Obama Corp Tax Rules would cost US jobs, force companies to move more jobs overseas

Microsoft CEO Steven Ballmer said that if Obama's proposed corporate tax becomes law, microsoft would move US jobs overseas:

June 3 (Bloomberg) -- Microsoft Corp. Chief Executive Officer Steven Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits.

“It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”

Obama on May 4 proposed outlawing or restricting about $190 billion in tax breaks for offshore companies over the next decade. Such business groups as the National Foreign Trade Council, the U.S. Chamber of Commerce and the Business Roundtable have denounced the proposed overhaul.

U.S. tax rules let companies defer paying corporate rates as high as 35 percent on most types of foreign profits as long as that money remains invested overseas. Obama says he wants to end such incentives to keep foreign profits tax-deferred so that companies would invest them in the U.S.

Microsoft reported an overall effective tax rate of 26 percent for 2008 in its last annual report. “Our effective tax rates are less than the statutory tax rate due to foreign earnings taxed at lower rates,” the report said.

Barry Bosworth, an economist in Washington at the Brookings Institution research center, said many software companies such as Microsoft have exploited tax and trade rules in the U.S. and other countries to achieve a low overall tax rate.

Ireland Subsidiary

Typically, he said, a company like Microsoft develops a product like Windows in the United States and deducts those costs against U.S. income. It then transfers the technology to a subsidiary in Ireland, where corporate tax rates are lower, without charging licensing fees. The company then assigns its foreign sales to the Irish subsidiary so it doesn’t have to claim the income in the United States.

“What Microsoft wants to do is deduct the cost at a high tax rate and report the profits at a low tax rate,” Bosworth said. “Relative to where they are now, the administration’s proposals are less favorable, so there will be some rebalancing on their part.”

Ballmer is one of 10 U.S. software company executives pushing back against the tax proposals in meetings today with White House officials including Jason Furman, deputy director of the National Economic Council, and the heads of congressional committees such as House Ways and Means Committee Chairman Charles Rangel, a New York Democrat.

Expense Deductions

Among other things, Obama proposed limiting expense deductions such as those for employee compensation when companies defer U.S. tax on foreign profits.

In a roundtable discussion today, Ballmer, Symantec Corp. Chairman John Thompson and the heads of smaller companies such as privately held Bentley Systems, an Exton, Pennsylvania-based maker of engineering software, said such policies would hurt domestic investment, reduce shareholder value and increase the cost of employing U.S. workers.

Ballmer said that, while the Obama proposals would preserve expense deductions related to research and experimentation costs, the overall deduction limits for companies that defer tax on foreign profits would raise the cost of employing U.S. workers. Fiduciary responsibility to shareholders would require Microsoft to cut costs, he said, meaning many jobs would be moved out of the country. http://www.bloomberg.com/apps/news?pid=20601087&sid=aAKluP7yIwJY ​

You see, this is a big problem faced by those who favor "soak the rich" policies. "The rich" can afford to move their assets off shore rather than pay the high taxes. The result? Fewer American jobs, and the treasury ends up losing money.

 

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Yeah that really makes sense. Obama has proposed two things with respect to corporate taxation. One, eliminating the tax credit companies recieve for shipping jobs overseas. Two, if companies deduct expenses for their overseas operations from their US taxes, then they have to declare the income related to those expenses.

Neither of these actions would encourage a rational company to export jobs overseas. This is typical chaff from the right wing to confuse folks. So I say to let Ballmer export jobs.

I work for a large multinational software company and we are considering moving jobs back to the US for the above stated reasons. Once you cut out the hype, Obama's corporate tax initatives make employment in the US more attractive. So if Ballmer believes this crap, I say go for it. Export those jobs. I will short Microsoft and make even more money off these idiots.

 

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I'm SO FUCKING SICK of that corporate gun to western nation's head when they threaten to move over tax increases. Too bad the common person can't just do that.

FUCKING MOVE THEN. We'll figure it out...maybe startup Limited liabilities or something.

MAYBE we don't even fucking need them.

 

nietzshefan, What about tariffs? Go offshore if you like, but your products will end costing just as much as if you stayed.

 

Sure why not?

It's probably the biggest LIE today...that we NEED these corporations, these personless entities, not one liable individual. Every part of the definition of the corporation makes me sick.

 

Another article voicing the same concerns:\

At issue is Obama’s policy to end the deferral of multinational taxation.

The U.S. now has about the highest combined corporate tax rate, second only to Japan among industrialized countries. That rate is so high that U.S. firms have an enormous disadvantage versus competitors. The average corporate tax rate for the major developed countries in the Organization for Economic Cooperation and Development in 2008 was about 27 percent, more than 10 percentage points lower than the U.S. rate.

Tax Burden

U.S. firms have nonetheless prospered because our tax code allows a business to set up a subsidiary in a low-tax country. When that subsidiary earns profits, they are taxed at the rate of that country, and don’t face U.S. tax until the money is mailed home.

