In his Iowa campaign, President Obama took credit for shutting down tax breaks for companies that ship jobs and profits overseas. There’s only one slight problem: there essentially are no such tax breaks.
With plants in Mexico, India and China, our CFO and tax firm can’t find any.
The Obama Administration did find one very minor “break,” but it doesn’t amount to much. U.S. companies doing business abroad (don’t we want to be players in the global economy?) pay the going corporate tax rates in each country where they make money, usually at lower rates than the 34% U.S. corporate rate.
Then, when they bring the after-tax profits back to the United States, they pay to the IRS the difference between the foreign rate and the U.S. rate. We are one of the few countries where firms pay both the foreign and domestic tax. Other countries want their companies doing business abroad.
American firms often delay the repatriation of their foreign profits, preferring to leave the cash in the subsidiaries. That means a delay in the payments of the tax balance to the IRS. But that’s not a “tax break” in normal business terminology.
Apparently, some firms were taking an early tax credit for the foreign taxes paid, and that is the loophole that the Obama revenuers closed. Pretty small potatoes.
The president has also been praising in patriotic terms the return of some jobs from aboard, mainly China. There is a little of that going on, but it doesn’t have much to do with our federal government. China is losing part of its competitive advantage because of its labor unrest, high turnover rates for works and managers, high wage inflation that has raise hourly rates to levels paid in Mexico, high shipping costs and continuing theft of intellectual property.
The previous Bush administration and Obama’s deserve some credit for continuing to put upward pressure on the Chinese currency, and that helps level the playing field for manufacturers.
Those factors, plus tariffs on imports, have resulted in a trickle of jobs coming home. But the companies making those moves are doing them for business reasons, not patriotic reasons. I wish patriotism would sell in the marketplace, but it just doesn’t. WalMart , which once trumpeted “Made in America,” now has most of its stuff made overseas.
If the president really wants to add incentives for production in the states, he should do what Wisconsin has done: remove the corporate tax on manufacturers. Or, more simply, do what most of the GOP candidates are proposing: drop the corporate tax rate to 25% or less to get in line with the rest of the world.
Dropping that rate would trigger a return of cash from foreign subsidiaries and raise immediate revenue for the federal government.
At a minimum, Mr. President, forget the rhetoric about the “tax break” fiction.
