President Obama is proposing a radical restructuring of how the federal government taxes money earned and held by U.S. companies overseas.
U.S. multinational companies often leave their earnings in the countries where they’re earned and taxed by those foreign governments as a means of limiting their tax exposure in the United States, which has the second highest corporate tax rate in the world.
Mr. Obama appears to think companies that leave their funds overseas are unpatriotic for not returning that money to the U.S. and doubling down their tax obligations by paying an exorbitant corporate tax on the repatriated funds, after already paying taxes in the country of origin.
While Obama is using rhetoric about attacking the “tax havens” and other countries that don’t want to play the administration’s game, what he’s really attacking are America’s most globally competitive companies.
While there might be a few bad actors, most “tax havens” are nothing more than countries intentionally keeping their corporate tax rate low in order to compete for foreign dollars.
Thus the best way to encourage all that dollar liquidity to return to the U.S. is for the federal government to become a low-tax competitor, not a low-tax scold.
The reason the president needs to find billions in new taxes is because he’s proposing trillions of dollars in new government spending and he needs some additional cash. That’s one reason why he and the Democratic leadership are so adamant on getting the cap-and-trade legislation passed—because it will also rake in billions of new dollars in fees and fines.
Creating an equitable corporate tax system would bring home most of those foreign dollars and thus produce new revenue for the federal treasury, but the president still wouldn’t get enough to pay for his spending spree. So he threatens to punish the companies and the countries.
But in a global economy, money will go where it’s treated best. So will companies. It’s time for the president to use the carrot of lower taxes to attract that money back to the U.S.
This president goes out of his way to accommodate foreign despots like Venezuela’s Hugo Chavez and Iran’s Mahmoud Ahmadinejad.
We wish he would treat America’s job-creating multinational corporations at least as well.