don’t know what all the CEOs are doing today, but I know they are not all blogging on the AJC like all of us are.
JackLeg
September 28th, 2010
1:05 pm
Don’t Forget;
Is there any logic to your reasoning? I am not the one saying how all the other countries are better than America, you are. So using standard 3rd grade logic, I would want to stay here and you complainers can move to a more leftist nation of your choice…
HDB;
I don’t blame the banks; I blame the idiots who took out mortgages knowing they would default. If a person does a budget they would know what they can afford. If you listened to the banks or someone else to make a decision for you; your and idiot. I bet you are a smoker, that is because they sell cigarettes so you must smoke them, right HDB?
Linda
September 28th, 2010
1:08 pm
skydog @ 10:11, Why don’t you just cancel your insurance until you become sick? Call the insurer on the way to the ER. That’s what everyone plans to do now that pre-existing conditions are covered.
Ragnar Danneskjöld
September 28th, 2010
1:39 pm
The “conventional wisdom” reflects the lack of economics training in this country. Anyone with a brain can see that
(a) if a company controls two divisions, “a” and “b,” and
(b) if you raise taxes on that portion of net income derived by “b,”
(c) the controlling company will shift expenses (e.g., “jobs”) from “a” to “b,” or
(d) the controlling company will shift revenues (e.g., “trade balance”) from “b” to “a.”
Taxes on foreign profits are a guaranteed lose/lose for the domestic tax authority, and for the sheep it governs.