Thursday, February 04, 2010

Obama's Tax Hike On U.S. Multinationals Will Destroy U.S. Jobs

Matthew Slaughter explains why Obama's plans to end what he calls "tax breaks for companies that shifts jobs overseas" will destroy more U.S. jobs than it will create.

I previously commented the issue this way:

"he[Obama] says he wants to end "tax breaks to companies that shift jobs overseas". In preparing this post, I tried to find out what that means. Has Congress passed a "Tax breaks for companies that shift jobs overseas Act"? No, of course not. I am still not completely sure as to what, if any, tax code this refers to, but I think he means the provisions in the U.S. corporate tax code that is designed to prevent double taxation of profits by foreign subsidiaries of U.S. multinational companies.

This kind of practice exist almost everywhere as it otherwise would put a country's multinational companies at a great disadvantage, having to first pay corporate tax in the country it operates in, and then in the country where it is headquartered. This practice means first of all that foreign profits aren't taxed until it is repatriated to the country where the company is headquartered and secondly that a company can deduct taxes it has paid offshore so as to avoid double taxation. If that is what he means by "tax breaks that shift jobs overseas", then doing away with that would greatly damage American multinational corporations, and so also lower stock prices. This together with a proposed "tax credits" for companies that increase domestic operations relative to foreign might perhaps increase the willingness of American companies to move foreign production to America, but the main effect would be to simply damage the competitiveness of these companies as they are forced to choose production alternatives which are less competitive. And as they in effect amount to tariffs on products produced outside America by American companies, they will damage the global economy as a whole and the rest of the world."