OBAMA AND CORPORATE TAX REFORM???

5/2/13

If any tax reform does pass in congress it will happen in spite of and not because of the adm. How we tax the profits US Corporations earn in other count4ries has profound consequences for the US economy. The effective rate that GM and other multinationals face is the same abroad as it is here. This is called a worldwide tax regime. US businesses pay the same tax rate as their competitors in that country. We call this territorial tax regime. The right tax policy depends on why we think US companies have overseas operations to mainly take advantage of lower taxes and labor, or in order to service foreign markets.
Most countries (including every member of the G7 save the US) have a territorial tax system of some sort. Companies must pay taxes on their overseas profits at US rates (minus a credit for foreign taxes paid) but they can defer the tax until the money returns here. (About a total well over $1 trillion).
In 2008 obama promised that he would not only stick with our current worldwide system for taxing foreign income gut also get rid of deferral. However during the 2011 negotiations over the debt limit the president signaled that he could live with territoriality and the business community got enthused about the prospect. However the adm reversed course and attacked Republicans for supporting the idea of a territorial tax system, pretending that the president’s dalliance with territoriality had never occurred. That makes 3 shifts in 4 years.
He probably had little choice but to flip back in 2012, given how much unions hate the idea of US corporations paying a lower tax rate on overseas profits than on their domestic earnings.
Max Baucus is largely supportive of a move towards territoriality—bye,bye max.
And without corporate tax reform the odds that a reform of the personal tax code would transpire are nonexistent. There is little evidence that the adm wants tax reform.
Elimination or diminution of the plethora of tax deductions, credits, and exemptions goes into treasury’s coffers or is spent on new “stimulus,” rather that to lower tax rates.
This adm has yet to evince any particular enthusiasm for economic growth. Oh sure it wants to use Keynesian-style spending to get us back to full employment?

Weekly standard, ike brannon

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