A minimalist approach to essential, transparent, accountable, flat, adaptable, responsive, solution-based government, rooted in virtuous individual autonomy, traditional values and free markets, with a bias towards reduction of government functionality, cost and scope
Most Americans probably don't know enough about international trade to understand the implications of what President Obama in 2009 misleadingly referred as an international business tax reform measure: the net effect would be to limit foreign tax credit and to limit tax deferrals. Obama and Geithner, for ideological reasons, misled the nature of taxation in a way to suggest that these were "tax giveaways" to multinational corporations. The bottom line is that Obama was really introducing protectionist (i.e., anti-free trade) legislation: it was meant to discourage American companies from investing in overseas operations. (Now why would businesses from a country with 5% of the world's population have an interest in participating in the growing global economy of the other 95%? Go figure...)
NFTC has a good background paper describing the basic issues: in particular, there is a discussion of Capital Import Neutrality (thumbs UP!) and Capital Export Neutrality (thumbs DOWN!) In simple terms, CEM treats earnings from foreign subsidiaries as if they were de facto American operations. We can consider taxes as a cost of doing business. Now foreign businesses are really subjected to a different tax system. So we see an immediate conflict: double taxation of the same dollar of foreign earnings. CIN says effectively, applying US tax rates, especially if they are HIGHER, than the target country's tax rate, effectively raise the cost of American companies operating in foreign countries. These costs cannot be passed along to foreign consumers of relevant goods and services because domestic and other international companies don't have to pay the same costs; essentially, it has the effect of discouraging foreign operations--where, among other things, you are closer to your target customers, have lower delivery costs, are somewhat protected against foreign currency issues, and can leverage existing distribution channels. CEM policies attempt to mitigate these problems by allowing companies to defer American taxes until distributions are made from the subsidiary back to the home base and by allowing deductions for foreign taxes.
Hence when Obama talks about limiting foreign tax deductions and limiting deferrals, given the fact that America has (after recent Japanese business tax cuts at the higher brackets) the highest business tax rates in the world, this means that Obama is engaging in a shakedown of businesses operation by reaping the spread between uncompetitive domestic tax rates and foreign taxes already paid--to operations not benefiting from American government expenditures.
The real strategy of Obama is obvious: he's effectively lessening the attractiveness of foreign investments, feeling that the corporations will have no choice but to invest locally under counterproductive, arbitrarily high, uncompetitive tax rates. He's dead wrong. He still hasn't figured out why companies are sitting on tons of locally generated cash instead of investing. There are a lot of reasons for that, including uncertainties regarding an unsustainable national debt and uncompetitive domestic tax and regulatory policies. But high business tax rates constitute a barrier for BOTH domestic and foreign investment. Obama doesn't conceptually get that high tax rates restrict the tax base. Obama's "tax reform" is a desperate attempt to change the rules after the game has been played, all in a futile attempt to defer the day of making the necessary policy adjustments needed to increase the tax base.
In past posts, I've advocating a streamlining and simplification of tax rates (including eliminating various special-interest tax credits/deductions), and I've also advocated a modest VAT proposal (vs. a retail-only sales tax) which could realize tax revenue on an interim/incremental basis of products and services. The more you look at what Obama is doing, the more you realize he's imitating mistaken policies from the Hoover, FDR, and JFK administrations. In particular, the Congress passed and JFK implemented a CEM approach that included domestic tax breaks (e.g., investment tax credits and accelerated depreciation: does that sound familiar?) and distinguished between active and passive foreign subsidiary income where active income could be deferred.
The fact is that JFK's hybrid "solution" is no longer sustainable in a growing global economy where most competitors have no problems with undercutting the US's business tax structure and have done so. The Hill article cited above points out that, as usual, Democrats are worried about businesses trying to shift costs and operations to dodge higher domestic tax rates (so-called transfer pricing), but there are studies cited in NTFC and the Heritage piece that show that foreign operations investment is a win-win situation with the home base growing well-paid positions and the transfer pricing fears overblown.
Senate Republicans and GOP Presidential frontrunner Mitt Romney (as one would expect, given his superior understanding of business and economics issues) are favorably inclined towards territorial taxation. The fact that Great Britain and Japan have migrated to territorial taxation recently, but "lead from behind" Barack Obama continues to stubbornly hang onto, even extend obsolete "solutions", speaks volumes. Remember how he was alone at foreign leader meetings, trying to get everyone to adopt his neo-Keynesian approach to massive ineffectual stimulus spending and failed to convince anyone (again)? This is a LEADER? Give me a break!
Faithful readers of this blog know that I will occasionally feature non-political features, including a regular music video, a sports moment or an occasional tribute. I never saw Jack Paar, but Regis really made the host chat concept an art form. For most of his 23 years with Kathie Lee and Kelly, I've been working during the times his syndicated show, but I would occasionally watch and found his host chats charming.
The 1953 Notre Dame graduate was always talking about his beloved Fighting Irish; it would take me back to my high school years in south Texas.