The economically illiterate partisan Democratic view is that this practice is unpatriotic and bleeds jobs from the U.S. The economic reality is that American companies use this approach to acquire market share overseas. The alternative is losing the business to foreign competitors.

Don’t just take my word for it. A recent paper by Harvard economists Mihir Desai and C. Fritz Foley and Berkeley economist James Hines and published in the distinguished American Economic Review, gathered data on American multinationals to explore the impact of foreign investments on domestic U.S. activity.

Encourage Overseas Sales

Their conclusion was striking. The authors found that “10 percent greater foreign capital investment is associated with 2.2 percent greater domestic investment, and that 10 percent greater foreign employee compensation is associated with 4 percent greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending.”

So when firms expand their operations abroad, taking advantage of the lower foreign tax rates, it helps their workers in the U.S. Higher sales abroad (surprise, surprise) are good for domestic workers.

It is worth noting that this study, which is confirmed by a boatload of evidence elsewhere, was coauthored by the same James Hines who recently wrote a sweeping review of international tax policy with Obama’s top economist, Larry Summers. Summers has to know what the literature says.

Inexplicable Stance

So the question is, why does Obama advocate a policy that so flies in the face of everything that economists have learned? How could Obama possibly say, as he did last month, that he wants “to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens?” Further, how could Treasury Secretary Tim Geithner call a practice that top scholarship has shown increases wages and employment in the U.S. “indefensible?”

I have to admit I am at a loss. Maybe it is good politics to bash American corporations, and Obama isn’t really serious about making this change happen. But if the change is enacted, and domestic corporate taxes aren’t reduced to offset the big tax hike, the result will be a flight from the U.S. that rivals in scale the greatest avian arctic migrations.

If that occurs, the firms that stay in the U.S. will be at such a huge tax disadvantage that they will absolutely need a “rescue.” ​

http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aaaBdVMkjPnU

 

It’s true that the US has the second-highest corporate tax rate in the industrialized world, behind Japan, as Mr. Engler noted. That, though, is the top statutory tax rate – 35 percent. In fact, the US tax code offers so many deductions, credits, and other mechanisms by which corporations can reduce their tax burden that the actual percentage of profits they pay – the “effective” tax rate – is lower on average than that of other developed countries.

The Obama proposal is milder than what he called for in his presidential campaign. It doesn’t tax all the deferred foreign earnings of US MNCs. In 2004, the latest data available, these companies paid about $16 billion in taxes on approximately $700 billion of foreign earnings. That’s an effective tax rate of 2.3 percent, a rate many American individual taxpayers could envy.

“It makes domestic activity more attractive,” says Joel Slemrod, an economist at the University of Michigan Business School in Ann Arbor.

The administration hopes this proposal and others to be put forward later in May will raise $210 billion over the next 10 years. Obama will need more than that in new revenues in the years ahead to restore better balance in a federal budget that has been bloated by stimulus spending, notes Mr. Marr.​

http://features.csmonitor.com/econo...x-hikes-would-not-hit-us-multinationals-hard/

 

So you're saying that, right now, the US does not really have the second highest effective corporate tax rates in the world because of various tax breaks. Of course, Obama's plan is to get rid of some of those same loopholes that make it profitable to do business in the US despite the nominally second highest corporate tax rates in the world. So how does that detract from the argument made in the OP?​

 

That is correct, there is a huge difference between statutory rate and effective tax rate in The United States. the other issue, the article Mad referenced set up a classic strawman. Show me where Obama said he was going to mandate a tax on all off shore income. You cannot because he never said he ever intended to do such a thing. His position on off shore earnings is as I wrote earlier, you cannot deduct expenses related to generating off shore revenues unless you claim that revenue as income on your US taxes.

The current tax policy allows US corporations to deduct off shore expenses against on shore earnings. Obama is saying, that is fine if you want to deduct off shore expenses but you also have to included the revenue produced by thoses expenses.

And corporations are good at creating wealth and do add great value to our society. However, where they go astray is when they corrupt government to allow special treatment and limit free competitive markets.

 

2 factors that hurt american corporations more our lack of a single payer healthcare system and the fact that most of their products are shit.

 

There are three things critical to American productivity and international competitiveness:

- Reducing healthcare costs
- Trade law reform and enforcement (we should not be exporting pollution and avoiding child labor prohibitions)
- Investment and innovation: Inventing new industries
- Educational reform/all kids need to learn, not just a few. We need to bring up the educational standards.

Tax is the least of our corporate worries.

 

Sure, tort reform and allowing insurance companies to sell insurance nationwide would help and not cost anything.

Are you going to tell China we'll not accept any more of their products until they enact all of the same environemental laws we have? REALLY? I seriously doubt it.

And the best way to do that is to increase taxes and regulations so as to be sure to strangle all entrepreneurs before they ever even get started.

Probably the only way to do that is to switch to a voucher system. The government has proven itself grossly incompetent in this area, especially under a democratic administration beholden to teacher's unions that care far more about protecting teacher's jobs (be they competent or incompetent) than teaching children anything.

