Tuesday, July 14, 2009

The Tax Man Comes Through The Back Door

The Obama administration is looking for every way possible to tax Americans without them noticing. I call it back door taxing. As long as you aren't taking the money directly out of the paycheck of the average worker, the administration hopes that the average worker won't pay enough attention to the talking heads on TV to understand that taxing the company you work for means you will not get that raise you need, or worse, you might lose your job.

Cap and Trade is about that. Tax the energy, not the person, and maybe they won't notice. What the Obama administration is looking at now affects your company directly. And you better be paying attention, because the tax man is coming through your back door at the absolute worst time possible.

What Obama wants to do is increase the taxes on the foreign earnings of American companies. The Economist reported on May 7th:

“On May 4th Mr Obama unveiled his plans to reform the rules on taxing the foreign earnings of American firms. They came with a fusillade of rhetoric about companies ‘shirking’ their responsibilities, and the iniquities of a ‘broken’ tax system that rewarded firms for creating jobs in Bangalore rather than Buffalo, New York.”

Why is this so bad?

John Castellani in The Richmond Times Dispatch from June 5th explains:

“The Obama administration now wants to change the international tax rules in a way that will give foreign competitors an unfair advantage over U.S. companies in the global marketplace, allowing the foreign companies to reinvest more, expand faster, and sell products at lower prices. The administration claims it is protecting Americans against companies that export jobs; in reality, the proposal would put the U.S. increasingly out of sync with the rest of the world.”

Today at NRO Veronique de Rugy reports that when Obama was in Ghana this weekend, the he encouraged African governments to embrace economic growth. He said, "No business wants to invest in a place where the government skims 20 percent off the top."

I think this is what we call "irony." As Rugy explains:

"However, he doesn't think that American businesses deserve the same treatment. The U.S. corporate tax rate is 35 percent (at the federal level). That's the second highest of all the OECD countries. It's higher than France and Sweden. If you add the state rate, that's an average of 40 percent. And yet, he wants to reform the system in a way that that would punish U.S. firms by closing the loopholes that allow them survive competition abroad.

In my Reason column this month, I look at president Obama's corporate tax reform proposal. It's not pretty.

President Barack Obama is very insistent on the need to “save American jobs.” The spending and the Buy American provisions of his massive stimulus package, approved by Congress in February, were meant to “create or save” millions of U.S. jobs. “Saving jobs” was also the stated goal of his recent pledge to eliminate tax advantages for companies that do business overseas. But instead of saving American jobs, Obama’s new corporate tax is apt to worsen what is already the highest unemployment since 1983 and make America’s companies even less competitive in the global marketplace."

What the tax code does now, and what Obama wants to change, is it prevents double taxation for American companies in foreign countries, and it allows American companies to compete on an equal footing with their foreign competitors. What Obama will do is give foreign competitors and unfair advantage over U.S. companies in the marketplace.

The spin that the Obama administration is trying to put out there is that these are jobs that have been sent overseas and why should you care about that? He hopes that this will force companies to keep the jobs here. Forcing is what this administration is all about.

But the truth is that a recent study showed that as U.S. companies grew overseas, jobs and work were created here. That is how business works. A growing corporation means more jobs.

Spinning about overseas jobs is just that...spin. Although many American companies do operate overseas, the base of their company is in the U.S. Of these companies with overseas operations, roughly 79% of their employees are here in the United States.

The problem is that most American workers will never read this column. They won't understand the exact reason their company isn't competing in the global market place, and has to let him go to save costs to pay more taxes.

This grand plan to generate more revenue for the government will stifle job creation at a time when it has never been needed more.

Punishing the successful never works. Punishing companies never works. In the end it is the American worker who pays the price. The tax man got him. And he never saw him coming because the tax man came through the back door.