In God We Trust


Taxing Errors

By INVESTOR'S BUSINESS DAILY | Posted Monday, May 04, 2009 4:20 PM PT

Fiscal Policy: The latest plan for getting America's budget affairs in order involves cracking down on foreign tax havens and tax shelters. No doubt it will have mass appeal. But it will backfire, and badly.


The White House said Monday it wants to "detect and pursue" tax evaders, while closing tax loopholes and shutting off overseas tax shelters. And to police it all, it wants to hire another 800 new IRS agents.

Under this tax plan, companies would no longer be able to write off some expenses in the U.S. on profits they make overseas. Nor would they be able to reinvest offshore earnings overseas — a practice which, some claim, totals $700 billion or more in earnings kept abroad.

The idea behind all this, obviously, is to keep companies from creating jobs in other countries, and to create more here. But it's a bad idea, from start to finish.

Most of the jobs U.S. companies create overseas are not highly skilled jobs. Yet, the profits our firms make overseas help us to maintain the managerial and skilled positions here in the U.S.

Do we want to drive those investments completely overseas? And do we really want highly trained American workers to compete with hundreds of millions of unskilled, uneducated laborers in India, China and elsewhere? It's a recipe for low wages and bad jobs here in the U.S.

We're all for people respecting the law and paying the taxes they owe. We're not for sweeping "reforms" that do little more than punish corporations and the wealthy for the supposed sin of doing business overseas.

Still worse, the new law comes with coercive measures — some of which, frankly, strike us as unconstitutional. As President Obama said, "If financial institutions won't cooperate with us, we will assume that they are sheltering money in tax havens and act accordingly."

"Assume"? Excuse us, but what about due process?

Moreover, the White House says its plan will generate $210 billion over a decade and "make it easier" for companies to create jobs at home.

If the administration is really interested in revenues, it might instead think about reducing the current punitive 35% U.S. tax rate on corporations, which is almost half again as high as the 24% average in other major nations of the Organization for Economic Co operation and Development.

This, not "greed," is why companies try to make profits overseas. Taxes are lower there.

It would be far wiser, less costly and would bring in more for the government if the U.S. corporate tax undercut the OECD average — or better yet, was eliminated entirely — instead taxing U.S. companies at the going rate of whatever country they're operating in. That way, U.S. firms would never be at a disadvantage competing against other companies overseas.

The claim that punishing companies abroad will create more jobs at home is also false. What it's likely to do is drive away both domestic and foreign investors, leading to fewer jobs, not more.

Once again, we've heard politicians promising "tax reform." But anyone who thinks the tax code will be getting simpler as a result of all this renewed tinkering is wrong. It will become more byzantine, less transparent and more punishing to American capital.

Punishment goes only so far. At some point, companies and entrepreneurs will simply pull up stakes and go elsewhere, taking investment capital — and the jobs that go with it — with them.
 

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