Economy & Business

Obama’s Budget Fumbles

U.S. companies are already at a competitive disadvantage, and Obama would make it worse.

Team Obama keeps trying out new tax plays, and all of them lose yards for the economy. The team fumbled on its 529 College Savings tax idea, and its plan to hike capital-gains taxes amounts to sacking America’s high-tech quarterback in Silicon Valley.

In its budget released today, Team Obama’s latest fumble is to raise taxes on the foreign earnings of U.S. companies. Actually, the plan is more like a quarterback getting confused and running down the field the wrong way to score a touchdown for the opposing team. Obama’s budget would impose a 14 percent one-time tax on the accumulated foreign earnings of U.S. companies, and then impose a 19 percent tax on foreign earnings going forward. It would make America’s companies and their workers even less competitive in the global economy than our tax system already makes them, and give an even bigger advantage to our trading partners.

PricewaterhouseCooper’s top international tax expert, Peter Merrill, testified last year regarding the uniquely uncompetitive tax situation that U.S. companies already face in global markets:

Unlike the United States, 28 of the other 33 OECD member countries, and all other G-7 countries, have adopted dividend exemption (so-called “territorial”) tax systems . . .

Under these territorial tax systems, the active foreign income of foreign subsidiaries generally is taxed only by the country where it is earned, and it can be distributed to the parent company with little or no residual taxation. . . .

There has been a pronounced shift over the last 25 years toward the use of territorial tax systems. In 1989, only 10 OECD member countries had territorial tax systems . . . Today, 28 OECD countries . . . have adopted some form of territorial tax system. Notably, over this period, only two OECD countries switched from territorial to worldwide tax systems (Finland and New Zealand) and both countries subsequently switched back to territorial tax systems.

As a result of these trends, U.S. multinationals now compete against foreign competitors that overwhelmingly are taxed under territorial systems. Within the OECD, 93 percent of the non-U.S. parented companies on the Global Fortune 500 list in 2012 were located in countries that use territorial tax systems.

The dominant view of corporate tax experts is that the United States should follow the lead of other major nations by slashing our tax rate and adopting a territorial system that does not tax active foreign business income. While it’s not true that what’s good for General Motors is necessarily good for the United States, in this case slashing our tax rate to, say, 15 percent and adopting a territorial system would be a big win for American businesses and American workers.

U.S. multinational corporations (MNCs) account for one-quarter of our private-sector GDP, about one-third of our private-sector capital investment, about half of our exports, and three-quarters of our private-sector research. The foreign operations of these MNCs generally complement their U.S. operations — the more successful are the foreign operations, the better it is for U.S. workers.

U.S. MNCs employ more than 20 million Americans and pay them 24 percent more, on average, than other U.S. companies pay. Americans who work for MNCs, such as Apple, Intel, and General Electric, are surely proud of their firms and want them to succeed in world markets.

In sum, U.S. multinationals are hugely important to American prosperity. So it is baffling that the Obama administration is so determined to punish them.

― Chris Edwards is director of tax-policy studies at the Cato Institute and co-author of Global Tax Revolution.

Most Popular

Elections

Hell, No

Welcome to “The Tuesday,” a weekly newsletter about language, culture, politics, and other things you can fight with your family about at Thanksgiving. To subscribe to “The Tuesday” and receive it in your inbox, follow this link. The Case against Trump In 2016, my friend Roger Kimball of Encounter ... Read More
Elections

Hell, No

Welcome to “The Tuesday,” a weekly newsletter about language, culture, politics, and other things you can fight with your family about at Thanksgiving. To subscribe to “The Tuesday” and receive it in your inbox, follow this link. The Case against Trump In 2016, my friend Roger Kimball of Encounter ... Read More

Another Pollster Sees a Trump Win

The Trafalgar Group’s Robert Cahaly is an outlier among pollsters in that he thinks President Trump will carry Michigan, Pennsylvania, or both, and hence be reelected with roughly 280 electoral votes. (I explained his thinking here.) Last week another pollster, Jim Lee of Susquehanna Polling and Research, ... Read More

Another Pollster Sees a Trump Win

The Trafalgar Group’s Robert Cahaly is an outlier among pollsters in that he thinks President Trump will carry Michigan, Pennsylvania, or both, and hence be reelected with roughly 280 electoral votes. (I explained his thinking here.) Last week another pollster, Jim Lee of Susquehanna Polling and Research, ... Read More

Trump vs. Biden: A Rundown

One week out, the contrasts are worth assessing. Foreign policy Biden so far has issued no substantive critique of Trump’s foreign policy other than banalities that Trump’s comportment and unpredictability have offended allies and tarnished America’s reputation. But who exactly, according to Biden, is ... Read More

Trump vs. Biden: A Rundown

One week out, the contrasts are worth assessing. Foreign policy Biden so far has issued no substantive critique of Trump’s foreign policy other than banalities that Trump’s comportment and unpredictability have offended allies and tarnished America’s reputation. But who exactly, according to Biden, is ... Read More
Elections

The Only Middle Finger Available

If Donald Trump wins a second term, it will be an unmistakable countercultural statement in a year when progressives have otherwise worked their will across the culture. After months and months of statues toppling and riots in American cities and a crime wave and woke virtue-signaling from professional sports ... Read More
Elections

The Only Middle Finger Available

If Donald Trump wins a second term, it will be an unmistakable countercultural statement in a year when progressives have otherwise worked their will across the culture. After months and months of statues toppling and riots in American cities and a crime wave and woke virtue-signaling from professional sports ... Read More
Law & the Courts

The Kavanaugh Court

If Justice Barrett votes as her mentor Justice Scalia did, she will be part of an ascendant conservative majority on the Supreme Court. What kinds of decisions can we expect from this majority? Short answer: Ask Brett Kavanaugh. Contrary to how journalists frame each seat change on the Court, comparing the new ... Read More
Law & the Courts

The Kavanaugh Court

If Justice Barrett votes as her mentor Justice Scalia did, she will be part of an ascendant conservative majority on the Supreme Court. What kinds of decisions can we expect from this majority? Short answer: Ask Brett Kavanaugh. Contrary to how journalists frame each seat change on the Court, comparing the new ... Read More

The Pollster Who Thinks Trump Is Ahead

The polling aggregator on the website RealClearPolitics shows the margin in polls led by Joe Biden in a blue font and the ones led by Donald Trump in red. For a while, the battleground states have tended to be uniformly blue, except for polls conducted by the Trafalgar Group. If you are a firm believer only in ... Read More

The Pollster Who Thinks Trump Is Ahead

The polling aggregator on the website RealClearPolitics shows the margin in polls led by Joe Biden in a blue font and the ones led by Donald Trump in red. For a while, the battleground states have tended to be uniformly blue, except for polls conducted by the Trafalgar Group. If you are a firm believer only in ... Read More