Tuesday, May 12, 2009

Obama's Grandstanding With International Tax Proposals

Via TaxProf Blog, Tom Friedman examines Obama's international tax proposals and finds them wanting:
Listen to President Obama, and the status quo seems a cesspool. Pervasive 'loopholes' engineered by 'well-connected lobbyists' allow U.S. multinationals to skirt American taxes and outsource jobs to low-tax countries. So the president proposes plugging loopholes. Some jobs will return to the United States, he said, and U.S. tax coffers will grow by $210 billion over the next decade.

Sounds great—and that's how the story played. 'Obama Targets Overseas Tax Dodge,' headlined The Post. But the reality is murkier; the president's accusatory rhetoric perpetuates many myths.

Myth: Aided by those overpaid lobbyists, American multinationals are taxed lightly -- less so than their foreign counterparts. Reality: Just the opposite. ...

Myth: When U.S. multinationals invest abroad, they destroy American jobs. Reality: Not so. ...

Myth: Plugging overseas corporate tax loopholes will dramatically improve the budget outlook as multinationals pay their 'fair' share. Reality: Dream on. ...

Including state taxes, America's top corporate tax rate exceeds 39%; among wealthy nations, only Japan's is higher (slightly). However, the effective U.S. tax rate is reduced by preferences—mostly domestic, not foreign—that also make the system complex and expensive. ... Obama would have been better advised to cut the top rate and pay for it by simultaneously ending many preferences. That would lower compliance costs and involve fewer distortions. But this sort of proposal would have been harder to sell. Obama sacrificed substance for grandstanding.

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