That's complete nonsense. In this era of instant communications and a global marketplace, why in the hell would a corporation locate in a high tax area when they could locate in a low tax area? It's common sense.

We need to cut taxes, cut regulations, and cut government spending to the bone. Eliminate entire departments of the federal government. Freeze all salaries for government employees (including the president, senators, and congress) until the national debt is zero. Stop all foriegn aide. Close most overseas military bases. Sell all federal land, including parks to the states or private entities. And that's just a start. We sure as hell don't need any new government entitlements.

 

Boy, it's a good thing you guys aren't in charge anymore, you would sell Yellowstone to the Chinese.

 

So preventing people from getting enough money to cover their medical expenses from malpractice and allowing insurance companies to have more people to bilk will lower health care costs?

Or we could just make decent shit here.

No the best way is to offer tax breaks for new industries and not letting corporation get away without paying their fair share.

except private schools aren't that good and have major indoctrination problems. Also it doesn't do shit to address the root problems.

Or maybe unlike you us lefties understand when one of the biggest problems is the student teacher ratio you don't make things better by making it worse. You don't get enough teachers be demonizing the profession.

Um they are in a low tax area in the states. For christ sake we have countries that have set record profits and pay no taxes. I'm sorry mad but it isn't wrong to want american corporations to pay their fair share of the tax burden.

Yeah more supply sider rhetoric. No we need to raise taxes, keep,increase, and enforce regulations, and lower government spending.

So your solution is to have the government not be able to govern.

or we could just use the clinton plan you know that worked if we kept up on using his plan we wouldn't be having an 11 trillion dollar debt.

or just the stupid kind. The aid that is actually working we should keep.

yeah because we have the god given right to rape and plunder the earth.

Yeah because not starving in such an entitlement. The only real entitlement I see from people is from people like you and that you think you have no obligation to anything other than yourself. Well your wrong. You have an obligation to your community, your state, your country, and your species.

 

I think its going to get to this point soon. with China and other nations buying so much of our debt, the Government spending and the Tresuary selling notes to the fed. I think if they pass this cap and trade scam and the universal healthcare it will just be a matter of time, otherwise you could see hyperinflation take the nation and many others with it down.

 

First, malpractice is a very small part of healthcare expense in the US...less than one percent of the healthcare cost as has been proven in many previous posts. So tort reform will do virtually nothing to stop healthcare costs and will have no impact on healthcare costs growing at double inflation rates. In a free market, the healthcare market would eventually fix this cost problem on its own. But as we know, the healthcare markets in the US are heavily regulated to create oligopolies which can and do keep healthcare costs heading upward.

Your other arguement for healthcare, allowing interstate purchasing of insurance will do nothing for heathcare costs as well....a nice distraction. But it does nothing to break up the government mandated controls that keep healthcare costs rising and it does create additional problems with regulation and protections for the healthcare insurance consumer.

We are currently paying almost 20 percent of our GDP on healthcare and not providing healthcare for all our citizens. Individuals are not starting new businesses for fear they will not be able to get afordable healthcare insurance. Healthcare cost is becoming a big competitive advantage. If we can get healthcare costs in line with our competitors it would have a huge positive impact on US business....equlivent to a 10 percent tax cut.

As for China, someone in the US needs to have the fortitude to stand up to China on trade and currency manipulation. For some reason, conservatives seem to think it perfectly acceptable for certian countries to bully the US.

 

As I have proven in many previous posts (to quote you), malpractice is a very significant issue for some specialties in some states. So tort reform will most definitely do something. Furthermore, tort reform would be good for the economy in many other ways. It's a win-win, except for the trial lawyers. Sadly, most of congress and the Senate are lawyers, so don't expect tort reform.

Oh yes, the dreaded oligopolies. The one time you talk like a conservative is on healthcare, but you never provide specifics. Who is this oligopoly? How do they maintain their power? And what do they do to keep healthcare costs going up? Please be specific.
Y

What's with you and these absolute proclamations? Increasing the size of the market so that people could chose from any insurer in the nation would do absolutely nothing? Really. Tell me, when Wal Mart came into town and put the local guys out of business, how did they do it? Economies of scale ring any bells? But, of course, that wouldn't apply in the area of health insurance because, um, ahhhh, why exactly?

That we're currently paying a lot for healthcare I won't dispute. So what's the solution?

Yes, well, Obama's little spending spree that has the dollar tettering on the brink of collapse has made "standing up" to China all but impossible. Obama's fiscal policy is so out of control that, for the first time, China is laughing in the face of US officials. Chinese students laughing right in the face of high level US officials trying to convince China that investing in the US is a safe bet. It's hard to stand up to someone when you've got your hat in your hand begging them for a handout, isn't it?

 

Says a lot about someone that they attack the profession that is their job to help protect you against corporate misdeeds.
The problem isn't trial lawyers its our society.