Paul L. Caron

Tuesday, May 5, 2009

NY Times, WSJ Criticize Obama's International Tax Proposals

New York Times editorial: Tax Salvos:

There is something wrong with a system where some of the largest and most profitable companies contribute a pittance to the Treasury. And President Obama was right to call attention to the problem when he proposed corporate tax increases on Monday. The administration noted that in 2004, the latest year for which data were available, American multinational corporations paid about $16 billion on $700 billion in foreign earnings, an effective tax rate of about 2.3 percent.

A deeper problem, however, is that, with few exceptions, there are no easy fixes to tax problems posed by global profits. The Obama proposals oversimplify the challenge, both technically and politically. ...

The Obama administration deserves credit for putting some of the problems of the corporate tax system on the table, but we hope it is only a warm-up act. Once the economy begins to recover, comprehensive reform of the tax system will be needed to raise enough money in a way that spreads the burden as widely as possible. Done properly, that would inevitably require new tax sources, like a value-added tax or energy taxes — or both. Enacting those would be a monumental challenge that would make enacting the current package of corporate proposals look puny by comparison.

Wall Street Journal editorial:  Obama's Global Tax Raid:

President Obama revealed Monday that he's half a supply-sider. If only someone could explain to him the other half. We have a tax code, the President said, "that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York." 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.

Set aside that India is a poor example to make Mr. Obama's point, since its corporate tax rate on foreign-owned companies can be as high as 55%. 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 . . .

If Mr. Obama's proposal has a silver lining, it is that he has embraced the principle that tax rates matter to investment decisions. If his new and short-sighted proposal becomes law, he and all Americans will discover just how much.

(Hat Tip: Ann Murphy.)

Update:  This L.A. Times editorial is also critical:  Obama's Corporate Tax Idea:  Having the IRS Target the Foreign Profits of Multinationals Is More About Populism Than Tax Reform:

President Obama roiled the business community Monday by proposing to hike taxes on income generated outside the United States. The changes, which supposedly would close loopholes and remove incentives to export jobs and investment, would bring an estimated $210 billion to the Treasury over the next decade. We're all for closing loopholes and ending tax shelters that enable the wealthy to hide income. But we're not convinced that changing tax law can stop corporations from steering jobs and capital to countries with the lowest costs. ...

All of the other major industrialized nations have recognized the domestic benefits that multinationals can bring, and they no longer attempt (or have agreed to stop trying) to tax income that their companies earn outside their borders. Washington has to recognize that multinational companies move jobs and factories to lower-cost countries for many reasons and that making its tax code more punitive to foreign investment won't reverse that process. Instead, it's more likely to drive more of those corporations out of the U.S. or into the arms of foreign suitors. There are better ways to encourage multinationals to invest here and to reduce the distortions caused by unequal global tax rates -- for example, by broadening the corporate tax base and reducing rates so they're more competitive internationally, or by improving U.S. workers' skills. Obama's proposal, however, is more about populism than effective tax reform.  

This Washington Post editorial is more sympathetic:  Corporate Tax Reform:

Expect President Obama's international tax proposal to set off a firestorm in Congress and the business community. The proposal, which will be released in more detail when the president's full budget comes out in the next few days, would alter tax rules so that companies are less able to shift profits to avoid U.S. taxation while also cracking down on tax havens for companies and individuals. In a speech yesterday, the president billed the plan as a revenue raiser, which it would be, and a plan to create jobs, a more contentious assertion. ...

The corporate tax code is a mess -- the rates are too high and the complexity extreme. One promising approach would be to pair the types of reforms the administration is talking about with a reduction in the overall rate, which would be advantageous for both multinational and domestic companies -- though, of course, it would reduce the amount of revenue that would be raised as a result of the policy. While it was never a centerpiece of his campaign, Mr. Obama supported reducing corporate income tax rates during his run for the presidency as long as it was done in a revenue-neutral manner. This proposal could be a way to get that broader discussion of corporate tax reform started.

News, Tax | Permalink

TrackBack URL for this entry:

Listed below are links to weblogs that reference NY Times, WSJ Criticize Obama's International Tax Proposals:

» Taxes and quality of life from Don't Mess With Taxes
Obama's proposal to crack down on U.S. tax evaders who turn to offshore accounts is getting a lot of attention, much of it, as expected, negative. But we here in the United States aren't the only ones who are unhappy with our tax burdens and seek relie... [Read More]

Tracked on May 6, 2009 4:39:49 PM

» Taxes and quality of life from Don't Mess With Taxes
Obama's proposal to crack down on U.S. tax evaders who turn to offshore accounts is getting a lot of attention, much of it, as expected, negative. But we here in the United States aren't the only ones who are unhappy with our tax burdens and seek relie... [Read More]

Tracked on May 6, 2009 4:39:49 PM


I thought it was the high of racism to criticize Obama.
Has Jean Garafalo (sp?) given her opinion of these criticisms?

Posted by: Borris | May 6, 2009 1:53:50 PM